    [Senate Hearing 115-454]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 115-454

                       COMBATING MONEY LAUNDERING AND OTHER
                        FORMS OF ILLICIT FINANCE: REGULATOR AND
                        LAW ENFORCEMENT PERSPECTIVES ON RE-
                        FORM

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

                                    HEARING

                                   BEFORE THE

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

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

     EXAMINING THE ISSUES UNDERLYING THE MODERNIZATION OF SYSTEMS DESIGNED
     TO COMBAT MONEY LAUNDERING, TERRORIST FINANCING, CORRUPTION, WEAPONS
              PROLIFERATION, SANCTIONS EVASION, AND OTHER THREATS

                                   __________

                               NOVEMBER 29, 2018

                                   __________

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

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    34-526 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                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

           John V. O'Hara, Chief Counsel for National Security Policy

                          Kristine Johnson, Economist

                Laura Swanson, Democratic Deputy Staff Director

                   Colin McGinnis, Democratic Policy Director

                           Dawn Ratliff, Chief Clerk

                          Cameron Ricker, Deputy Clerk

                          Shelvin Simmons, IT Director

                         James Guiliano, Hearing Clerk

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                          THURSDAY, NOVEMBER 29, 2018

                                                                       Page

    Opening statement of Chairman Crapo..............................     1
        Prepared statement...........................................    32

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     3
            Prepared statement.......................................    33

                                   WITNESSES

    Kenneth A. Blanco, Director, Financial Crimes Enforcement
      Network, Department of the Treasury............................     5
        Prepared statement...........................................    34
        Responses to written questions of:
            Chairman Crapo...........................................    51
            Senator Brown............................................    55
            Senator Moran............................................    60
            Senator Cortez Masto.....................................    64
    Grovetta N. Gardineer, Senior Deputy Comptroller, Compliance and
      Community Affairs, Office of the Comptroller of the Currency...     7
        Prepared statement...........................................    39
        Responses to written questions of:
            Chairman Crapo...........................................    72
            Senator Brown............................................    76
            Senator Moran............................................    77
            Senator Cortez Masto.....................................    78
    Steven M. D'Antuono, Section Chief, Criminal Investigative
      Division, Federal Bureau of Investigation, Department of
      Justice........................................................     8
        Prepared statement...........................................    44
        Responses to written questions of:
            Chairman Crapo...........................................    83
            Senator Brown............................................    84
            Senator Moran............................................    84
            Senator Cortez Masto.....................................    86

                  Additional Material Supplied for the Record

    Letter submitted by the Consumer Bankers Association.............    87
    Prepared statement submitted by the Independent Community Bankers
      of America.....................................................    89
    Letter submitted by the National Association of Federally-Insured
      Credit Unions..................................................   102
    Letter submitted by the Credit Union National Association........   104

                                     (iii)

        COMBATING MONEY LAUNDERING AND OTHER FORMS OF ILLICIT FINANCE:
              REGULATOR AND LAW ENFORCEMENT PERSPECTIVES ON REFORM

                                  ----------

                          THURSDAY, NOVEMBER 29, 2018

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

                OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

        Chairman Crapo. The hearing will come to order.
        This morning marks the fourth time this year that Members
    of the Banking Committee meet to evaluate the regulatory scheme
    of the Bank Secrecy Act in terms of efficiency in reporting and
    effectiveness of enforcement. The purpose of these hearings is
    to assess the current BSA framework against the challenges
    faced by the public and private sectors in confronting the
    risks posed by the constantly evolving money laundering,
    sanctions evasion, and terrorist financing methods used by
    illicit financiers in the United States.
        The Committee's goal is always to search for a means to
    more effectively target and prevent these activities, while
    imposing the least burden on those in industry tasked with
    being the gatekeepers to the United States financial system.
        The first two hearings, held in January, lead with
    witnesses from the private sector on the first day, followed a
    week later by witnesses from the Treasury and Justice
    Departments. The focus of these two full Committee hearings
    centered on discussions for potential reforms of the current
    U.S. regulatory framework in areas such as greater information
    sharing among financial institutions and the Government,
    efforts to sharpen suspicious activity reporting by encouraging
    a risk-based approach over more quantifiable metrics, and the
    importance of requiring the collection of beneficial ownership
    information at the time of incorporation rather than relying
    exclusively on the current Customer Due Diligence procedures.
        Over the summer, Senators Sasse and Donnelly continued the
    Committee's work by holding a third hearing, as Chair and
    Ranking of the National Security subcommittee, on how criminal
    organizations launder money and the need for modernizing the
    anti-money laundering regime to better address the requirements
    of both financial institutions and law enforcement. Senator
    Sasse correctly assessed that the anti-money laundering regime
    must constantly innovate to keep up with the bad actors who
    continuously update their methods of accessing the U.S.
    financial system.
        In fact, each of these hearings have, from the beginning,
    culminated in strong bipartisan support to reform the existing
    regime largely by finding clear-headed measures designed to
    encourage the innovation necessary to combat illicit financing,
    while also encouraging regulators to focus on more tangible
    threats and law enforcement to increase interagency cooperation
    and improve information sharing throughout the process.
        While not yet settled on any one particular reform or fix,
    Members of the Committee are united in the idea that there is
    room for change in a decades-old system that will yield a
    modernized BSA anti-money laundering regime that works for law
    enforcement, financial institutions, their regulators, and the
    man in the street, who is ultimately the beneficiary of a
    strong U.S. financial system.
        Today, the Committee will continue its probe for new ideas
    on reform from the Financial Crimes Enforcement Network, or
    FinCEN; the Office of the Comptroller of the Currency, or OCC
    as we call them; and from the FBI, which ultimately cannot be
    hampered by a misplaced reform in its mission to chase down the
    criminals and illicit proceeds they generate.
        We are especially fortunate to have with us, the Director
    of FinCEN, Mr. Ken Blanco, who as Director is the Chief
    Administrator of BSA. Before FinCEN, he was a former top
    prosecutor at the Department of Justice who was Acting
    Assistant Attorney General of the Criminal Division and a one-
    time head of its Anti-Money Laundering and Asset Recovery
    Section.
        Also testifying are Mr. Steven D'Antouno--did I get it
    right? Close enough?--Chief of the Financial Crimes Section at
    the FBI; and Ms. Grovetta Gardineer--did I get that right?--who
    is Senior Deputy Comptroller for Compliance at the OCC.
        I thank our witnesses for sticking with us after the
    Committee had to postpone this hearing, but this is an
    important hearing where we must take the time to talk about the
    issues surrounding innovation, financial integrity, public
    confidence, and crime from the perspective of regulators and
    law enforcement.
        In that regard and since we last intended to hold this
    meeting, an arrest was reported of a senior FinCEN employee for
    unlawfully removing and disclosing to a member of the media
    Suspicious Activity Reports, or SARs, which were held in
    FinCEN's custody. In fact, this was a highly unusual and
    complicated insider occurrence of sensitive SAR information
    being disclosed, but it underscores the employee's alleged
    crime as a critical challenge to the integrity of the financial
    system and the public's confidence in it.
        More than ever, with the advent of the innovative
    application of big data analytics available to law enforcement
    to deal with ever-increasing information flows, it is incumbent
    on all custodians of sensitive information to fully comply with
    the confidentiality rules of the BSA and particularly for the
    Government to take all necessary steps to ensure that it can
    protect this vast amount of data entrusted to it.
        I greatly appreciate this opportunity to engage in a
    discussion with experts today to help us find a way to advance
    innovation in the BSA compliance and enforcement regimes to
    better direct the resources of Government and financial
    institutions aimed at protecting the integrity of the U.S.
    financial system and the businesses that are America's bedrock.
        Senator Brown.

               OPENING STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman.
        Thank you to the three witnesses for joining us.
        With all the tough comprehensive protections we have in
    place over the years, especially since 9/11, huge amounts of
    laundered funds continue to course through our financial
    system.
        In late 2015, Treasury's comprehensive report on money
    laundering noted that money laundering related to fraud, drug
    trafficking, and other forms of illicit finance generated an
    estimated $300 billion annually.
        That is why it is critical we consider ways to update and
    strengthen our anti-money laundering regime, including
    requiring the kind of tough new beneficial ownership rules we
    should have imposed years ago. Why, for example, did not more
    alarm bells go off when Paul Manafort was making huge payments
    for luxury items from anonymous bank accounts in Cyprus?
        We should revamp our beneficial ownership rules. We should
    assess the reporting burden on small- and medium-sized banks.
        But the kind of discussions we have sometimes had, as we
    have talked about creating different rules for global and
    community banks, does not fit as well here.
        Money launderers are looking for the weakest link, whether
    it is HSBC or BB&T or Lone Star National Bank. They will
    migrate to smaller banks, as necessary, to hide their crimes.
        Community and regional banks play a critical role alongside
    our biggest banks in monitoring transactions across the
    country. Their efforts are essential to Federal efforts to
    monitor, deter, prosecute, and punish illicit finance-related
    activity in our economy. Assessing the efficacy of our current
    transaction monitoring and reporting system must be data-
    driven.
        I am pleased FinCEN is going to be systematically assessing
    its current vast body of BSA data with an eye to possible
    changes. I look forward to hearing the results of their
    assessment when it is done. It will provide an important fact-
    based foundation for any BSA reform efforts.
        Such preliminary analysis has already been done. Bipartisan
    Committee staff have been told by FinCEN and the FBI, for
    example, that increasing Currency Transaction Report thresholds
    to the levels contained in the House Republican bill would
    eliminate around 80 percent of the data--80 percent of the data
    available to law enforcement. Because some financial
    institutions have requested it, we cannot simply throw out--
    throw out percent of the data, including on suspicious
    activity, to throw it out the window. It is irresponsible, it
    makes no sense, and it could cost lives, all because of a
    political agenda.
        It is true that law enforcement can and should share more
    information with bank compliance teams, even though they cannot
    always discuss details with reporting banks, and Treasury is
    working on that.
        As I have noted, we should keep in mind we are operating
    against a backdrop where in recent years some of the world's
    largest banks and their foreign partners have continued to run
    afoul of these laws.
        GAO, in fact, concluded in 2017 that from the 6 years prior
    to that, in that period, approximately $12 billion--billion
    dollars--was collected in fines, penalties, and forfeitures
    from the financial institutions for violations of the Bank
    Secrecy Act, the Foreign Corruption Practices Act, and U.S.
    sanctions requirements, including more than $5 billion assessed
    for Bank Secrecy Act violation.
        We know many banks with which we are very familiar were
    part of this. Just today, New York Times, Deutsche Bank offices
    are searched in money laundering investigation. One-hundred-
    seventy officers searched the headquarters in Frankfurt of
    Deutsche Bank headquarters and a handful of other sites
    connected with Deutsche Bank, yet for some reason, this
    Committee, with its collective amnesia, continues, seems to
    think we should continue to give breaks to these banks that
    continue to flout the law.
        Some of these banks violated U.S. anti-money laundering and
    sanctions laws by knowingly facilitating illegal financial
    transactions for rogue regimes--knowingly, knowingly
    facilitating these illegal financial--partly--never showing
    contrition and frankly never being held accountable in part
    because of the inaction of this Committee.
        Some conducted transactions with individuals or entities
    affiliated with terrorists and drug cartels. Many have violated
    the law for years. These are not victimless crimes.
        We must strengthen interdiction of the supply of drugs,
    like fentanyl, coming into the country through initiatives like
    my INTERDICT Act, which was signed into law by the President.
        We must also cut off the traffickers' money supply. Money
    laundering on behalf of drug cartels has a direct line to the
    opioid epidemic, to the opioid public health crisis in my State
    where cartel actors have been active, destroying thousands of
    families.
        Likewise, human traffickers exploit the misery of runaways
    here, recruiting young women from overseas with promises of
    legitimate work in the United States, using the financial
    system to launder their profits.
        That is why these laws are critical. They protect the
    integrity of our financial system, to be sure. They also
    provide critical intelligence to law enforcement. Even so, we
    do want to assess whether there are ways to responsibly update
    and strengthen the current anti-money laundering network,
    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 of being a
    shell and a haven for anonymous shell companies.
        I welcome the comments from today's witnesses.
        Chairman Crapo. Thank you, Senator Brown.
        Director Blanco, we will begin with your testimony as head
    of FinCEN and administrator of the Bank Secrecy Act, and next
    we will turn to Senior Deputy Comptroller of the Currency
    Gardineer for her statement. And then, finally, we will
    conclude with Special Agent D'Antuono, the FBI's Section Chief
    of Financial Crimes.
        I want to thank all of you for your written testimony. It
    is very helpful to us and is, and will be, made a part of the
    record.
        This Committee also has received several written statements
    in support of today's proceeding that, absent any objection,
    will also be made a part of today's record. The four statements
    submitted are from the National Association of federally
    Insured Credit Unions, the Consumer Bankers Association, the
    Independent Community Bankers of America, and the Credit Union
    National Association. Is there any objection?
        [No response.]
        Chairman Crapo. Hearing none, so ordered.
        Finally, I want to remind the witnesses to try to honor the
    5-minute rule that we have advised you of so that the Senators
    have opportunity to ask you questions, and I remind the
    Senators that they also have the 5-minute rule and ask you to
    honor that as well so that all Senators can have an opportunity
    to participate.
        With that, Director Blanco, please begin with your
    statement.

      STATEMENT OF KENNETH A. BLANCO, DIRECTOR, FINANCIAL CRIMES
            ENFORCEMENT NETWORK, DEPARTMENT OF THE TREASURY

        Mr. Blanco. Thank you. Chairman Crapo, Ranking Member
    Brown, and Members of the Committee, thank you for inviting me
    to appear today before you.
        I appreciate the opportunity to discuss our Nation's AML/
    CFT regime and the value of the Bank Secrecy Act in keeping our
    country strong and prosperous, our financial system secure, and
    our families and communities safe from harm.
        Many of our efforts to disrupt illicit finance threats and
    many of the crimes and bad acts associated with it depend on
    financial institutions complying with the laws and the
    regulations designed to protect the financial system. Financial
    intelligence reported by financial institutions through the BSA
    obligations reserves and serves as a key component of our
    efforts and that of law enforcement to target and aid in the
    investigations of all kinds of crimes and bad activities,
    including terrorism.
        Financial institutions are on the forefront of our fight
    against financial crime and associated bad acts. It is a
    national security issue. Financial institutions play a key role
    in protecting our country by providing the information we need
    to keep illicit actors from using, exploiting, and benefiting
    from our financial institution.
        Law enforcement, financial regulators, and intelligence
    communities use the financial intelligence FinCEN collects
    every day. Indeed, their use is increasing steadily. Nearly 500
    State, Federal, and local law enforcement and regulatory
    agencies have direct access to the FinCEN database of BSA
    records. There are an estimated 11,000 active users of BSA
    data, to include 149 SAR review teams located all around the
    country, covering all 94 Federal judicial districts.
        FinCEN also shares information with our international
    partners. From February 2016 to February 2017, this sharing
    results in more than 100 active investigations, the issuance of
    international arrest warrants, new listings on national
    terrorism sanctions lists, and visa revocations.
        BSA information also benefits financial institutions by
    helping them better assess and manage risk and develop unique
    insights to assist and partner with law enforcement and FinCEN
    around shared financial threats and priorities. A strong and
    effective AML/CFT framework keeps illicit actors out of the
    financial system, but to remain strong and effective, we must
    keep pace with the evolving forms of illicit finance threats.
        To that end, we at FinCEN are taking a hard look at the BSA
    to make sure we have the right framework in place to meet the
    current and evolving challenges now and well into the future.
        One area we need to strengthen is addressing the misuse of
    legal entities by criminals seeking to access the financial
    system anonymously for money laundering and other illicit
    purposes.
        FinCEN's Customer Due Diligence rule, which was implemented
    in May of 2018, requires covered institutions to identify and
    verify the identity of the beneficial owners of their legal
    entity customers at account opening. Although this is an
    important step, the collection of beneficial ownership
    information is also critical at the company foundation time.
    This is an open obvious gap and vulnerability in our national
    security apparatus.
        We look forward to working with Congress to address this
    important critical issue. We are looking and working closely
    with our Federal banking agencies as well as law enforcement
    and the private sector to improve the effectiveness and the
    efficiency of the BSA regime.
        This effort focuses on three key priorities: one,
    understanding the value of BSA; two, promoting responsible
    innovation; and three, fostering innovation sharing.
        The first of these and a key component of FinCEN's reform
    efforts is to better identify and quantify the value and the
    use of the BSA reporting. As part of this effort, we are
    evaluating suspicious activity reports and currency transaction
    reports requirements.
        The second priority is promoting responsible innovation and
    creative solutions to combating money laundering and terrorist
    financing. Innovation in the financial sector can be a great
    thing; however, as industry evolves and adopts these new
    technologies, we must be cognizant that financial crime also
    evolves right along with it, indeed sometimes because of it,
    creating opportunities for criminals.
        Also, the third priority that we should--in this space is
    effective information sharing. Collaboration between Government
    and the private sector furthers the objectives of the BSA. To
    make these partnerships work, we are arming the private sector
    with information that enhances their ability to identify and
    report suspicious activity.
        And to close out, FinCEN has a number of mechanisms in
    place already to facilitate law enforcement input and feedback
    to financial institutions, including FinCEN Exchange, the Bank
    Secrecy Act Advisory Group, FinCEN Director's Law Enforcement
    Awards Program, and Section 314 information sharing.
        I want to thank this Committee for its efforts in this
    important matter, and I look forward to answering your
    questions.
        Chairman Crapo. Thank you, Mr. Blanco.
        Ms. Gardineer.

     STATEMENT OF GROVETTA N. GARDINEER, SENIOR DEPUTY COMPTROLLER
    FOR COMPLIANCE AND COMMUNITY AFFAIRS, OFFICE OF THE COMPTROLLER
                            OF THE CURRENCY

        Ms. Gardineer. Good morning, Chairman Crapo, Ranking Member
    Brown, and Members of the Committee. Thank you for the
    opportunity to appear before you to discuss ways to strengthen
    and modernize the Bank Secrecy Act/Anti-Money Laundering
    regime.
        The purpose of the BSA is to prevent the misuse of our
    financial system and to combat money laundering and terrorist
    financing. The OCC is committed to ensuring that the
    institutions under our supervision have effective BSA
    compliance programs to identify and report suspicious activity
    and help prevent bad actors from using the Nation's banks for
    illegal purposes.
        I am confident that the agencies represented on the panel
    today can implement changes to increase the effectiveness and
    the efficiency of our approach to BSA and AML, while preventing
    the misuse of our Nation's financial system.
        At the OCC, we are working to improve our system for
    examining banks' programs to combat money laundering and
    terrorist financing. To accomplish this, we are reviewing our
    supervisory policies and examination procedures to focus our
    resources where they can be most effective to protect the
    integrity of the U.S. financial system.
        While my written testimony provides additional detail on
    our initiatives and suggestions for possible legislative
    action, I want to highlight a few of our efforts to carefully
    balance the interests of the various stakeholders and
    strengthen our fight against money laundering and terrorist
    financing.
        The OCC, together with the FDIC, Federal Reserve, NCUA,
    Treasury, and FinCEN have formed a working group focused on
    enhancing the BSA/AML regulatory and supervisory regime. The
    working group has several activities under way, including the
    recent release of a joint statement clarifying ways that
    community banks with lower BSA risk may increase their
    efficiency and reduce compliance burden by sharing certain BSA
    resources among institutions.
        We also are encouraging banks to develop innovative
    approaches and adopt new technologies to meet their BSA/AML
    compliance obligations.
        We expect that the banking agencies and FinCEN will issue a
    joint statement on this topic very soon.
        The OCC's BSA supervisory experience and dialogue with the
    industry suggests opportunities to leverage technology, to
    enhance BSA/AML compliance and effectiveness. We support
    responsible bank efforts to explore how new technologies such
    as artificial intelligence and machine learning may offer
    better methods for identifying potentially suspicious
    activities, while reducing the number of false positive alerts
    for monitoring systems and enhancing the efficiency of
    investigations.
        We are optimistic that ongoing research and studies of the
    potential for emerging technologies could yield long-term
    benefits in fighting money laundering and terrorist financing.
        The OCC is also working with FinCEN and the other banking
    agencies on a comprehensive and systematic review to identify
    ways to update the SAR and CTR requirements and processes.
        We also intend to explore opportunities to tailor the
    content of these important reports and to evaluate the
    appropriateness of current thresholds in order to maximize
    their usefulness for law enforcement.
        While the OCC and other agencies are working together to
    identify ways within their authority to strengthen BSA
    compliance, there are also ideas Congress can consider. For
    instance, Congress could consider directing a regular review
    that includes public notice and comment to identify how the
    BSA/AML regulations could be strengthened or refined.
        During our most recent review of banking regulations under
    the EGRPRA process, improving BSA/AML regulations was one of
    the top three issues discussed by stakeholders. Directing the
    appropriate agencies to conduct a regular review so that
    stakeholders can provide feedback on BSA/AML regulations could
    be both productive and effective.
        Other areas for congressional consideration include
    providing certain safe harbors to promote sharing of
    information and protections for banks filing SARs in good faith
    and support law enforcement and national security.
        Finally, we have begun a dialogue with Committee staff on
    all of these issues and look forward to continuing our
    discussions as the Committee develops bipartisan legislation.
        On behalf of the OCC, I would like to thank you for holding
    this hearing, and I look forward to answering your questions.
        Chairman Crapo. Thank you, Ms. Gardineer.
        Mr. D'Antuono.

       STATEMENT OF STEVEN M. D'ANTUONO, SECTION CHIEF, CRIMINAL
       INVESTIGATIVE DIVISION, FEDERAL BUREAU OF INVESTIGATION,
                         DEPARTMENT OF JUSTICE

