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


                                                       S. Hrg. 115-454

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

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

                                HEARING

                               BEFORE THE

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                                   ON

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

                               __________

                           NOVEMBER 29, 2018

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                                                        


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

                               __________

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

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

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

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

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

                      Kristine Johnson, Economist

            Laura Swanson, Democratic Deputy Staff Director

               Colin McGinnis, Democratic Policy Director

                       Dawn Ratliff, Chief Clerk

                      Cameron Ricker, Deputy Clerk

                      Shelvin Simmons, IT Director

                     James Guiliano, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      THURSDAY, NOVEMBER 29, 2018

                                                                   Page

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

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

                               WITNESSES

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

              Additional Material Supplied for the Record

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

                                 (iii)

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

                              ----------                              


                      THURSDAY, NOVEMBER 29, 2018

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

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

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

           OPENING STATEMENT OF SENATOR SHERROD BROWN

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

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

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

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

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

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

    Mr. D'Antuono. Thank you, Chairman Crapo, Ranking Member 
Brown, and Members of the Committee. I appreciate the 
opportunity to discuss our Nation's best methods for combating 
money laundering and other forms of illicit finance.
    My experience working with Bank Secrecy Act data dates back 
22 years, even before I became an agent, when I started my 
career with the FBI as a forensic accountant in the Rhode 
Island office of the Boston Division. One of my many tasks was 
to review and analyze suspicious activity reports. I analyzed 
these reports in order to identify possible subjects, to 
generate leads for the agents to follow, to initiate new 
investigations, and for trend analysis.
    Back then, we did it the old-fashion way, looking at paper 
copies. We have come a long way from when I started my career. 
Nowadays we have systems and technology in place to more 
efficiently and effectively analyze the BSA data.
    The FBI conducts data analytics on each BSA filing, taking 
every effort to maximize the intelligence provided through 
those filings. We have not given up on the old-fashion ways 
either. As we participate in SAR review teams in all 94 United 
States Attorneys' offices across the country, money laundering 
is a huge issue, estimated to be $2 trillion a year. The FBI is 
working vigorously to fight this threat, and we are not doing 
it alone.
    One of our most critical partnerships is with financial 
institutions, big and small. These institutions face 
significant money laundering challenges and are required to 
implement and maintain robust anti-money laundering programs.
    At the headquarters level within each field office, we have 
relationships with financial institutions. The FBI's engagement 
with the private sector addresses gaps. It mitigates risk to 
the financial industry.
    Through our outreach, we share typologies and trends in the 
criminal and terrorist arenas. Our communication with the 
financial institutions has led to targeted analysis of illicit 
activity that has been mutually beneficial.
    I am a firm believer in providing feedback to the financial 
institutions regarding criminal problems and the institutions' 
BSA filings.
    FBI feedback helps to improve the quality of the filings. 
It also increases morale and motivation of the SAR writing 
teams, thereby improving the process and ultimately the 
relationships between the financial institutions and law 
enforcement. This is a win-win situation.
    The FBI provides this feedback on many different levels, 
and we continue to evolve the process to make it better for all 
parties.
    BSA data is relevant and extremely important to the FBI's 
ability to identify and disrupt illegal activities across a 
variety of threats, such as fraud, money laundering, human 
trafficking, narcotics, and terrorist financing. The utility of 
the BSA data is often dependent on more than just the dollar 
amount involved, as a variety of data points in the filings 
could be the key piece of information leading to a successful 
investigation of criminal or terrorist activity.
    Criminals continually aim to evade us by exploiting 
loopholes in existing laws. As you know, the used of shell 
companies, nominees, front companies, and other means makes our 
job more difficult. Once illicit funds have entered the 
financial system, the layering and integration phases make it 
very difficult to identify and trace the money.
    The reporting obligations placed on financial institutions 
provide vital intelligence utilized by law enforcement in our 
Nation's efforts to prevent and detect the criminal activity we 
are discussing today.
    Information from BSA filings are used on both a proactive 
and reactive basis to investigate specific individuals and 
entities and to identify leads, connect the dots, and otherwise 
advance investigations.
    The BSA filings are priceless to our law enforcement 
efforts, and it is difficult to place an intrinsic value on 
that intelligence.
    The FBI is also attentive to terrorists' and criminals' use 
of microfinancing, which we define as the means to move 
smaller-
dollar amounts easier, faster, and more frequently. These 
transactions can be as small as $100, small enough to finance 
an act of terror. For this reason, it is important that we have 
more scrutiny on cash transactions, not less. The information 
garnered from these small-dollar BSA filings is essential to 
law enforcement's efforts.
    The ability of the FBI and our interagency partners to 
combat money laundering and illicit financial activity hinges 
on the strength of the BSA requirements and the strength of our 
AML regime. The FBI has been the lead law enforcement agency 
addressing financial crime matters since our inception 110 
years ago.
    We pride ourselves on being able to adapt, and we face 
evolving challenges as criminals find new ways to hide illicit 
funds through the emergence of payment systems, such as mobile 
platforms and virtual currencies.
    As the biggest end user of BSA intelligence, we thank you 
for this opportunity to discuss the vital resource that assists 
the FBI and all law enforcement to carry out our mission, to 
protect our communities from those seeking to exploit our 
financial systems.
    I look forward to our dialogue today, and I am pleased to 
take the Committee's questions. Thank you so much.
    Chairman Crapo. Thank you, Mr. D'Antuono.
    My first question will be for you, Mr. Blanco. As you are 
aware and as Ms. Gardineer has indicated in her testimony, the 
OCC has recommended that we have a legislative direction to all 
of the agencies, I think, involved to work together essentially 
under an EGRPRA-type process, if I understand it correctly. But 
FinCEN is not obligated under EGRPRA to participate, and I 
understand that you have a different approach. What are your 
thoughts about the OCC's recommendation?
    Mr. Blanco. Well, we oppose that recommendation, Senator, 
for a couple of reasons. One is--let us just be frank here. I 
mean, I think it just adds on another layer of bureaucracy, 
which is not necessary.
    Congress and the Senate has put on us the BSA obligations, 
and we report and we communicate with law enforcement and our 
other regulators and our stakeholders, private industry, 
through what we call the BSAAG, the Bank Secrecy Act Advisory 
Group. That is one way where we get feedback back and forth in 
what we do, and we are able to report in with the industry and 
report in hearings like this and in other matters.
    We do not need an EGRPRA process, which is not necessary. 
In fact, one of the complaints that we hear all the time is how 
are you using the BSA data, but much to what the FBI is doing, 
we do have a process of reporting how we are using that 
information, and we are getting better and better at it every 
day.
    In fact, when I came over from the Justice Department, that 
was my very complaint. What are we using about it? How are we 
reforming it, and how are we doing it? We are doing it in many 
different ways.
    One way we are doing it, we are bringing in a private 
vendor to help us analyze what is the value of the BSA 
information that we are asking these financial institutions to 
give us, and when you think about it, it sounds like an easy 
concept. It is not, because what could be valuable to me may be 
very different than the FBI, may be very different from the 
OCC, may be very different from the stakeholders who have to 
manage risk and know their customers as well.
    Chairman Crapo. But is not that a reason why you should be 
coordinating with the OCC?
