[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
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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
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada JON TESTER, Montana
TIM SCOTT, South Carolina MARK R. WARNER, Virginia
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
JERRY MORAN, Kansas DOUG JONES, Alabama
Gregg Richard, Staff Director
Mark Powden, Democratic Staff Director
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
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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 *
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* 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.
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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).
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\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.)
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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.
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\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).
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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.
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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.
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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.
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\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.
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\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.
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\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.
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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.
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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.
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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.
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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.
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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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