        Mr. D'Antuono. Thank you, Chairman Crapo, Ranking Member
    Brown, and Members of the Committee. I appreciate the
    opportunity to discuss our Nation's best methods for combating
    money laundering and other forms of illicit finance.
        My experience working with Bank Secrecy Act data dates back
    22 years, even before I became an agent, when I started my
    career with the FBI as a forensic accountant in the Rhode
    Island office of the Boston Division. One of my many tasks was
    to review and analyze suspicious activity reports. I analyzed
    these reports in order to identify possible subjects, to
    generate leads for the agents to follow, to initiate new
    investigations, and for trend analysis.
        Back then, we did it the old-fashion way, looking at paper
    copies. We have come a long way from when I started my career.
    Nowadays we have systems and technology in place to more
    efficiently and effectively analyze the BSA data.
        The FBI conducts data analytics on each BSA filing, taking
    every effort to maximize the intelligence provided through
    those filings. We have not given up on the old-fashion ways
    either. As we participate in SAR review teams in all 94 United
    States Attorneys' offices across the country, money laundering
    is a huge issue, estimated to be $2 trillion a year. The FBI is
    working vigorously to fight this threat, and we are not doing
    it alone.
        One of our most critical partnerships is with financial
    institutions, big and small. These institutions face
    significant money laundering challenges and are required to
    implement and maintain robust anti-money laundering programs.
        At the headquarters level within each field office, we have
    relationships with financial institutions. The FBI's engagement
    with the private sector addresses gaps. It mitigates risk to
    the financial industry.
        Through our outreach, we share typologies and trends in the
    criminal and terrorist arenas. Our communication with the
    financial institutions has led to targeted analysis of illicit
    activity that has been mutually beneficial.
        I am a firm believer in providing feedback to the financial
    institutions regarding criminal problems and the institutions'
    BSA filings.
        FBI feedback helps to improve the quality of the filings.
    It also increases morale and motivation of the SAR writing
    teams, thereby improving the process and ultimately the
    relationships between the financial institutions and law
    enforcement. This is a win-win situation.
        The FBI provides this feedback on many different levels,
    and we continue to evolve the process to make it better for all
    parties.
        BSA data is relevant and extremely important to the FBI's
    ability to identify and disrupt illegal activities across a
    variety of threats, such as fraud, money laundering, human
    trafficking, narcotics, and terrorist financing. The utility of
    the BSA data is often dependent on more than just the dollar
    amount involved, as a variety of data points in the filings
    could be the key piece of information leading to a successful
    investigation of criminal or terrorist activity.
        Criminals continually aim to evade us by exploiting
    loopholes in existing laws. As you know, the used of shell
    companies, nominees, front companies, and other means makes our
    job more difficult. Once illicit funds have entered the
    financial system, the layering and integration phases make it
    very difficult to identify and trace the money.
        The reporting obligations placed on financial institutions
    provide vital intelligence utilized by law enforcement in our
    Nation's efforts to prevent and detect the criminal activity we
    are discussing today.
        Information from BSA filings are used on both a proactive
    and reactive basis to investigate specific individuals and
    entities and to identify leads, connect the dots, and otherwise
    advance investigations.
        The BSA filings are priceless to our law enforcement
    efforts, and it is difficult to place an intrinsic value on
    that intelligence.
        The FBI is also attentive to terrorists' and criminals' use
    of microfinancing, which we define as the means to move
    smaller-
    dollar amounts easier, faster, and more frequently. These
    transactions can be as small as $100, small enough to finance
    an act of terror. For this reason, it is important that we have
    more scrutiny on cash transactions, not less. The information
    garnered from these small-dollar BSA filings is essential to
    law enforcement's efforts.
        The ability of the FBI and our interagency partners to
    combat money laundering and illicit financial activity hinges
    on the strength of the BSA requirements and the strength of our
    AML regime. The FBI has been the lead law enforcement agency
    addressing financial crime matters since our inception 110
    years ago.
        We pride ourselves on being able to adapt, and we face
    evolving challenges as criminals find new ways to hide illicit
    funds through the emergence of payment systems, such as mobile
    platforms and virtual currencies.
        As the biggest end user of BSA intelligence, we thank you
    for this opportunity to discuss the vital resource that assists
    the FBI and all law enforcement to carry out our mission, to
    protect our communities from those seeking to exploit our
    financial systems.
        I look forward to our dialogue today, and I am pleased to
    take the Committee's questions. Thank you so much.
        Chairman Crapo. Thank you, Mr. D'Antuono.
        My first question will be for you, Mr. Blanco. As you are
    aware and as Ms. Gardineer has indicated in her testimony, the
    OCC has recommended that we have a legislative direction to all
    of the agencies, I think, involved to work together essentially
    under an EGRPRA-type process, if I understand it correctly. But
    FinCEN is not obligated under EGRPRA to participate, and I
    understand that you have a different approach. What are your
    thoughts about the OCC's recommendation?
        Mr. Blanco. Well, we oppose that recommendation, Senator,
    for a couple of reasons. One is--let us just be frank here. I
    mean, I think it just adds on another layer of bureaucracy,
    which is not necessary.
        Congress and the Senate has put on us the BSA obligations,
    and we report and we communicate with law enforcement and our
    other regulators and our stakeholders, private industry,
    through what we call the BSAAG, the Bank Secrecy Act Advisory
    Group. That is one way where we get feedback back and forth in
    what we do, and we are able to report in with the industry and
    report in hearings like this and in other matters.
        We do not need an EGRPRA process, which is not necessary.
    In fact, one of the complaints that we hear all the time is how
    are you using the BSA data, but much to what the FBI is doing,
    we do have a process of reporting how we are using that
    information, and we are getting better and better at it every
    day.
        In fact, when I came over from the Justice Department, that
    was my very complaint. What are we using about it? How are we
    reforming it, and how are we doing it? We are doing it in many
    different ways.
        One way we are doing it, we are bringing in a private
    vendor to help us analyze what is the value of the BSA
    information that we are asking these financial institutions to
    give us, and when you think about it, it sounds like an easy
    concept. It is not, because what could be valuable to me may be
    very different than the FBI, may be very different from the
    OCC, may be very different from the stakeholders who have to
    manage risk and know their customers as well.
        Chairman Crapo. But is not that a reason why you should be
    coordinating with the OCC?
        Mr. Blanco. We already do, as Ms. Gardineer has mentioned
    earlier. We have a working group, where we meet regularly, all
    of the FBAs, ourselves. In fact, we are meeting on Tuesday to
    have these very frank discussions about what needs to change,
    how it should change.
        But let me just tell you--and I tell everybody this
    everywhere I go--the premise should be if we are going to
    change it, how does it keep us safer? What is the proposal that
    you are offering that is keeping our country safer and our
    people safer? That is the premise, and then we can work from
    there because these creative ideas that we have are wonderful.
    And we are happy to do them. In fact, we encourage creativity.
    We encourage machine learning. We encourage artificial
    intelligence. But you tell me how it keeps us safer first, and
    then we can move forward.
        Chairman Crapo. Well, that is obviously--I think it should
    be all of our objectives.
        Ms. Gardineer, do you want to respond to that issue?
        Ms. Gardineer. Yes. Thank you, Chairman Crapo.
        Director Blanco is correct. We do have the BSAAG, and the
    OCC is a member and a participating member on that committee.
        The recommendation that we are making, however, for an
    EGRPRA-like process goes beyond just those who are represented
    at the BSAAG. Not every institution across the country is a
    part of that forum.
        What we are suggesting in an EGRPRA-like process would
    allow FinCEN as the rule writer and other stakeholders to
    participate in a notice and comment-type hearing setting that
    allows all stakeholders, industry and others, to come and share
    their experiences with implementing the rules relating to BSA/
    AML and potential obstacles they see as they continue to work
    to support the efforts of law enforcement while trying to
    balance that with rules that, in some cases, have not been
    reexamined or changed for many, many years since the BSA/AML
    was established.
        What our experience has been, going through two cycles of
    the EGRPRA process, is that the BSA/AML, which is not a part of
    that, is the third--one of the three top areas that entities
    have provided us feedback. We, of course, have summarized that
    feedback, and we provide it to FinCEN, but they do not have the
    opportunity to sit in that forum and hear those testimonies and
    ask questions of those who are sharing those experiences.
        The OCC supports the recommendation because we believe that
    it could be a great opportunity for them to hear of ways to
    strengthen the framework of the regulatory regime.
        Mr. Blanco. Can I comment on that?
        Chairman Crapo. Sure. You can have the last word.
        Mr. Blanco. One, it would have been nice to have this
    conversation before the hearing today because I can tell you
    the OCC has not addressed this issue with me in this
    discussion.
        Second, with respect to--we do have the opportunity. In
    fact, we sit with them, and we talk about the responses they
    are getting in the BSA. And we do comment. In fact, we send
    them a letter commenting on what has been going back and forth
    with respect to the stakeholders.
        We have a very strong, thriving interaction with
    stakeholders, both public and private, and I think adding on
    another layer of bureaucracy to this process is inappropriate
    and unnecessary.
        And by the way, when we have to respond to a legislative
    enactment like that, I am moving resources out of our everyday
    work, investigating terrorists and money launderers and human
    rights violators and human traffickers, to respond to that kind
    of stuff when it is not necessary to do.
        Chairman Crapo. All right. We obviously had a little bit of
    tension here on the issue. It is a critically important issue,
    and I encourage you to continue to evaluate and discuss it.
        Mr. D'Antuono, I am out of time. I had some good questions
    for you, but I may have to submit them for the record.
        So I will yield now to Senator Brown.
        Senator Brown. I thank you, Mr. Chairman.
        Ms. Gardineer, many big banks active in the United States--
    U.S. Bank, ING, HSBC, and others--have faced major--as you
    know, major enforcement actions for AML violations. Some of
    these--in some cases, the misconduct has continued for years,
    and the misconduct was willful, yet rather than recommending a
    series of tough reforms to strengthen current rules and
    procedures to catch such bad actors and actions earlier, your
    testimony calls for, among other things, a periodic review of
    the burdens of BSA/AML regulations.
        I am not sure why that is. I assume it is the culture of
    the OCC, but let me ask this question. Have all the Federal
    banking regulators and law enforcement officers, including
    FinCEN, signed off on this recommended change, or is this just
    an OCC recommendation?
        Ms. Gardineer. Senator, the recommendations that we are
    making clearly are coming from the OCC; however, we are engaged
    in working groups with the other Federal banking agencies.
        When we talk about reducing the burdens, I would not want
    you to misinterpret that from anything that does not appear to
    show our willingness and intent to strengthen the regime.
        When we talk about the burden--and you mentioned the
    largest institutions, but I would like to remind you that we
    supervise institutions of all sizes. Community banks do make
    our largest number.
        Senator Brown. Which I understand, but the fact--I get
    that. I am sorry to interrupt. The fact that you chose this
    valuable time to come here and talk about weakening the rules,
    helping--no, not weakening the rules. Excuse me. Helping the
    smaller people, and we want to do that, but not on the big
    picture of this. It is a bit concerning, but I am sorry to cut
    you off there.
        Mr. Blanco, would you share with the Committee your view on
    the OCC recommendation regarding regular reviews of all BSA
    rules? Does not FinCEN already feed into an EGRPRA process?
        Mr. Blanco. We do already feed into that process. In fact,
    we do have a very good relationship with all of the Federal
    banking
    regulators, including the OCC, and we do feed into that
    process. In fact, we work with them not only on examinations,
    but when they do have these questions regarding BSA or CFT, we
    are always there working with them on a regular basis. In fact,
    our staffs meet on a regular basis.
        So these inquiries that they are getting out from their
    stakeholders, we are always happy to sit down with them and
    discuss them and give our opinion not only to the OCC, but also
    to those stakeholders directly. We have a help line that they
    can call every day and ask us these questions, and we are
    always available to do that.
        Another process of review and commenting is not necessary.
        Senator Brown. OK. I appreciate that.
        And for both of you, Mr. Blanco and Ms. Gardineer, I do not
    mean in any way to question your public service. We have just
    seen this collective amnesia in this institution and especially
    with the new regulators and in this Committee, and I see the
    focus. I stand up as much as many others on making the
    regulatory burden a little bit less for the small guys, but
    this new group seems to be focusing on that and not on the
    serial lawbreakers. And I just urge you to work its way back
    into OCC to pay attention to those serial lawbreakers.
        Let me ask a different question. This is for Mr. Blanco and
    Mr. D'Antuono. President Trump's former campaign manager, Paul
    Manafort, pled guilty to conspiracy, tax fraud, money
    laundering, other crimes in a decade-long scheme regarding $60
    million in payments from the former government of Ukraine. Mr.
    Manafort funneled millions through a vast network of personal
    and business accounts, partnerships, shell companies in the
    United States, Cyprus, St. Vincent and the Grenadines, and the
    United Kingdom, drawing funds from offshore accounts--this is
    not news to any of you--to support his absurdly life--you may
    not have seen it on Fox, but you will see it on any other
    network--to support his absurdly lavish lifestyle, which he
    might have gotten away with but for the work of Special Counsel
    Mueller.
        So my question is this--three questions for the two of you,
    for Mr. Blanco and Mr. D'Antuono. Why did law enforcement miss
    this for so long? Do you think if the United States had a
    comprehensive beneficial ownership law in place, we might have
    caught the crime much earlier? And might FinCEN have been able
    to compare SAR filings to beneficial ownership information in
    its database to flag this illegal activity triggering an
    investigation much earlier? So pull those answers together to
    those three questions, starting with you, Mr. Blanco.
        Mr. Blanco. Thank you.
        Chairman Crapo. And quickly. The time is running out.
        Mr. Blanco. Yes. Thank you, Senator.
        Look, those are very fact-specific, and without answering
    that specific case because I do not know the facts in that
    case, I can tell you that investigations are always made better
    when we have better information. And beneficial ownership
    information is critical information not only to national
    security, but also to the investigations we do every day.
        Could they have been discovered earlier? I do not know the
    facts. Maybe, maybe not, but I can almost assure you we would
    have done a better job in finding it originally had we had
    beneficial ownership information, and once found,
    investigations go much quicker because the time it takes for
    investigators to go through that morass of who owns it, where
    they own it, where the monies come through could take months,
    if not years to do.
        And I will turn the rest over to my colleague.
        Mr. D'Antuono. Yes. And I definitely agree with Ken.
        We need a more effective beneficial ownership system. From
    a law enforcement perspective, the financial intelligence that
    that would gain for us would be insurmountable. It would be
    fantastic.
        If you look at FATF, the FATF recommendations in other
    countries--in the United Kingdom, Australia, the European
    Union--they are putting in place beneficial ownership
    repositories into law.
        Senator Brown. Thanks.
        Thanks, Mr. Chairman.
        Chairman Crapo. Senator Moran.
        Senator Moran. Mr. Chairman, thank you.
        Mr. Blanco, in your testimony, you discuss the impact of
    increasing the reporting thresholds for CTRs, what that
    consequence would be on the amount of financial intelligence
    available to law enforcement and to FinCEN. You mentioned that
    doubling the CTR threshold would result in the loss of 60
    percent of valuable financial intelligence data and an 80
    percent loss in the threshold if it was tripled.
        Excuse me. I may need these.
        [Laughter.]
        Senator Moran. On an operational level, could you and Mr.
    D'Antuono speak to how that specifically would impact the
    amount of loss, prosecution cases initiated, et cetera, within
    that range if that threshold was altered between $10,000 and
    $30,000?
        Mr. Blanco. Thank you, Senator, for that question. I will
    be as quick as I can.
        I know there are some former prosecutors on this panel, and
    I think they might appreciate this. Information, the lack of
    information is a problem for us. The fewer pieces of tips and
    information that we have creates problems for our
    investigation, not only for tips, but furthering the
    investigation.
        Let me give you three quick examples of information or
    cases that we would not have been able to make had we had those
    higher thresholds.
        One is a Mexican cartel member or a Mexican government
    official who was connected to the cartels laundering money here
    in the United States. With those thresholds that you were
    talking about earlier, we would have lost 84 percent of the
    CTRs that were involved in making that case against that
    person. That was an indictment of a foreign government official
    laundering narcotics money here in the United States. That is
    an important fact to know.
        Second, financial institutions--excuse me. I am losing my--
    another case of significance, an ICE case, where there was
    money laundering, black market peso exchange, during the trial,
    59 CTRs, 106 CMIRs, and 225 8300s were introduced. Given your
    threshold, we would have lost all the CTRs in that case, which
    means that perhaps we would not have even been able to
    investigate that case or not even make the case at trial. That
    is what we are talking about here.
        Last, let me talk--and this sort of hits more home here, on
    a Ponzi scheme, where people prey on victims, on the more
    vulnerable people in society. In one instance, in Boston, we
    would have lost--according to your threshold, where there were
    52 victims and over $10 million of a Ponzi scheme, we would
    have lost 53 percent of the CTRs in that case. That is an
    amazing amount of information that we would have lost, and I
    think that is the consequence of increasing the thresholds.
        And I will turn it over to my colleague at the FBI.
        Senator Moran. Thank you.
        Mr. D'Antuono. I definitely echo what Ken would be saying.
        We cannot specifically speak to the range, just because
    from a law enforcement perspective, less intelligence is not
    good for us. But from a perspective that we cannot predict what
    information is in that CTR, there are so many data points in
    that CTR. It could be the address. It could be the name. It
    could be the IP address nowadays, right, and email address. It
    is not just about the cases that Ken is talking about, the AML
    compliances as well, but it is about all the financial data
    that is in there.
        We have cases in which the elderly are involved. We have a
    big elderly fraud initiative right now going on in which
    caregivers or guardians are siphoning money from bank accounts,
    which would hit below the threshold of what we are talking
    about, $20,000 or $30,000 possibly, and that goes to that
    elder--losing all that hundreds and thousands of dollars.
        To give you specific examples as to loss prosecutions, it
    is difficult, really.
        Senator Moran. Let me follow up with the thought, then, if
    thresholds should not be altered. Are there things that can be
    done to streamline the collection of the data while lessening
    the reporting burden?
        Mr. Blanco. Senator, I think there are, and those are the
    things that we are working on in our initiative. We are
    bringing in a private vendor to take a look at the BSA value,
    where we are talking to financial institutions to find out--for
    example, in the structuring process, structuring of SARs, how
    can we streamline that? What are the SARs that actually need to
    be reported on? Where do they need to be reported, and how
    should they be reported? All these things are on the table. We
    are taking a closer look at everything for effectiveness and
    also for efficiency.
        Senator Moran. Let me ask, to follow up to my follow-up, is
    it possible to streamline the requirements into a single, more
    simplified BSA reporting requirement and still provide the same
    quality of data?
        Mr. Blanco. So we have done that. As you might recall, in
    the past, there used to be five different forms to file a SAR
    and three different forms to file a CTR. Well, we----
        Senator Moran. I have heard that.
        Mr. Blanco. Crazy stuff. But we were able to unify it into
    one SAR filing and one CTR filing.
        Really, what we are looking at is not so much the form
    itself but the substance, and that is what we are talking about
    here. And I think that there are ways that we can do it. We
    want to be creative about it. We need to have our law
    enforcement partners there with us step by step to make sure we
    do not lose anything, at the same time having our stakeholders
    so they can understand what we are asking them for and why we
    are asking them for it.
        Chairman Crapo. Senator Menendez.
        Senator Menendez. Well, thank you, Mr. Chairman.
        Mr. Blanco, this past October, the wife of Russian
    billionaire Roman Abramovich became the new owner of six Upper
    East Side properties. Those transactions, totaling $92.3
    million, were apparently part of a property settlement between
    Mr. Abramovich and his third wife, Darya. Nearly $100 million
    of property in a single transaction, is that the sort of deal
    that would set off some type of alarms at FinCEN, and how would
    something like this come to your attention?
        Mr. Blanco. Thank you for that question, Senator.
        I do not know the exact facts, but just hearing what you
    are saying, yes, it would send off alarm bells. Any time you
    have that kind of transaction, I think financial institutions
    need to understand where that money is coming from, from who is
    it.
        As you know, we have advisories out on PEPs, advisories out
    on all kinds of kleptocrats and what have you. Would we have
    received some information? We could have if there was a
    financial transaction, which the financial industry reported
    on, or if law enforcement drew that to our attention, if they
    had either a source telling them what was going on or we had an
    open investigation. We would have been able to get involved.
        Senator Menendez. Let me follow up that question with the
    current rules around cash purchases of real estate. Most areas
    of our country are not set up to catch bad foreign actors such
    as kleptocratic oligarchs, drug cartels, rogue governments, or
    individuals seeking to evade sanctions, something that I have
    worked on quite a deal in terms of foreign entities. This makes
    the United States a safe and easy place to hide money.
        FinCEN began its scrutiny of key real estate markets in
    2016 targeting New York City and Miami, I understand. Can you
    tell us what raised your concerns about the cities you first
    targeted, what factors triggered your interest, what patterns
    are you seeing, and what foreign countries' monies were
    involved? Who were the major players? Russia? Saudi Arabia?
    Others?
        Mr. Blanco. Senator, thank you for that question.
        I can tell you that those GTOs, which is what you are
    referring to, geographic targeting orders, started before I
    arrived here at FinCEN. So I do not know what the genesis
    behind that was.
        I can tell you, my 30 years as a prosecutor, I can tell you
    that one of the easiest ways to launder lots of money is
    through the real estate market, and that is what I think the
    genesis behind that was.
        What ends up happening, Senator, is when we do a geographic
    targeting order, it gets inspired by a couple of different
    things. We are seeing, through the BSA reporting requirement,
    patterns and trends, and that might have drawn their attention
    to these certain areas. It could be simply what law enforcement
    is telling us, that ``These are areas that you need to look at.
    It would be valuable for you to take a look at the real estate
    area, real estate market in these areas.'' And that is what we
    have done in these markets.
        Unfortunately, I do not want to comment any further about
    that. I am happy to sit down with your staff and talk to you
    about the GTOs. They are ongoing.
        I can tell you, Senator, we have learned a lot through
    them.
        Senator Menendez. Is there any public comment that you can
    make about which countries are involved, more likely?
        Mr. Blanco. Senator, I am reluctant to do that, only
    because they are ongoing.
        And just so you will know as well, we are taking this
    information that we are gathering from the GTOs, and we are
    sharing it with U.S. Attorneys' offices, and we are sharing it
    with law enforcement.
        Senator Menendez. Well, as those of us who are policymakers
    and have to devise legislation and those of us who want to
    close the loopholes that exist----
        Mr. Blanco. Yeah.
        Senator Menendez.----and sanctions policy, particularly as
    the Ranking Democrat on the Foreign Relations Committee----
        Mr. Blanco. Yeah.
        Senator Menendez.----whether it is dealing with Iran or
    Venezuela or whatnot--Venezuelans with impunity, those who
    should not, are hanging in Miami using their ill-gotten gains
    purchasing properties.
        Mr. Blanco. I agree.
        Senator Menendez. And I hope that you all have attention on
    that because it is pretty amazing that right here in the United
    States, those very individuals we want to target who are
    stealing from the Venezuelan people and oppressing them
    ultimately end up buying property in Miami.
        Mr. Blanco. Not only pressing them, Senator. They are
    starving them in Venezuela. I mean, that is what they are
    doing.
        Senator Menendez. Absolutely.
        So I would like to have a classified briefing, then.
        Mr. Blanco. I am happy to sit with you and your staff, and
    we can talk it out.
        One thing, Senator, I will tell you is there is a timeframe
    on these GTOs, and sometimes it is better to let it all play
    out before we can come and talk to you about it, so we have all
    the information to share with you.
        Senator Menendez. All right. One last question. Does
    FinCEN--this is a different question--have any plans to improve
    or clarify on how financial institutions can provide services
    to marijuana-related businesses consistent with their Bank
    Secrecy Act obligations?
        A series of States in the Nation have legalized either
    recreational or medical marijuana. New Jersey has done medical
    marijuana. It is in the move to doing recreational. To the
    extent that this is going to be approved--not accounting to
    whether I believe that is the appropriate policy or not, but to
    the extent it is going to be approved, I would rather it be
    banked in the regular system than large sums of cash being
    transferred around.
        Mr. Blanco. Senator, we are still having those
    conversations. I think that is an interagency conversation that
    we are having.
        What we are telling our financial institutions is that the
    BSA guidelines that we put out in 2014 are the ones that they
    should still be following to meet their BSA requirements.
        Senator Menendez. Well, we need to deal with the realities
    as they are.
        Mr. Blanco. I understand.
        Senator Menendez. And unless we want large sums of cash
    being moved around in an untraceable, undetectable process, it
    does not make any public policy sense at the end of the day.
        Mr. Blanco. Thank you, Senator.
        Chairman Crapo. Thank you.
        Senator Toomey.
        Senator Toomey. Thanks, Mr. Chairman.
        I would like to get back and just continue the discussion
    that Senator Moran began about the appropriate threshold. I
    will start with the caveat. I assume--I have never been a
    prosecutor, but I assume if you are in law enforcement, if you
    are a prosecutor, all data is helpful. You would never say, ``I
    would rather not have data,'' right? But yet we do not set the
    threshold at $100 or $1,000. Instead, decades ago, we set it at
    $10,000 for CTRs, for instance.
        Because we have never adjusted it for inflation, we now
    produce many multiples of the amount of data that was produced
    back when that was considered the appropriate level at the
    time.
        I think SARs reporting is about nine times what was
    reported back in 1997. From 1985 to 1992, CTRs are up five
    times, and it is presumably, partly at least, because the
    inflation adjustment was never made. So I get that you always
    like to have data, but we are trying to weigh that against the
    actual utility of the data.
        Back in 1994--I have not seen a more recent report from the
    GAO, but the GAO came out and said that the threshold should be
    reduced. They estimated--the IRS estimated 30 to 40 percent of
    CTRs are reports of routine deposits by large well-established
    retail businesses, and it is just a part of their normal
    business practice.
        So I guess my question is--I heard some anecdotes, and I am
    sure if you set the threshold at $100, you would eventually
    find somebody you could prosecute because you would have data
    that you do not have today. So I am not that persuaded by
    individual anecdotes. Is there data about the number of
    prosecutions, the effectiveness of prosecutions, the number of
    investigations that arise because you are getting the
    transactions between $10,000 and $30,000? Because I get that
    that is a big volume, but I do not know how useful that data
    is, and that is what I am trying to understand. And I would
    welcome comments from all three of our witnesses for that.
        Mr. D'Antuono. I will take the first crack.
        The easy answer is we do not track data like that. We just
    do not between those levels of engagement that you are talking
    about.
        But what we have done is more targeted feedback to the
    banks, to the financial institutions. We do not want white
    noise either. We do not want something that is not going to be
    beneficial to us.
        So our efforts have been to the financial institutions and
    reaching out to the financial institutions to have that more of
    a target-
    ed approach. Is there room for improvement? Absolutely. I am
    not going to sit here and say that there cannot be room for
    improvement, and we welcome that conversation. We welcome the
    conversation between the regulators bringing us in because at
    the end of the day, we are the end user, as you pointed out. We
    are the end user of this. All law enforcement is.
        So to bring the regulators and have us sit at the table
    with the regulators so that we can discuss it with FinCEN and
    OCC and the other regulators is crucial to I think the heart of
    what you are getting it, for us to look at that data and weigh
    the usefulness of that.
        Senator Toomey. But you do not have that data?
        Mr. D'Antuono. We do not keep data like that. We just do
    not. I do not think any prosecutor's office would keep it that
    way either.
        Senator Toomey. Do the regulators keep that data?
        Mr. Blanco. We do not keep that kind of data, but I can
    tell you as a prosecutor--and what FBI is telling you is
    important because it is not necessarily just the prosecutions.
    It is creating networks of individuals that you find through
    these filings. Those are important.
        But, Senator, to your point--and I think it is a very
    important point--we need to find what that sweet spot is
    because I do not want financial institutions to be wasting
    their time giving us white noise. I would rather them use those
    resources to do more important matters, more important
    investigations, when we can sort of target them that way.
        So that is the crux of what we are trying to do through the
    process that we have here at FinCEN moving forward for the next
    year, year and a half, and I think that is going to be
    important.
        And, look, like I said earlier, everything is on the table.
    What we want is effective information. I do not want
    information for information purposes, because to Steve's point,
    that is hurtful, actually.
        Senator Toomey. Yeah.
        Ms. Gardineer, did you have anything to add?
        Ms. Gardineer. Absolutely, Senator. I agree that what we
    have now are financial institutions who clearly want to spend
    whatever is necessary, using all available resources, to
    protect their institutions and the sanctity of the financial
    system.
        But what we applaud that FinCEN is doing through their
    study should also, we believe, extend to a study of what are
    appropriate thresholds, if there are changes that could be
    made.
        It is an opportunity for us to look at every aspect of this
    to ensure that the quality that my fellow panelists are talking
    about is exactly what the institutions are seeking.
        Boiling the ocean probably is going to produce the very
    type of white noise that is not efficient to law enforcement's
    efforts, but I think a feedback loop that is effective to help
    institutions understand what it is that they provide to law
    enforcement through the SAR filings, what kind of quality, what
    kind of criteria will actually support their efforts to really
    chase these illicit actors out of the system.
        Senator Toomey. I see I am out of time. Thank you. Thank
    you to all of you.
        Chairman Crapo. Thank you.
        Senator Cortez Masto.
        Senator Cortez Masto. Thank you. Thank you, Mr. Chairman.
        I appreciate you all being here today. Thank you. This is
    obviously an important discussion and so appreciate having this
    conversation. There is a lot of work being done here, and I
    think from what I am hearing, we are trying to find that
    balance. And I think that is the intent here.
        I come from Nevada. As you well know, the gamers there are
    also very concerned about this oversight and their interaction
    with law enforcement and FinCEN.
        So let me just say this. First of all, Director Blanco, you
    just were out in Las Vegas, and you gave a speech in August at
    the Anti-Money Laundering Conference and Expo there. Thank you.
    I think that is key. Part of this is the interaction with those
    that we are gathering the information from, so they understand
    how you are utilizing the data, why it is so important, and
    then continuing the conversation about how we streamline and
    make it less burdensome for them to get the information you
    need. So that is why I appreciate that.
        If I remember correctly, I think it was Secretary Mandelker
    came, and she said FinCEN also has started the FinCEN Exchange,
    where you are talking with the banks and institutions to gather
    the information, to work with them, to help them reduce that
    burden, but to gather the information. That is correct. So
    thank you for that, and I think that conversation needs to
    continue.
        Mr. Blanco. Thank you.
        Senator Cortez Masto. Let me ask you this. One of my
    concerns--and we have worked together before. I was Attorney
    General of Nevada.
        Mr. Blanco. Yes, we have.
        Senator Cortez Masto. I appreciate your thoughts on the
    prosecution side and what we are trying to do to stop money
    laundering.
        What I have seen is--and let me jump back to what Senator
    Menendez was talking about. I do know that there is--
    unfortunately, it is prevalent, money laundering through real
    estate transactions, and I appreciate the geographical
    targeting orders that you are conducting. You just actually----
        Mr. Blanco. We redid it. Yep.
        Senator Cortez Masto.----did a new one.
        I would love to be part of that briefing to get some more
    information. My questions are going to be should Congress
    expand its anti-money laundering requirements for real estate
    transactions, and if so, should it focus on prevention or just
    include reporting? And I will be curious, your thoughts on all
    of that. I will submit those as QFRs as well----
        Mr. Blanco. Thank you.
        Senator Cortez Masto.----as we go through this because I
    think it is something that we need to tackle.
        The other thing I am looking at is legislation, working
    with FinCEN, and preparing the FinCEN Improvement Act. A couple
    of other areas I am curious to get your thoughts on, would it
    be helpful if FinCEN were given authority to work with tribal
    law enforcement in addition to other law enforcement
    authorities, and why?
        Mr. Blanco. Absolutely. Absolutely.
        Senator Cortez Masto. And why is that?
        Mr. Blanco. Well, because they also have a wealth of
    information, particularly as they are improving, and in the
    gaming community as well, they are a big factor as well. And
    they will see things that we do not always see, and I think
    there is a vulnerability based on some stuff that I know--some
    of it may be classified, so I am reluctant to say it here--what
    they may know and how they know it and who is going through the
    areas in which they live and work and their insight and
    information, which is really critical to us.
        Senator Cortez Masto. And should FinCEN statute be expanded
    to focus on domestic terrorism as well as international
    terrorism?
        Mr. Blanco. Absolutely, Senator, and I think that that is
    just a glitch that needs to be repaired. And I think it is
    something that is really important for us as we move forward.
        Senator Cortez Masto. And then I heard this comment
    earlier. I think it was by Ms. Gardineer. If FinCEN had
    explicit authority to monitor emerging technologies and crypto
    currencies----
        Mr. Blanco. Yep.
        Senator Cortez Masto.----is that something that you would
    support as well?
        Mr. Blanco. Yes. Absolutely. In fact, we are doing it now,
    and we work with our counterparts at the OCC and our other
    Federal regulators in that area. We are certainly taking the
    lead in that. It falls under our area as well as other
    regulators, depending on how the cryptocurrency is being used,
    right?
        Senator Cortez Masto. Right.
        Mr. Blanco. And we are certainly working on that.
        Senator Cortez Masto. Ms. Gardineer, that is something you
    support as well?
        Ms. Gardineer. Absolutely, Senator.
        Senator Cortez Masto. Thank you.
        So let me then jump back. Maybe Mr. D'Antuono--is that how
    you pronounce your name? Thank you. Thank you for being here.
        Part of the conversation we had with some of the
    regulators--excuse me--some of those that were being
    regulators, some of the banks, and some of the others was this
    idea to reduce some of the burden on some of the banks and
    smaller community banks who have to stand up some sort of
    compliance staff, a unit just to provide the information that
    you are requesting.
        It is this idea that instead of the regulators having this
    check-the-box mentality of we are going to come in and just
    check the box to see whether you have qualified, that we
    actually look at a risk-based approach as well as targeted
    monitoring and talking to them about what we are looking for
    specifically so that we can incorporate targeted monitoring, if
    we are trying to stop human trafficking, which we know deals
    with money laundering or drug trafficking where money
    laundering may come from or even a
    risk-based approach that we can work with the banks so that
    they know--they know the risks of the individuals they are
    doing business with. And maybe we should be working with them
    to help them, learn from them as well, and incorporate that
    into the oversight function. Does that make sense?
        Mr. D'Antuono. Yes, ma'am. We are definitely in tune with
    that. That is something we want to do, and we would be happy to
    engage with anyone in that discussion.
        We provided a ton of feedback to banks in typologies and
    trends and methodologies with our feedback mechanisms within
    law enforcement, not just with FinCEN. FinCEN has their own
    mechanism for doing that, but law enforcement, that is how we
    share information back with the banks.
        With target analysis, that is what we are doing, and I just
    talked to a bank last night. They are appreciative of that. So
    we would be all for having that engagement.
        Senator Cortez Masto. And I see the rest of you nodding
    your head. That makes sense as well?
        Mr. Blanco. Yes, Senator.
        Ms. Gardineer. Yes.
        Mr. Blanco. In fact, even through our FinCEN Exchange, as
    you mentioned, we are even able to get into a little bit more
    detail that we would not normally if we are just talking about
    trends and patterns, and that is something that we are working,
    not only with the OCC, but the FBI in how we actually do that.
        Senator Cortez Masto. And, Ms. Gardineer, would that
    satisfy your concerns as well about kind of streamlining some
    of the mandated reporting requirements?
        Ms. Gardineer. Yes, Senator.
        One of the things that the OCC and the other Federal
    banking agencies along with FinCEN and Treasury are undertaking
    now is a review of our current policies as well as our
    supervisory and examination approaches.
        One of our big efforts under way is to actually review
    those, make sure that they are reflective of our supervisory
    expectations for the institutions, and they reflect that risk-
    based approach.
        We are also undertaking a review and revision of our FFIEC
    BSA/AML Examination Manual to ensure that it took reflects that
    risk-based approach, so that there is not this impression that
    it is merely a check-the-box exercise.
        Senator Cortez Masto. Thank you.
        Chairman Crapo. Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman.
        Thank you all for being here.
        Mr. Blanco, help me understand. Let us suppose you have got
    a grocery store in a rural area where a lot of the customers
    use cash. If that grocery store makes a deposit in its local
    community bank, say $15,000 every day, cash, does the community
    bank have to fill out a report?
        Mr. Blanco. They would.
        Senator Kennedy. Do you make any distinction in your rules
    about--do you take into consideration the fact that it is a
    rural area and that it is a well-known retailer----
        Mr. Blanco. Yep.
        Senator Kennedy.----and that it is going to, just about
    every time----
        Mr. Blanco. Yep.
        Senator Kennedy.----make a cash deposit, and that in all
    likelihood--in fact, in the history of ever, you have never had
    a money launderer deposit cash in a community bank, in
    Bucksnort, whatever? Does that makes sense?
        Mr. Blanco. So, Senator, I tell you----
        Senator Kennedy. Why do you make them do it every time?
        Mr. Blanco. Well, I will tell you, you are getting right to
    the point of why we are having these discussions, for that very
    same point, should we. How important is that information when
    the bank knows their customer and can come back and tell us
    whether or not this is the right customer. The question then
    becomes whether there is an anomaly in that $1,500 deposit each
    week and afterwards. So these are the discussions we are
    talking about.
        It may not be necessary, Senator, but let me just tell you.
    Just as a regulator in a financial intelligence unit, I really
    want to hear from law enforcement as to why or why not because
    there could be a reason why. What would happen if, all of a
    sudden----
        Senator Kennedy. I get it.
        Mr. Blanco. OK.
        Senator Kennedy. I get it. I mean, I thought Mr. Toomey
    nailed it. If I am on your end, I am going to want all the
    information I can get, but this information costs money because
    business people have to comply.
        And I think we can stipulate we are all against money
    laundering. The issue is cost versus benefit. When will you be
    able to use artificial intelligence?
        Mr. Blanco. We are using it now.
        But, Senator----
        Senator Kennedy. But should not--based on artificial
    intelligence, you ought to be able to say, determine that Joe's
    Grocery Store in Bucksnort, Louisiana, makes a $12,000 deposit,
    $12,000 to $15,000 deposit every day, and you never had a money
    laundering out of Bucksnort.
        Mr. Blanco. Maybe, but what artificial intelligence will
    not tell me is whether or not that person has changed his
    business associations and whether or not he is still getting
    that, that is what artificial intelligence----
        Senator Kennedy. The system can be beaten. There is no
    question.
        Mr. Blanco. Yep.
        Senator Kennedy. And you folks are tough to beat, but is
    not the issue now how do we catch every single one? Is not the
    issue how we catch as many as we can, given the cost in a cost-
    benefit analysis?
        Mr. Blanco. Senator, maybe we see it a little differently.
    I do not see it as cost; I see it as an investment. It is an
    investment into the security of this country and its financial
    system, and it is not just money laundering, Senator, because
    you are seeing the money come through. But it is human
    trafficking. It is fraud against the elderly. It is child
    pornography. It is all the crimes that you and everybody else
    would find disgusting. That is what it is really about, finding
    them.
        Senator Kennedy. And I think that if we devoted half of the
    resources of the United States budget, we could probably do a
    lot of damage in terms of curtailing that.
        Mr. Blanco. Yeah, I am with you.
        Senator Kennedy. But Congress is not likely to do that
    because we have competing needs, as do--I mean, my issue is are
    you looking at is the flame worth the candle?
        Now let me switch gears for a second.
        Mr. Blanco. I am with you.
        Senator Kennedy. I really do not know. I think I know, but
    I may have it wrong. If I go open an account at a local bank,
    community bank, or a large bank, the bank has got to ask me if
    my company--the bank has to ask me who the beneficial owners
    are of my company. The bank has to ask me is this a shell
    corporation.
        Mr. Blanco. I will defer that to the OCC because they
    regulate those banks.
        But I will tell you it depends on whether or not there is a
    legal entity. If what you are doing is opening a legal entity--
    --
        Senator Kennedy. OK. Hold on. Hold on. I do not have much
    time.
        The banks have to ask the customer if it is a shell
    corporation; is that right?
        Mr. Blanco. The bank has to know their customer, and with
    the CDD rule, they need to understand who it is that is coming
    to open that account.
        Senator Kennedy. I understand. Please just answer my
    question.
        Mr. Blanco. I am trying to help you, Senator.
        Senator Kennedy. I know, but I know you can speak
    bureaucrat. And I am not being facetious; I am just trying to
    get an answer.
        If I go open an account in a local bank--I am going to be
    quick, Mr. Chairman--and I use a corporation, the bank has got
    to say, ``Hey, Kennedy, is this a shell corporation?'' Is that
    not right?
        Mr. Blanco. I think they should.
        Senator Kennedy. OK. Do people opening, trying to launder
    money with a shell corporation, they often tell the truth? Do
    they?
        Mr. Blanco. Probably not.
        Senator Kennedy. OK. So what happens then? Is the bank
    liable?
        Mr. Blanco. Well, the bank may or may not be liable. It
    depends on what they knew when that person gave them the
    information.
        For example, if they knew as a fact--and we have seen
    this--that that person is a Genovese crime family member or is
    an organized crime member and they still opened the account
    knowing that that individual is lying, that is a problem for
    them.
        Senator Kennedy. Thank you, Mr. Chairman. I am sorry I went
    over.
        Chairman Crapo. Thank you.
        Senator Warner. Thank you, Mr. Chairman. I want to thank
    you and the Ranking Member for raising this issue. I have
    learned a lot, and I am trying to think through how we could
    improve this system. And I think we do have some misalignment.
    I cannot think exactly where else we have got one group of
    folks from FinCEN
    setting the rules, another set of folks implementing the rules,
    as kind of appendage to your safety and soundness major frame
    of
    regulation, and then obviously law enforcement having a--
    enforcing those rules.
        I think a lot of us desperately want to get to a better
    solution. I am not sure raising the level on the SARs is the
    right level, but I do think Senator Toomey's question is a
    relevant one. Between $10,000 and X, whatever, what level of
    prosecution has come out, that would be helpful to us. I have
    seen estimates that we are talking about the cost to the
    financial system of about $8 billion. I have got to believe if
    we are spending $8 billion, we can probably do it more
    efficiently and catch more bad guys.
        So I wonder--I have got a series of questions here. One,
    has anyone done any study on the cost? Is there any ability to
    monetize the cost of false positives and the cost, for example,
    of individuals who might have gone into the grocery store, they
    now have got a SARs report on them, they now fall into a
    Government database, but they have done nothing wrong? The
    privacy issue and then the actual cost, any notion on the cost
    of false positives?
        Mr. Blanco. Senator, I do not know if anybody has done a
    study on it. I know there have been incidences where that has
    happened, but I can look into it and get back to you as to see
    whether or not anyone has done any cost-benefit analysis.
        Senator Warner. I am not talking full cost benefit. I am
    talking about actual cost of false positives or popping up on a
    list, and I would also love for us to see if we could get some
    analysis because, again, I am not sure that simply raising the
    threshold makes that much--but I would be curious to know how
    many of these entities fall between--we will use Senator
    Toomey's numbers--$10,000 and $30,000.
        I also wonder, would it make any sense--and I know since
    you brought your CTRs, SARs, you have to make some assumption
    whether it is money laundering versus terrorism. Is there
    something--should there be--you have cited examples where
    terrorism could be much lower amounts, money laundering larger.
    Should there be a differential rate between terrorism reporting
    versus money laundering reporting?
        Mr. D'Antuono. I think in that respect, you might lose some
    valuable intelligence.
        Senator Warner. If you had a differential rate?
        Mr. D'Antuono. Yeah.
        Senator Warner. But, again, you are going to come back to--
    your emphasis is going to be more data is always better, right?
        Mr. D'Antuono. Well, the data is used differently. We can
    talk about CTRs and loss prosecutions and what they are being
    used for, but it is like a fine wine. You do not know what you
    have at that point in time. It could be 10 years from now when
    you have a CTR that hits on a particular IP address, email
    address, an address. So you have a CTR that was filed by a
    certain individual that now we are looking for as a fugitive.
        We do not do the analysis to say, ``OK. We have this
    address now.''
        Senator Warner. You have got this massive database.
        Mr. D'Antuono. We have to go as law enforcement to arrest
    the fugitive, not determine where----
        Senator Warner. But if we are talking about $8 billion and
    how we spend it better, if there was a way through AI with
    privacy protection for the banks to actually share information,
    would not that be helpful too?
        Mr. D'Antuono. We are all for the engagement that we can do
    to improve this, absolutely. From a law enforcement, from my
    agency, we are trying to enforce the laws.
        Senator Warner. But would you be willing to think about how
    we might better spend that $8 billion if part of that was being
    able to have banks be able in a way so they are not just filing
    defensive SARs all the time, to actually share pattern
    information with you that it was appropriately privacy
    protected?
        Mr. D'Antuono. That is the key. You just hit on a key
    defensive SARs. Defensive SARs, defensive filings are a lot
    of--the white noise are a lot of the percentages.
        Senator Warner. We have got a lot of money here, $8
    billion. If that is roughly, thinking a better allocation, I
    for one--one of my conclusions I have come to at least to mind
    is what Senator Kennedy mentioned already, but I think we need
    stronger rules about beneficial ownership. I know there is some
    in the business community that are opposed to that, but, my
    goodness, if we are going to try to rebalance this, that ought
    to be one of the tools.
        Mr. Blanco. Senator, we are already having those
    conversations through our 314(b) consortiums, so we are
    having--how do we use artificial intelligence and machine
    learning--right? Very different in how that approach happens--
    how we are using it to become more efficient and effective, how
    can we use it to have financial institutions share in a better
    way.
        But keep in mind, as you mentioned earlier, privacy is
    important, and we have to make sure the security and the
    privacy of that information that these banks are now sharing,
    so that is part in the mix too. But we are having those
    conversations.
        Senator Warner. My time is running out. Let me just
    quickly--the things I would hope you would come back to me with
    is what are the costs, if there has been any estimation, of
    false positives and misallocation; what is some of the
    usefulness, to further demonstrate in some of these gap
    numbers.
        Mr. Blanco. Yep.
        Senator Warner. In one of the earlier hearings, I think we
    raised--I am still sorting through how do we get more of the
    FinCEN expertise down at the bank regulator--because I do not
    think you are ever going to get the safety and soundness
    regulator to make this a priority, and frankly, I am not sure
    that the bank is every going to not see this as something other
    than--appropriately realize the value that comes out of this.
        Maybe there may be tools we could use. I think one thing
    the Chairman and the Ranking Member has done--I think there is
    a lot of interest in seeing how we can improve this system, and
    I think there is a lot of common agreement.
        So we look forward to working with you, and again, thank
    you both.
        Chairman Crapo. Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman, and thank all
    of you for your testimony.
        Today, I want to touch on a couple issues I understand
    Senator Menendez touched on as well as Senator Cortez Masto
    related to beneficial ownership.
        Earlier this year, Senator Whitehouse and I asked GAO to
    undertake a study looking into FinCEN's geographic targeting
    orders, the GTOs, and potential gaps in that law that allow for
    luxury real estate to be an attractive option for those seeking
    to launder illicit cash in the United States, including by
    international organized crime. And I am pleased that GAO is
    going to undertake that study.
        I know that FinCEN continues to renew and expand GTOs to
    collect beneficial ownership information. I understand earlier
    this year, you completed a rule to require banks to collect
    some beneficial ownership information, but it still appears we
    are doing this in a very piecemeal fashion.
        If you look at this year's National Defense Authorization
    Act, it included a provision for the Department of Defense to
    collect beneficial ownership information for all high-security
    office space it leases. There are other proposals around here
    to say let us do this on a piecemeal basis.
        It seems that based on our experience to date, rather than
    attack this on a piecemeal basis, we do develop some kind of
    universal approach to identify beneficial ownership, and so my
    question is pretty simple. Based on your experience, do you
    agree that the U.S. Government, the Federal Government,
    Congress working with the Administration, should adopt
    legislation to require a broad universal provision requiring
    people to disclose beneficial ownership?
        Mr. Blanco. Yes, Senator.
        Senator Van Hollen. Excellent.
        I have a quick question on North Korea. I look forward to
    working with you, and I know others want to as well. On North
    Korea, the Wall Street Journal published an article this week
    documenting how North Korea is evading economic sanctions
    through a myriad of tactics, including ``Changes in their
    ownership reveal an expanding toolbox of strategies designed to
    keep North Korea shipping and economy afloat.'' In other words,
    they are using these shell corporations around the world. That
    is obviously an international challenge.
        Based on the sort of haphazard laws we have here in the
    United States, can we say with confidence that they are not
    laundering money in any U.S. entities?
        Mr. Blanco. Well, Senator, I cannot say anything with a lot
    of confidence, but I can tell you one thing with a lot of
    confidence. We are on this subject. We are all day about North
    Korea and Iran and all these rogue states that are out there.
    So, if they are, we are going to find it. They may be. I do not
    know if they are or they are not. I cannot give you a certain
    answer, but I can tell you we spend a lot of time figuring out
    whether they are or they are not. And when we see that they
    are, we take action. When we see that they are doing it
    overseas, we take action. We use our authorities, whether they
    are 311 authorities or OFAC sanction authorities, to make sure
    that they stop doing that, and we try to punish those who are
    involved.
        Senator Van Hollen. Well, I appreciate that.
        Mr. Chairman, as you know, this Committee passed on, I
    think, a unanimous basis, Senator Toomey's and my legislation,
    the BRINK Act, sometime ago. It has been sitting on the floor
    of the Senate. I understand we have been sort of watching
    developments in North Korea, but the evidence is mounting every
    day that the North Koreans are getting around the sanctions.
        Unfortunately--I am not talking about FinCEN, but the
    President has certainly made some statements saying maybe that
    is not so bad that we are not exerting maximum pressure anymore
    on North Korea's economy. And that is a mistake.
        So I think given the mounting evidence, Mr. Chairman, I
    look forward to conversation with you about, I guess,
    reintroducing and renewing our efforts to make sure that we
    apply maximum pressure on North Korea as we continue with
    whatever dialogue is ongoing at this point in time.
        Thank you very much.
        Chairman Crapo. Thank you. I look forward to that
    conversation.
        Senator Reed.
        Senator Reed. Well, thank you, Mr. Chairman.
        Thank you all. Let me commend you for the tenacious
    attitude you are displaying about making sure these laws are
    enforced appropriately.
        Mr. D'Antuono, I understand you began your career in
    Providence, Rhode Island. So it is no wonder you have risen to
    the heights you have and along the way had a few good meals
    too, I suspect.
        [Laughter.]
        Mr. D'Antuono. Correct. I am from Rhode Island too, sir.
        Senator Reed. Whereabouts? Where is your home?
        Mr. D'Antuono. Cranston.
        Senator Reed. That is my home, too.
        Mr. D'Antuono. Actually, a former relative of mine was a
    page for you.
        Senator Reed. Well, OK. Rhode Island, ladies and gentlemen,
    is a very small community. We know each other. We like each
    other. Thank you. I had to say that.
        This debate and the focus I have had is on beneficial
    ownership. I think, frankly, we have to do better in finding
    out who actually owns these assets. If we do not, then we are
    always going to be one step too late or two steps too late.
        There is a burden in terms of collecting this information,
    but I think--and I will get your opinions whether it is far
    outweighed by the benefits of knowing actually who is getting
    this money.
        And then any comments, beginning with Mr. Blanco and all
    the way down the line, about legislation that would assist you,
    specific proposals that would assist you, I would appreciate
    it.
        So let us start with Mr. Blanco, please.
        Mr. Blanco. Senator, thank you, and thank you for that
    question.
        I always see--when I hear burden and cost, I always think
    investment because that is what it is. It is an investment in
    keeping our financial system secure and making sure that we do
    the right thing at the end of the day.
        With respect to legislation, beneficial ownership, as I
    mentioned earlier in my opening statement, that is a national
    security issue. It just is. If we do not know who is using our
    financial system or explaining our financial system or
    benefiting from our financial system--I mean, let us face it.
    What better financial system to invest in here in the United
    States? And that is what every criminal does. That is what they
    do. That is where they want to put their money. That is where
    every kleptocrat wants to put their money because it is safe
    here because we have a secure financial system. We need to
    prevent them from doing that.
        I am happy to work with your staff on further legislation.
    I am happy to sit down with anybody personally and talk about
    beneficial ownership. It is very simple. We are not asking for
    brain surgery here. We are asking for just quick information.
    That is what it is, and it is not a burden. It is an
    investment.
        Senator Reed. Just one point to your comment, and then we
    will go down the panel. Starting across the board, every place,
    everywhere, the small bank in Woonsocket, Rhode Island, et
    cetera, we know there are some areas. There are some countries
    that are tax havens that have very loose standards. We could
    start step by step--you could start in terms of certain areas
    where that information has to be collected, other areas where
    you see the risk is low and it could be worked in. Is that a
    feasible approach?
        Mr. Blanco. It is almost like the bubble, right? I mean,
    you are going to hit this area, and then they are going--you
    might as well get it done and do it all in one fell swoop
    because the criminals are really smart. They know our laws.
    They are all watching today. I mean, they are all really
    interested in what is going on because that is the way they
    make money. So my recommendations to you would be to get it
    sweeping across the board.
        Senator Reed. That is good advice. Thank you.
        Mr. D'Antuono.
        Mr. D'Antuono. As I commented before, the beneficial
    ownership would be a benefit to law enforcement as a total. It
    really would.
        As a burden, you cannot really comment on that. Again, we
    are the end user for this information, but there is a gap
    there. There definitely is a gap there.
        As Ken just pointed out too, it is the balloon effect to
    anything. You talk about the GTOs and the beneficial ownership,
    you squeeze part of the balloon, it is going to go--they are
    going to go someplace else, same things with the rural banks,
    same thing with a lot of what we are talking about today. The
    CTRs, you squeeze on the bigger banks and you leave the rural
    banks alone, the rural banks are going to be where the money
    laundering is at.
        We work hand in hand with the Department of Justice, with
    the legislative fixes, as you put it, and we would be happy to
    talk to your staff about anything that we see.
        Senator Reed. Thank you.
        Mr. D'Antuono. But money laundering is a problem. We can do
    some fixes to that. We would be happy to talk to you all about
    that.
        Senator Reed. Thanks very much.
        Ma'am, please.
        Ms. Gardineer. Thank you, Senator.
        We do believe that the goals of the beneficial ownership
    rule are noble, and they are good ones. However, there are
    problems with the implementation, as there is not a universal
    way for financial institutions to really validate or how that
    information is collected across the various States. So that, to
    us, is the gap that we would like to see strengthened to really
    facilitate the rule meeting its goals.
        Senator Reed. Can you do that within the purview of your
    authority in your agency?
        Ms. Gardineer. I think that what we see from the
    institutions we supervise, we see the inefficiencies that are
    created because of the lack of a universal way of collecting
    that information upfront.
        Every State collects that ownership information in a
    different format, in a different way, which then creates
    additional burdens to making sure that the goals of the
    beneficial--or the CDD rule of beneficial ownership rule are
    actually effectuated.
        Senator Reed. But your concept of identifying beneficial
    ownership is one that you share with your colleagues as being
    critical?
        Ms. Gardineer. We do believe that it is an important goal.
        Senator Reed. Thank you.
        Thank you all very much.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you.
        One quick question.
        Senator Warner. I just wanted to make the comment.
        Mr. Blanco, I do not disagree when we talk about this as
    cost or investment, but if we are spending--if we accept all
    the range as $8 billion, I am just simply saying there may be
    better ways to invest that with more modern systems than--and I
    completely agree with my colleagues on this side of the aisle
    who have indicated beneficial ownership ought to be part of
    that, but if we could reach that standardization and reallocate
    part of that $8 billion to get that right--and there may be a
    series of other tools that we could--so I will use your
    language, but as long as we also recognize that that investment
    might be better spent than it is being spent right now.
        Mr. Blanco. Agreed. I agree.
        Chairman Crapo. Well, thank you. That concludes our
    questioning, and I again want to thank all of our witnesses,
    not only for being here today, but for hanging in there through
    a canceled hearing and for all of the work that you do. It is
    truly appreciated.
        I encourage you to continue to work with Members of the
    Committee because there is a very strong interest in this
    Committee on finding some answers to the various types of
    questions that you got today.
        For Senators wishing to submit questions for the record,
    those questions are due in 1 week, on Thursday, December 6th.
        As for the witnesses, we ask that you respond to the
    questions you will receive as quickly as you can.
        And, again, we thank you for being here. This hearing is
    adjourned.
        Mr. Blanco. Thank you, Senator.
        Ms. Gardineer. Thank you.
        [Whereupon, at 11:30 a.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                   PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
        This morning marks the fourth time this year that Members of the
    Banking Committee meet to evaluate the regulatory scheme of the Bank
    Secrecy Act in terms of efficiency in reporting and effectiveness of
    enforcement.
        The purpose of these hearings is to assess the current BSA
    framework against the challenges faced by the public and private
    sectors in confronting the risks posed by the constantly evolving money
    laundering, sanctions evasion and terrorist financing methods used by
    illicit financiers in the United States.
        The goal of this Committee is always to search for a means to more
    effectively target and prevent these activities, while imposing the
    least burden on those in industry tasked with being the gatekeepers to
    the United States financial system.
        The first two hearings, held in January, lead with witnesses from
    the private sector on the first day, followed a week later by witnesses
    from the Treasury and Justice Departments.
        The focus of these two full Committee hearings centered on
    discussions for potential reforms of the current U.S. regulatory
    framework in areas such as greater information sharing among financial
    institutions and the government, efforts to sharpen suspicious activity
    reporting by encouraging a risk-based approach over more quantifiable
    metrics, and the importance of requiring the collection of beneficial
    ownership information at the time of incorporation, rather than relying
    exclusively on the current Customer Due Diligence procedures.
        Over the summer, Senators Sasse and Donnelly continued the work of
    the Committee by holding a third hearing, as Chair and Ranking of the
    National Security subcommittee, on how criminal organizations launder
    money and the need for modernizing the anti-money laundering regime to
    better address the requirements of both financial institutions and law
    enforcement.
        Senator Sasse correctly assessed that the anti-money laundering
    regime must constantly innovate to keep up with the bad actors that
    continuously update their methods of accessing the U.S. financial
    system.
        In fact, each of these hearings have, from the beginning,
    culminated in strong bipartisan support to reform the existing regime
    largely by finding clear-headed measures designed to encourage the
    innovation necessary to combat illicit financing while also encouraging
    regulators to focus on more tangible threats, and law enforcement to
    increase interagency cooperation and improve information sharing
    throughout the process.
        While not yet settled on any one particular reform or fix, Members
    of the Committee are united on the idea that there is room for change
    in a decades-old system that will yield a modernized BSA anti-money
    laundering regime that works for law enforcement, financial
    institutions, their regulators, and the man in the street, who is the
    ultimate beneficiary of a strong U.S. financial system.
        Today, the Committee will continue its probe for new ideas on
    reform from the Financial Crimes Enforcement Network, or FinCEN; the
    Office of the Comptroller of the Currency, or OCC; and, from the FBI,
    which ultimately cannot be hampered by a misplaced reform in its
    mission to chase down the criminals and the illicit proceeds they
    generate.
        We are especially fortunate to have with us, today, the Director of
    FinCEN, Mr. Ken Blanco, who as Director is the Chief Administrator of
    BSA.
        Before FinCEN he was a former top prosecutor at the Department of
    Justice, the Acting Assistant Attorney General of the Criminal
    Division, and a one-time head of its Anti-Money Laundering and Asset
    Recovery Section.
        Also testifying are Mr. Steven D'Antouno, Chief of the Financial
    Crimes Section at the FBI, and Ms. Grovetta Gardineer, who is Senior
    Deputy Comptroller for Compliance at the OCC.
        I thank our witnesses for sticking with us after the Committee had
    to postpone this hearing. But, this is an important hearing where we
    must take the time to talk about the issues surrounding innovation,
    financial integrity, public confidence, and crime from the perspective
    of regulators and law enforcement.
        In that regard, and since we last intended to hold this hearing, an
    arrest was reported of a senior FinCEN employee for unlawfully removing
    and disclosing to a member of the media Suspicious Activity Reports or
    ``SARs,'' which were held in FinCEN's custody.
        In fact, this was a highly unusual and complicated insider
    occurrence of sensitive SAR information being disclosed, but it
    underscores the employee's alleged crime as a critical challenge to the
    integrity of the financial system and the public's confidence in it.
        More than ever, with the advent of the innovative application of
    big data analytics available to law enforcement to deal with ever-
    increasing information flows, it is incumbent on all custodians of
    sensitive information to fully comply with the confidentiality rules of
    the BSA and particularly for the government to take all necessary steps
    to ensure that it can protect this vast amount of data entrusted to it.
        I greatly appreciate this opportunity to engage in a discussion
    with the experts today to help us find a way to advance innovation in
    the BSA compliance and enforcement regimes to better direct the
    resources of government and financial institutions aimed at protecting
    the integrity of the U.S. financial system, and the businesses that are
    America's bedrock.
                                     ______