    Mr. Blanco. We already do, as Ms. Gardineer has mentioned 
earlier. We have a working group, where we meet regularly, all 
of the FBAs, ourselves. In fact, we are meeting on Tuesday to 
have these very frank discussions about what needs to change, 
how it should change.
    But let me just tell you--and I tell everybody this 
everywhere I go--the premise should be if we are going to 
change it, how does it keep us safer? What is the proposal that 
you are offering that is keeping our country safer and our 
people safer? That is the premise, and then we can work from 
there because these creative ideas that we have are wonderful. 
And we are happy to do them. In fact, we encourage creativity. 
We encourage machine learning. We encourage artificial 
intelligence. But you tell me how it keeps us safer first, and 
then we can move forward.
    Chairman Crapo. Well, that is obviously--I think it should 
be all of our objectives.
    Ms. Gardineer, do you want to respond to that issue?
    Ms. Gardineer. Yes. Thank you, Chairman Crapo.
    Director Blanco is correct. We do have the BSAAG, and the 
OCC is a member and a participating member on that committee.
    The recommendation that we are making, however, for an 
EGRPRA-like process goes beyond just those who are represented 
at the BSAAG. Not every institution across the country is a 
part of that forum.
    What we are suggesting in an EGRPRA-like process would 
allow FinCEN as the rule writer and other stakeholders to 
participate in a notice and comment-type hearing setting that 
allows all stakeholders, industry and others, to come and share 
their experiences with implementing the rules relating to BSA/
AML and potential obstacles they see as they continue to work 
to support the efforts of law enforcement while trying to 
balance that with rules that, in some cases, have not been 
reexamined or changed for many, many years since the BSA/AML 
was established.
    What our experience has been, going through two cycles of 
the EGRPRA process, is that the BSA/AML, which is not a part of 
that, is the third--one of the three top areas that entities 
have provided us feedback. We, of course, have summarized that 
feedback, and we provide it to FinCEN, but they do not have the 
opportunity to sit in that forum and hear those testimonies and 
ask questions of those who are sharing those experiences.
    The OCC supports the recommendation because we believe that 
it could be a great opportunity for them to hear of ways to 
strengthen the framework of the regulatory regime.
    Mr. Blanco. Can I comment on that?
    Chairman Crapo. Sure. You can have the last word.
    Mr. Blanco. One, it would have been nice to have this 
conversation before the hearing today because I can tell you 
the OCC has not addressed this issue with me in this 
discussion.
    Second, with respect to--we do have the opportunity. In 
fact, we sit with them, and we talk about the responses they 
are getting in the BSA. And we do comment. In fact, we send 
them a letter commenting on what has been going back and forth 
with respect to the stakeholders.
    We have a very strong, thriving interaction with 
stakeholders, both public and private, and I think adding on 
another layer of bureaucracy to this process is inappropriate 
and unnecessary.
    And by the way, when we have to respond to a legislative 
enactment like that, I am moving resources out of our everyday 
work, investigating terrorists and money launderers and human 
rights violators and human traffickers, to respond to that kind 
of stuff when it is not necessary to do.
    Chairman Crapo. All right. We obviously had a little bit of 
tension here on the issue. It is a critically important issue, 
and I encourage you to continue to evaluate and discuss it.
    Mr. D'Antuono, I am out of time. I had some good questions 
for you, but I may have to submit them for the record.
    So I will yield now to Senator Brown.
    Senator Brown. I thank you, Mr. Chairman.
    Ms. Gardineer, many big banks active in the United States--
U.S. Bank, ING, HSBC, and others--have faced major--as you 
know, major enforcement actions for AML violations. Some of 
these--in some cases, the misconduct has continued for years, 
and the misconduct was willful, yet rather than recommending a 
series of tough reforms to strengthen current rules and 
procedures to catch such bad actors and actions earlier, your 
testimony calls for, among other things, a periodic review of 
the burdens of BSA/AML regulations.
    I am not sure why that is. I assume it is the culture of 
the OCC, but let me ask this question. Have all the Federal 
banking regulators and law enforcement officers, including 
FinCEN, signed off on this recommended change, or is this just 
an OCC recommendation?
    Ms. Gardineer. Senator, the recommendations that we are 
making clearly are coming from the OCC; however, we are engaged 
in working groups with the other Federal banking agencies.
    When we talk about reducing the burdens, I would not want 
you to misinterpret that from anything that does not appear to 
show our willingness and intent to strengthen the regime.
    When we talk about the burden--and you mentioned the 
largest institutions, but I would like to remind you that we 
supervise institutions of all sizes. Community banks do make 
our largest number.
    Senator Brown. Which I understand, but the fact--I get 
that. I am sorry to interrupt. The fact that you chose this 
valuable time to come here and talk about weakening the rules, 
helping--no, not weakening the rules. Excuse me. Helping the 
smaller people, and we want to do that, but not on the big 
picture of this. It is a bit concerning, but I am sorry to cut 
you off there.
    Mr. Blanco, would you share with the Committee your view on 
the OCC recommendation regarding regular reviews of all BSA 
rules? Does not FinCEN already feed into an EGRPRA process?
    Mr. Blanco. We do already feed into that process. In fact, 
we do have a very good relationship with all of the Federal 
banking
regulators, including the OCC, and we do feed into that 
process. In fact, we work with them not only on examinations, 
but when they do have these questions regarding BSA or CFT, we 
are always there working with them on a regular basis. In fact, 
our staffs meet on a regular basis.
    So these inquiries that they are getting out from their 
stakeholders, we are always happy to sit down with them and 
discuss them and give our opinion not only to the OCC, but also 
to those stakeholders directly. We have a help line that they 
can call every day and ask us these questions, and we are 
always available to do that.
    Another process of review and commenting is not necessary.
    Senator Brown. OK. I appreciate that.
    And for both of you, Mr. Blanco and Ms. Gardineer, I do not 
mean in any way to question your public service. We have just 
seen this collective amnesia in this institution and especially 
with the new regulators and in this Committee, and I see the 
focus. I stand up as much as many others on making the 
regulatory burden a little bit less for the small guys, but 
this new group seems to be focusing on that and not on the 
serial lawbreakers. And I just urge you to work its way back 
into OCC to pay attention to those serial lawbreakers.
    Let me ask a different question. This is for Mr. Blanco and 
Mr. D'Antuono. President Trump's former campaign manager, Paul 
Manafort, pled guilty to conspiracy, tax fraud, money 
laundering, other crimes in a decade-long scheme regarding $60 
million in payments from the former government of Ukraine. Mr. 
Manafort funneled millions through a vast network of personal 
and business accounts, partnerships, shell companies in the 
United States, Cyprus, St. Vincent and the Grenadines, and the 
United Kingdom, drawing funds from offshore accounts--this is 
not news to any of you--to support his absurdly life--you may 
not have seen it on Fox, but you will see it on any other 
network--to support his absurdly lavish lifestyle, which he 
might have gotten away with but for the work of Special Counsel 
Mueller.
    So my question is this--three questions for the two of you, 
for Mr. Blanco and Mr. D'Antuono. Why did law enforcement miss 
this for so long? Do you think if the United States had a 
comprehensive beneficial ownership law in place, we might have 
caught the crime much earlier? And might FinCEN have been able 
to compare SAR filings to beneficial ownership information in 
its database to flag this illegal activity triggering an 
investigation much earlier? So pull those answers together to 
those three questions, starting with you, Mr. Blanco.
    Mr. Blanco. Thank you.
    Chairman Crapo. And quickly. The time is running out.
    Mr. Blanco. Yes. Thank you, Senator.
    Look, those are very fact-specific, and without answering 
that specific case because I do not know the facts in that 
case, I can tell you that investigations are always made better 
when we have better information. And beneficial ownership 
information is critical information not only to national 
security, but also to the investigations we do every day.
    Could they have been discovered earlier? I do not know the 
facts. Maybe, maybe not, but I can almost assure you we would 
have done a better job in finding it originally had we had 
beneficial ownership information, and once found, 
investigations go much quicker because the time it takes for 
investigators to go through that morass of who owns it, where 
they own it, where the monies come through could take months, 
if not years to do.
    And I will turn the rest over to my colleague.
    Mr. D'Antuono. Yes. And I definitely agree with Ken.
    We need a more effective beneficial ownership system. From 
a law enforcement perspective, the financial intelligence that 
that would gain for us would be insurmountable. It would be 
fantastic.
    If you look at FATF, the FATF recommendations in other 
countries--in the United Kingdom, Australia, the European 
Union--they are putting in place beneficial ownership 
repositories into law.
    Senator Brown. Thanks.
    Thanks, Mr. Chairman.
    Chairman Crapo. Senator Moran.
    Senator Moran. Mr. Chairman, thank you.