                  PREPARED STATEMENT OF SENATOR SHERROD BROWN
        Thank you, Mr. Chairman, for calling this hearing. Even with all of
    the tough, comprehensive protections we've put in place over the years,
    especially since 9-11, huge amounts of laundered funds continue to
    course through our financial system.
        In late 2015, Treasury's comprehensive report on money laundering
    noted that money laundering related to fraud, drug trafficking and
    other forms of illicit finance generated an estimated $300 billion
    annually.
        That's why it's critical we consider ways to update and strengthen
    our anti-money laundering regime, including requiring the kind of tough
    new beneficial ownership rules we should have imposed years ago. Why,
    for example, didn't more alarm bells go off when Paul Manafort was
    making huge payments for luxury items from anonymous bank accounts in
    Cyprus?
        We should revamp our beneficial ownership rules, and assess the
    reporting burden on small and medium-sized banks.
        But the kind of discussions we've sometimes had in the past, as
    we've talked about creating different rules for global and community
    banks, does not fit as well here.
        Money launderers are looking for the weakest link, whether it is
    HSBC or BB&T or Lone Star National Bank, and will migrate to smaller
    banks as necessary to hide their crimes.
        Community and regional banks play a crucial role alongside our
    biggest banks in monitoring transactions across the country--their
    efforts are essential to Federal efforts to monitor, deter, prosecute,
    and punish illicit finance-related activity across our economy.
        Assessing the efficacy of our current transaction monitoring and
    reporting system must be a data-driven policy process. I am pleased
    FINcen is going to be systematically assessing its current vast body of
    BSA data with an eye to possible changes.
        I look forward to hearing the results of their assessment when it's
    done. It will provide an important fact-based foundation for any BSA
    reform efforts.
        Some preliminary analysis has already been done. Bipartisan
    committee staff have been told by FINcen and the FBI, for example, that
    increasing SAR and Currency Transaction Report (CTR) thresholds to the
    levels contained in the House Republican bill would eliminate around 80
    percent of the data available to Federal law enforcement.
        We cannot throw 80 percent of the data, including on suspicious
    activity, out the window. That is irresponsible; it makes no sense. And
    it could cost lives.
        It is true that law enforcement can and should share more
    information with bank compliance teams--even though they can't always
    discuss details with reporting banks. And Treasury is working on that.
        As I have noted, we should keep in mind that we're operating
    against a backdrop where in recent years some of the world's largest
    banks and their foreign partners have continued to run afoul of these
    laws.
        In fact, the Government Accountability Office concluded in 2017
    that from 2009-2015 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 U.S.
    sanctions requirements--including $5.2 billion 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. Some conducted transactions with individuals or
    entities affiliated with terrorists and drug cartels. Many violated the
    law for years.
        These are not victimless crimes.
        We must strengthen interdiction of the supply of drugs like
    Fentanyl coming into the country through initiatives like my INTERDICT
    Act, signed into law by President Trump.
        But we must also cutoff the traffickers' money supply. Money
    laundering on behalf of drug cartels has a direct line to the opioid
    epidemic in Ohio, where Sinaloa cartel actors have been active,
    destroying thousands of families.
        Likewise, human traffickers exploit the misery of runaways here,
    recruiting young women from overseas with promises of legitimate work
    in the United States and using the financial system to launder their
    profits.
        That's why these laws are so critical: they protect the integrity
    of our financial system, and provide critical intelligence to law
    enforcement to combat crime.
        Even so, we do 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 of being a haven for anonymous
    shell companies.
        I welcome today's witnesses, and look forward to your perspectives.
                                     ______

                    PREPARED STATEMENT OF KENNETH A. BLANCO
       Director, Financial Crimes Enforcement Network, Department of the
                                    Treasury
                               November 29, 2018
    Introduction
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    thank you for inviting me to appear before the Committee on Banking,
    Housing and Urban Affairs on behalf of the Financial Crimes Enforcement
    Network (FinCEN). FinCEN's mission is to safeguard the financial system
    from illicit use and to promote national security through the
    collection, analysis, and dissemination of financial intelligence. I
    appreciate the opportunity to discuss the anti-money laundering (AML)
    and countering the financing of terrorism (CFT) regime in the United
    States and the value of the Bank Secrecy Act (BSA) in keeping our
    county strong and prosperous, our financial system secure, and our
    families and communities safe from harm.
        The reach, speed, and accessibility of the U.S. financial system
    make it an attractive target to money launderers, fraudsters,
    terrorists, cyber criminals, rogue states, transnational organized
    crime syndicates, gangs, and other bad actors. To combat efforts by
    these individuals, groups, or networks to use, abuse, or benefit from
    the U.S. financial system, we have developed and rigorously enforce one
    of the most effective AML/CFT regimes in the world. However, despite
    the strength of our AML/CFT framework, malicious actors will continue
    to attempt to exploit any vulnerability to move their illicit proceeds
    undetected through legitimate financial channels in order to hide,
    foster, or expand the reach of their criminal or terrorist activity. We
    must therefore be vigilant in our mission and work to stay ahead of
    these criminals and terrorists by: (1) aggressively investigating and
    pursuing illicit activity; (2) ensuring that we collect the financial
    intelligence necessary to support these investigations; (3)
    understanding the evolving trends and typologies of illicit activity;
    and (4) closing any regulatory gaps that expose our financial system to
    money laundering and the other underlying illicit activity that
    threaten our financial system and put our Nation, communities, and
    families in harm's way.
        Many of our efforts to identify and disrupt illicit finance threats
    and the underlying crimes depend on financial institutions fully
    complying with the BSA 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
    terrorist financiers, cyber criminals, human traffickers, fraudsters,
    weapons pro-
    liferators, rogue regimes, and other illicit actors.
        One of my top priorities is to ensure that the AML/CFT framework
    remains strong and effective. My testimony today will focus on the
    importance of BSA information and our efforts to promote innovation and
    to improve the effectiveness and efficiency of the BSA framework.
    The Importance of Bank Secrecy Act Information
        Financial institutions are on the front lines of our fight against
    financial crime. They play a key role in protecting our country by
    providing the information we need to keep illicit actors from using,
    exploiting, and benefiting from our financial system.
        Law enforcement, counter-terrorism agencies, financial regulators,
    and other stakeholders extensively use the financial intelligence that
    FinCEN collects under the BSA. The information collected is critical in
    many areas: investigations and prosecutions targeting criminals,
    terrorists, rogue states, and other bad actors; effective use of our
    enforcement tools and authorities such as USA PATRIOT Act special
    measures and Office of Foreign Assets Control sanctions; and developing
    and fine-tuning BSA policy. BSA reporting also allows us to take a
    macro view of financial crime. We can map out significant criminal
    networks and identify trends and patterns of criminal and terrorist
    activity, which we can then share with the financial community to
    strengthen their ability to identify and report priority illicit
    activity as well as assess risk.
        FinCEN and our law enforcement partners are able to do important
    things with the information provided by financial institutions. BSA
    data plays a critical role in keeping our country strong, our financial
    system secure, and our families safe from harm. When financial
    institutions report suspicions about elder fraud, human trafficking,
    cybercrime, narcotics trafficking, terrorism or other illicit activity,
    they provide incredibly valuable leads and ongoing support for law
    enforcement investigations and, importantly, they make it much harder
    for criminals to move or hide their illicit proceeds in the financial
    system.
        FinCEN is often asked whether financial institutions' compliance
    efforts are actually working. The short answer is, yes. If the system
    were not working, bad actors would not be working so hard to come up
    with new and creative ways to move their ill-gotten gains in and around
    the financial system.
        BSA information helps FinCEN further the core national security
    priority of protecting the financial system from exploitation by
    illicit actors or financial institutions with complicit insiders and
    broken controls. FinCEN does this in a number of ways, including
    through the use of Section 311 of the USA PATRIOT Act. This authority
    allows us to identify jurisdictions and financial institutions to be of
    primary money laundering concern and impose a range of special measures
    to safeguard the U.S. financial system. This powerful tool can lead to
    impactful systemic change.
        For example, in February 2018, FinCEN found Latvia-based ABLV Bank
    to be a foreign financial institution of primary money laundering
    concern and issued a notice of proposed rulemaking (NPRM) that would
    prohibit U.S. financial institutions from opening or maintaining
    correspondent accounts on behalf of ABLV. As discussed in the NPRM,
    ABLV's management institutionalized money laundering as a pillar of the
    bank's business practices. Its failure to implement effective AML/CFT
    policies and procedures made the bank attractive to a range of illicit
    actors, including parties connected to United States and United Nations
    (U.N.)-designated entities, some of which are involved in North Korea's
    procurement or export of ballistic missiles, in addition to corrupt
    officials and organized crime--significant amounts of which emanated
    from Russia. BSA information was critical in this particular case, as
    multiple U.S. financial institutions in recent years identified the
    same pattern of suspicious activity emanating from ABLV. This activity,
    which included banking for a significant number of shell companies
    processing large volumes of transactions with no apparent business
    purpose, led U.S. financial institutions to proactively close ABLV
    correspondent accounts on their own initiative, prior to the issuance
    of the NPRM.
        FinCEN uses the financial intelligence it collects to report
    suspicious behaviors related to money laundering and terrorist
    financing threats to industry through our Financial Institution
    Advisory Program. FinCEN can issue public and nonpublic advisories to
    alert financial institutions of specific illicit finance risks.
    Advisories often contain illicit activity typologies, red flags to
    facilitate monitoring, and guidance on complying with FinCEN
    regulations to address threats and vulnerabilities. In June 2018,
    FinCEN issued an advisory on human rights abuses enabled by corrupt
    senior foreign political figures and their financial facilitators, and
    in November 2017, FinCEN issued an advisory to further alert financial
    institutions to North Korean schemes being used to evade U.S. and U.N.
    sanctions, launder funds and finance the North Korean missile programs.
    Financial institutions may use this information to enhance their AML
    monitoring systems to develop more valuable suspicious activity
    reporting.
        BSA reporting also aides investigations tied to weapons
    trafficking, bulk cash smuggling, gang activity, significant fraud,
    transnational organized crime, human trafficking, bribery, healthcare
    fraud, corruption, embezzlement, narcotics, kleptocracy and third-party
    money laundering, among other crimes. We have nearly 500 Federal,
    State, and local law enforcement and regulatory agencies with direct
    access to FinCEN's database of BSA records. Within these agencies,
    there are an estimated 11,000 active users of BSA data. This consists
    of 149 SAR Review Teams and Financial Crimes Task Forces located all
    around the country, covering all 94 Federal judicial districts,
    including one in each State, the District of Columbia, and Puerto Rico.
    In the last 5 years, FinCEN query users have made more than 10 million
    queries of the FinCEN database.
        BSA data is also vital for unmasking and investigating criminal tax
    evasion and other crimes. Internal Revenue Service Criminal
    Investigation alone conducts more than 126,000 BSA database inquiries
    each year. And, 24 percent of its investigations begin with a BSA
    source. As my colleague from the Federal Bureau of Investigation (FBI)
    will discuss, financial intelligence is a key tool for FBI criminal
    investigations. All FBI subjects have their names run against the BSA
    database. More than 21 percent of FBI investigations use BSA data, and
    for some types of crime, like organized crime, nearly 60 percent of FBI
    investigations use BSA data. Roughly, 20 percent of FBI international
    terrorism cases contain BSA data.
        As the Financial Intelligence Unit of the United States, FinCEN
    also shares information with our international partners. From February
    2016 to February 2017, FinCEN made more than 900 spontaneous
    disclosures of BSA information to foreign partners on 3,500 individuals
    and 80 entities. In several cases, these disclosures provided details
    on suspected terrorists before they were involved in major plots
    or attacks. This resulted in more than 100 active investigations, the
    issuance of
    international arrest warrants, new listings on national terrorism
    sanctions lists, at least 25 visas revoked, and at least two
    convictions.
        BSA information can also help financial institutions and other
    reporting entities assess and manage AML risks. The information
    obtained as a result of complying with BSA recordkeeping and reporting
    requirements helps institutions better understand their customers and
    any transactional risks they may pose. BSA data can help financial
    institutions develop unique insights to better partner with law
    enforcement and FinCEN around shared illicit finance priorities and
    threats.
        The diligence that each financial institution exercises complying
    with their recordkeeping and reporting obligations keeps our Nation,
    our communities, and our families safe. Simply put, BSA information: 1)
    provides leads; 2) helps expand cases and assembles pieces of the
    puzzle or illuminates networks we would not see otherwise; and 3) helps
    alert us to trends in illicit activity so that we can get ahead of the
    harm, deter it, or prevent the harm from spreading.
        I want to emphasize this last point. While data from BSA reporting
    can assist with specific investigations, that does not mean, if it is
    unrelated to a specific case, it is any less valuable. FinCEN and law
    enforcement officials regularly analyze and work with the data to
    connect networks, understand trends and typologies, and develop red
    flags. When BSA data is combined with other information--such as open
    source data, research, and law enforcement information--we can see so
    much more. It maps out connections that we would not otherwise see or
    even know about, bringing criminal and terrorist networks out of the
    shadows.
        We are getting better at this every day, but we believe we can do
    much more. Part of getting better and doing more includes providing
    both our financial institutions and delegated examiners better and more
    consistent feedback on how we use BSA data so they understand our
    priorities and how to better use their resources more effectively and
    efficiently in a more targeted and focused way.
        One area we need to strengthen is addressing the misuse of legal
    entities by criminals seeking to access the financial system
    anonymously for money laundering and other illicit activities. FinCEN's
    Customer Due Diligence rule, which was 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 at account opening. Although that is an important step in
    preventing the ability of criminals to hide behind a company with
    hidden beneficial owners when opening an account, the collection of
    beneficial ownership information is also critical at the time a company
    is being incorporated. FinCEN and the Department of the Treasury more
    broadly have prioritized increasing transparency in corporate
    formation, and we look forward to working with Congress on this
    important issue.
    Regulatory Reform--Strengthening the AML/CFT Framework
        A strong and effective AML/CFT framework keeps illicit actors out
    of the financial system. We recognize that to remain strong and
    effective, we must keep pace with evolving forms of illicit finance
    threats. To that end, we are taking a hard look at the BSA and the
    broader AML/CFT regime. We want to upgrade and modernize our system
    where needed to make sure we have the right framework in place to meet
    the current and evolving challenges well into the future.
        To achieve this objective, FinCEN is working closely with the
    Federal Banking Agencies, State regulators, law enforcement, and the
    private sector to identify ways to improve the effectiveness and
    efficiency of the BSA regime. Our goal is to ensure that financial
    institutions are devoting their resources to identify and report
    activity that relates to the highest priority national security and law
    enforcement interests.
        This effort requires a multi-prong approach with three key
    priorities: (1) understanding BSA value; (2) promoting responsible
    innovation; and (3) fostering information sharing, including through
    public-private partnerships.
    Understanding BSA Value
        One key component of FinCEN's reform efforts is to better identify
    and quantify the value and use of bank and other financial institution
    reporting, including a thorough, data-driven analysis of BSA reporting
    to inform our decisionmaking. While we are eager to improve and reform
    the BSA framework, we believe it is important to ensure that any change
    is supported by such an assessment and a clearer understanding of how
    to measure the effectiveness of BSA data.
        As part of this effort, we are evaluating the suspicious activity
    report (SAR) and currency transaction report (CTR) requirements,
    including reporting thresholds. We are also looking at whether certain
    types of SAR reporting can or should be streamlined. With respect to
    thresholds, 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.
    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. 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.
        BSA 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. It also
    provides significant strategic value, ranging from studies of trends to
    identification of typologies associated with new illicit finance
    schemes, such as illicit use of cryptocurrencies, which 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.
        For these reasons, we believe it is important to take a holistic
    view when considering thresholds, and ensure we examine the relative
    value of the SARs and CTRs.
        The FinCEN led Bank Secrecy Act Advisory Group (BSAAG), a
    statutorily mandated advisory group, and its working groups will be
    critically important as we evaluate these ideas and translate them into
    concrete actions. The BSAAG allows representatives from Federal
    regulatory and law enforcement agencies, financial institutions, and
    trade groups to advise FinCEN and others on the operations of the BSA.
    As the chair of the BSAAG, I am responsible for ensuring that relevant
    issues are placed before the BSAAG for review, analysis, and
    discussion. BSAAG has already established working groups that are
    either focusing on some of these ideas or may focus on some of these
    ideas in the future.
        While we are conducting a data driven analysis, we are looking for
    ways we can enhance effectiveness and efficiency now. Treasury and the
    Federal Banking Agencies formed a working group to work closely on
    specific initiatives aimed at achieving this goal. And, I personally,
    meet with my counterparts every month to discuss these issues. Each
    day, law enforcement investigators rely on valuable information
    provided by our country's financial institutions. As Federal
    regulators, we recognize that providing this valuable information costs
    time, talent, and money. We have an obligation to support and promote
    innovative ways to make complying with BSA responsibilities as
    effective and efficient as possible, while making sure that the
    effective use of that hard-won information is not diminished.
        FinCEN also engages with all the Federal Functional Regulators
    responsible for the supervision of the U.S. financial sector to provide
    clarity on the BSA regulatory framework to industry through the BSAAG.
    In addition, FinCEN meets monthly with its banking counterparts through
    the Federal Financial Institution Examination Council's Anti-Money
    Laundering Working Group. Together, we are updating the Anti-Money
    Laundering Examination Manual for depository institutions.
    Promoting Responsible Innovation
        A second prong of our reform efforts is also one of my highest
    priorities. That is, to promote responsible innovation and creative
    solutions to combat money laundering and terrorist financing.
        Innovation in financial services can be a great thing when it
    provides customers greater access to an array of financial services and
    at faster speeds than ever before. However, as industry evolves and
    adopts these new technologies, we also must be cognizant that financial
    crime evolves right along with it, or indeed sometimes because of it,
    creating opportunities for criminals and bad actors, including
    terrorists and rogue states. Our role at FinCEN is to protect and
    secure our financial system from those who seek to misuse important
    technological advancements for nefarious purposes--harming victims
    while undermining trust in our financial system upon which innovation
    and our country prosper.
        In recent years, 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. Many institutions are also working
    closer together to share information to get a more accurate picture of
    risks and illicit activity. We encourage these innovations and are open
    to discussing any ideas financial institutions may have to improve AML/
    CFT compliance.
        Within Government, we are also exploring new and better ways to
    collect and use data. We are exploring more powerful and innovative
    tools to analyze the reporting that we collect to be more proactive and
    effective in our approach to keeping our Nation strong, our financial
    system prosperous and secure, and communities and families safe from
    harm. We are continuously developing our technological capabilities and
    expertise to remain in step with the evolution of industry as well as
    the threat that persistently seek to take advantage of new
    vulnerabilities. We will be just as persistent. We are working hard on
    the dynamic infrastructure across analytic, operational, policy, and
    legal areas to be as agile and forward-looking as the world in which we
    operate and the financial system that is our mission to protect and
    advance.
        Our collective innovative approaches and use of technology to
    derive higher quality information to address priority threats advances
    the underlying purpose of the BSA. I am committed to a long-term and
    collaborative approach with all our partners in this regard; we are
    much more effective when we work together. In this time of change,
    working closely with financial institutions and others in fostering
    innovation and leveraging technology is a priority. We are in close
    contact with all of our regulatory, law enforcement, and industry
    partners regarding emerging technology use cases in the financial
    industry. In fact, we have an innovation working group as part of the
    BSAAG that includes all our relevant stakeholders and where we can
    discuss these issues in depth.
        We want to support innovation that advances the U.S. financial
    system. Therefore, that means regular engagement with industry on
    developments they are working on so that we can assess and address
    potential threats and gaps. We are in constant conversation with our
    regulatory partners on what they are seeing and who among us is best
    placed to cover emerging threats or gaps, including any guidance or
    regulatory changes that we need to work on to ensure that industry is
    developing advancements that minimize vulnerabilities.
    Public-Private Information Sharing
        This leads me to my final priority in this space--effective
    information sharing. Collaboration between the Government and the
    private sector, including through better communication of risks, to
    further the objectives of the BSA. Financial institutions are often the
    first to detect and block illicit financing streams, combat financial
    crimes, and manage risk. 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. One way we accomplish this is through FinCEN
    Exchange. FinCEN Exchange brings financial institutions, FinCEN, and
    law enforcement together to facilitate greater information sharing
    between the public and private sectors.
        FinCEN collaborates closely with law enforcement and uses a number
    of mechanisms to provide feedback to financial institutions. Feedback
    is an important component of enhancing information sharing. We interact
    daily with our law enforcement counterparts, and FinCEN hosts liaisons
    from 10 different law enforcement agencies to support our common
    missions. FinCEN holds regular meetings among these law enforcement
    liaisons to discuss mutual areas of concern and make sure that the BSA
    data is available to support their investigations. In addition to
    ensuring that BSA data is properly used, disseminated, and kept secure,
    these liaisons are a key conduit for FinCEN's routine collaboration
    with their parent agencies on a wide range of overlapping issues
    related to the administration of the BSA and combating illicit finance.
        FinCEN has a number of other mechanisms to facilitate law
    enforcement input and feedback to financial institutions:

        Bank Secrecy Act Advisory Group (BSAAG). The BSAAG is a key forum
    for law enforcement, regulators, and representatives from financial
    institutions to engage directly, and to exchange information and
    provide feedback in a dynamic environment. In addition to plenary
    meetings, representatives from law enforcement, regulators, and
    industry participate in the BSAAG working groups focused on discrete
    areas of concern and interest related to the BSA.
        FinCEN Director's Law Enforcement Awards Program. In this program,
    FinCEN identifies investigations where BSA data has played a
    significant role in the success of a case to highlight the value of BSA
    data to the financial community.
        Section 314 Program. FinCEN's 314 Program Office provides ongoing
    statistical feedback received on the utility of the 314(a) Program and
    also develops case descriptions or studies of instances in which the
    use of 314(a) by law enforcement has been particularly valuable to
    significant investigations. To date, 26 case studies have been made
    available to the financial institutions via FinCEN's Secure Information
    Sharing System.
        FinCEN Advisories. FinCEN solicits feedback on emerging trends in
    financial crime typologies and related red flags from U.S. law
    enforcement and incorporates it into FinCEN Advisories that are
    disseminated to financial institutions.
        FinCEN Exchange: The Exchange is a public-private information-
    sharing program that brings financial institutions, FinCEN, and law
    enforcement together to facilitate greater information sharing between
    the public and private sectors. In close coordination with law
    enforcement, it provides information to support specific matters
    through Section 314(a) of the USA PATRIOT Act and other authorities in
    order 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.
        FinCEN will continue to develop new ways to provide feedback to
    financial institutions on the value and benefit of their reporting. We
    want financial institutions to focus on developing information that
    will be highly valuable to Government. To be fair, financial
    institutions don't always know what we need. We have to tell them, and
    we have to tell them what we need in a way that allows financial
    institutions to re-prioritize resources in the most effective manner. I
    welcome further dialogue with the Committee, law enforcement, industry,
    and any other stakeholders on this subject.
    Conclusion
        I would like to thank the Committee for its efforts on this
    important matter. Combating money laundering and illicit finance
    threats secures our financial system, keeps our Nation safe and
    prosperous, and protects our communities and families from harm.
    Working together to improve our AML/CFT regime is vitally important. I
    look forward to your questions.
                                     ______

                  PREPARED STATEMENT OF GROVETTA N. GARDINEER
    Senior Deputy Comptroller, Compliance and Community Affairs, Office of
                       the Comptroller of the Currency *
    ---------------------------------------------------------------------------
         * Statement Required by 12 U.S.C.  250:

        The views expressed herein are those of the Office of the
    Comptroller of the Currency and do not necessarily represent the views
    of the President.
    ---------------------------------------------------------------------------
                               November 29, 2018
    Introduction
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    thank you for the invitation to appear before you today to discuss
    initiatives to reform and modernize the Bank Secrecy Act (BSA)/Anti-
    Money Laundering (AML) regulatory and supervisory regime. We at the
    Office of the Comptroller of the Currency (OCC) support the purpose of
    the BSA to combat money laundering and terrorist financing (illicit
    finance). Toward this end, the OCC is committed to ensuring that the
    institutions under its supervision have robust controls in place to
    safeguard them from being used as vehicles to launder money for drug
    traffickers and other criminal organizations, or to facilitate the
    financing of terrorist acts. Together, with the other Federal banking
    agencies and the law enforcement community, our goal is to prevent the
    misuse of our Nation's financial institutions.
        Under Comptroller Otting's leadership, the OCC is working to
    improve our system for addressing illicit finance by focusing agency
    resources and those of the entities that we supervise on the areas of
    highest risk. We are working collaboratively with other Federal
    agencies and the private sector to improve the efficiency and
    effectiveness of the BSA/AML framework, including regulations,
    supervisory policy, and examinations in order to protect the integrity
    of the U.S. financial system. I am pleased to share some of the OCC's
    initiatives to further these objectives, as well as some
    recommendations for legislative action that would reduce unnecessary
    industry burden and promote information sharing.
        The OCC charters, supervises, and regulates more than 1,300
    national banks, Federal savings associations, and Federal branches of
    foreign banks (``banks''). These banks collectively hold $11.8 trillion
    in assets--roughly percent of the assets of the commercial banking
    system. The vast majority of these 1,300 banks are smaller, community
    banks with less than $1 billion in assets. As fundamental to its
    mission, the OCC requires banks to soundly manage their risks, meet the
    needs of their communities, comply with laws and regulations, and
    provide fair access to financial services and fair treatment of their
    customers.
        In 2016, the OCC created an executive-level unit dedicated to
    enhancing the agency's focus on compliance issues, including BSA
    compliance. The Compliance and Community Affairs (CCA) line of business
    is focused on the agency's ability to comprehensively identify and
    address BSA/AML compliance risk, issue timely guidance and examination
    procedures, and communicate effectively about emerging compliance
    issues throughout the OCC and the banking industry. CCA develops AML
    policy and examination procedures and serves as the agency's technical
    expert to support consistent and effective implementation of BSA/AML
    supervision. In my role as Senior Deputy Comptroller of CCA, I have
    represented the OCC on domestic and international interagency groups
    and task forces addressing issues of illicit finance. I also regularly
    engage in dialogue with representatives of the banking industry and
    other stakeholders on this important issue. As well, I have established
    strong working relationships with my counterparts in the other Federal
    banking agencies, the Department of the Treasury (Treasury), the
    Financial Crimes Enforcement Network (FinCEN), and law enforcement
    agencies. As stakeholders with the shared responsibility of protecting
    our financial system from misuse, our paramount goal has been, and will
    continue to be, preserving and enhancing the integrity of the U.S.
    financial system. Working collaboratively to focus our combined
    authorities, objectives, and interests on deterring the misuse of our
    Nation's financial institutions by illicit actors is a strong and
    enduring characteristic of our interagency efforts.
    OCC's Risk-Based Supervision
        Banks play a critical role in providing consumers and businesses
    across the Nation with financial services and serve as key sources of
    credit for economic growth and job expansion throughout the United
    States. As a result, the OCC and other regulators are vital in ensuring
    the financial services system remains capable of meeting the needs of
    consumers and businesses in the United States and globally.
        Regulatory oversight is particularly important because the safety
    and soundness of an institution can be threatened when a bank lacks
    appropriate risk management systems and controls around the products or
    services it provides, the customers it serves, or the geographies in
    which it does business. For this reason, banks must have effective BSA
    compliance programs. The OCC monitors compliance with the BSA and its
    implementing regulations by applying the examination procedures in the
    interagency BSA/AML Examination Manual.\1\ Community banks are examined
    on a 12- or 18-month cycle, most midsize banks are examined on an
    annual cycle, and the largest banks are examined on a continuous basis
    by a dedicated team of examiners. Examination procedures are applied on
    a risk basis and direct examiners to focus on high-risk areas within
    banks. Every bank's BSA/AML compliance program must have, at a minimum,
    a system of internal controls to ensure ongoing compliance, independent
    testing for compliance, a designated individual responsible for
    coordinating and monitoring compliance (BSA officer), and training for
    appropriate personnel. Examiners assess the adequacy of each bank's
    BSA/AML program, relative to the risk profile of the bank, by
    evaluating the implementation and effectiveness of the bank's policies,
    procedures, systems, and controls. We also assess the effectiveness of
    the bank's program to ensure that transactions do not involve entities
    subject to sanction programs administered and enforced by the Office of
    Foreign Assets Control (OFAC).
    ---------------------------------------------------------------------------
        \1\ Bank Secrecy Act/ Anti-Money Laundering Examination Manual.
    Federal Financial Institutions Examination Council. 2014 (https://
    bsaaml.ffiec.gov/documents/BSA_AML_Man_
    2014_v2.pdf.)
    ---------------------------------------------------------------------------
        For banks, BSA compliance requires analyzing large volumes of
    transactions to identify features that are suspicious, in the context
    of criminal and possibly terrorist elements that are dedicated to, and
    expert in, concealing the true nature of the transactions they
    undertake. As banks' BSA compliance programs have advanced to address
    these requirements, so has the sophistication and determination of
    money launderers, terrorist financiers, and other criminals in finding
    other ways to gain access to our institutions. Risks are constantly
    evolving, as criminal elements alter their tactics to avoid detection.
    As part of the supervision process, OCC examiners analyze BSA data
    trends, including currency transaction reports (CTRs) and suspicious
    activity reports (SARs), to aid in identifying areas of potential risk
    that may require supervisory attention. In cases where examiners
    identify areas of concern, deficiencies, or violations, the examination
    scope typically includes performing transaction testing in targeted
    areas to determine the scope of the potential problem and requirements
    for corrective action.
        One tool that the OCC has developed to help assess BSA/AML and OFAC
    risk in community banks is the Money Laundering Risk (MLR) System, an
    annual data collection, review, and assessment process that allows the
    OCC to identify potentially higher-risk areas within the community bank
    population. The MLR data collection process identifies indicators of
    BSA/AML and OFAC risk at an institutional level by identifying the
    products and services offered by these institutions, as well as the
    customers and geographies they serve. Examiners utilize this
    information regarding a bank's overall risk activities to appropriately
    scope and plan examinations. This approach not only allows the OCC to
    focus its resources, but also affords the agency flexibility to shift
    examination emphasis in response to the ever-changing money laundering
    typologies and criminal schemes that are present in the environments in
    which our banks operate. The MLR System also gives the agency a
    horizontal view of the quantity of BSA/AML risk, and trends in that
    risk, across the OCC's portfolio of community banks.
    OCC's Reform Initiatives
        It is critical that the nearly 50-year-old BSA/AML regime be
    updated and enhanced to address today's threats and better utilize the
    capabilities of modern technology in protecting the financial system
    from illicit activity. Therefore, the OCC in 2018 has taken a
    leadership role in coordinating discussions with the Federal Deposit
    Insurance Corporation (FDIC), Board of Governors of the Federal Reserve
    System (FRB), National Credit Union Administration (NCUA), Treasury,
    and FinCEN (collectively, the ``agencies'') to identify and implement
    ways to improve the efficiency and effectiveness of BSA/AML
    regulations, supervision, and examinations, while continuing to meet
    the requirements of the statute and regulations, support law
    enforcement, and reduce BSA/AML compliance burden.
        The agencies have taken a number of actions to further these
    objectives. For example, the agencies established a working group
    earlier this year, which currently is focused on a number of work
    streams designed to: promote innovative and proactive approaches to
    identify, detect, and report financial crime, and meet BSA/AML
    regulatory obligations; and clarify that the agencies do not have a
    zero-tolerance approach to BSA/AML supervision and enforcement but
    rather employ a risk-based approach to the examination process. The
    agencies are committed to modernizing the regulatory regime in ways
    that encourage institutions to dedicate resources to the areas of
    highest risk for illicit finance activities. The working group also
    recognizes that one important path to enhancing BSA/AML effectiveness
    is to encourage banks to develop innovative approaches to risk
    management and compliance by using new technologies and processes.
        The agencies, through the efforts of the working group, recently
    released a joint statement clarifying ways in which community banks
    with a lower BSA risk profile may be able to increase efficiency and
    reduce burden in their BSA/AML compliance programs through the sharing
    of BSA resources. The statement describes how these banks can
    effectively use collaborative arrangements to share human, technology,
    or other resources related to BSA compliance to reduce costs, increase
    operational efficiency, and leverage specialized expertise.
        Recently, the OCC, working with FinCEN and the other agencies, took
    additional action to reduce compliance burden and enhance the risk
    focus of the BSA regime. On September 28, 2018, the agencies, with the
    concurrence of FinCEN, issued an order granting an exemption from the
    requirements of the customer identification program rules (CIP)
    implementing section 326 of the PATRIOT Act for certain loans.\2\ The
    affected loans are those extended by banks and their subsidiaries to
    commercial customers to facilitate purchases of property and casualty
    insurance policies. These are generally referred to as insurance
    premium finance lending or premium finance loans. The agencies
    determined, and FinCEN concurred, that providing this exemptive relief
    is consistent with the purposes of the BSA and safe and sound banking.
    ---------------------------------------------------------------------------
        \2\ OCC Bulletin 2018-35, ``Order Granting Exemption from Customer
    Identification Program Requirements for Premium Finance Lending.''
    September 28, 2018 (https://occ.gov/news-issuances/bulletins/2018/
    bulletin-2018-35.html).
    ---------------------------------------------------------------------------
        The OCC also is engaged with other members of the Federal Financial
    Institutions Examination Council (FFIEC) and FinCEN to revise the
    FFIEC's BSA/AML Examination Manual. We expect that these revisions will
    further define the FFIEC members' application of their risk-based
    approach to supervision. Such additional clarity will support resource
    management efforts so banks can better meet their BSA compliance
    obligations.
    OCC Supervisory Improvements
    SAR and CTR Filings
        The requirement for banks to identify and report suspicious
    financial transactions is an important part of the BSA's regime for
    protecting our financial system. SAR filings provide law enforcement
    access to information needed to initiate and conduct investigations of
    possible illicit finance transactions. There are literally millions of
    SARs in the centralized database maintained by FinCEN, and the vast
    majority have been filed by OCC-supervised banks. The massive number of
    filings represents a significant workload for the industry, and it is
    important that the significant human, financial, and compliance
    resources used to file SARs are focused on providing information that
    is truly useful to law enforcement.
        The OCC is engaged with banks to evaluate the effectiveness of
    their SAR systems to ensure that the information being reported is
    timely and compliant. To better clarify the instances when a SAR is
    required to be filed, and to maximize the value of information
    contained within each SAR, the OCC supports additional collaboration
    among banks, examiners, law enforcement and other stakeholders to
    consider how the types and content of SAR filings can be improved. For
    example, the OCC supports setting up communication channels through
    which law enforcement can clarify the types of SAR data that is most
    and least useful in criminal investigations so that bank and examiner
    resources can be better targeted and ultimately used more effectively.
    The OCC is committed to working with the key stakeholders on this
    effort to appropriately target activities and transactions that warrant
    the scrutiny of law enforcement.
        Likewise, with respect to CTR reporting, the OCC is working with
    FinCEN and the other agencies to identify ways that the process can be
    made more efficient, and to clarify the agencies' approach to
    examinations for compliance with the CTR requirements. In this regard,
    the OCC intends to explore a range of CTR requirements with the other
    agencies, FinCEN and law enforcement including the appropriateness of
    the current CTR threshold, opportunities to tailor the content of the
    CTRs, and efficiencies for banks filing relatively few CTRs each month
    to file their CTRs on a quarterly basis. Our objective would be to
    identify ways to provide burden relief for institutions with lower risk
    profiles while balancing law enforcement's need for information. If
    agreement is reached on recommendations in these areas that require
    legislative action, we will provide them to Congress.
    Technological Innovation
        Technology generally has been used across the financial sector to
    increase customer convenience, access to financial products, and
    operational efficiency.
        Likewise, there is significant potential for technological
    innovation to transform BSA/AML compliance. In addition to assisting
    banks' efforts to control their costs, innovation is increasingly
    necessary to counter constantly changing threats, as illicit financing
    methods evolve to exploit vulnerabilities in existing systems.
        New technologies such as artificial intelligence (AI) and machine
    learning offer banks opportunities to better manage their costs and
    increase the ability of their monitoring systems to identify suspicious
    activity, while reducing the number of false positive alerts and
    investigations. Technology can provide significant advancements for the
    future of BSA/AML compliance and some banks have already begun
    researching available technology and applying it to their programs. For
    example, some banks have started using AI to more accurately identify
    suspicious activity and generate information that will assist law
    enforcement in more accurately detecting transaction patterns and
    threats. At the same time, other banks have explored ways to limit
    compliance costs including by contracting with third parties with
    specialized technology and knowledge to provide them with BSA/AML
    services.
        The OCC encourages banks to explore technology that allows them to
    maintain their risk focus and gain process and system efficiencies. To
    this end, the agency is actively engaged in discussions with banks and
    other stakeholders regarding ways to explore enhanced technology usage
    while maintaining the current strong protections for the financial
    system.
    Legislative Recommendations
        The OCC has identified areas in which legislative changes could
    increase the impact and efficiency of BSA/AML regulation and compliance
    programs. The OCC generally supports legislative changes that would
    reduce unnecessary industry burden and compliance costs, and allow for
    more effective information sharing related to
    illicit finance. We believe the changes described below could reduce
    compliance
    burden while still ensuring that regulators and law enforcement have
    the information they need to address illicit finance.
    Review of BSA/AML Regulations
        In 2016, the Federal banking agencies initiated a comprehensive
    review of our regulations pursuant to the Economic Growth and
    Regulatory Paperwork Reduction Act (EGRPRA). During the process, BSA/
    AML regulations were the source of significant public comment. However,
    BSA/AML regulations are not subject to the EGRPRA process. As noted in
    the FFIEC's Joint Report to Congress on EGRPRA in March 2017, BSA/AML
    was one of the three most discussed issues during the agencies' review
    of regulations affecting the entities that we regulate. This is
    consistent with the significant number of comments the agencies
    received during the previous EGRPRA review in 2007, an indicator that
    BSA/AML is regularly a top priority for stakeholders. As the agency
    with rule-writing authority for most of the current BSA/AML regulatory
    regime, FinCEN could benefit from recommendations for regulatory
    improvement and to respond to public concerns about BSA/AML
    regulations.
        Our experience has demonstrated that there is no shortage of ideas
    to reform the BSA and reduce the burden of BSA/AML regulations.
    Therefore, Congress could consider legislation requiring a regular
    review of the BSA/AML regulations, similar to the EGRPRA process, to
    identify those regulations that may be outdated, redundant or
    unnecessarily burdensome. Congress could direct this review to include:
    (1) consultation with the Federal banking agencies, law enforcement
    agencies, and other stakeholders, as appropriate; (2) solicitation of
    public comment, including specific comment on technology with the
    potential to reduce costs and burdens on financial institutions; and
    (3) submission of a report to Congress on the results of its review.
    Technical Correction
        Additionally, Congress may want to consider providing a technical
    clarification to the BSA's existing safe harbor to correct uncertainty
    caused by several court decisions. Currently, the BSA provides
    protection from civil liability for SARs made to appropriate
    authorities, including supporting documentation, regardless of whether
    such reports are filed pursuant to the SAR instructions. Because the
    SAR safe harbor does not address intent and some courts have imposed a
    ``good faith'' requirement, there is considerable uncertainty among
    institutions about the potential liability for filing SARs, if the
    suspicions underlying those SARs are not later fully investigated or
    proven through a criminal proceeding. As a result, many institutions
    are reluctant to file SARs voluntarily and even are concerned about
    liability for SARs filed pursuant to BSA requirements, which makes an
    already burdensome process more complicated. Legislation could clarify
    that an institution may file a SAR without running the risk that it
    will be exposed to civil litigation for simply complying with Federal
    law.
    Information Sharing
        The OCC recognizes the importance of ensuring that the agencies'
    BSA/AML enforcement authorities remain current and relevant. We think
    there are opportunities, consistent with appropriate legal
    requirements, to modify the existing BSA safe harbor to encourage
    institutions to share information without incurring liability. The OCC
    would support legislation to expand the information sharing safe harbor
    in Section 314(b) of the USA PATRIOT Act beyond money laundering and
    terrorist financing to include mortgage fraud, cyber fraud and other
    financial crimes, and to eliminate or modify the notice requirement to
    FinCEN, which may limit the ability of financial institutions to share
    information.
    Conclusion
        Comptroller Otting has placed a high priority on reforming and
    modernizing the BSA/AML regime. Aligning our supervisory policy more
    closely with the risks that are present in OCC-supervised banks, while
    at the same time supporting efforts to better rationalize and manage
    compliance costs and target resources to the areas of highest risk are
    key priorities that we balance with our commitment to preserving the
    integrity of the national financial system. Working with the other
    Federal banking agencies, FinCEN, law enforcement, the financial
    industry, and Congress to maintain a regulatory environment in which
    OCC-supervised banks successfully combat illicit finance is key to
    achieving our mission. We believe that the actions currently underway,
    and proposed today, will further this goal.
                                     ______

                   PREPARED STATEMENT OF STEVEN M. D'ANTUONO
       Section Chief, Criminal Investigative Division, Federal Bureau of
                      Investigation, Department of Justice
                               November 29, 2018
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    I am pleased to appear before you today to discuss our Nation's anti-
    money laundering (AML) laws. This hearing is an important step forward
    toward strengthening these laws, and the FBI appreciates being
    consulted on these incredibly important matters.
    I. Background
        The U.N. Office on Drugs and Crimes estimates that annual illicit
    proceeds total more than $2 trillion globally, and proceeds of crime
    generated in the United States were estimated to total approximately
    $300 billion in 2010, or about 2 percent of the overall U.S. economy at
    the time. However, for an illegal enterprise to succeed, criminals must
    be able to hide, move, and access the proceeds of their crimes. 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 moneys 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. 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, and prostitution. 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 (``TBML''). Drug trafficking
    organizations also use money brokers to facilitate TBML. In complex
    TBML 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 also harms legitimate
    businesses. For example, the U.S. Department of Treasury's
    (``Treasury's'') 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. Drug trafficking organizations also use money
    brokers to facilitate TBML.
        Misuse 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 (``MSBs'') such as money transmitters, check
    cashers, currency exchangers, or businesses that sell money orders,
    prepaid access devices, and traveler's checks. Some MSBs themselves may
    also engage the services of depository financial institutions to settle
    transactions. Banks may also hold accounts with other banks in order to
    facilitate transactions in the country of the bank where the account is
    held. For example, some foreign banks establish correspondent
    relationships with U.S. banks to enable them to conduct business and
    provide services to their non-U.S. clients in the United States without
    the expense of establishing a presence in the United States.
        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, banks are often the front line in AML efforts by establishing
    effective BSA programs. Effective BSA programs play a critical role in
    the fight against criminal activity. For example, effective BSA
    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 BSA 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.
        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 with unknown beneficial owners. 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.
        Misuse of MSBs. While many MSBs engage in legitimate business
    activities, they, too, can serve as a means for criminals to move
    money. Although MSBs have customer verification requirements above
    certain thresholds and other BSA obligations, individuals who use MSBs
    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 MSBs are subject
    to BSA compliance requirements, some MSBs may fail to register with the
    proper authorities and thus they are acting as unlicensed MSBs, making
    it more likely that AML violations at those MSBs 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 potentially anonymous ways
    to access funds.
        Prepaid access cards are 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 have
    been known to convert drug cash to prepaid debit cards, which they then
    use to purchase goods and services or send to drug suppliers, who use
    the cards to withdraw money from a local ATM.
        Virtual Currencies. Virtual currencies offer yet another
    alternative to cash. Criminals use virtual currencies to conduct
    illicit transactions because these
    currencies offer potential anonymity. This is because virtual currency
    transactions are not necessarily tied to a real world identity and
    enable criminals to quickly move criminal proceeds among countries.
        Some internet sites using virtual currencies are promoted
    specifically for criminal use. For example, until the Government shut
    it down in 2013, Liberty Reserve, which billed itself as the internet's
    largest payment processor and money transfer system and allowed users
    around the world to send and receive payments using virtual currencies,
    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, Arthur Budovsky, built and
    operated Liberty Reserve expressly to facilitate large-scale money
    laundering for criminals around the globe by providing them near-
    anonymity and untraceable financial transactions. In 2016, Budovsky
    pleaded guilty to money laundering charges and was sentenced to 20
    years in prison.
        Purchase of Real Estate and Other Assets. Criminals 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 also 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.
    III. FBI Efforts to Counter Money Laundering Threats
        To effectively disrupt the evolving threat posed by money
    laundering, the FBI employs a variety of tools and collaborates with
    its domestic and international law enforcement partners. Included below
    are just some examples of these tools and partnerships.
        Working Groups and Task Forces. The FBI's AML efforts are housed in
    the Criminal Investigative Division's Money Laundering, Forfeiture and
    Bank Fraud Unit (``MLFBU''). Whether originating within the Cyber
    Division, Counterterrorism Division, Counterintelligence Division, or
    Criminal Investigative Division, the MLFBU is responsible for
    supporting all cases with a money laundering nexus. MLFBU works to
    ensure all FBI Field Offices and Legal Attaches effectively utilize AML
    statutes and the strategic use of asset forfeiture in their
    investigations, where appropriate. These units and squads work closely
    with the Department's Money Laundering and Asset Recovery Section
    (``MLARS'') which falls under the Criminal Division. MLARS leads the
    Department's AML efforts and works 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.
        Money laundering transcends borders representing a significant
    cross-programmatic threat to the national and economic security of the
    United States; therefore, the FBI has prioritized opening and working
    investigations relating to money laundering facilitation (``MLF'') and
    facilitators. The MLF threat targets professional gatekeepers/
    controllers providing the laundering service for a fee. Facilitators
    move illicit funds often without concern or knowledge of the underlying
    specified unlawful activity (``SUA''). MLF may encompass complicit
    third parties who knowingly launder illicit proceeds through the U.S.
    financial system, on behalf of their clients; complicit financial
    institutions (which can include banks, broker dealers, hedge funds, and
    MSBs); or TBML operations manipulating value systems to move value.
    Individuals and groups engaged in this activity employ typologies such
    as real estate investing, establishing money mule networks, exploiting
    financial institutions, stock or commodities manipulation, TBML, shell,
    shelf and front company formations, as well as the exploitation of
    virtual currency and emerging payment systems.
        Addressing complicit financial institutions (banks, broker dealers,
    hedge funds, and MSBs), professional money launderers and gatekeepers
    (e.g., accountants, attorneys, and brokers), TBML networks, unlicensed
    MSBs, and emerging payment systems has a larger disruption and
    dismantlement effect on criminal activities than traditionally only
    addressing the underlying SUA.
        The FBI's strategy aligns with MLARS' recent focus on money
    laundering facilitators. In addition, large districts, such as Southern
    District of New York (``SDNY''), also have dedicated prosecutors to
    Money Laundering Units. MLARS and SDNY have been prosecuting money
    laundering as the primary criminal violation.
        In addition--and as part of its efforts to fight global corruption
    and money laundering on the international stage--the FBI prioritizes
    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. 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.
        The FBI actively participates in several interagency task forces as
    well. We are a member of the Organized Crime Drug Enforcement Task
    Forces (``OCDETF''), which draws upon the resources of Federal, State,
    local, and tribal law enforcement partners to identify, target,
    disrupt, and dismantle drug trafficking and other transnational
    criminal organizations that often seek to launder illicit drug proceeds
    through the U.S. financial system. The FBI is a vital member of OCDETF
    Strike and Task Forces and the OCDETF strategy that combines the
    resources and expertise of its 10 Federal agency members--the Drug
    Enforcement Administration (``DEA''); the FBI; the Bureau of Alcohol,
    Tobacco, Firearms and Explosives; the Department's Criminal Division;
    The Department of Labor Inspector General; the U.S. Marshals Service;
    the Internal Revenue Service, Criminal Investigation Division
    (``IRS''); the Homeland Security Investigations, Immigration and
    Customs Enforcement (``HSI''); U.S. Secret Service; the U.S. Coast
    Guard; and U.S. Postal Inspection Service--in cooperation with MLARS,
    the 93 U.S. Attorneys' Offices, and State and local law enforcement.
    The FBI has been a key leader within the OCDETF Fusion Center to
    leverage Bank Secrecy Act data to aid money laundering investigations.
        The FBI is also part of the Treasury-led U.S. delegation to 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. The United
    States currently holds the FATF presidency and is one of 34 current
    members of FATF representing the largest economies of the world, as
    well as associate members and regional organizations. The FATF monitors
    the progress of its members in implementing anti-money laundering and
    counter-terrorist financing measures through a comprehensive assessment
    of a member-nation's anti-money laundering and counter-terrorist
    financing regime.
        Internationally, the FBI participates in the Five Eyes Law
    Enforcement Group's Money Laundering Working Group (``FELEG MLWG'').
    The mission of the group is to collaborate, inspire and innovate to
    prevent, disrupt, and dismantle the money laundering activities and
    capabilities of international crime groups and networks impacting
    adversely on FELEG jurisdictions. The FELEG MLWG is comprised of
    members from the Australian Federal Police, Australian Criminal
    Intelligence Commission, New Zealand Police, the Royal Canadian Mounted
    Police, the United Kingdom's National Crime Agency, the DEA, the IRS,
    HSI, and the FBI.
        Use of BSA Filings. Financial intelligence generated by BSA
    reporting is of critical importance to law enforcement when
    investigating and prosecuting both criminal activities and matters of
    national security. The value of BSA intelligence to law enforcement
    cannot be over-stated as one BSA filing could be the key difference in
    successfully disrupting and dismantling a criminal or national security
    threat to the United States and our citizens. Before elaborating, it is
    important to remember that BSA reporting is subject to strict
    confidentiality requirements, in part to encourage financial
    institutions to report information as openly and comprehensively as
    possible. BSA information is to be used by law enforcement for lead
    purposes only. FinCEN, which maintains and oversees BSA reporting, has
    also implemented strict controls governing access to such information
    to ensure it is not misused and remains confidential. With that said,
    information from Suspicious Activity Reports (``SARs''), Currency
    Transaction Reports (``CTRs''), Form 8300, Reports of International
    Transportation of Currency or Monetary Instruments (``CMIRs''), and
    other reports is used on both a proactive and reactive basis to
    investigate specific individuals and entities and to identify leads,
    connect the dots, and otherwise advance investigations.
        Information from SARs, CTRs, CMIRs, and other BSA reporting can
    also help law enforcement agencies see the broader picture of a
    criminal network by tracing the money to those generating the illicit
    proceeds and those that redistribute them. One example of how the FBI
    uses the critical information in SARs is to assist with investigations
    involving foreign financial institutions that maintain correspondent
    accounts with U.S. banks in order to transact in U.S. dollars. SARs
    involving correspondent bank transactions are of extreme value as most
    U.S. correspondent banks monitor transactions across their
    correspondent banks' customers and report those transactions in depth
    in SAR narratives. In many complex international transactions, one to
    four correspondent accounts are used, which makes tracing difficult.
    However, current SAR reporting can enable law enforcement to comprehend
    and trace financial trails through numerous correspondent accounts.
        More generally, the FBI conducts data analysis of BSA filings to
    support existing cases and lay the groundwork for new ones. For its
    existing cases, the FBI has created a BSA Alert System that searches
    subjects' names, dates of birth, social security numbers, telephone
    numbers, email addresses, and other identifying information across BSA
    filings; the results of this are automatically emailed to case agents.
    These searches hit on an average of 4,000 BSA filings and produce an
    average of 2,000 alerts every month. In August 2018, for example, the
    FBI disseminated 2,356 alerts based on 7,747 BSA records. From January
    2017 to June 2018, BSA reporting was directly linked to the main
    subjects of approximately 25 percent of pending FBI investigations (up
    from 8.9 percent in 2012).
        Additionally, all BSA records securely reside on the FBI's
    enterprise data warehouse and can be queried and accessed by
    approximately 34,000 FBI employees based on their need to know and job
    responsibilities. Individual agents and analysts can accordingly
    supplement ongoing investigations with financial intelligence from BSA
    reports on a real-time basis.
        The FBI also proactively uses data analysis to identify new cases.
    For example, using a process known as Targeted Suspicious Activity
    Reports (``TSARs''), FBI analysts run against SAR filings a series of
    search terms and criteria related to money laundering, terrorist
    financing, human trafficking, fraud, corruption, transnational
    organized crime, and other schemes. The persons reported on these SARs
    are automatically searched against FBI case files and watchlist data.
    The results of this TSAR process are incorporated into reports
    disseminated to the appropriate field offices. FBI analysts may also
    combine these reports with additional information to create targeting
    packages, which are distributed to specific field offices to initiate
    new investigations. Moreover, Department attorneys and investigators
    participate in SAR review teams covering the 94 U.S. Federal judicial
    districts. These dedicated teams review and analyze individual SAR
    filings to determine whether to open new cases.
        Outreach to Financial Institutions. Since the FBI relies heavily on
    BSA data, we work closely with financial institutions to ensure open
    lines of communication. We routinely sit down with banks, both large
    and small, to discuss what SARs were helpful to our operations and what
    type of data is useful for future filings. By providing this feedback,
    the quality of SARs continually improves which means the FBI has better
    data to support our investigations. The FBI has also begun conducting
    outreach to banks to share declassified information, to include certain
    selectors, in an effort to marry their SARs with existing case
    information. This allows the banks to submit a proactive filing based
    on articulable intelligence, not just typologies.
    IV. Current Challenges to Law Enforcement Activities
        Though the FBI has many successes investigating money laundering
    cases, we still face significant challenges in bringing to justice
    those who threaten our financial system and national security by
    laundering the proceeds of their crimes.
        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. Under our existing regime, corporate structures
    are formed pursuant to State-level registration requirements, and while
    States require varying levels of information on the officers,
    directors, and managers, none requires information regarding the
    identity of individuals who ultimately own or control legal entities--
    also known as beneficial ownership--upon formation of these entities.
        The FATF highlighted this issue as one of the most critical gaps in
    the United States' compliance with FATF standards in an evaluation
    conducted 2 years ago. 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 more 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, rather than having reliable beneficial
    ownership information readily available as a starting point.
        Criminals exploit these gaps for their illicit purposes, often
    seeking to mask 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. 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.
        The Treasury Department's recent Customer Due Diligence Final Rule
    (CDD rule) is a step toward a system that makes it difficult for
    sophisticated criminals to circumvent the law through use of opaque
    corporate structures. As of May 2018, the CDD rule requires 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.
        The CDD rule is a remedial step to degrade illicit actors' use of
    opaque shell structures to conceal movement of illicit funds. The rule
    will improve law enforcement's ability to pierce corporate veils and
    unmask the underlying individuals and entities that are initiating and
    benefiting from transactions. Important as it is, however, the CDD rule
    is only one step toward greater transparency. As noted, the lack of an
    obligation to collect beneficial ownership information at the time of
    company formation is a significant gap. 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.
        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.
        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.
        Under the existing authority in Title 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 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.
        Small Dollar Transactions. The FBI is also focused on terrorists'
    and criminals' use of smaller-dollar transactions to move funds easier,
    faster, cheaper, and more frequently. Maintaining the current dollar
    threshold for BSA reporting is especially key considering the terror
    financing methods used by ISIS compared to those used by al-Qa'ida.
    Although ISIS raised significant amounts of revenue from illicit oil
    sales and extortion, many ISIS supporters and operatives send funds in
    small dollar amounts, including to recruit and support foreign
    terrorist fighters and to support external operations. Small-dollar
    transactions are is being used by homegrown violent extremists and
    international terrorists to conduct their activities, though these
    transactions are also used by individuals and organizations looking to
    launder money for personal gain. Criminals and terrorists are relying
    less on large transactions which means they aren't necessarily
    accumulating at dollar amounts previously investigated and prosecuted.
    Today's terrorists only need a couple thousand dollars to join
    terrorist networks abroad or just a few hundred dollars to conduct an
    attack here in the homeland. Furthermore, figures from FinCEN show that
    nearly 80 percent of CTR filings in 2017 were for amounts below $30,000
    and nearly 60 percent of CTR filings in 2017 were for amounts below
    $20,000. Some examples of low-dollar BSA filings that have resulted in
    law enforcement investigations and prosecutions for terrorism and other
    crimes include:

        In September 2016, Marchello McCain, of California, who was
            the brother of the first known American who died fighting for
            ISIS in Syria in August 2014, pled guilty to making false
            statements to the FBI. McCain lied about his knowledge of his
            brother's travel to Syria and the use of a credit card to
            purchase his brother's airline tickets from the United States
            to Turkey. Among other acts of support, McCain wired $800 to an
            ISIS operative in Turkey to support his brother, others
            fighting for ISIS in Syria, or both.

        In August 2017, Mohamed Elshinawy, of Maryland, pled guilty
            to conspiring to provide and providing material support to
            ISIS. Among other financial transactions related to terrorist
            financing, Elshinawy received $8,700 in payments via MSBs from
            a foreign company. These funds were intended to be used to fund
            a terrorist attack in the United States.

        In July 2016, Karen Kupai, of Hawaii, was convicted of
            money laundering. Kupai was a police lieutenant who stole
            $75,000 of ``drug buy money'' from the department. The case was
            initiated based on information related to structured deposits
            of under $10,000.
    V. Conclusion
        I want to thank the Committee for holding this hearing and for
    calling attention to the threat posed by money laundering. Together
    with our domestic and international law enforcement partners, the FBI
    is committed to continuing this conversation with Congress and looks
    forward to strengthening existing AML laws.

    RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO FROM KENNETH A. BLANCO

    Overall Value of BSA Information
    Q.1. The Government has been collecting BSA information for
    about half a century, now. That information flow and the costs
    to provide, store and safely manage it have steadily increased
    over that time, as well. The purpose of the information is to
    keep our financial system and the businesses it serves secure
    and ultimately our Nation's people safe from various types of
    harm.

    Q.1.a. What relative enforcement value do the volumes of
    information provided the Government at unprecedented costs to
    financial institutions have today for the purposes of BSA?

    A.1.a. BSA data plays a critical role in keeping our country
    strong, our financial system secure, and our families safe from
    harm. When financial institutions report suspicions about elder
    fraud, human trafficking, cybercrime, narcotics trafficking,
    terrorism or other illicit activity, they provide incredibly
    valuable leads and ongoing support for law enforcement
    investigations and, importantly, they make it much harder for
    criminals to move or hide their illicit proceeds in the
    financial system. BSA data also aides investigations tied to
    weapons trafficking, bulk cash smuggling, gang activity,
    significant fraud, transnational organized crime, human
    trafficking, bribery, healthcare fraud, corruption,
    embezzlement,
    narcotics, kleptocracy, and third-party money laundering, among
    other crimes.
        FinCEN has nearly 500 Federal, State, and local law
    enforcement and regulatory agencies with direct access to
    FinCEN's BSA database. There are an estimated 11,000 active
    users of BSA data at these various agencies. These users
    include 149 Suspicious Activity Report (SAR) Review Teams and
    Financial Crimes Task Forces located all around the country,
    covering all 94 Federal judicial districts, including one in
    each State, the District of Columbia, and Puerto Rico.
        In the last 5 years, FinCEN query users have made more than
    10 million queries of the FinCEN database. Internal Revenue
    Service (IRS) Criminal Investigation, alone, conducts more than
    126,000 BSA database inquiries each year, and approximately 24
    percent of its investigations begin with a BSA source. We also
    understand that more than 21 percent of FBI investigations use
    BSA data, and, for some types of crime such as organized crime,
    nearly 60 percent of FBI investigations use BSA data. Roughly,
    20 percent of FBI international terrorism cases utilize BSA
    data.

    Q.1.b. Should Congress be looking to increase or decrease or
    better manage that volume of information, and in what way and
    why?