    Mr. Blanco, in your testimony, you discuss the impact of 
increasing the reporting thresholds for CTRs, what that 
consequence would be on the amount of financial intelligence 
available to law enforcement and to FinCEN. You mentioned that 
doubling the CTR threshold would result in the loss of 60 
percent of valuable financial intelligence data and an 80 
percent loss in the threshold if it was tripled.
    Excuse me. I may need these.
    [Laughter.]
    Senator Moran. On an operational level, could you and Mr. 
D'Antuono speak to how that specifically would impact the 
amount of loss, prosecution cases initiated, et cetera, within 
that range if that threshold was altered between $10,000 and 
$30,000?
    Mr. Blanco. Thank you, Senator, for that question. I will 
be as quick as I can.
    I know there are some former prosecutors on this panel, and 
I think they might appreciate this. Information, the lack of 
information is a problem for us. The fewer pieces of tips and 
information that we have creates problems for our 
investigation, not only for tips, but furthering the 
investigation.
    Let me give you three quick examples of information or 
cases that we would not have been able to make had we had those 
higher thresholds.
    One is a Mexican cartel member or a Mexican government 
official who was connected to the cartels laundering money here 
in the United States. With those thresholds that you were 
talking about earlier, we would have lost 84 percent of the 
CTRs that were involved in making that case against that 
person. That was an indictment of a foreign government official 
laundering narcotics money here in the United States. That is 
an important fact to know.
    Second, financial institutions--excuse me. I am losing my--
another case of significance, an ICE case, where there was 
money laundering, black market peso exchange, during the trial, 
59 CTRs, 106 CMIRs, and 225 8300s were introduced. Given your 
threshold, we would have lost all the CTRs in that case, which 
means that perhaps we would not have even been able to 
investigate that case or not even make the case at trial. That 
is what we are talking about here.
    Last, let me talk--and this sort of hits more home here, on 
a Ponzi scheme, where people prey on victims, on the more 
vulnerable people in society. In one instance, in Boston, we 
would have lost--according to your threshold, where there were 
52 victims and over $10 million of a Ponzi scheme, we would 
have lost 53 percent of the CTRs in that case. That is an 
amazing amount of information that we would have lost, and I 
think that is the consequence of increasing the thresholds.
    And I will turn it over to my colleague at the FBI.
    Senator Moran. Thank you.
    Mr. D'Antuono. I definitely echo what Ken would be saying.
    We cannot specifically speak to the range, just because 
from a law enforcement perspective, less intelligence is not 
good for us. But from a perspective that we cannot predict what 
information is in that CTR, there are so many data points in 
that CTR. It could be the address. It could be the name. It 
could be the IP address nowadays, right, and email address. It 
is not just about the cases that Ken is talking about, the AML 
compliances as well, but it is about all the financial data 
that is in there.
    We have cases in which the elderly are involved. We have a 
big elderly fraud initiative right now going on in which 
caregivers or guardians are siphoning money from bank accounts, 
which would hit below the threshold of what we are talking 
about, $20,000 or $30,000 possibly, and that goes to that 
elder--losing all that hundreds and thousands of dollars.
    To give you specific examples as to loss prosecutions, it 
is difficult, really.
    Senator Moran. Let me follow up with the thought, then, if 
thresholds should not be altered. Are there things that can be 
done to streamline the collection of the data while lessening 
the reporting burden?
    Mr. Blanco. Senator, I think there are, and those are the 
things that we are working on in our initiative. We are 
bringing in a private vendor to take a look at the BSA value, 
where we are talking to financial institutions to find out--for 
example, in the structuring process, structuring of SARs, how 
can we streamline that? What are the SARs that actually need to 
be reported on? Where do they need to be reported, and how 
should they be reported? All these things are on the table. We 
are taking a closer look at everything for effectiveness and 
also for efficiency.
    Senator Moran. Let me ask, to follow up to my follow-up, is 
it possible to streamline the requirements into a single, more 
simplified BSA reporting requirement and still provide the same 
quality of data?
    Mr. Blanco. So we have done that. As you might recall, in 
the past, there used to be five different forms to file a SAR 
and three different forms to file a CTR. Well, we----
    Senator Moran. I have heard that.
    Mr. Blanco. Crazy stuff. But we were able to unify it into 
one SAR filing and one CTR filing.
    Really, what we are looking at is not so much the form 
itself but the substance, and that is what we are talking about 
here. And I think that there are ways that we can do it. We 
want to be creative about it. We need to have our law 
enforcement partners there with us step by step to make sure we 
do not lose anything, at the same time having our stakeholders 
so they can understand what we are asking them for and why we 
are asking them for it.
    Chairman Crapo. Senator Menendez.
    Senator Menendez. Well, thank you, Mr. Chairman.
    Mr. Blanco, this past October, the wife of Russian 
billionaire Roman Abramovich became the new owner of six Upper 
East Side properties. Those transactions, totaling $92.3 
million, were apparently part of a property settlement between 
Mr. Abramovich and his third wife, Darya. Nearly $100 million 
of property in a single transaction, is that the sort of deal 
that would set off some type of alarms at FinCEN, and how would 
something like this come to your attention?
    Mr. Blanco. Thank you for that question, Senator.
    I do not know the exact facts, but just hearing what you 
are saying, yes, it would send off alarm bells. Any time you 
have that kind of transaction, I think financial institutions 
need to understand where that money is coming from, from who is 
it.
    As you know, we have advisories out on PEPs, advisories out 
on all kinds of kleptocrats and what have you. Would we have 
received some information? We could have if there was a 
financial transaction, which the financial industry reported 
on, or if law enforcement drew that to our attention, if they 
had either a source telling them what was going on or we had an 
open investigation. We would have been able to get involved.
    Senator Menendez. Let me follow up that question with the 
current rules around cash purchases of real estate. Most areas 
of our country are not set up to catch bad foreign actors such 
as kleptocratic oligarchs, drug cartels, rogue governments, or 
individuals seeking to evade sanctions, something that I have 
worked on quite a deal in terms of foreign entities. This makes 
the United States a safe and easy place to hide money.
    FinCEN began its scrutiny of key real estate markets in 
2016 targeting New York City and Miami, I understand. Can you 
tell us what raised your concerns about the cities you first 
targeted, what factors triggered your interest, what patterns 
are you seeing, and what foreign countries' monies were 
involved? Who were the major players? Russia? Saudi Arabia? 
Others?
    Mr. Blanco. Senator, thank you for that question.
    I can tell you that those GTOs, which is what you are 
referring to, geographic targeting orders, started before I 
arrived here at FinCEN. So I do not know what the genesis 
behind that was.
    I can tell you, my 30 years as a prosecutor, I can tell you 
that one of the easiest ways to launder lots of money is 
through the real estate market, and that is what I think the 
genesis behind that was.
    What ends up happening, Senator, is when we do a geographic 
targeting order, it gets inspired by a couple of different 
things. We are seeing, through the BSA reporting requirement, 
patterns and trends, and that might have drawn their attention 
to these certain areas. It could be simply what law enforcement 
is telling us, that ``These are areas that you need to look at. 
It would be valuable for you to take a look at the real estate 
area, real estate market in these areas.'' And that is what we 
have done in these markets.
    Unfortunately, I do not want to comment any further about 
that. I am happy to sit down with your staff and talk to you 
about the GTOs. They are ongoing.
    I can tell you, Senator, we have learned a lot through 
them.
    Senator Menendez. Is there any public comment that you can 
make about which countries are involved, more likely?
    Mr. Blanco. Senator, I am reluctant to do that, only 
because they are ongoing.
    And just so you will know as well, we are taking this 
information that we are gathering from the GTOs, and we are 
sharing it with U.S. Attorneys' offices, and we are sharing it 
with law enforcement.
    Senator Menendez. Well, as those of us who are policymakers 
and have to devise legislation and those of us who want to 
close the loopholes that exist----
    Mr. Blanco. Yeah.
    Senator Menendez.----and sanctions policy, particularly as 
the Ranking Democrat on the Foreign Relations Committee----
    Mr. Blanco. Yeah.
    Senator Menendez.----whether it is dealing with Iran or 
Venezuela or whatnot--Venezuelans with impunity, those who 
should not, are hanging in Miami using their ill-gotten gains 
purchasing properties.
    Mr. Blanco. I agree.
    Senator Menendez. And I hope that you all have attention on 
that because it is pretty amazing that right here in the United 
States, those very individuals we want to target who are 
stealing from the Venezuelan people and oppressing them 
ultimately end up buying property in Miami.
    Mr. Blanco. Not only pressing them, Senator. They are 
starving them in Venezuela. I mean, that is what they are 
doing.
    Senator Menendez. Absolutely.