    A.1.b. FinCEN is committed to maintaining the effectiveness of
    our Nation's Anti-Money Laundering (AML) and Combating the
    Financing of Terrorism (CFT) regime. We are continuously
    looking for ways to enhance the regime and encourage
    responsible innovation to keep pace with the rapidly evolving
    illicit finance threats and changing world of financial
    services and technology. Among other things, we have begun a
    data driven analysis to assess how each stakeholder and
    consumer of the BSA data values and uses that data. It is
    important that any changes to the BSA and its implementing
    regulations be based on a greater understanding of the current
    value and uses of such information that is rooted in concrete
    analysis. As we identify opportunities to improve our AML/CFT
    regime, we will engage with Congress on potential solutions
    that require a statutory response.
    ``Real'' 2-way Information Sharing
    Q.2. A perennial complaint from the financial industry is that
    it receives no feedback on the SARs it files, that the
    information flow is one-way to the Government. The word
    sharing, itself, implies a two-way street.
        However, this year, several U.S. financial institutions
    have reported a substantial uptick in subpoenas to supply
    transactional data to Federal investigators, particularly from
    FBI and IRS, and have reported that Federal law enforcement has
    sought to enhance information sharing with the private sector
    beyond existing section 314(a) Patriot Act authority and the
    Treasury Department-led Bank Secrecy Act Advisory Group.
        What actions can each of you take now to improve
    information sharing between your agencies and industry?

    A.2. FinCEN has several mechanisms through which we provide
    feedback to the private sector. FinCEN created the FinCEN
    Exchange program as a public-private information-sharing
    program that brings financial institutions, FinCEN, and law
    enforcement together to facilitate greater information sharing
    between the public and private sectors, and we will continue to
    improve and build upon this program. Also, in close
    coordination with law enforcement, it provides information to
    support specific matters through Section 314(a) of the USA
    PATRIOT Act and other authorities in order to provide financial
    institutions with broader typologies to help them identify
    illicit activity.
        Additionally, as part of the FinCEN Director's Law
    Enforcement Awards program, FinCEN identifies investigations
    where BSA data has played a significant role in the success of
    a case to highlight the value of BSA data to the financial
    community. In December 2018, I signed more than 200 letters to
    the CEOs or Compliance Executives of financial institutions
    whose BSA reporting contributed to the law enforcement
    investigations nominated for recognition this year. These
    letters note the importance of the financial industry's
    compliance efforts and provide feedback on how their reporting
    contributed to these significant law enforcement cases.
        FinCEN's Financial Institution Advisory Program is another
    mechanism FinCEN uses to share information and provide feedback
    to financial institutions. FinCEN Advisories alert financial
    institutions to significant AML/CFT risks, typologies and
    related red flags to assist financial institutions in detecting
    and reporting related suspicious activity. Through our Advisory
    Program, we are able to target reporting to important
    priorities that also serves as an iterative process to refine
    the data we receive and share with the industry. For example,
    we provide tailored information to reporting institutions,
    which, in turn, helps them to more precisely identify, mitigate
    and report on significant risks, issues or events, which in
    turn provides more complete, effective, and actionable BSA
    reporting to law enforcement and our regulatory colleagues.
        FinCEN also worked with the Office of Terrorist Financing
    and Financial Crimes to include assessments of BSA reporting in
    the National Risk Assessments on terrorist financing, money
    laundering, and proliferation financing. These documents,
    published by Treasury in December 2018, were drafted to inform
    the public and private sector of priority illicit finance
    threats, trends and risks.
    Information Sharing and the FinCEN Exchange
    Q.3. The FinCEN Exchange brings financial institutions, FinCEN,
    and law enforcement together to facilitate greater information
    sharing between the public and private sectors. However, the
    Federal banking agencies are not a part of this process nor
    privy to the information being provided by FinCEN and law
    enforcement to the banks that they supervise. In order for the
    system to work effectively, the Bank Secrecy Act relies on the
    coordination and cooperation between FinCEN/law enforcement,
    the banks and the regulators.
        Should banking regulatory agencies be part of the FinCEN
    Exchange, why or why not?

    A.3. The banking agencies are in fact a part of the FinCEN
    Exchange process, as FinCEN already works collaboratively with
    the Federal banking agencies to develop, grow, and refine
    FinCEN Exchange. This includes providing the agencies with
    priority topics and a list of financial institutions that
    voluntarily collaborated with law enforcement and FinCEN to
    participate in a FinCEN Exchange briefing, to appreciate
    participation. Flexibility on participants is needed due to the
    varying topics that will be covered through this initiative.
    Economic Growth & Regulatory Paperwork Reduction Act, (``EGRPRA'') and
            the Review of BSA/AML Regulations
    Q.4. OCC experience with conducting EGRPRA outreach finds that
    a regular review of the BSA/AML regulations similar to the
    EGRPRA process, which identifies regulations that may be
    outdated, redundant or unnecessarily burdensome, places in the
    top three items, receiving the most discussion. FinCEN is said
    to adhere to a similar process for review of BSA, but is not
    otherwise covered by the report.
        Mr. Blanco can you explain what process FinCEN uses, its
    timelines, and the merit or not of a legislative mandated
    EGRPRA review of BSA regulations?

    A.4. FinCEN already conducts significant review of BSA
    regulations, outside of a legislatively mandated EGRPRA
    process. The burden associated with recordkeeping and reporting
    requirements is assessed under the Paperwork Reduction Act
    prior to implementation, and again every 3 years in order to
    renew the Office of
    Management and Budget control number. Additionally, FinCEN
    engages in significant and meaningful discussions on regulatory
    issues, among other things, with a wide range of stakeholders,
    including the private sector, law enforcement and regulators
    through the Bank Secrecy Act Advisory Group (BSAAG). For
    example, in BSAAG, we developed a working group to assess the
    feasibility of streamlining certain SAR reporting and another
    working group to assess how to leverage innovation in current
    reporting mechanisms as well as to better understand the
    related regulatory barriers and opportunities as we explore
    regulatory change. In addition to conducting a review outside
    of the EGRPRA process, FinCEN has been provided all of the
    public comments submitted through the EGRPRA process that
    related to BSA/AML issues.
        FinCEN provided the Federal banking agencies a written
    response to those items, which they included as an appendix to
    their report to Congress. Notably, many of the BSA/AML issues
    raised in the public comments to the EGRPRA process concerned
    the manner in which the Federal banking agencies examine
    institutions for compliance with the BSA and its implementing
    regulations, rather than the rules themselves. The topics that
    did opine on specific regulation were already addressed or were
    the subject of discussions and assessment in the BSAAG.
    Delegated Examination Authority
    Q.5. Congress vested BSA examination authority to the Treasury
    because of its financial, law enforcement and national security
    knowledge and abilities. Due to resource constraints, FinCEN
    delegated that authority to the Federal banking agencies. The
    Bank Policy Institute estimates that a FinCEN team of 25-30
    people could replicate the examination work of the Federal
    banking agencies and IRS for the largest banks and MSBs,
    respectively, and allow FinCEN with its considerable expertise
    that I mentioned, to see the whole battlefield.
        If FinCEN reversed its delegation, particularly as to large
    institutions, would this result in better rulemaking, and
    compliance practices that advance the interests of law
    enforcement over audit processes and so-called box-checking?

    A.5. FinCEN is not in a position to comment on the basis or
    reliability of the Bank Policy Institute's estimate of the
    number of people needed to replicate the examination work of
    all the Federal banking agencies and the IRS. However, the
    proposal to shift all responsibility for AML/CFT compliance to
    FinCEN for the largest banks and Money Service Businesses (MSB)
    would be a dramatic change from the current system. FinCEN
    would require a significant increase in personnel and resources
    to take on that broader mission.
        The United States currently has one of the strongest AML/
    CFT regimes in the world. FinCEN and other Federal regulators
    engage with the industry in many ways, and that cooperation
    adds to our strength. An example is the Federal Financial
    Institutions Examination Council (FFIEC) and the Exam Manual
    that FinCEN helped produce. In FinCEN's experience, banks don't
    want to do less, they want to make sure what they do now is
    effective and
    important. This is not a static relationship and we are
    committed to engaging with the industry and other regulators.
    While FinCEN currently has delegated its examination authority
    to the FBAs, the IRS, as well as other regulators over
    securities and futures, FinCEN retains its enforcement
    authority and ability to conduct targeted examinations. FinCEN
    delegated its exam function to leverage existing practice and
    expertise within the other regulators. Shifting all examination
    authority to a single agency, such as FinCEN, could improve the
    consistency of AML/CFT examinations, though at the expense of a
    unified exam of all functions of a financial institution.
    However, FinCEN could take a more active role in collaborating
    with Federal Banking Agencies on their AML exams and driving
    exam consistency and policy through updates to the FFIEC BSA
    Exam Manual and other training.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM KENNETH A. BLANCO

    Key Role of Financial Intelligence in Counter-Terrorism
    Q.1. You have each spent decades working in this area,
    combating money laundering.
        Can each of you describe generally for us, from your
    experience, the role that BSA data plays in money laundering
    and counterterrorism investigations--in developing leads,
    sharpening focus on certain criminal players and their banks,
    identifying patterns, or otherwise?

    A.1. FinCEN and our law enforcement partners are able to do
    important things with the BSA information provided by financial
    institutions. BSA data plays a critical role in keeping our
    country strong, our financial system secure, and our families
    safe from harm.
        When financial institutions report suspicions about elder
    fraud, human trafficking, cybercrime, narcotics trafficking,
    terrorism or other illicit activity, they provide incredibly
    valuable leads and ongoing support for law enforcement
    investigations and, importantly, they make it much harder for
    criminals to move or hide their illicit proceeds in the
    financial system.
        BSA also aides investigations tied to weapons trafficking,
    bulk cash smuggling, gang activity, significant fraud,
    transnational organized crime, human trafficking, bribery,
    healthcare fraud, corruption, embezzlement, narcotics,
    kleptocracy, and third-party money laundering, among other
    crimes.
        FinCEN has nearly 500 Federal, State, and local law
    enforcement and regulatory agencies with direct access to
    FinCEN's database of BSA records. Within these agencies, there
    are an estimated 11,000 active users of BSA data. This consists
    of 149 SAR Review Teams and Financial Crimes Task Forces
    located all around the country, covering all 94 Federal
    judicial districts, including one in each State, the District
    of Columbia, and Puerto Rico.
        In the last 5 years, FinCEN query users have made more than
    10 million queries of the FinCEN database. BSA data is also
    vital for unmasking and investigating criminal tax evasion and
    other crimes. Internal Revenue Service Criminal Investigation
    alone
    conducts more than 126,000 BSA database inquiries each year.
    And, 24 percent of its investigations begin with a BSA source.
        Financial intelligence is a key tool for FBI criminal
    investigations. All FBI subjects have their names run against
    the BSA database. More than 21 percent of FBI investigations
    use BSA data, and for some types of crime, like organized
    crime, nearly 60 percent of FBI investigations use BSA data.
    Roughly 20 percent of FBI international terrorism cases contain
    BSA data.

    Q.2. What specific financial intelligence tools are currently
    most useful to prosecutors, sanctions overseers and others who
    combat money laundering--and where do you think we should
    strengthen, not weaken, your tool kits?

    A.2. Several FinCEN-specific financial intelligence tools such
    as the Demand Letter, Foreign Financial Agency, 314(a), and
    Geographic Targeting Order tools are highly valuable to FinCEN,
    law enforcement partners investigating money laundering, and
    our partners in the Office of Terrorism and Financial
    Intelligence, including the Office of Foreign Assets Control,
    which focuses on sanctions. These tools allow FinCEN to
    generate targeted reporting that would otherwise be
    unavailable.
        We continue to strive to improve our communication with
    financial institutions and the public about the value of our
    AML regime. Providing feedback is essential as it helps the
    private sector focus on priorities.
        We also 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.
    Beneficial Ownership/Anonymous Shell Companies
    Q.3.a. Let me explore with you further my question on
    beneficial ownership posed during the hearing. I've given one
    example. The Panama Papers and other similar document leaks
    have revealed myriad others involving the widespread use of
    shell corporations by wealthy bad actors seeking to not only
    evade lawful tax collection, but to facilitate all kinds of
    financial crime.
        How would you describe 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 misuse of corporate structures, such as shell
    companies, continues to be a significant problem both in the
    United States and abroad: criminals form such structures to
    hide their true identity and access the international financial
    system by setting up bank accounts in the names of such
    structures to facilitate money
    laundering, evade sanctions, and commit other financial crimes.
    Thus, the lack of transparency of beneficial ownership of
    companies when they are formed and when they open accounts at
    financial institutions presents significant opportunities for
    abuse. It is critical to ascertain beneficial ownership at both
    these touchpoints in order to address this vulnerability and
    help protect the financial system from abuse. FinCEN has
    addressed the transparency at account opening through the
    recently implemented Customer Due Diligence (CDD) Rule. A
    national framework for identifying beneficial ownership at the
    point of company formation would help mitigate this threat.

    Q.3.b. Can you give us a concrete sense of the ways you've each
    seen bad actors use shell companies for money laundering,
    terror finance and other illicit purposes?

    A.3.b. FinCEN has seen shell companies used in all spheres of
    illicit activity, both domestic and international, where
    criminals seek to hide the identity of beneficial owners or the
    ultimate source and application of funds derived from or
    intended for illicit activities. The identity of a shell
    company as the originator or beneficiary of high-dollar
    financial transactions may lend legitimacy to the transactions
    since business-related activity is often considered less
    suspicious than transactions involving personal accounts or
    individual counterparties. The shell company is ultimately only
    useful to the bad actor if law enforcement cannot easily obtain
    the identity of the beneficial owner behind the shell company
    and/or the financial accounts established in the name of the
    shell company.
    Shifting BSA Oversight Back to FINCEN
    Q.4. I'm sure you are familiar with the Clearinghouse
    Association report earlier this year on these issues. One
    Clearinghouse 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 many have
    noted FINCEN does not have the bandwidth to make such a radical
    change.
        Do you have a view on this recommendation? Do you know what
    this change would require of FinCEN, in terms of additional
    Federal funding and personnel? Why would we redo an oversight
    system that has been working reasonably well, when bank
    examiners already have extensive expertise and experience with
    these large entities on BSA issues, and have been doing this
    job successfully for many years?

    A.4. FinCEN is not in a position to comment on the basis of the
    Clearinghouse Association's recommendations. However, the
    proposal to shift all responsibility for AML/CFT compliance to
    FinCEN for the largest banks and MSBs would be a dramatic
    change from the current system. FinCEN would require a
    significant increase in personnel and resources to take on that
    broader mission.
        The United States currently has one of the strongest AML/
    CFT regimes in the world. FinCEN and other Federal regulators
    engage with the industry in many ways, and that cooperation
    adds to our strength. An example is the FFIEC and the Exam
    Manual that FinCEN helped produce. While FinCEN currently has
    delegated its examination authority to the Federal Banking
    Agencies, the IRS, as well as other regulators over securities
    and futures, FinCEN
    retains its enforcement authority and ability to conduct
    targeted
    examinations. The proposal to shift all responsibility of AML/
    CFT compliance for the largest banks would be a dramatic change
    from the current system. While not in a position to provide a
    specific estimate of the number of people and resources
    required to replicate the examination work of the FBA and other
    delegated examiners, FinCEN would require a significant
    increase in personnel and resources to take on that broader
    mission.
        While FinCEN currently has delegated its examination
    authority to the FBAs, IRS--as well as other regulators over
    securities and futures--it retains its enforcement authority
    and ability to conduct targeted examinations. FinCEN delegated
    its exam function to leverage existing practice and expertise
    within the other regulators. Shifting all examination authority
    to single agency, FinCEN, could improve the consistency of AML/
    CFT examinations, though at the expense of a unified exam of
    all functions of a financial institution.
    Bank AML Violations
    Q.5. Previous witnesses have pointed out that the AML
    regulatory burden on financial institutions has not increased
    recently; but that as banks have racked up huge fines in recent
    years for skirting sanctions and violating money laundering
    regulations, the sector as a whole has finally begun to take
    seriously AML obligations that have been in place for many
    years, and many have made big investments to strengthen
    compliance.
        Do you believe that AML laws and regulations on the books
    now offer a sufficient deterrent to such behavior? Are there
    specific steps or new tools you would urge Congress to consider
    providing to strengthen the current regime?

    A.5. The United States maintains one of the strongest and most
    robust AML regimes in the world. Although the laws and
    regulations are very effective, FinCEN continuously evaluates
    BSA regulations and authorities to ensure that the AML/CFT
    framework is as effective, efficient and not unduly burdensome
    to financial institutions as possible. We are continuously
    looking for ways to enhance the regime and encourage
    responsible innovation so that it keeps pace with the rapidly
    evolving illicit finance threats and changing world of
    financial services and technology. Among other things, we have
    begun a data driven analysis to assess how each stakeholder and
    consumer of the BSA data values and uses that data. It is
    important that any changes to the BSA and its implementing
    regulations be based on a greater understanding of the current
    value and uses of such information that is rooted in concrete
    analysis. As we identify opportunities to improve our AML/CFT
    regime, we will engage with Congress on potential solutions
    that require a statutory response.
    Scope of AML Reporting
    Q.6. As witnesses at prior hearings have discussed, there are
    entities and persons not currently regulated or required to
    have AML programs in place, that some argue really ought to be
    captured if the system is to be comprehensive.
        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.6. FinCEN continuously evaluates BSA regulations and
    authorities to ensure that the U.S. AML/CFT framework is as
    effective, efficient, and not unduly burdensome to financial
    institutions as possible. We also continually strive to ensure
    that we are deploying our existing authorities as effectively
    and strategically as possible. For example, FinCEN has been at
    the forefront of regulating money transmission involving
    virtual currency, and we actively support law enforcement
    investigations involving virtual currency and related financial
    crimes. FinCEN works to combat the threats presented by both
    traditional and emerging payment systems--while promoting
    responsible technological innovation throughout the financial
    sector. That said, we are constantly assessing potential
    emerging gaps and threats due to technological evolution. We
    will continue to work closely with our regulatory partners as
    well as Congress for coordinated policy development and
    coverage.
        In this regard, we would not object to Congress considering
    codifying elements of money transmission to involve the
    transmission of currency, as well as value that substitutes for
    currency. Currently under consideration by this Committee is a
    House-passed bill, the ``FinCEN Improvement Act of 2019,'' that
    will make this clarification in 31 U.S.C.  310.
        Additionally, as Congress pursues any efforts to address
    technological innovations, FinCEN would encourage Congress to
    consider the nature of economic activities as a whole that are
    meant to be captured under anti-money laundering and other
    financial statutes, and then examine the definitions and
    requirements established in statute to determine if they, as
    originally written, still capture Congress's intent for
    regulated financial activity.

    Q.7. Who should we be looking at that we are not currently
    regulating--real estate firms, escrow agents, company formation
    lawyers, others?

    A.7. FinCEN is currently engaged in a wide-ranging set of
    efforts to enhance the effectiveness and efficiency of the U.S.
    AML/CFT regime. This effort includes a retrospective review of
    FinCEN's regulations, a data driven analysis of the value and
    use of BSA data by all stakeholders, and additional engagement
    with the financial sector, regulators, and law enforcement
    through the Bank Secrecy Act Advisory Group (BSAAG). These
    efforts are designed to determine the range and types of
    entities that should be covered as well as types of
    requirements that would be most effective, including how new
    payment systems and technologies might be affecting the AML/CFT
    landscape.
        One major gap in our legal framework relates to the
    collection of beneficial ownership at the time of company
    formation. We are considering other proposed efforts that would
    address this remaining gap to collect beneficial ownership
    information and strengthen the U.S.'s AML regime. As we
    identify opportunities to improve our AML/CFT regime, we will
    engage with Congress on potential solutions that require a
    statutory response.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN FROM KENNETH A. BLANCO

    Customer Due Diligence Rule and Beneficial Ownership
    Q.1. As of May 2018, the Customer Due Diligence rule requires
    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. Or in
    the case of title companies in the purchase of real estate
    under the Geographic Targeting Orders (GTOs), beneficial
    ownership of the purchasing entity.
        Just as determining beneficial ownership by law enforcement
    can be a time-consuming and resource-intensive process, it can
    be as cumbersome and resource-intensive of a process for the
    collecting institution and individuals, if not moreso often
    requiring back-and-forth dialogue with law-abiding customers
    and their lawyers who are skeptical why this information is
    necessary.
        What could be done to incentivize the voluntary collection
    of beneficial ownership at the time of an entity's formation
    without infringing on State powers?

    A.1. The misuse of corporate structures, such as shell
    companies, is a significant problem both in the United States
    and abroad: criminals form such structures to hide their true
    identity and access the international financial system by
    setting up bank accounts in the names of such structures to
    facilitate money laundering, evade sanctions, and commit other
    financial crimes. Thus, the lack of transparency of beneficial
    ownership of companies when they are formed presents
    significant opportunities for abuse. It is critical to
    ascertain beneficial ownership at the outset of the existence
    of the legal entity to address this vulnerability and help
    protect the financial system from abuse. Educating institutions
    on the importance of transparency, which could assist in their
    own risk mitigation, as well as the successful use of
    beneficial ownership information by law enforcement across
    Federal and State agencies, are two outgrowths of the current
    focus on this issue that may help encourage the reporting and
    collection of beneficial ownership information.
    History/Expectations of Geographic Targeting Orders
    Q.2. FinCEN's Geographic Targeting Orders (GTOs) require title
    insurance companies to identify the natural persons behind
    shell companies used to pay ``all cash'' for high-end
    residential real estate.
        What were FinCen's expectations when you established this
    program? How has the data collected met these expectations?

    A.2. FinCEN expected to gather some data about transactions of
    potential interest for money laundering purposes and share that
    data with law enforcement partners. The data itself has
    generated new opportunities to engage with law enforcement
    partners across the country on this complex project. The data
    has revealed that there are wide differences in the likelihood
    that a purchaser of real estate is the subject of a SAR based
    on geography, and other variables. FinCEN has incorporated this
    data into its ongoing efforts to develop a strategic plan to
    address the money laundering risks in this sector.
    GTO Timelines
    Q.3. The only piece of information collected by a title company
    under the GTO that is not already publicly available is
    beneficial ownership information.
        Why have the GTO timelines continued to be temporary in
    nature for such short time periods? What are the plans for when
    the current GTO expires next May?

    A.3. The statute requires that a GTO be in effect for no more
    than 180 days. FinCEN reissued the GTO on May 15, 2019.
    Price Thresholds for Reporting a Transaction Under the GTOs
    Q.4.a. The price threshold for reporting a transaction under
    the current GTO is $300,000, which does not seem like high end
    real estate when you consider the median price for a home in
    the United States is $264,000.
        Why did you set the price at this threshold? How frequently
    are middle to lower class homes actually being used to for
    laundering purposes?

    A.4.a. FinCEN wanted to identify whether luxury properties were
    actually a heightened risk for potential money laundering.
    Conversations with law enforcement and reviews of forfeiture
    cases have long indicated that illicit actors have used lower
    end real estate to further their illicit schemes, such as by
    using a home as a marijuana grow house, or as a stash house for
    trafficking in persons or narcotics. FinCEN has no general
    information on how common this activity is relative the market
    at large, but the data so far does corroborate that luxury
    properties are not the only area of concern.

    Q.4.b. How would changing the price threshold alter the
    effectiveness of GTO reports, and if so, how?

    A.4.b. Changing the price threshold gives FinCEN something to
    compare the luxury properties to for risk. This is highly
    useful in building a model of what FinCEN would like to do in
    this sector over the long term.
    Use of Cryptocurrencies for Nefarious Purposes
    Q.5. This Committee has been closely monitoring the ever
    increasing use of cryptocurrencies to facilitate the illegal
    trafficking of opioids, most notably Fentanyl. Transnational
    criminal organizations have been using these cryptocurrencies
    on the dark web, taking advantage of this encrypted layer of
    the internet to fuel the deadly opioid crisis in our country
    and conceal their illegal proceeds from law enforcement. The
    tragic consequences of this was clearly noted by the most
    recent data from the Centers for Disease Control (CDC) which
    showed that in 2017, nearly 49,000 overdose deaths occurred in
    our country were from opioids and the biggest driver of that
    was Fentanyl, which killed more than 29,000.

    Q.5.a. Given the seriousness of our country's opioid epidemic,
    what new measures have your respective agencies undertaken to
    address the detection, interdiction and prosecution of
    individuals and organizations who are using cryptocurrencies to
    further these criminal activities?

    A.5.a. FinCEN has teams dedicated to reviewing filings that may
    be related to narcotics/opioids and illicit use of
    cryptocurrency. These are reviewed for both strategic trends
    and for tactical referrals to law enforcement or other
    stakeholders and, especially in complex and larger cases, those
    investigations are supported by us. As part of our counter-
    fentanyl program, we search BSA data for known subjects
    operating in fentanyl trafficking networks, including leads
    from law enforcement, and keywords related to fentanyl
    trafficking. Another team in FinCEN is dedicated to reviewing
    filings related to the illicit use of cryptocurrency. FinCEN
    also participates in various task forces dedicated to
    countering opioids and illicit use of cryptocurrency that have
    resulted in successful criminal prosecutions.

    Q.5.b. Are there structural changes that need to be made to the
    current regulatory framework?

    A.5.b. FinCEN's regulations governing money transmission
    encompass regulating money transmission involving virtual
    currency, and FinCEN actively supports law enforcement
    investigations involving virtual currency and related financial
    crimes. FinCEN works to combat the threats presented by both
    traditional and emerging payment systems--while promoting
    responsible technological innovation throughout the financial
    sector. That said, we are constantly assessing potential
    emerging gaps and threats due to technological evolution. We
    will continue to work closely with our regulatory partners as
    well as Congress for coordinated policy development and
    coverage.
        In this regard, we would not object to Congress considering
    codifying elements of money transmission to involve the
    transmission of currency, as well as value that substitutes for
    currency.
    Use of Online Platforms for Laundering
    Q.6. Recent reports have highlighted how money laundering
    through online platforms has become an attractive option for
    criminals because of its simplicity, speed and global reach.
    While using these platforms, there is no need to create a fake
    business or other identities, and no goods need to be moved in
    order to maintain the illusion of legitimacy. These reports
    forecast that online money laundering will continue to grow as
    worldwide retail e-commerce sales are estimated to top $2.2
    trillion annually, providing greater scope for criminals to
    conceal their laundering activities among high volumes of
    legitimate transactions. Likewise, the rise of cryptocurrencies
    and alternative payment platforms raises well-documented
    concerns about how such technology will make untraceable money
    laundering easier.

    Q.6.a. How have the various social media platforms been working
    with your agencies to assist with financial crimes such as
    money laundering and fraud?

    A.6.a. Various social media platforms provide financial
    services and have registered with FinCEN as MSBs. The SARs
    these
    entities provide to FinCEN are an invaluable tool in protecting
    these platforms as well as the U.S. financial system from
    illicit finance. FinCEN has a team dedicated to both the
    leveraging of the
    financial intelligence provided by emerging payment filers and
    monitoring compliance of nonbank financial institutions.

    Q.6.b. How has the rise of cryptocurrencies and alternative
    payment platforms presented challenges to your investigative
    and regulatory functions?

    A.6.b. While traditional financial method remains the primary
    vehicle for most illicit activity, FinCEN believes virtual
    currency presents specific illicit finance risks and that
    without vigilance and
    action, the scale of this activity could grow. We have seen
    virtual currency exploited to support billions of dollars in
    what we would consider suspicious activity. For example, FinCEN
    analysis indicates that virtual currency transactions include
    over $1 billion in ransomware extortion funds and that over
    $1.4 billion has been stolen through hacks of virtual currency
    exchangers and administrators over the past 2 years. FinCEN
    analysis also estimates that at least $4 billion in virtual
    currency has moved through darknet marketplaces since 2011. To
    combat this, FinCEN has used its authorities to take several
    significant public enforcement actions. Most recently, in July
    2017, FinCEN assessed a penalty of over $110 million against
    BTC-e; an internet-based, foreign-located money transmitter
    that exchanged fiat currency as well as the virtual currencies
    Bitcoin, Litecoin, Namecoin, Novacoin, Peercoin, Ethereum, and
    Dash. This action was taken with a parallel criminal action by
    our law enforcement partners including the Federal Bureau of
    Investigation, United States Secret Service, and Homeland
    Security Investigations, as well as those at Main Justice and
    the U.S. Attorney's Office for the Northern District of
    California. At the time, it was one of the largest virtual
    currency exchanges by volume in the world. BTC-e facilitated
    transactions involving ransomware, computer hacking, identity
    theft, tax refund fraud schemes, public corruption, and drug
    trafficking. As part of this action, FinCEN also assessed a $12
    million penalty against one of BTC-e's operators--the highest
    penalty we have ever assessed against an individual.

    Q.6.c. How are your respective agencies addressing this?

    A.6.c. FinCEN has offices in multiple Divisions to address
    these challenges and has been consistently working to
    adequately staff these appropriately. On the investigative
    side, FinCEN established a unit to understand how emerging
    payment technologies, including virtual currencies, are being
    used for illicit finance, to identify threats to the U.S.
    financial system, and to conduct investigatory analysis.
    FinCEN's Enforcement Division also works to ensure that virtual
    currency money services businesses meet their regulatory
    obligations and takes action when these financial institutions
    fail to meet those expectations. FinCEN has been acquiring
    specialized tools to follow the money in a variety of emerging
    payment rails as well as participating in programs to create
    new tools, training, and other activities designed to develop
    capacity for all stakeholders.
        Additionally, on May 10, 2019, FinCEN issued an Advisory
    with typologies and red flags for detecting illicit activity
    involving virtual currency, as well as 30 pages of guidance
    directly addressing areas of interest gleaned from ongoing
    industry engagement about how our regulations apply to
    different business models, such as peer-to-peer exchangers,
    virtual currency kiosks, decentralized (distributed)
    applications (DApps), and anonymizing services.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM KENNETH A.
                                     BLANCO

    Money Laundering and Casinos
    Q.1. It is important to work with different partners, including
    the gaming industry, and utilize all of our collective
    resources to root out money laundering and other illicit
    activities. In your speech in Las Vegas this summer, you
    pointed out the need for information sharing, particularly
    through the voluntary 314(b) program.

    Q.1.a. Can you elaborate on how involvement in the program
    would benefit both FinCEN and the gaming industry?

    A.1.a. 314(b) sharing among the gaming industry and with other
    eligible financial institutions can help detect and prevent
    illicit financial activity that may not have otherwise been
    detected. Once suspicious activity is detected, financial
    institutions would then complete and submit SARs which FinCEN
    receives and which are also available to law enforcement. The
    gaming industry benefits from 314(b) participation by
    identifying suspicious activity that may have otherwise gone
    undetected, which helps protect their institutions from being
    used by illicit actors. FinCEN benefits from the subsequent
    reporting that may not have been possible without 314(b)
    sharing requests. The American Gaming Association (AGA)
    currently represents the gaming industry as a member of the
    Bank Secrecy Act Advisory Group (BSAAG). AGA representatives
    have shared the gaming industry perspectives on and experiences
    with 314(b) sharing. Discussions with the AGA on 314(b) sharing
    have been very helpful.

    Q.1.b. Can you elaborate on how casinos that wish to utilize
    cryptocurrencies and virtual currencies can reduce the risk
    associated with them?

    A.1.b. Since 2011, FinCEN's regulations have stated that
    individuals and entities engaged in the business of accepting
    and transmitting physical currency or convertible virtual
    currency from one person to another or to another location are
    money transmitters subject to the AML/CFT requirements of the
    Bank Secrecy Act and its implementing regulations. This
    includes transactions in fiat-to-virtual currency, as well as
    virtual currency-to-virtual currency. Plus, FinCEN recently
    issued an Advisory with typologies and red flags for detecting
    illicit activity involving virtual currency, as well as 30
    pages of guidance directly addressing areas of interest gleaned
    from ongoing industry engagement about how our regulations
    apply to different business models, such as peer-to-peer
    exchangers, virtual currency kiosks, decentralized
    (distributed) applications (DApps), and anonymizing services.
    Financial institutions, including casinos and card clubs, must
    take a risk-based approach and conduct appropriate customer due
    diligence to mitigate risk, including those relating to virtual
    currency. These steps are important because the risks posed by
    the use of virtual currencies vary.
        Criminals will always seek to circumvent our efforts to
    keep our financial system safe, including through exploiting
    new technology and payments systems for illicit gain. To
    effectively manage risk, casinos must understand how new
    technologies impact and are integrated with our financial
    institutions, including casinos and card clubs. The various
    products and services casinos offer clients must be scrutinized
    to mitigate the risks associated with them, as appropriate.
    Information sharing within a casino's organization remains an
    important tool to understanding challenges facing in
    cybersecurity. By avoiding silos between the business and
    compliance components of a casino, and sharing knowledge
    obtained throughout the organization, casinos will be using
    ``all available information'' as required to provide effective
    BSA reporting. In addition, financial institutions, including
    casinos and card clubs, should have a thorough understanding of
    how persons, potentially including their own institutions,
    operating in the virtual currency space may fall under FinCEN's
    regulations with respect to money transmission.
    FinCEN Improvement Act
    Q.2. The FinCEN Improvement Act of 2018 (H.R. 6411) would amend
    the duties of the Financial Crimes Enforcement Network (FinCEN)
    to mandate FinCEN work with tribal law enforcement agencies,
    protect against terrorist threats domestically or
    internationally, and expand its work on emerging technology and
    virtual currency.

    Q.2.a. To follow up on our short exchange at the hearing, could
    you please expand on how it would be helpful for FinCEN to have
    authority to work with tribal law enforcement in addition to
    other law enforcement entities?

    A.2.a. FinCEN currently has relationships with tribal law
    enforcement agencies which provide value to both FinCEN and
    such agencies on a range of issues, in particular those
    affecting casinos. FinCEN welcomes authority which would codify
    or expand these relationships and the ability to work together
    to address threats against the United States' financial system
    and national security. As we identify specific opportunities to
    improve our AML/CFT regime, we will engage with Congress on
    potential solutions that require a statutory response.

    Q.2.b. How do think it would be helpful for FinCEN's statute be
    expanded to focus on domestic terrorism, as well as
    international terrorism?

    A.2.b. FinCEN's mission is to safeguard the financial system
    from illicit use, combat money laundering, and promote national
    security through the strategic use of financial authorities and
    the collection, analysis, and dissemination of financial
    intelligence. FinCEN's mission, authorities, and ability to
    share information with law enforcement are not limited to
    international terrorism. Nevertheless, as incidents involving
    domestic terrorism have increased in recent years, clarifying
    that FinCEN's mission includes combating terrorism of all
    kinds, including domestic terrorism, in the statement of
    purpose of the BSA would support FinCEN's mission to promote
    national security.

    Q.3. Given the rise in the use of emerging technologies like
    cryptocurrencies, I believe FinCEN's statutory authorities
    should be modified to include a focus on new technologies. We
    should ensure your agency has the tools and abilities needed to
    focus on emerging methods of terrorism and illicit finance.
        If FinCEN had explicit authority to monitor emerging
    technologies and cryptocurrencies like Bitcoin and Ethereum,
    could FinCEN be more effective at stopping money laundering and
    terrorist financing? How?

    A.3. Since 2011, FinCEN's regulations have stated that
    individuals and entities engaged in the business of accepting
    and transmitting physical currency or convertible virtual
    currency from one person to another or to another location are
    money transmitters subject to the AML/CFT requirements of the
    Bank Secrecy Act and its implementing regulations. This
    includes transactions in fiat-to-virtual currency, as well as
    virtual currency-to-virtual currency. Plus, FinCEN recently
    issued an Advisory with typologies and red flags for detecting
    illicit activity involving virtual currency, as well as 30
    pages of guidance directly addressing areas of interest gleaned
    from ongoing industry engagement about how our regulations
    apply to different business models, such as peer-to-peer
    exchangers, virtual currency kiosks, decentralized
    (distributed) applications (DApps), and anonymizing services.
    One of the reasons the United States is recognized as a leader
    in the regulation, supervision, and enforcement of virtual
    currency money transmitters is because FinCEN regulations are
    technology-neutral and, as such, already cover the transmission
    of value that substitutes for currency, including convertible
    virtual currencies like bitcoin and ethereum. FinCEN has always
    monitored technological developments to determine their impact
    on the BSA and its implementing regulations and will continue
    to do so. We also continue to work with our Federal regulator
    partners with equities in this space, including the Securities
    and Exchange Commission and the Commodity Futures Trading
    Commission, to carefully and closely coordinate on these
    matters in order to best allocate our resources to assess and
    address the greatest threats.
        FinCEN does not vet emerging technologies, but FinCEN's
    regulations governing money transmission encompass emerging
    technologies that transfer value, including virtual currency.
    Specifically, FinCEN regulates ``the acceptance and
    transmission of currency, funds, or any other value that
    substitutes for currency, from one person to another person or
    location by any means as money transmission.'' Convertible
    virtual currency is a type of value that substitutes for
    currency, and therefore money transmission denominated in
    convertible virtual currency is subject to the same
    registration, reporting, recordkeeping, and monitoring
    obligations as that denominated in currency of legal tender.
    See generally, 31 U.S.C.  5312 (2); 31 CFR  1010.100(ff)(5).
        In addition, FinCEN has authorities to collect information
    from participants in transactions occurring through emerging
    technologies if the participants are subject to FinCEN's
    regulations. These authorities include demand letters for
    information, 314(a)
    requests for information, geographical targeting orders and
    other
    authorities--such as 311 actions--with respect to findings of
    actors or activities of primary money laundering concern.
    Derisking Along the Southwest Border
    Q.4. A February GAO report found that 80 percent of Southwest
    border banks limited or did not offer services to customers
    that are considered high risk for money laundering.\1\ The
    report said that ``Regulators have not fully assessed the BSA/
    AML factors influencing banks to derisk or close bank
    branches.'' However, the problem of bank closures and banks
    closing accounts for groups of people remain. Director Blanco,
    guidance to financial institutions related to ``know your
    customer'' seems to vary between what FinCEN states versus what
    the OCC states.
    ---------------------------------------------------------------------------
        \1\ GAO. Bank Secrecy Act. Derisking along the Southwest Border
    Highlights the Need for Regulators to Enhance Retrospective Reviews.
    February 26, 2018. Available at: https://www.gao.gov/products/GAO-18-
    263.
    ---------------------------------------------------------------------------
        Can you clarify what requirements financial institutions
    have to know their customers?

    A.4. Regulations implementing the BSA require financial
    institutions to collect certain information on their customers
    and have an understanding of such customers. The Customer
    Identification Program (CIP) and Customer Due Diligence (CDD)
    Requirements for Financial Institutions require banks to, at
    minimum, collect the name, date of birth, address, and
    identification number of their individual customers or the
    beneficial owner of their legal entity customers. In addition
    to the BSA/AML requirements, the Office of the Comptroller of
    the Currency may have additional requirements for their
    institutions relating to their safety and soundness mission.
    Further, as the implementation of an AML program is risk-based,
    certain institutions may have heightened requirements for
    certain customers or customer types.
    Humanitarian Groups Losing Access
    Q.5. A GAO report published found that some U.S. nonprofit
    agencies that provide humanitarian assistance overseas have had
    trouble accessing banking services, especially in areas
    perceived to be high risk.\2\ A recent survey by the Charity
    and Security Network (CSN), a trade association for NPOs, found
    that two-thirds of U.S.-based nonprofits with international
    operations experienced banking access challenges, including
    delays in transferring funds, increased fees, and account
    closures. When humanitarian groups cannot get assistance to
    refugees from political conflicts or natural disasters, people
    could die from starvation, exposure, and disease.
    ---------------------------------------------------------------------------
        \2\ GAO. ``Humanitarian Assistance: USAID Should Improve
    Information Collection and Communication to Help Mitigate Implementers'
    Banking Challenges.'' Government Accountability Office. September 2018.
    Available at: https://www.gao.gov/assets/700/694607.pdf.

    Q.5.a. Have your agencies reached out to USAID in light of this
    ---------------------------------------------------------------------------
    report?

    A.5.a. FinCEN has not reached out to engage USAID on this
    issue. We do, however, continue to participate in broader
    Treasury efforts on this issue. FinCEN also engages with direct
    stakeholders, such as the NPO sector and the financial industry
    on these complex issues. This engagement includes dialogue
    about regulatory requirements and our risk-based approach to
    AML/CTF.

    Q.5.b. Are there ways your agencies can work with USAID to
    ensure humanitarian resources flow?

    A.5.b. FinCEN will continue to participate in broader Treasury
    engagements and initiatives in this area, including
    participation in engagements with key stakeholders such as
    USAID and the Department of State on this topic.
    Remittances and Money Services Businesses
    Q.6. Nearly one in five Nevada residents are immigrants, many
    of whom send money back to their families still living in their
    nations of origin. They rely on Money Services Businesses
    (MSBs) to send remittances easily and affordably. However, in
    the past decade or so, sending remittances through MSBs has
    been challenging. There have been some positive changes. There
    is now coordinated enforcement and supervision of money
    services business by State banking regulators. But, a number of
    Money Services Businesses have lost access to wire services and
    even bank accounts. Money Services Businesses have a long list
    of required rules they must follow.

    Q.6.a. Shouldn't a bank be able to provide a checking account,
    safe deposit box, or wire transfer services to a Money Services
    Business as long as that money transmitter is legally
    operational with appropriate compliance paperwork, etc.?

       LIf a Money Services Business is legally operating,
            can a financial institution assume it is fine to
            provide banking services to them?

    A.6.a. FinCEN agrees that MSBs, including money transmitters,
    serve an important role in the global flow of remittances and
    financial transparency. Although banking organizations must
    make their own risk-based determination whether to provide
    services to any particular customer, they can provide services
    to MSBs while meeting their BSA/AML obligations. In November
    2014, FinCEN issued a statement to reiterate expectations
    regarding banking institutions' BSA obligations for money
    services businesses. FinCEN stated that indiscriminately
    terminating the accounts of all MSBs as a category of customers
    is inconsistent with regulatory expectations that financial
    institutions assess customer risk on a case-by-case basis. The
    statement also recognized that refusing financial services to
    an entire segment of the industry can lead to an overall
    reduction in financial sector transparency that is critical to
    making the sector resistant to the efforts of illicit actors.
    This is particularly important with MSB remittance operations.

    Q.6.b. Should Money Services Businesses be able to provide
    their State bank exam to banks where they seek to open accounts
    and send money?

    A.6.b. Whether a State regulatory examination may or may not be
    shared with third parties is up to the specific State
    regulator.

    Q.6.c. The IRS has responsibility to regulate Money Services
    Businesses.
        How has the lack of funding for the IRS affected oversight
    of Money Services Businesses?

    A.6.c. FinCEN is the sole Federal AML supervisor for all
    financial institutions with AML requirements under the BSA that
    do not have a Federal functional regulator. Currently, this
    category of financial institutions includes not only money
    services businesses (MSBs); but also casinos and card clubs;
    dealers in precious metals, precious stones or jewels (PMSJs);
    insurance companies; nonbank mortgage lenders and originators;
    nonfederally insured credit unions; and credit card systems--
    referenced collectively as ``nonbank financial institutions''
    or ``NBFIs.'' Examination authority regarding NBFIs is
    currently delegated to the IRS. Specifically, this function is
    handled by the IRS Small Business/Self Employed Division (IRS
    SB/SE). Ensuring that all NBFI sectors are effectively
    supervised is a key priority of the Department of the Treasury.
        FinCEN has recognized the need to reevaluate the current
    supervisory approach and optimize resources dedicated to NBFI
    supervision given decreasing IRS SB/SE resources assigned to
    BSA
    supervision, in conjunction with an increase in the number and
    complexity of the NBFI population subject to supervision.
    FinCEN
    requested $1.2 million in the fiscal year 2019 budget to begin
    the development of a NBFI Risk Assessment Model that will
    ultimately improve FinCEN's ability to identify, detect, and
    examine the highest risk NBFIs and foster enhanced BSA
    compliance within the NBFI financial services sectors.

    Q.6.d. Has this led to reduced access for MSBs to banking
    services resulting in more money moving outside of the formal
    banking system?

    A.6.d. Effective and efficient supervision is important not
    only to protect the financial system from criminal or terrorist
    abuse, but also to help NBFIs--particularly MSBs--continue to
    play their important role in financial inclusion and the
    economy. Without effective supervision of NBFIs, banks may
    escalate their view of them as risky clients and further
    restrict NBFI access to banking services, resulting in less
    overall transparency for this sector of the market. However,
    FinCEN is currently not in a position to determine whether this
    has led to reduced access to banking services for MSBs or the
    effects, if any.
    Money Laundering Through Real Estate
    Q.7. A title insurance analyst recently visited my office and
    noted that some title insurance firms are offshoring title
    searches. Title firms are hiring workers in India or the
    Philippines to examine public databases for liens. She said
    that title examiners based in other countries might be less
    expensive but are unfamiliar with the community.

    Q.7.a. Is outsourcing of title insurance exams a problem? Have
    banks raised any concerns? Could consumers buy homes without
    cleared title making it impossible for them to re-sell the
    home?

    A.7.a. FinCEN is not in a position to respond to this question.
    State and local government agencies may be better positioned to
    comment on this matter.
    Correspondent Banking
    Q.8. To what extent is the ability of money transmitters to
    facilitate money transfers affected by correspondent banks
    restricting or terminating relations with respondent banks?

    A.8. Treasury has heard concerns from some money transmitters
    that difficulties in obtaining or maintaining bank accounts has
    hampered their ability to provide remittances at the lowest
    possible cost. In some cases, banks have advised money
    transmitters and Treasury that they have restricted or ended
    account access for money transmitters due, at least in part, to
    concerns from their correspondents about the risks associated
    with money transfer. However, Treasury's engagement on this
    issue has demonstrated a number of other drivers of account
    loss which are also significant, especially profitability
    concerns. Treasury understands from engagement with the
    financial sector that the situation seems to have generally
    stabilized and pressure on bank access has stopped increasing,
    although it has not substantially decreased. In addition,
    analysis done by the Financial Stability Board suggests that
    while the number of correspondent relationships has decreased,
    the number of payments and the total funds transferred have not
    fallen.
        Treasury is not aware of any remittance corridor in which
    the flow of funds has stopped, but has heard from some smaller
    money transmitters that increased costs stemming from lack of
    access to bank accounts have been passed on to consumers in
    certain cases. It should be noted, however, that costs for
    remittances in the United States remain lower than costs in
    most G20 member states.
    Money Laundering Through Real Estate
    Q.9. Many cities around the world worry that criminals are
    laundering money through real estate purchases. When criminals
    have suspicious cash they want to avoid acknowledging or paying
    taxes on, it's pretty easy to buy expensive real estate. Sell
    it in a few months and use the cash from the transaction for a
    legitimate purpose.

    Q.9.a. How prevalent is money laundering through real estate?

    A.9.a. FinCEN issued the real estate GTOs in response to its
    longstanding concerns about the relative lack of anti-money
    laundering protections in the all-cash residential real estate
    market. FinCEN was especially concerned about the ability of
    illicit actors to conduct these all-cash transactions through a
    legal entity in a way that made it difficult for a traditional
    financial institution to identify who was the beneficial owner
    of the property.
        The January 2016 GTOs initially covered certain
    transactions in Manhattan and Miami-Dade County, and were later
    expanded in July 2016 to include all of New York City,
    additional counties in south Florida, and counties around San
    Antonio, Texas, and San Diego, Los Angeles, and San Francisco
    in California. At that time, the GTOs were also expanded to
    cover transactions made through additional monetary
    instruments. The GTOs were later expanded to include (i)
    transactions involving a funds transfer; (ii) transactions in
    additional counties in the areas of Boston, Massachusetts,
    Chicago, Illinois, Las Vegas, Nevada, Seattle, Washington,
    Dallas-Fort Worth, Texas, and Honolulu, Hawaii; (iii)
    transactions made using virtual currency; and (iv) transactions
    at a uniform threshold of $300,000. FinCEN made each of these
    adjustments to improve its understanding how particular
    characteristics of a transaction may factor into potential
    money laundering risks.
        The results so far have been helpful to FinCEN's evolving
    understanding of the real estate market, but it is difficult to
    identify exactly how much money laundering occurs in the real
    estate sector. The GTO data itself provides little direct
    indication of the prevalence of such money laundering. What the
    data indicates is that approximately 30 percent of the covered
    transactions involve an individual who is independently the
    subject of a SAR. This information is suggestive, but does not
    mean that 30 percent of the transactions were actual money
    laundering. It may not be possible to identify the prevalence
    of money laundering through real estate with precision, but
    FinCEN is using the data from the GTOs to learn more about the
    risks in this industry through direct analysis, discussion with
    industry, and law enforcement engagement on the data's utility.

    Q.9.b. What has been the impact of the Geographical Targeting
    Orders requirements for the communities where this is a
    problem?

    A.9.b. The GTOs have brought attention and resources to the
    issue, and the data provided to FinCEN in response to the GTOs
    has been shared with law enforcement.

    Q.9.c. Did the reporting requirements reduce money laundering
    in real estate or just move the money laundering through real
    estate to other cities?

    A.9.c. Conversations with industry representatives have not
    indicated an identifiable trend in individuals avoiding the GTO
    by moving to a noncovered jurisdiction. However, to be clear,
    the actual GTO data itself would not provide direct evidence of
    such potential evasion.

    Q.9.d. Does money laundering in residential real estate raise
    prices and crowd out buyers in places like Nevada where we have
    a shortage of homes available for purchase?

    A.9.d. The real estate GTO data does not provide direct
    evidence of such price changes.

    Q.9.e. Should Congress expand anti-money laundering
    requirements for real estate transactions?

    A.9.e. FinCEN has a longstanding interest in combating money
    laundering through real estate, and FinCEN has taken an
    incremental approach to regulating this sector, focusing first
    on the areas of greatest vulnerability. FinCEN issued
    regulations imposing anti-money laundering (AML) requirements
    on all real estate transactions involving nonbank residential
    mortgage lenders, which together with banks are involved in the
    vast majority of real estate transactions. As reflected by the
    GTOs issued in the last 2 years, FinCEN is focused on
    addressing vulnerabilities associated with all-cash (i.e., not
    financed through debt) real estate transactions. To determine
    whether and to what extent real estate transactions or persons
    involved in real estate transactions or
    settlements should be covered by the BSA, FinCEN is currently
    assessing the results of the GTOs which varied in type and
    jurisdiction of covered transactions, as well as the current
    vul-
    nerabilities, potential burdens to industry, and other
    supervision and compliance considerations. This is a complex
    issued given the broad scope of the real estate sector and its
    participants, including real estate brokers, real estate
    agents, titles agents, attorneys, insurance companies, escrow
    agents, and others. FinCEN appreciates Congress's interest in
    this issue and looks forward to working with Congress on any
    potential solutions that require a statutory response.

    Q.9.e.i. If so, should it focus on prevention or just require
    reporting?

    A.9.e.i. As stated above, to determine whether and to what
    extent real estate transactions or persons involved in real
    estate transactions or settlements should be covered by the
    BSA, FinCEN is currently assessing the results of the GTOs
    which varied in type and jurisdiction of covered transactions,
    as well as the current vulnerabilities, potential burdens to
    industry, and other supervision and compliance considerations.
    This is a complex issue given the broad scope of the real
    estate sector and its participants, including real estate
    brokers, real estate agents, titles agents, attorneys,
    insurance companies, escrow agents, and others. FinCEN
    appreciates Congress's interest in this issue and looks forward
    to working with Congress on any potential solutions that
    require a statutory response.

    Q.10. If Congress was going to require Anti-Money Laundering
    requirements for real estate transactions, who should be
    required to prevent and report suspicious transactions?

       LReal estate agents?

       LTitle agents?

       LFinancial institutions like banks, credit unions,
            and mortgage lenders?

    A.10. To determine whether and to what extent real estate
    transactions or persons involved in real estate transactions or
    settlements should be covered by the BSA, FinCEN is currently
    assessing the results of the GTOs which varied in type and
    jurisdiction of covered transactions, as well as the current
    vulnerabilities, potential burdens to industry, and other
    supervision and compliance considerations. This is a complex
    issue given the broad scope of the real estate sector and
    participants, including real estate brokers, real estate
    agents, titles agents, attorneys, insurance companies, escrow
    agents, among others. FinCEN appreciates Congress's interest in
    this issue and looks forward to working with Congress on any
    potential solutions that require a statutory response.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO FROM GROVETTA
                              N. GARDINEER

    Overall Value of BSA information
    Q.1. The Government has been collecting BSA information for
    about half a century, now. That information flow and the costs
    to provide, store, and safely manage it have steadily increased
    over that time, as well. The purpose of the information is to
    keep our financial system and the businesses it serves secure
    and ultimately our Nation's people safe from various types of
    harm.
        What relative enforcement value do the volumes of
    information provided the Government at unprecedented costs to
    financial institutions have today for the purposes of BSA?

    A.1. The requirement for banks to identify and report
    suspicious financial transactions is an important part of the
    United States' BSA/Anti-Money Laundering (AML) regime, in
    particular as it relates to protecting the U.S. financial
    system from illicit transactions. Suspicious Activity Reports
    (SAR) and Currency Transaction Reports (CTR) are intended to
    provide law enforcement access to information needed to
    initiate and conduct investigations of possible illicit
    activity. Through the provision of information provided by SAR
    and CTR filers, law enforcement agencies regularly report that
    they are able to develop or further develop cases against
    criminal actors.

    Q.2. Should Congress be looking to increase or decrease or
    better manage that volume of information, and in what way and
    why?

    A.2. The OCC has recommended that a comprehensive and
    systematic review be conducted to identify ways to update the
    SAR and CTR requirements and processes. There may be
    opportunities to tailor the content of these important reports
    and to evaluate the appropriateness of current thresholds for
    those reporting requirements in order to maximize their
    usefulness for law enforcement. For example, changes could be
    considered in the current reporting requirements applicable
    when a bank customer engages in structuring, that is, conducts
    transactions calculated to avoid triggering reports required
    under the BSA. With regard to whether Congress should be
    looking to address these issues, some of the current reporting
    thresholds are statutory (such as CTRs) while others are
    contained in regulations and would not require statutory
    changes. The OCC is engaged with our regulatory partners and
    FinCEN to help identify ways to improve the efficiency and
    effectiveness of the SAR and CTR reporting regimes. We also
    intend to explore the current requirements with law enforcement
    to identify any opportunities to tailor their content to
    maximize their usefulness, evaluate the appropriateness of the
    current thresholds, and explore streamlined filing
    requirements. If these areas require legislative action, we
    will provide recommendations to Congress.
    ``Real'' 2-way Information Sharing
    Q.3. A perennial complaint from the financial industry is that
    it receives no feedback on the SARs it files, that the
    information flow is one-way to the Government. The word
    sharing, itself, implies a two-way street. However, this year,
    several U.S. financial institutions have reported a substantial
    uptick in subpoenas to supply transactional data to Federal
    investigators, particularly from FBI and IRS, and have reported
    that Federal law enforcement has sought to enhance information
    sharing with the private sector beyond existing section 314(a)
    Patriot Act authority and the Treasury Department-led Bank
    Secrecy Act Advisory Group.
        What actions can each of you take now to improve
    information sharing between your agencies and industry?

    A.3. The OCC supports greater information sharing among the
    regulatory agencies, FinCEN, law enforcement, and the industry
    to maximize the effectiveness of the BSA regime. As one method
    to achieve this goal, the OCC supports additional collaboration
    among all stakeholders to explore how the volume of information
    collected for purposes of the BSA could be reduced, including
    the development of communication channels through which law
    enforcement can clarify the types of BSA data that is most and
    least useful in criminal investigations, so that banks and
    examiners can better target particular activity of interest to
    law enforcement. The OCC also supports legislation to expand
    the information sharing safe harbor in Section 314(b) of the
    USA PATRIOT Act beyond money laundering and terrorist
    financing, to include mortgage fraud, cyber fraud, and other
    financial crimes, and to eliminate or modify the notice
    requirement to FinCEN, which may limit the ability of financial
    institutions to share information.
    Information Sharing and the FinCEN Exchange
    Q.4. The FinCEN Exchange brings financial institutions, FinCEN,
    and law enforcement together to facilitate greater information
    sharing between the public and private sectors. However, the
    Federal banking agencies are not a part of this process nor
    privy to the information being provided by FinCEN and law
    enforcement to the banks that they supervise. In order for the
    system to work effectively, the Bank Secrecy Act relies on the
    coordination and cooperation between FinCEN/law enforcement,
    the banks and the regulators.
        Should banking regulatory agencies be part of the FinCEN
    Exchange, why or why not?