    So I would like to have a classified briefing, then.
    Mr. Blanco. I am happy to sit with you and your staff, and 
we can talk it out.
    One thing, Senator, I will tell you is there is a timeframe 
on these GTOs, and sometimes it is better to let it all play 
out before we can come and talk to you about it, so we have all 
the information to share with you.
    Senator Menendez. All right. One last question. Does 
FinCEN--this is a different question--have any plans to improve 
or clarify on how financial institutions can provide services 
to marijuana-related businesses consistent with their Bank 
Secrecy Act obligations?
    A series of States in the Nation have legalized either 
recreational or medical marijuana. New Jersey has done medical 
marijuana. It is in the move to doing recreational. To the 
extent that this is going to be approved--not accounting to 
whether I believe that is the appropriate policy or not, but to 
the extent it is going to be approved, I would rather it be 
banked in the regular system than large sums of cash being 
transferred around.
    Mr. Blanco. Senator, we are still having those 
conversations. I think that is an interagency conversation that 
we are having.
    What we are telling our financial institutions is that the 
BSA guidelines that we put out in 2014 are the ones that they 
should still be following to meet their BSA requirements.
    Senator Menendez. Well, we need to deal with the realities 
as they are.
    Mr. Blanco. I understand.
    Senator Menendez. And unless we want large sums of cash 
being moved around in an untraceable, undetectable process, it 
does not make any public policy sense at the end of the day.
    Mr. Blanco. Thank you, Senator.
    Chairman Crapo. Thank you.
    Senator Toomey.
    Senator Toomey. Thanks, Mr. Chairman.
    I would like to get back and just continue the discussion 
that Senator Moran began about the appropriate threshold. I 
will start with the caveat. I assume--I have never been a 
prosecutor, but I assume if you are in law enforcement, if you 
are a prosecutor, all data is helpful. You would never say, ``I 
would rather not have data,'' right? But yet we do not set the 
threshold at $100 or $1,000. Instead, decades ago, we set it at 
$10,000 for CTRs, for instance.
    Because we have never adjusted it for inflation, we now 
produce many multiples of the amount of data that was produced 
back when that was considered the appropriate level at the 
time.
    I think SARs reporting is about nine times what was 
reported back in 1997. From 1985 to 1992, CTRs are up five 
times, and it is presumably, partly at least, because the 
inflation adjustment was never made. So I get that you always 
like to have data, but we are trying to weigh that against the 
actual utility of the data.
    Back in 1994--I have not seen a more recent report from the 
GAO, but the GAO came out and said that the threshold should be 
reduced. They estimated--the IRS estimated 30 to 40 percent of 
CTRs are reports of routine deposits by large well-established 
retail businesses, and it is just a part of their normal 
business practice.
    So I guess my question is--I heard some anecdotes, and I am 
sure if you set the threshold at $100, you would eventually 
find somebody you could prosecute because you would have data 
that you do not have today. So I am not that persuaded by 
individual anecdotes. Is there data about the number of 
prosecutions, the effectiveness of prosecutions, the number of 
investigations that arise because you are getting the 
transactions between $10,000 and $30,000? Because I get that 
that is a big volume, but I do not know how useful that data 
is, and that is what I am trying to understand. And I would 
welcome comments from all three of our witnesses for that.
    Mr. D'Antuono. I will take the first crack.
    The easy answer is we do not track data like that. We just 
do not between those levels of engagement that you are talking 
about.
    But what we have done is more targeted feedback to the 
banks, to the financial institutions. We do not want white 
noise either. We do not want something that is not going to be 
beneficial to us.
    So our efforts have been to the financial institutions and 
reaching out to the financial institutions to have that more of 
a target-
ed approach. Is there room for improvement? Absolutely. I am 
not going to sit here and say that there cannot be room for
improvement, and we welcome that conversation. We welcome the 
conversation between the regulators bringing us in because at 
the end of the day, we are the end user, as you pointed out. We 
are the end user of this. All law enforcement is.
    So to bring the regulators and have us sit at the table 
with the regulators so that we can discuss it with FinCEN and 
OCC and the other regulators is crucial to I think the heart of 
what you are getting it, for us to look at that data and weigh 
the usefulness of that.
    Senator Toomey. But you do not have that data?
    Mr. D'Antuono. We do not keep data like that. We just do 
not. I do not think any prosecutor's office would keep it that 
way either.
    Senator Toomey. Do the regulators keep that data?
    Mr. Blanco. We do not keep that kind of data, but I can 
tell you as a prosecutor--and what FBI is telling you is 
important because it is not necessarily just the prosecutions. 
It is creating networks of individuals that you find through 
these filings. Those are important.
    But, Senator, to your point--and I think it is a very 
important point--we need to find what that sweet spot is 
because I do not want financial institutions to be wasting 
their time giving us white noise. I would rather them use those 
resources to do more important matters, more important 
investigations, when we can sort of target them that way.
    So that is the crux of what we are trying to do through the 
process that we have here at FinCEN moving forward for the next 
year, year and a half, and I think that is going to be 
important.
    And, look, like I said earlier, everything is on the table. 
What we want is effective information. I do not want 
information for information purposes, because to Steve's point, 
that is hurtful, actually.
    Senator Toomey. Yeah.
    Ms. Gardineer, did you have anything to add?
    Ms. Gardineer. Absolutely, Senator. I agree that what we 
have now are financial institutions who clearly want to spend 
whatever is necessary, using all available resources, to 
protect their institutions and the sanctity of the financial 
system.
    But what we applaud that FinCEN is doing through their 
study should also, we believe, extend to a study of what are 
appropriate thresholds, if there are changes that could be 
made.
    It is an opportunity for us to look at every aspect of this 
to ensure that the quality that my fellow panelists are talking 
about is exactly what the institutions are seeking.
    Boiling the ocean probably is going to produce the very 
type of white noise that is not efficient to law enforcement's 
efforts, but I think a feedback loop that is effective to help 
institutions understand what it is that they provide to law 
enforcement through the SAR filings, what kind of quality, what 
kind of criteria will actually support their efforts to really 
chase these illicit actors out of the system.
    Senator Toomey. I see I am out of time. Thank you. Thank 
you to all of you.
    Chairman Crapo. Thank you.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chairman.
    I appreciate you all being here today. Thank you. This is 
obviously an important discussion and so appreciate having this 
conversation. There is a lot of work being done here, and I 
think from what I am hearing, we are trying to find that 
balance. And I think that is the intent here.
    I come from Nevada. As you well know, the gamers there are 
also very concerned about this oversight and their interaction 
with law enforcement and FinCEN.
    So let me just say this. First of all, Director Blanco, you 
just were out in Las Vegas, and you gave a speech in August at 
the Anti-Money Laundering Conference and Expo there. Thank you. 
I think that is key. Part of this is the interaction with those 
that we are gathering the information from, so they understand 
how you are utilizing the data, why it is so important, and 
then continuing the conversation about how we streamline and 
make it less burdensome for them to get the information you 
need. So that is why I appreciate that.
    If I remember correctly, I think it was Secretary Mandelker 
came, and she said FinCEN also has started the FinCEN Exchange, 
where you are talking with the banks and institutions to gather 
the information, to work with them, to help them reduce that 
burden, but to gather the information. That is correct. So 
thank you for that, and I think that conversation needs to 
continue.
    Mr. Blanco. Thank you.
    Senator Cortez Masto. Let me ask you this. One of my 
concerns--and we have worked together before. I was Attorney 
General of Nevada.
    Mr. Blanco. Yes, we have.
    Senator Cortez Masto. I appreciate your thoughts on the 
prosecution side and what we are trying to do to stop money 
laundering.
    What I have seen is--and let me jump back to what Senator 
Menendez was talking about. I do know that there is--
unfortunately, it is prevalent, money laundering through real 
estate transactions, and I appreciate the geographical 
targeting orders that you are conducting. You just actually----
    Mr. Blanco. We redid it. Yep.
    Senator Cortez Masto.----did a new one.
    I would love to be part of that briefing to get some more 
information. My questions are going to be should Congress 
expand its anti-money laundering requirements for real estate 
transactions, and if so, should it focus on prevention or just 
include reporting? And I will be curious, your thoughts on all 
of that. I will submit those as QFRs as well----
    Mr. Blanco. Thank you.
    Senator Cortez Masto.----as we go through this because I 
think it is something that we need to tackle.
    The other thing I am looking at is legislation, working 
with FinCEN, and preparing the FinCEN Improvement Act. A couple 
of other areas I am curious to get your thoughts on, would it 
be helpful if FinCEN were given authority to work with tribal 
law enforcement in addition to other law enforcement 
authorities, and why?
    Mr. Blanco. Absolutely. Absolutely.
    Senator Cortez Masto. And why is that?
    Mr. Blanco. Well, because they also have a wealth of 
information, particularly as they are improving, and in the 
gaming community as well, they are a big factor as well. And 
they will see things that we do not always see, and I think 
there is a vulnerability based on some stuff that I know--some 
of it may be classified, so I am reluctant to say it here--what 
they may know and how they know it and who is going through the 
areas in which they live and work and their insight and 
information, which is really critical to us.
    Senator Cortez Masto. And should FinCEN statute be expanded 
to focus on domestic terrorism as well as international 
terrorism?
    Mr. Blanco. Absolutely, Senator, and I think that that is 
just a glitch that needs to be repaired. And I think it is 
something that is really important for us as we move forward.
    Senator Cortez Masto. And then I heard this comment 
earlier. I think it was by Ms. Gardineer. If FinCEN had 
explicit authority to monitor emerging technologies and crypto 
currencies----
    Mr. Blanco. Yep.
    Senator Cortez Masto.----is that something that you would 
support as well?
    Mr. Blanco. Yes. Absolutely. In fact, we are doing it now, 
and we work with our counterparts at the OCC and our other 
Federal regulators in that area. We are certainly taking the 
lead in that. It falls under our area as well as other 
regulators, depending on how the cryptocurrency is being used, 
right?
    Senator Cortez Masto. Right.
    Mr. Blanco. And we are certainly working on that.
    Senator Cortez Masto. Ms. Gardineer, that is something you 
support as well?
    Ms. Gardineer. Absolutely, Senator.
    Senator Cortez Masto. Thank you.
    So let me then jump back. Maybe Mr. D'Antuono--is that how 
you pronounce your name? Thank you. Thank you for being here.
    Part of the conversation we had with some of the 
regulators--excuse me--some of those that were being 
regulators, some of the banks, and some of the others was this 
idea to reduce some of the burden on some of the banks and 
smaller community banks who have to stand up some sort of 
compliance staff, a unit just to provide the information that 
you are requesting.
    It is this idea that instead of the regulators having this 
check-the-box mentality of we are going to come in and just 
check the box to see whether you have qualified, that we 
actually look at a risk-based approach as well as targeted 
monitoring and talking to them about what we are looking for 
specifically so that we can incorporate targeted monitoring, if 
we are trying to stop human trafficking, which we know deals 
with money laundering or drug trafficking where money 
laundering may come from or even a
risk-based approach that we can work with the banks so that 
they know--they know the risks of the individuals they are 
doing business with. And maybe we should be working with them 
to help them, learn from them as well, and incorporate that 
into the oversight function. Does that make sense?
    Mr. D'Antuono. Yes, ma'am. We are definitely in tune with 
that. That is something we want to do, and we would be happy to 
engage with anyone in that discussion.
    We provided a ton of feedback to banks in typologies and 
trends and methodologies with our feedback mechanisms within 
law enforcement, not just with FinCEN. FinCEN has their own 
mechanism for doing that, but law enforcement, that is how we 
share information back with the banks.
    With target analysis, that is what we are doing, and I just 
talked to a bank last night. They are appreciative of that. So 
we would be all for having that engagement.
    Senator Cortez Masto. And I see the rest of you nodding 
your head. That makes sense as well?
    Mr. Blanco. Yes, Senator.
    Ms. Gardineer. Yes.
    Mr. Blanco. In fact, even through our FinCEN Exchange, as 
you mentioned, we are even able to get into a little bit more 
detail that we would not normally if we are just talking about 
trends and patterns, and that is something that we are working, 
not only with the OCC, but the FBI in how we actually do that.
    Senator Cortez Masto. And, Ms. Gardineer, would that 
satisfy your concerns as well about kind of streamlining some 
of the mandated reporting requirements?
    Ms. Gardineer. Yes, Senator.
    One of the things that the OCC and the other Federal 
banking agencies along with FinCEN and Treasury are undertaking 
now is a review of our current policies as well as our 
supervisory and examination approaches.
    One of our big efforts under way is to actually review 
those, make sure that they are reflective of our supervisory 
expectations for the institutions, and they reflect that risk-
based approach.
    We are also undertaking a review and revision of our FFIEC 
BSA/AML Examination Manual to ensure that it took reflects that 
risk-based approach, so that there is not this impression that 
it is merely a check-the-box exercise.
    Senator Cortez Masto. Thank you.
    Chairman Crapo. Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman.
    Thank you all for being here.
    Mr. Blanco, help me understand. Let us suppose you have got 
a grocery store in a rural area where a lot of the customers 
use cash. If that grocery store makes a deposit in its local 
community bank, say $15,000 every day, cash, does the community 
bank have to fill out a report?
    Mr. Blanco. They would.
    Senator Kennedy. Do you make any distinction in your rules 
about--do you take into consideration the fact that it is a 
rural area and that it is a well-known retailer----
    Mr. Blanco. Yep.
    Senator Kennedy.----and that it is going to, just about 
every time----
    Mr. Blanco. Yep.
    Senator Kennedy.----make a cash deposit, and that in all 
likelihood--in fact, in the history of ever, you have never had 
a money launderer deposit cash in a community bank, in 
Bucksnort, whatever? Does that makes sense?
    Mr. Blanco. So, Senator, I tell you----
    Senator Kennedy. Why do you make them do it every time?
    Mr. Blanco. Well, I will tell you, you are getting right to 
the point of why we are having these discussions, for that very 
same point, should we. How important is that information when 
the bank knows their customer and can come back and tell us 
whether or not this is the right customer. The question then 
becomes whether there is an anomaly in that $1,500 deposit each 
week and afterwards. So these are the discussions we are 
talking about.
    It may not be necessary, Senator, but let me just tell you. 
Just as a regulator in a financial intelligence unit, I really 
want to hear from law enforcement as to why or why not because 
there could be a reason why. What would happen if, all of a 
sudden----
    Senator Kennedy. I get it.
    Mr. Blanco. OK.
    Senator Kennedy. I get it. I mean, I thought Mr. Toomey 
nailed it. If I am on your end, I am going to want all the 
information I can get, but this information costs money because 
business people have to comply.
    And I think we can stipulate we are all against money 
laundering. The issue is cost versus benefit. When will you be 
able to use artificial intelligence?
    Mr. Blanco. We are using it now.
    But, Senator----
    Senator Kennedy. But should not--based on artificial 
intelligence, you ought to be able to say, determine that Joe's 
Grocery Store in Bucksnort, Louisiana, makes a $12,000 deposit, 
$12,000 to $15,000 deposit every day, and you never had a money 
laundering out of Bucksnort.
    Mr. Blanco. Maybe, but what artificial intelligence will 
not tell me is whether or not that person has changed his 
business associations and whether or not he is still getting 
that, that is what artificial intelligence----
    Senator Kennedy. The system can be beaten. There is no 
question.
    Mr. Blanco. Yep.
    Senator Kennedy. And you folks are tough to beat, but is 
not the issue now how do we catch every single one? Is not the 
issue how we catch as many as we can, given the cost in a cost-
benefit analysis?
    Mr. Blanco. Senator, maybe we see it a little differently. 
I do not see it as cost; I see it as an investment. It is an 
investment into the security of this country and its financial 
system, and it is not just money laundering, Senator, because 
you are seeing the money come through. But it is human 
trafficking. It is fraud against the elderly. It is child 
pornography. It is all the crimes that you and everybody else 
would find disgusting. That is what it is really about, finding 
them.
    Senator Kennedy. And I think that if we devoted half of the 
resources of the United States budget, we could probably do a 
lot of damage in terms of curtailing that.
    Mr. Blanco. Yeah, I am with you.
    Senator Kennedy. But Congress is not likely to do that 
because we have competing needs, as do--I mean, my issue is are 
you looking at is the flame worth the candle?
    Now let me switch gears for a second.
    Mr. Blanco. I am with you.
    Senator Kennedy. I really do not know. I think I know, but 
I may have it wrong. If I go open an account at a local bank, 
community bank, or a large bank, the bank has got to ask me if 
my company--the bank has to ask me who the beneficial owners 
are of my company. The bank has to ask me is this a shell 
corporation.
    Mr. Blanco. I will defer that to the OCC because they 
regulate those banks.
    But I will tell you it depends on whether or not there is a 
legal entity. If what you are doing is opening a legal entity--
--
    Senator Kennedy. OK. Hold on. Hold on. I do not have much 
time.
    The banks have to ask the customer if it is a shell 
corporation; is that right?
    Mr. Blanco. The bank has to know their customer, and with 
the CDD rule, they need to understand who it is that is coming 
to open that account.
    Senator Kennedy. I understand. Please just answer my 
question.
    Mr. Blanco. I am trying to help you, Senator.
    Senator Kennedy. I know, but I know you can speak 
bureaucrat. And I am not being facetious; I am just trying to 