    A.4. Yes, the Federal banking agencies should be included in
    FinCEN Exchange information sharing. We understand that
    information being shared with banks during FinCEN Exchange
    meetings includes regional threat information and certain AML
    typologies that may involve multiple unrelated financial
    institutions. The Federal banking agencies should also be
    provided with this type of useful information that FinCEN and
    law enforcement agencies are conveying to banks under our
    supervision. We believe that in order for the BSA regime to
    work effectively, it is imperative to have coordination and
    cooperation between FinCEN/law enforcement, financial
    institutions, and regulators.
    Economic Growth & Regulator Paperwork Reduction Act, (``EGRPRA'') and
            the Review of BSA/AML Regulations
    Q.5. OCC experience with conducting EGRPRA outreach finds that
    a regular review of the BSA/AML regulations similar to the
    EGRPRA process, which identifies regulations that may be
    outdated, redundant or unnecessarily burdensome, places in the
    top three items, receiving the most discussion. FinCEN is said
    to adhere to a similar process for review of BSA, but is not
    otherwise covered by the report.

    Q.5.a. Ms. Gardineer, can you explain the OCC's EGRPRA
    recommendation?

    A.5.a. The OCC's EGRPRA recommendation is designed to ensure
    the BSA regulations that help to protect the country from money
    laundering and terrorist financing remain strong, relevant, and
    responsive to a dynamic financial services industry, including
    rapidly changing bank processes. Specifically, we recommend
    that Treasury conduct a periodic review of all BSA regulations,
    generally modeled alter the statutorily required review of
    regulations under the Economic Growth and Regulatory Paperwork
    Reduction Act of 1996 (EGRPRA) that the banking agencies
    conduct every 10 years.
        The OCC recommends the Committee consider legislation to
    require FinCEN, in consultation with the OCC, FRB, FDIC, NCUA,
    SEC, CFTC, IRS, FBI, and other regulatory and law enforcement
    agencies, to solicit public comment on BSA regulations to
    identify potential improvements and opportunities to strengthen
    the regulations, or to reflect advances in technology or
    improvements in processes. We suggest Treasury solicit and
    consider comments focusing on the effectiveness of its
    regulations in carrying out the purposes of the BSA. Following
    such review, Treasury could submit a report to Congress,
    financial regulators, and law enforcement on the results of its
    review.
        During the most recent review of our regulations pursuant
    to the EGRPRA, the OCC and the other Federal banking agencies
    received many comments about the impact of BSA rules on
    financial institutions--particularly community banks. The
    banking agencies, however, do not have authority to make
    changes to the Treasury's BSA rules. The OCC suggests
    legislation directing Treasury to undertake a review of BSA
    regulations based on clear criteria, which would give financial
    institutions and other members of the public an opportunity to
    express their comments or concerns directly to the agency with
    the authority to issue, modify, strengthen, refine, streamline,
    or repeal BSA rules.
        The review that we recommend has a broader focus than the
    retrospective review of its regulations to which FinCEN has
    previously committed. The recommended review would provide for
    Treasury participation in a forum with broad public
    participation from all stakeholders, including law enforcement
    and other agencies. Finally, we believe this suggestion is
    consistent with GAO's recommendations for broader interagency
    review of BSA/AML regulations to ensure they are achieving
    their objectives.
    Delegated Examination Authority
    Q.6. Congress vested BSA examination authority to the Treasury
    because of its financial, law enforcement, and national
    security knowledge and abilities. Due to resource constraints,
    FinCEN delegated that authority to the Federal banking
    agencies. The Bank Policy Institute estimates that a FinCEN
    team of 25-30 people could replicate the examination work of
    the Federal banking agencies and IRS for the largest banks and
    MSBs, respectively, and allow FinCEN with its considerable
    expertise that I mentioned, to see the whole battlefield.

    Q.6.a. If FinCEN reversed its delegation, particularly as to
    large institutions, would this result in better rulemaking, and
    compliance practices that advance the interests of law
    enforcement over audit processes and so-called box-checking?

    A.6.a. Reversal of FinCEN's BSA supervision delegation would
    not result in better rulemaking and compliance practices. The
    OCC and the other Federal banking agencies have been examining
    banks for compliance with the BSA for decades and have a
    significant amount of expertise in this area.
        The OCC supervises 1,475 national banks, Federal savings
    associations and Federal branches of foreign banks. The OCC
    employs approximately 2,533 examiners located throughout the
    United States in four district offices and 90 field offices.
    Full scope examinations occur once every supervisory cycle (12
    to 18) months, and there are 20 banking companies in the OCC's
    Large Bank program that utilize a resident examiner approach.
        In addition to the BSA-focused aspects examination
    processes, the OCC's full scope examinations provide an
    important, comprehensive view of the entire banking
    organization and identify issues that may permeate into, or
    from, other areas of corporate governance. Problems identified
    in these other areas may have an impact on the BSA compliance
    program (e.g., corporate governance, culture, internal
    controls, audit, etc.). The OCC has found that it is important
    for examiners to have a complete view of the entire institution
    in order to fully evaluate the effectiveness of the BSA program
    and understand how that program is being implemented throughout
    the organization and, in some institutions, globally.
        The OCC also employs the approach of conducting horizontal
    examinations of multiple banks within a particular size
    category (Large Banks, Mid-size Banks or Community Banks) when
    appropriate and useful to evaluate specific trends and issues
    identified to determine how these trends are impacting the
    overall banking industry.
        If FinCEN's examination delegation to the Federal banking
    agencies was reversed, the Federal banking agencies would still
    be required to examine these banks for compliance with the
    agencies' BSA regulations, implementing 12 U.S.C. 1818s. In
    addition, the OCC has the authority and responsibility to
    examine for compliance with the BSA pursuant to its authorities
    to examine national banks and Federal savings associations for
    unsafe and unsound banking practices.
        The OCC, as well as the other Federal banking agencies,
    also conducts examinations for Office of Foreign Assets Control
    (OFAC) sanctions compliance as part of our comprehensive
    supervisory process, and we share certain examination
    information with OFAC to help ensure that banks are in
    compliance with OFAC regulations.
                                    ------

    RESPONSE TO WRITTEN QUESTION OF SENATOR BROWN FROM GROVETTA N.
                               GARDINEER

    Information-Sharing by Banks
    Q.1. Current law allows bank information-sharing only in cases
    of terrorism or money laundering and even then does not allow
    sharing of actual SARs. Some have advocated for expanding
    banks' ability to share information, to take advantage of
    technological advances. Others have sounded alarms 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.
        What additional steps do you think are needed to ensure
    that expanding information sharing among banks doesn't put
    customers at greater risk of unjustified exclusion from the
    financial system because of inaccurate information being
    shared? In particular, if we were to consider expanding
    information-sharing, should we require a system of redress or
    information correction for such individuals, and if so how
    would you envision that process working?

    A.1. The OCC supports legislation to expand the information
    sharing safe harbor in Section 314(b) of the USA PATRIOT Act
    beyond money laundering and terrorist financing to include
    mortgage fraud, cyber fraud, and other financial crimes, and to
    eliminate or modify the notice requirement to FinCEN, which may
    currently limit the ability of financial institutions to share
    information. We also are mindful, however, of the need to
    strengthen privacy safeguards for bank-to-bank information
    sharing. The OCC would be happy to work with your staff to
    explore ways to satisfy both of these important goals.
                                    ------

     RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN FROM GROVETTA
                              N. GARDINEER

    Use of Cryptocurrencies for Nefarious Purposes
    Q.1. This Committee has been closely monitoring the ever
    increasing use of cryptocurrencies to facilitate the illegal
    trafficking of opioids, most notably Fentanyl. Transnational
    criminal organizations have been using these cryptocurrencies
    on the dark web, taking advantage of this encrypted layer of
    the internet to fuel the deadly opioid crisis in our country
    and conceal their illegal proceeds from law enforcement. The
    tragic consequences of this was clearly noted by the most
    recent data from the Centers for Disease Control (CDC) which
    showed that in 2017, nearly 49,000 overdose deaths that
    occurred in our country were from opioids and the biggest
    driver of that was Fentanyl, which killed more than 29,000.

    Q.1.a. Given the seriousness of our country's opioid epidemic,
    what new measures have your respective agencies undertaken to
    address the detection, interdiction, and prosecution of
    individuals and organizations who are using cryptocurrencies to
    further these criminal activities?

    A.1.a. OCC supervised institutions are subject to laws and
    regulations requiring them to monitor for potentially illicit
    transactions, including potentially suspicious activity
    involving cryptocurrencies. The OCC regularly examines
    institutions subject to its supervision for compliance with
    these laws and regulations.

    Q.1.b. Are there structural changes that need to be made to the
    current regulatory framework?

    A.1.b. Along with the other Federal banking regulators and the
    market regulators, the OCC is currently participating in a
    cryptocurrency Working Group under the auspices of the
    Financial Stability Oversight Council (FSOC). The FSOC Working
    Group, among other things, provides a forum for member agencies
    to share information regarding cryptocurrencies and to promote
    regulatory coordination and consistency.
    Use of Online Platforms for Laundering
    Q.2. Recent reports have highlighted how money laundering
    through online platforms has become an attractive option for
    criminals because of its simplicity, speed and global reach.
    While using these platforms, there is no need to create a fake
    business or other identities, and no goods need to be moved in
    order to maintain the illusion of legitimacy. These reports
    forecast that online money laundering will continue to grow as
    worldwide retail e-commerce sales are estimated to top $2.2
    trillion annually, providing greater scope for criminals to
    conceal their laundering activities among high volumes of
    legitimate transactions. Likewise, the rise of cryptocurrencies
    and alternative payment platforms raises well-documented
    concerns about how such technology will make untraceable money
    laundering easier.

    Q.2.a. How have the various social media platforms been working
    with your agencies to assist with financial crimes such as
    money laundering and fraud?

    A.2.a. The OCC has not been contacted by any of the social
    media providers to assist with financial crime detection. This
    question may be better addressed to law enforcement.

    Q.3. How has the rise of cryptocurrencies and alternative
    payment platforms presented challenges to your investigative
    and regulatory functions?

    A.3. We have not observed any specific regulatory challenges as
    a result of cryptocurrencies or alternative payment platforms.
    We understand from law enforcement, however, that specialized
    software is needed to investigate and trace cryptocurrency
    transactions, and that so called ``mixing'' softwares and
    technologies are making this process even more difficult and
    time consuming for law enforcement. Alternative payments on the
    other hand, frequently flow over more mainstream payment
    networks, and therefore would be included within a bank's BSA/
    AML monitoring processes.

    Q.4. How are your respective agencies addressing this?

    A.4. The OCC participates in the Secretary of the Treasury's
    ESOC Cryptocurrency working group. Through this work, the OCC
    assisted U.S. Treasury in identifying potential gaps related to
    cryptoassets.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM
                         GROVETTA N. GARDINEER

    Humanitarian Groups Losing Access
    Q.1. A GAO report published found that some U.S. nonprofit
    agencies that provide humanitarian assistance overseas have had
    trouble accessing banking services, especially in areas
    perceived to be high risk.\1\ A recent survey by the Charity
    and Security Network (CSN), a trade association for NPOs found
    that two-thirds of U.S.-based nonprofits with international
    operations experienced banking access challenges, including
    delays in transferring funds, increased fees, and account
    closures. When humanitarian groups cannot get assistance to
    refugees from political conflicts or natural disasters, people
    could die from starvation, exposure, and disease.
    ---------------------------------------------------------------------------
        \1\ GAO. Humanitarian Assistance: USAID Should Improve Information
    Collection and Communication to Help Mitigate Implementers' Banking
    Challenges.'' Government Accountability Office. September 2018.
    Available at: https://www.gao.gov/assets/700/694607.pdf.

        Have your agencies reached out to USAID in light of this
    ---------------------------------------------------------------------------
    report?

    A.1. No, the OCC has not contacted the USAID regarding the
    report. However, we would be happy to engage in discussions
    with the USAID related to the GAO's findings and
    recommendations.

    Q.2. Are there ways your agencies can work with USAID to ensure
    humanitarian resources flow?

    A.2. The OCC regularly meets with a wide variety of other
    agencies, banking industry representatives, charities, and
    other stakeholders to discuss issues and concerns relating to
    banking services. We would be happy to participate in a meeting
    with USAID to discuss ways that organizations providing
    humanitarian assistance can access banking services.
        In general, the OCC expects banks to have sound risk
    management processes to meet the needs of their communities, to
    comply with laws and regulations, and to provide fair access to
    financial services and fair treatment of their customers.
    Remittances and Money Services Businesses
    Q.3. Nearly one in five Nevada residents are immigrants, many
    of whom send money back to their families still living in their
    nations of origin. They rely on Money Services Businesses
    (MSBs) to send remittances easily and affordably. However, in
    the past decade or so, sending remittances through MSBs has
    been challenging. There have been some positive changes. There
    is now coordinated enforcement and supervision of money
    services business by State banking regulators. But, a number of
    Money Services Businesses have lost access to wire services and
    even bank accounts. Money Services Businesses have a long list
    of required rules they must follow.
        Shouldn't a bank be able to provide a checking account,
    safe deposit box, or wire transfer services to a Money Services
    Business as long as that money transmitter is legally
    operational with appropriate compliance paperwork, etc.?

    A.3. A bank can decide to provide banking services to any
    potential customer operating legally. Each bank has the
    discretion to determine the types of customers and accounts it
    offers. However, each bank must have an onboarding process that
    complies with relevant law, and incorporates customer
    identification procedures and documentation requirements that
    are dependent upon the board's risk tolerance and the risks
    associated with each product, service, and customer.

    Q.4. If a Money Services Business is legally operating, can a
    financial institution assume it is fine to provide banking
    services to them?

    A.4. As with any customer, each bank is expected to evaluate
    customer risks on a case-by-case basis; this includes Money
    Service Business (MSB) customers. See OCC Bulletin 2014-58--
    Banking Money Services Businesses.

    Q.5. Should Money Services Businesses be able to provide their
    State bank exam to banks where they seek to open accounts and
    send money?

    A.5. The provision of an MSB's State examination report to a
    bank that is considering a request for an account, or
    periodically to maintain the account, may be useful in some
    cases. However, allowing for the sharing of such an examination
    report may require changes in Federal or State law.
    The IRS has responsibility to regulate Money Services Businesses
    Q.6. How has the lack of funding for the IRS affected oversight
    of Money Services Businesses? Has this led to reduced access
    for MSBs to banking services resulting in more money moving
    outside of the formal banking system?

    A.6. As the regulator of national banks and Federal thrifts,
    the OCC does not have access to this information. This question
    would be better posed to the IRS.
    Money Laundering Through Real Estate
    Q.7. A title insurance analyst recently visited my office and
    noted that some title insurance firms are offshoring title
    searches. Title firms are hiring workers in India or the
    Philippines to examine public databases for liens. She said
    that title examiners based in other countries might be less
    expensive but are unfamiliar with the community.
        Is outsourcing of title insurance exams a problem? Have
    banks raised any concerns? Could consumers buy homes without a
    cleared title making it impossible for them to re-sell the
    home?

    A.7. The OCC is not aware of any issues that the institutions
    we supervise have experienced related to outsourcing of title
    searches.
    Derisking Along the Southwest Border
    Q.8. A February GAO report found that 80 percent of Southwest
    border banks limited or did not offer services to customers
    that are considered high risk for money laundering.\2\ The
    report said that ``Regulators have not fully assessed the BSA/
    AML factors influencing banks to de-risk or close bank
    branches.'' However, the problem of bank closures and banks
    closing accounts for groups of people remain.
    ---------------------------------------------------------------------------
        \2\ GAO. Bank Secrecy Act. Derisking along the Southwest Border
    Highlights the Need for Regulators to Enhance Retrospective Reviews.
    February 26, 2018. Available at: https://www.gao.gov/products/GAO-18-
    263.
    ---------------------------------------------------------------------------
        Specifically, what is the OCC doing to clarify that
    regulated banks need to only ``know their customer,'' not know
    their ``customers' customer?''

    A.8. The OCC has long articulated that banks do not generally
    need to conduct due diligence on the customers of their
    customers, and has contributed to documents stating as such,
    for example, the U.S. Department of the Treasury and Federal
    Banking Agencies Joint Fact Sheet on Foreign Correspondent
    Banking, as well as the Financial Action Task Force
    Correspondent Banking Services Guidance, and the Basel
    Committee on Banking Supervision Guidelines on sound management
    of risks related to money laundering and financing of
    terrorism. All of these documents clearly state that
    correspondent banks are not generally required to conduct due
    diligence on the customers of customers.
    MOBILE Act Compliance
    Q.9. As you may know, a provision of the Regulatory Relief,
    Economic Growth and Consumer Protection Act (P.L. 115-174)
    would allow consumers to access financial services online using
    a copy of their driver's license or personal identification
    card. A provision in Section 213 requires banks to permanently
    delete the copies or images of driver's licenses or personal
    identification cards after using them to open an account for
    the consumer. However, financial institutions are required to
    maintain internal Customer Identification Program policies
    pursuant to the Bank Secrecy Act, and the requirement to delete
    appears to be in conflict with the BSA.
        Is Section 213 of P.L. 115-174 in conflict with the BSA or
    other banking practices? If so, has the OCC addressed this
    conflict
    during bank examinations? If so, does the OCC plan to issue
    guidance addressing this conflict?

    A.9. Section 213 of the Economic Growth, Regulatory Relief, and
    Consumer Protection Act requires a financial institution that
    makes a copy or receives an image of a driver's license or
    personal identification card of an individual to permanently
    delete the image and any copy of the image after using it for
    certain purposes. The requirements in this section do not
    conflict with the BSA regulations setting out the requirements
    for a Customer Identification Program (CIP). The CIP
    regulations require bunks to retain for 5 years identifying
    information about a customer and a description of any document
    relied on to verify a customer's identity, 31 CFR
    1020.220(a)(3). As a result, a bank can comply with the BSA
    regulations' requirement to retain information about a customer
    and a description of a document relied upon, without retaining
    an image of a customer's driver's license or personal
    identification card.
    Correspondent Banking
    Q.10. To what extent is the ability of money transmitters to
    facilitate money transfers affected by correspondent banks
    restricting or terminating relations with respondent banks?

    A.10. The OCC does not collect specific data on the extent to
    which money transmitters may be affected by decisions by
    correspondent banks to open, maintain, restrict, or terminate
    relationships with respondent banks. However, for several
    years, the OCC has been meeting with a wide range of
    stakeholders and participating in a variety of interagency and
    international fora that are attempting to address this concern.
    After the OCC became aware of the concern that correspondent
    banks were limiting their relationships with certain financial
    institutions and other customers, we developed guidance and
    communicated our expectations for correspondent banking in
    October 2016, with the issuance of OCC Bulletin 2016-32--Risk
    Management Guidance on Periodic Risk Reevaluation of Foreign
    Correspondent Banking. This bulletin outlines the OCC's
    supervisory expectations and best practices for banks with
    respondent bank customers. Specifically, we articulated that
    the OCC does not direct banks to open, close, or maintain
    individual accounts, nor does the agency encourage banks to
    engage in the termination of entire categories of customer
    accounts without considering the risks presented by an
    individual customer or the bank's ability to manage the risk.
    In addition, as noted above, the OCC has contributed to
    documents, including the U.S. Department of Treasury and
    Federal Banking Agencies Joint Fact Sheet on Foreign
    Correspondent Banking, addressing the sound management of risks
    related to money laundering and financing of terrorism.
    Money Laundering Through Real Estate
    Q.11. Many cities around the world worry that criminals are
    laundering money through real estate purchases. When criminals
    have suspicious cash they want to avoid acknowledging or paying
    taxes on, it's pretty easy to buy expensive real estate. Sell
    it in a few months and use the cash from the transaction for a
    legitimate purpose.
        How prevalent is money laundering through real estate? What
    has been the impact of the Geographical Targeting Orders
    requirements for the communities where this is a problem? Did
    the reporting requirements reduce money laundering in real
    estate or just move the money laundering through real estate to
    other cities? Does money laundering in residential real estate
    raise prices and crowd out buyers in places like Nevada where
    we have a shortage of homes available for purchase?

    A.11. The OCC does not collect specific data regarding the
    prevalence of money laundering through real estate. These
    questions would be better addressed by FinCEN.

    Q.12. Should Congress expand anti-money laundering requirements
    for real estate transactions? If so, should it focus on
    prevention or just require reporting?

    A.12. The OCC would support an expansion of AML requirements
    for real estate related companies. We suggest that real estate
    related companies have an AML program similar to banks and
    MSBs.

    Q.13. If Congress was going to require Anti-Money Laundering
    requirements for real estate transactions, who should be
    required to prevent and report suspicious transactions? Real
    estate agents? Title agents? Financial institutions like banks,
    credit unions, and mortgage lenders?

    A.13. As with existing requirements for banks and MSBs, the OCC
    would support a requirement for real estate related companies
    to have an AML program, which would require each reporting
    entity (real estate related companies, financial institutions,
    etc.) to file SARs with FinCEN on reportable transactions, even
    if this results in more than one entity reporting on a single
    transaction.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO FROM STEVEN M.
                               D'ANTUONO

    Overall Value of BSA Information
        The Government has been collecting BSA information for
    about half a century, now. That information flow and the costs
    to provide, store and safely manage it have steadily increased
    over that time, as well. The purpose of the information is to
    keep our financial system and the businesses it serves secure
    and ultimately our Nation's people safe from various types of
    harm.

    Q.1. What relative enforcement value do the volumes of
    information provided the Government at unprecedented costs to
    financial institutions have today for the purposes of BSA?

    A.1. Response not received in time for publication.

    Q.2. Should Congress be looking to increase or decrease or
    better manage that volume of information, and in what way and
    why?

    A.2. Response not received in time for publication.
    ``Real'' 2-way Information Sharing
    Q.3. A perennial complaint from the financial industry is that
    it receives no feedback on the SARs it files, that the
    information flow is one-way to the Government. The word
    sharing, itself, implies a two-way street. However, this year,
    several U.S. financial institutions have reported a substantial
    uptick in subpoenas to supply transactional data to Federal
    investigators, particularly from FBI and IRS, and have reported
    that Federal law enforcement has sought to enhance information
    sharing with the private sector beyond existing section 314(a)
    Patriot Act authority and the Treasury Department-led Bank
    Secrecy Act Advisory Group.
        What actions can each of you take now to improve
    information sharing between your agencies and industry?

    A.3. Response not received in time for publication.
    Usefulness of BSA Reporting to the FBI
        Much is made of the fact that BSA reporting thresholds for
    SARs and CTRs have not changed in decades, and are not
    particularly useful, at least for certain types of crime.

    Q.4. Can you walk us through how a special agent typically uses
    a SAR?

    A.4. Response not received in time for publication.

    Q.5. What utility do SARs play, for example, in cases of
    employee misconduct or cyber-attacks?

    A.5. Response not received in time for publication.

    Q.6. Do you know of any investigations where a SAR filing, as
    opposed to direct engagement with law enforcement, helped make
    a case?

    A.6. Response not received in time for publication.

    Q.7. Would adjusting the BSA reporting thresholds for inflation
    benefit or hinder the work of the FBI?

    A.7. Response not received in time for publication.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN FROM STEVEN M.
                               D'ANTUONO

    Key Role of Financial Intelligence in Counter-Terrorism
        You have each spent decades working in this area, combating
    money laundering.

    Q.1. Can each of you describe generally for us, from your
    experience, the role that BSA data plays in money laundering
    and counterterrorism investigations--in developing leads,
    sharpening focus on certain criminal players and their banks,
    identifying patterns, or otherwise?

    A.1. Response not received in time for publication.

    Q.2. What specific financial intelligence tools are currently
    most useful to prosecutors, sanctions overseers and others who
    combat money laundering--and where do you think we should
    strengthen, not weaken, your tool kits?

    A.2. Response not received in time for publication.
    Bank AML Violations
        Previous witnesses have pointed out that the AML regulatory
    burden on financial institutions has not increased recently;
    but that as banks have racked up huge fines in recent years for
    skirting sanctions and violating money laundering regulations,
    the sector as a whole has finally begun to take seriously AML
    obligations that have been in place for many years, and many
    have made big investments to strengthen compliance.

    Q.3. Do you believe that AML laws and regulations on the books
    now offer a sufficient deterrent to such behavior? Are there
    specific steps or new tools you would urge Congress to consider
    providing to strengthen the current regime?

    A.3. Response not received in time for publication.
                                    ------

    RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN FROM STEVEN M.
                               D'ANTUONO

    Customer Due Diligence Rule and Beneficial Ownership
        As of May 2018, the Customer Due Diligence rule requires
    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. Or in
    the case of title companies in the purchase of real estate
    under the Geographic Targeting Orders (GTOs), beneficial
    ownership of the purchasing entity.
        Just as determining beneficial ownership by law enforcement
    can be a time-consuming and resource-intensive process, it can
    be as cumbersome and resource-intensive of a process for the
    collecting institution and individuals, if not moreso often
    requiring back-and-forth dialog with law-abiding customers and
    their lawyers who are skeptical why this information is
    necessary.

    Q.1. What could be done to incentivize the voluntary collection
    of beneficial ownership at the time of an entity's formation
    without infringing on state powers?

    A.1. Response not received in time for publication.
    Use of Cryptocurrencies for Nefarious Purposes
        This Committee has been closely monitoring the ever
    increasing use of cryptocurrencies to facilitate the illegal
    trafficking of opioids, most notably Fentanyl. Transnational
    criminal organizations have been using these cryptocurrencies
    on the dark web, taking advantage of this encrypted layer of
    the internet to fuel the deadly opioid crisis in our country
    and conceal their illegal proceeds from law enforcement. The
    tragic consequences of this was clearly noted by the most
    recent data from the Centers for Disease Control (CDC) which
    showed that in 2017, nearly 49,000 overdose deaths occurred in
    our country were from opioids and the biggest driver of that
    was Fentanyl, which killed more than 29,000.

    Q.2. Given the seriousness of our country's opioid epidemic,
    what new measures have your respective agencies undertaken to
    address the detection, interdiction and prosecution of
    individuals and organizations who are using cryptocurrencies to
    further these criminal activities? Are there structural changes
    that need to be made to the current regulatory framework?

    A.2. Response not received in time for publication.
    Use of Online Platforms for Laundering
    Q.3. Recent reports have highlighted how money laundering
    through online platforms has become an attractive option for
    criminals because of its simplicity, speed and global reach.
    While using these platforms, there is no need to create a fake
    business or other identities, and no goods need to be moved in
    order to maintain the illusion of legitimacy. These reports
    forecast that online money laundering will continue to grow as
    worldwide retail e-commerce sales are estimated to top $2.2
    trillion annually, providing greater scope for criminals to
    conceal their laundering activities among high volumes of
    legitimate transactions. Likewise, the rise of cryptocurrencies
    and alternative payment platforms raises well-documented
    concerns about how such technology will make untraceable money
    laundering easier.

    A.3. Response not received in time for publication.

    Q.4. How have the various social media platforms been working
    with your agencies to assist with financial crimes such as
    money laundering and fraud?

    A.4. Response not received in time for publication.

    Q.5. How has the rise of cryptocurrencies and alternative
    payment platforms presented challenges to your investigative
    and regulatory functions?

    A.5. Response not received in time for publication.

    Q.6. How are your respective agencies addressing this?

    A.6. Response not received in time for publication.
                                    ------

      RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM
                          STEVEN M. D'ANTUONO

    Correspondent Banking
    Q.1. To what extent is the ability of money transmitters to
    facilitate money transfers affected by correspondent banks
    restricting or terminating relations with respondent banks?

    A.1. Response not received in time for publication.
    Money Laundering Through Real Estate
        Many cities around the world worry that criminals are
    laundering money through real estate purchases. When criminals
    have suspicious cash they want to avoid acknowledging or paying
    taxes on, it's pretty easy to buy expensive real estate. Sell
    it in a few months and use the cash from the transaction for a
    legitimate purpose.

    Q.2. How prevalent is money laundering through real estate?

    A.2. Response not received in time for publication.

    Q.3. What has been the impact of the Geographical Targeting
    Orders requirements for the communities where this is a
    problem?

    A.3. Response not received in time for publication.

    Q.4. Did the reporting requirements reduce money laundering in
    real estate or just move the money laundering through real
    estate to other cities?

    A.4. Response not received in time for publication.

    Q.5. Does money laundering in residential real estate raise
    prices and crowd out buyers in places like Nevada where we have
    a shortage of homes available for purchase?

    A.5. Response not received in time for publication.

    Q.6. Should Congress expand anti-money laundering requirements
    for real estate transactions?
        If so, should it focus on prevention or just require
    reporting?

    A.6. Response not received in time for publication.

    Q.7. If Congress was going to require Anti-Money Laundering
    requirements for real estate transactions, who should be
    required to prevent and report suspicious transactions?

       LReal estate agents?

       LTitle agents?

       LFinancial institutions like banks, credit unions,
            and mortgage lenders?

    A.7. Response not received in time for publication.

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