get an answer.
    If I go open an account in a local bank--I am going to be 
quick, Mr. Chairman--and I use a corporation, the bank has got 
to say, ``Hey, Kennedy, is this a shell corporation?'' Is that 
not right?
    Mr. Blanco. I think they should.
    Senator Kennedy. OK. Do people opening, trying to launder 
money with a shell corporation, they often tell the truth? Do 
they?
    Mr. Blanco. Probably not.
    Senator Kennedy. OK. So what happens then? Is the bank 
liable?
    Mr. Blanco. Well, the bank may or may not be liable. It 
depends on what they knew when that person gave them the 
information.
    For example, if they knew as a fact--and we have seen 
this--that that person is a Genovese crime family member or is 
an organized crime member and they still opened the account 
knowing that that individual is lying, that is a problem for 
them.
    Senator Kennedy. Thank you, Mr. Chairman. I am sorry I went 
over.
    Chairman Crapo. Thank you.
    Senator Warner. Thank you, Mr. Chairman. I want to thank 
you and the Ranking Member for raising this issue. I have 
learned a lot, and I am trying to think through how we could 
improve this system. And I think we do have some misalignment. 
I cannot think exactly where else we have got one group of 
folks from FinCEN
setting the rules, another set of folks implementing the rules, 
as kind of appendage to your safety and soundness major frame 
of
regulation, and then obviously law enforcement having a--
enforcing those rules.
    I think a lot of us desperately want to get to a better 
solution. I am not sure raising the level on the SARs is the 
right level, but I do think Senator Toomey's question is a 
relevant one. Between $10,000 and X, whatever, what level of 
prosecution has come out, that would be helpful to us. I have 
seen estimates that we are talking about the cost to the 
financial system of about $8 billion. I have got to believe if 
we are spending $8 billion, we can probably do it more 
efficiently and catch more bad guys.
    So I wonder--I have got a series of questions here. One, 
has anyone done any study on the cost? Is there any ability to 
monetize the cost of false positives and the cost, for example, 
of individuals who might have gone into the grocery store, they 
now have got a SARs report on them, they now fall into a 
Government database, but they have done nothing wrong? The 
privacy issue and then the actual cost, any notion on the cost 
of false positives?
    Mr. Blanco. Senator, I do not know if anybody has done a 
study on it. I know there have been incidences where that has 
happened, but I can look into it and get back to you as to see 
whether or not anyone has done any cost-benefit analysis.
    Senator Warner. I am not talking full cost benefit. I am 
talking about actual cost of false positives or popping up on a 
list, and I would also love for us to see if we could get some 
analysis because, again, I am not sure that simply raising the 
threshold makes that much--but I would be curious to know how 
many of these entities fall between--we will use Senator 
Toomey's numbers--$10,000 and $30,000.
    I also wonder, would it make any sense--and I know since 
you brought your CTRs, SARs, you have to make some assumption 
whether it is money laundering versus terrorism. Is there 
something--should there be--you have cited examples where 
terrorism could be much lower amounts, money laundering larger. 
Should there be a differential rate between terrorism reporting 
versus money laundering reporting?
    Mr. D'Antuono. I think in that respect, you might lose some 
valuable intelligence.
    Senator Warner. If you had a differential rate?
    Mr. D'Antuono. Yeah.
    Senator Warner. But, again, you are going to come back to--
your emphasis is going to be more data is always better, right?
    Mr. D'Antuono. Well, the data is used differently. We can 
talk about CTRs and loss prosecutions and what they are being 
used for, but it is like a fine wine. You do not know what you 
have at that point in time. It could be 10 years from now when 
you have a CTR that hits on a particular IP address, email 
address, an address. So you have a CTR that was filed by a 
certain individual that now we are looking for as a fugitive.
    We do not do the analysis to say, ``OK. We have this 
address now.''
    Senator Warner. You have got this massive database.
    Mr. D'Antuono. We have to go as law enforcement to arrest 
the fugitive, not determine where----
    Senator Warner. But if we are talking about $8 billion and 
how we spend it better, if there was a way through AI with 
privacy protection for the banks to actually share information, 
would not that be helpful too?
    Mr. D'Antuono. We are all for the engagement that we can do 
to improve this, absolutely. From a law enforcement, from my 
agency, we are trying to enforce the laws.
    Senator Warner. But would you be willing to think about how 
we might better spend that $8 billion if part of that was being 
able to have banks be able in a way so they are not just filing 
defensive SARs all the time, to actually share pattern 
information with you that it was appropriately privacy 
protected?
    Mr. D'Antuono. That is the key. You just hit on a key 
defensive SARs. Defensive SARs, defensive filings are a lot 
of--the white noise are a lot of the percentages.
    Senator Warner. We have got a lot of money here, $8 
billion. If that is roughly, thinking a better allocation, I 
for one--one of my conclusions I have come to at least to mind 
is what Senator Kennedy mentioned already, but I think we need 
stronger rules about beneficial ownership. I know there is some 
in the business community that are opposed to that, but, my 
goodness, if we are going to try to rebalance this, that ought 
to be one of the tools.
    Mr. Blanco. Senator, we are already having those 
conversations through our 314(b) consortiums, so we are 
having--how do we use artificial intelligence and machine 
learning--right? Very different in how that approach happens--
how we are using it to become more efficient and effective, how 
can we use it to have financial institutions share in a better 
way.
    But keep in mind, as you mentioned earlier, privacy is 
important, and we have to make sure the security and the 
privacy of that information that these banks are now sharing, 
so that is part in the mix too. But we are having those 
conversations.
    Senator Warner. My time is running out. Let me just 
quickly--the things I would hope you would come back to me with 
is what are the costs, if there has been any estimation, of 
false positives and misallocation; what is some of the 
usefulness, to further demonstrate in some of these gap 
numbers.
    Mr. Blanco. Yep.
    Senator Warner. In one of the earlier hearings, I think we 
raised--I am still sorting through how do we get more of the 
FinCEN expertise down at the bank regulator--because I do not 
think you are ever going to get the safety and soundness 
regulator to make this a priority, and frankly, I am not sure 
that the bank is every going to not see this as something other 
than--appropriately realize the value that comes out of this.
    Maybe there may be tools we could use. I think one thing 
the Chairman and the Ranking Member has done--I think there is 
a lot of interest in seeing how we can improve this system, and 
I think there is a lot of common agreement.
    So we look forward to working with you, and again, thank 
you both.
    Chairman Crapo. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman, and thank all 
of you for your testimony.
    Today, I want to touch on a couple issues I understand 
Senator Menendez touched on as well as Senator Cortez Masto 
related to beneficial ownership.
    Earlier this year, Senator Whitehouse and I asked GAO to 
undertake a study looking into FinCEN's geographic targeting 
orders, the GTOs, and potential gaps in that law that allow for 
luxury real estate to be an attractive option for those seeking 
to launder illicit cash in the United States, including by 
international organized crime. And I am pleased that GAO is 
going to undertake that study.
    I know that FinCEN continues to renew and expand GTOs to 
collect beneficial ownership information. I understand earlier 
this year, you completed a rule to require banks to collect 
some beneficial ownership information, but it still appears we 
are doing this in a very piecemeal fashion.
    If you look at this year's National Defense Authorization 
Act, it included a provision for the Department of Defense to 
collect beneficial ownership information for all high-security 
office space it leases. There are other proposals around here 
to say let us do this on a piecemeal basis.
    It seems that based on our experience to date, rather than 
attack this on a piecemeal basis, we do develop some kind of 
universal approach to identify beneficial ownership, and so my 
question is pretty simple. Based on your experience, do you 
agree that the U.S. Government, the Federal Government, 
Congress working with the Administration, should adopt 
legislation to require a broad universal provision requiring 
people to disclose beneficial ownership?
    Mr. Blanco. Yes, Senator.
    Senator Van Hollen. Excellent.
    I have a quick question on North Korea. I look forward to 
working with you, and I know others want to as well. On North 
Korea, the Wall Street Journal published an article this week 
documenting how North Korea is evading economic sanctions 
through a myriad of tactics, including ``Changes in their 
ownership reveal an expanding toolbox of strategies designed to 
keep North Korea shipping and economy afloat.'' In other words, 
they are using these shell corporations around the world. That 
is obviously an international challenge.
    Based on the sort of haphazard laws we have here in the 
United States, can we say with confidence that they are not 
laundering money in any U.S. entities?
    Mr. Blanco. Well, Senator, I cannot say anything with a lot 
of confidence, but I can tell you one thing with a lot of 
confidence. We are on this subject. We are all day about North 
Korea and Iran and all these rogue states that are out there. 
So, if they are, we are going to find it. They may be. I do not 
know if they are or they are not. I cannot give you a certain 
answer, but I can tell you we spend a lot of time figuring out 
whether they are or they are not. And when we see that they 
are, we take action. When we see that they are doing it 
overseas, we take action. We use our authorities, whether they 
are 311 authorities or OFAC sanction authorities, to make sure 
that they stop doing that, and we try to punish those who are 
involved.
    Senator Van Hollen. Well, I appreciate that.
    Mr. Chairman, as you know, this Committee passed on, I 
think, a unanimous basis, Senator Toomey's and my legislation, 
the BRINK Act, sometime ago. It has been sitting on the floor 
of the Senate. I understand we have been sort of watching 
developments in North Korea, but the evidence is mounting every 
day that the North Koreans are getting around the sanctions.
    Unfortunately--I am not talking about FinCEN, but the 
President has certainly made some statements saying maybe that 
is not so bad that we are not exerting maximum pressure anymore 
on North Korea's economy. And that is a mistake.
    So I think given the mounting evidence, Mr. Chairman, I 
look forward to conversation with you about, I guess, 
reintroducing and renewing our efforts to make sure that we 
apply maximum pressure on North Korea as we continue with 
whatever dialogue is ongoing at this point in time.
    Thank you very much.
    Chairman Crapo. Thank you. I look forward to that 
conversation.
    Senator Reed.
    Senator Reed. Well, thank you, Mr. Chairman.
    Thank you all. Let me commend you for the tenacious 
attitude you are displaying about making sure these laws are 
enforced appropriately.
    Mr. D'Antuono, I understand you began your career in 
Providence, Rhode Island. So it is no wonder you have risen to 
the heights you have and along the way had a few good meals 
too, I suspect.
    [Laughter.]
    Mr. D'Antuono. Correct. I am from Rhode Island too, sir.
    Senator Reed. Whereabouts? Where is your home?
    Mr. D'Antuono. Cranston.
    Senator Reed. That is my home, too.
    Mr. D'Antuono. Actually, a former relative of mine was a 
page for you.
    Senator Reed. Well, OK. Rhode Island, ladies and gentlemen, 
is a very small community. We know each other. We like each 
other. Thank you. I had to say that.
    This debate and the focus I have had is on beneficial 
ownership. I think, frankly, we have to do better in finding 
out who actually owns these assets. If we do not, then we are 
always going to be one step too late or two steps too late.
    There is a burden in terms of collecting this information, 
but I think--and I will get your opinions whether it is far 
outweighed by the benefits of knowing actually who is getting 
this money.
    And then any comments, beginning with Mr. Blanco and all 
the way down the line, about legislation that would assist you, 
specific proposals that would assist you, I would appreciate 
it.
    So let us start with Mr. Blanco, please.
    Mr. Blanco. Senator, thank you, and thank you for that 
question.
    I always see--when I hear burden and cost, I always think 
investment because that is what it is. It is an investment in 
keeping our financial system secure and making sure that we do 
the right thing at the end of the day.
    With respect to legislation, beneficial ownership, as I 
mentioned earlier in my opening statement, that is a national 
security issue. It just is. If we do not know who is using our 
financial system or explaining our financial system or 
benefiting from our financial system--I mean, let us face it. 
What better financial system to invest in here in the United 
States? And that is what every criminal does. That is what they 
do. That is where they want to put their money. That is where 
every kleptocrat wants to put their money because it is safe 
here because we have a secure financial system. We need to 
prevent them from doing that.
    I am happy to work with your staff on further legislation. 
I am happy to sit down with anybody personally and talk about 
beneficial ownership. It is very simple. We are not asking for 
brain surgery here. We are asking for just quick information. 
That is what it is, and it is not a burden. It is an 
investment.
    Senator Reed. Just one point to your comment, and then we 
will go down the panel. Starting across the board, every place, 
everywhere, the small bank in Woonsocket, Rhode Island, et 
cetera, we know there are some areas. There are some countries 
that are tax havens that have very loose standards. We could 
start step by step--you could start in terms of certain areas 
where that information has to be collected, other areas where 
you see the risk is low and it could be worked in. Is that a 
feasible approach?
    Mr. Blanco. It is almost like the bubble, right? I mean, 
you are going to hit this area, and then they are going--you 
might as well get it done and do it all in one fell swoop 
because the criminals are really smart. They know our laws. 
They are all watching today. I mean, they are all really 
interested in what is going on because that is the way they 
make money. So my recommendations to you would be to get it 
sweeping across the board.
    Senator Reed. That is good advice. Thank you.
    Mr. D'Antuono.
    Mr. D'Antuono. As I commented before, the beneficial 
ownership would be a benefit to law enforcement as a total. It 
really would.
    As a burden, you cannot really comment on that. Again, we 
are the end user for this information, but there is a gap 
there. There definitely is a gap there.
    As Ken just pointed out too, it is the balloon effect to 
anything. You talk about the GTOs and the beneficial ownership, 
you squeeze part of the balloon, it is going to go--they are 
going to go someplace else, same things with the rural banks, 
same thing with a lot of what we are talking about today. The 
CTRs, you squeeze on the bigger banks and you leave the rural 
banks alone, the rural banks are going to be where the money 
laundering is at.
    We work hand in hand with the Department of Justice, with 
the legislative fixes, as you put it, and we would be happy to 
talk to your staff about anything that we see.
    Senator Reed. Thank you.
    Mr. D'Antuono. But money laundering is a problem. We can do 
some fixes to that. We would be happy to talk to you all about 
that.
    Senator Reed. Thanks very much.
    Ma'am, please.
    Ms. Gardineer. Thank you, Senator.
    We do believe that the goals of the beneficial ownership 
rule are noble, and they are good ones. However, there are 
problems with the implementation, as there is not a universal 
way for financial institutions to really validate or how that 
information is collected across the various States. So that, to 
us, is the gap that we would like to see strengthened to really 
facilitate the rule meeting its goals.
    Senator Reed. Can you do that within the purview of your 
authority in your agency?
    Ms. Gardineer. I think that what we see from the 
institutions we supervise, we see the inefficiencies that are 
created because of the lack of a universal way of collecting 
that information upfront.
    Every State collects that ownership information in a 
different format, in a different way, which then creates 
additional burdens to making sure that the goals of the 
beneficial--or the CDD rule of beneficial ownership rule are 
actually effectuated.
    Senator Reed. But your concept of identifying beneficial 
ownership is one that you share with your colleagues as being 
critical?
    Ms. Gardineer. We do believe that it is an important goal.
    Senator Reed. Thank you.
    Thank you all very much.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    One quick question.
    Senator Warner. I just wanted to make the comment.
    Mr. Blanco, I do not disagree when we talk about this as 
cost or investment, but if we are spending--if we accept all 
the range as $8 billion, I am just simply saying there may be 
better ways to invest that with more modern systems than--and I 
completely agree with my colleagues on this side of the aisle 
who have indicated beneficial ownership ought to be part of 
that, but if we could reach that standardization and reallocate 
part of that $8 billion to get that right--and there may be a 
series of other tools that we could--so I will use your 
language, but as long as we also recognize that that investment 
might be better spent than it is being spent right now.
    Mr. Blanco. Agreed. I agree.
    Chairman Crapo. Well, thank you. That concludes our 
questioning, and I again want to thank all of our witnesses, 
not only for being here today, but for hanging in there through 
a canceled hearing and for all of the work that you do. It is 
truly appreciated.
    I encourage you to continue to work with Members of the 
Committee because there is a very strong interest in this 
Committee on finding some answers to the various types of 
questions that you got today.
    For Senators wishing to submit questions for the record, 
those questions are due in 1 week, on Thursday, December 6th.
    As for the witnesses, we ask that you respond to the 
questions you will receive as quickly as you can.
    And, again, we thank you for being here. This hearing is 
adjourned.
    Mr. Blanco. Thank you, Senator.
    Ms. Gardineer. Thank you.
    [Whereupon, at 11:30 a.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
    This morning marks the fourth time this year that Members of the 
Banking Committee meet to evaluate the regulatory scheme of the Bank 
Secrecy Act in terms of efficiency in reporting and effectiveness of 
enforcement.
    The purpose of these hearings is to assess the current BSA 
framework against the challenges faced by the public and private 
sectors in confronting the risks posed by the constantly evolving money 
laundering, sanctions evasion and terrorist financing methods used by 
illicit financiers in the United States.
    The goal of this Committee is always to search for a means to more 
effectively target and prevent these activities, while imposing the 
least burden on those in industry tasked with being the gatekeepers to 
the United States financial system.
    The first two hearings, held in January, lead with witnesses from 
the private sector on the first day, followed a week later by witnesses 
from the Treasury and Justice Departments.
    The focus of these two full Committee hearings centered on 
discussions for potential reforms of the current U.S. regulatory 
framework in areas such as greater information sharing among financial 
institutions and the government, efforts to sharpen suspicious activity 
reporting by encouraging a risk-based approach over more quantifiable 
metrics, and the importance of requiring the collection of beneficial 
ownership information at the time of incorporation, rather than relying 
exclusively on the current Customer Due Diligence procedures.
    Over the summer, Senators Sasse and Donnelly continued the work of 
the Committee by holding a third hearing, as Chair and Ranking of the 
National Security subcommittee, on how criminal organizations launder 
money and the need for modernizing the anti-money laundering regime to 
better address the requirements of both financial institutions and law 
enforcement.
    Senator Sasse correctly assessed that the anti-money laundering 
regime must constantly innovate to keep up with the bad actors that 
continuously update their methods of accessing the U.S. financial 
system.
    In fact, each of these hearings have, from the beginning, 
culminated in strong bipartisan support to reform the existing regime 
largely by finding clear-headed measures designed to encourage the 
innovation necessary to combat illicit financing while also encouraging 
regulators to focus on more tangible threats, and law enforcement to 
increase interagency cooperation and improve information sharing 
throughout the process.
    While not yet settled on any one particular reform or fix, Members 
of the Committee are united on the idea that there is room for change 
in a decades-old system that will yield a modernized BSA anti-money 
laundering regime that works for law enforcement, financial 
institutions, their regulators, and the man in the street, who is the 
ultimate beneficiary of a strong U.S. financial system.
    Today, the Committee will continue its probe for new ideas on 
reform from the Financial Crimes Enforcement Network, or FinCEN; the 
Office of the Comptroller of the Currency, or OCC; and, from the FBI, 
which ultimately cannot be hampered by a misplaced reform in its 
mission to chase down the criminals and the illicit proceeds they 
generate.
    We are especially fortunate to have with us, today, the Director of 
FinCEN, Mr. Ken Blanco, who as Director is the Chief Administrator of 
BSA.
    Before FinCEN he was a former top prosecutor at the Department of 
Justice, the Acting Assistant Attorney General of the Criminal 
Division, and a one-time head of its Anti-Money Laundering and Asset 
Recovery Section.
    Also testifying are Mr. Steven D'Antouno, Chief of the Financial 
Crimes Section at the FBI, and Ms. Grovetta Gardineer, who is Senior 
Deputy Comptroller for Compliance at the OCC.
    I thank our witnesses for sticking with us after the Committee had 
to postpone this hearing. But, this is an important hearing where we 
must take the time to talk about the issues surrounding innovation, 
financial integrity, public confidence, and crime from the perspective 
of regulators and law enforcement.
    In that regard, and since we last intended to hold this hearing, an 
arrest was reported of a senior FinCEN employee for unlawfully removing 
and disclosing to a member of the media Suspicious Activity Reports or 
``SARs,'' which were held in FinCEN's custody.
    In fact, this was a highly unusual and complicated insider 
occurrence of sensitive SAR information being disclosed, but it 
underscores the employee's alleged crime as a critical challenge to the 
integrity of the financial system and the public's confidence in it.
    More than ever, with the advent of the innovative application of 
big data analytics available to law enforcement to deal with ever-
increasing information flows, it is incumbent on all custodians of 
sensitive information to fully comply with the confidentiality rules of 
the BSA and particularly for the government to take all necessary steps 
to ensure that it can protect this vast amount of data entrusted to it.
    I greatly appreciate this opportunity to engage in a discussion 
with the experts today to help us find a way to advance innovation in 
the BSA compliance and enforcement regimes to better direct the 
resources of government and financial institutions aimed at protecting 
the integrity of the U.S. financial system, and the businesses that are 
America's bedrock.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you, Mr. Chairman, for calling this hearing. Even with all of 
the tough, comprehensive protections we've put in place over the years, 
especially since 9-11, huge amounts of laundered funds continue to 
course through our financial system.
    In late 2015, Treasury's comprehensive report on money laundering 
noted that money laundering related to fraud, drug trafficking and 
other forms of illicit finance generated an estimated $300 billion 
annually.
    That's why it's critical we consider ways to update and strengthen 
our anti-money laundering regime, including requiring the kind of tough 
new beneficial ownership rules we should have imposed years ago. Why, 
for example, didn't more alarm bells go off when Paul Manafort was 
making huge payments for luxury items from anonymous bank accounts in 
Cyprus?
    We should revamp our beneficial ownership rules, and assess the 
reporting burden on small and medium-sized banks.
    But the kind of discussions we've sometimes had in the past, as 
we've talked about creating different rules for global and community 
banks, does not fit as well here.
    Money launderers are looking for the weakest link, whether it is 
HSBC or BB&T or Lone Star National Bank, and will migrate to smaller 
banks as necessary to hide their crimes.
    Community and regional banks play a crucial role alongside our 
biggest banks in monitoring transactions across the country--their 
efforts are essential to Federal efforts to monitor, deter, prosecute, 
and punish illicit finance-related activity across our economy.
    Assessing the efficacy of our current transaction monitoring and 
reporting system must be a data-driven policy process. I am pleased 
FINcen is going to be systematically assessing its current vast body of 
BSA data with an eye to possible changes.
    I look forward to hearing the results of their assessment when it's 
done. It will provide an important fact-based foundation for any BSA 
reform efforts.
    Some preliminary analysis has already been done. Bipartisan 
committee staff have been told by FINcen and the FBI, for example, that 
increasing SAR and Currency Transaction Report (CTR) thresholds to the 
levels contained in the House Republican bill would eliminate around 80 
percent of the data available to Federal law enforcement.
    We cannot throw 80 percent of the data, including on suspicious 
activity, out the window. That is irresponsible; it makes no sense. And 
it could cost lives.
    It is true that law enforcement can and should share more 
information with bank compliance teams--even though they can't always 
discuss details with reporting banks. And Treasury is working on that.
    As I have noted, we should keep in mind that we're operating 
against a backdrop where in recent years some of the world's largest 
banks and their foreign partners have continued to run afoul of these 
laws.
    In fact, the Government Accountability Office concluded in 2017 
that from 2009-2015 approximately $12 billion was collected in fines, 
penalties, and forfeitures from financial institutions for violations 
of the Bank Secrecy Act, the Foreign Corrupt Practices Act, and U.S. 
sanctions requirements--including $5.2 billion assessed for Bank 
Secrecy Act violations.
    Some of these banks violated U.S. anti-money laundering and 
sanctions laws by knowingly facilitating illegal financial transactions 
for rogue regimes. Some conducted transactions with individuals or 
entities affiliated with terrorists and drug cartels. Many violated the 
law for years.
    These are not victimless crimes.
    We must strengthen interdiction of the supply of drugs like 
Fentanyl coming into the country through initiatives like my INTERDICT 
Act, signed into law by President Trump.
    But we must also cutoff the traffickers' money supply. Money 
laundering on behalf of drug cartels has a direct line to the opioid 
epidemic in Ohio, where Sinaloa cartel actors have been active, 
destroying thousands of families.
    Likewise, human traffickers exploit the misery of runaways here, 
recruiting young women from overseas with promises of legitimate work 
in the United States and using the financial system to launder their 
profits.
    That's why these laws are so critical: they protect the integrity 
of our financial system, and provide critical intelligence to law 
enforcement to combat crime.
    Even so, we do want to assess whether there are ways to responsibly 
update and strengthen the current anti-money laundering framework, 
including through new measures to require beneficial ownership 
information when companies are formed in the United States, shedding 
once and for all the U.S. reputation of being a haven for anonymous 
shell companies.
    I welcome today's witnesses, and look forward to your perspectives.
                                 ______
                                 
                PREPARED STATEMENT OF KENNETH A. BLANCO
   Director, Financial Crimes Enforcement Network, Department of the 
                                Treasury
                           November 29, 2018
Introduction
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for inviting me to appear before the Committee on Banking, 
Housing and Urban Affairs on behalf of the Financial Crimes Enforcement 
Network (FinCEN). FinCEN's mission is to safeguard the financial system 
from illicit use and to promote national security through the 
collection, analysis, and dissemination of financial intelligence. I 
appreciate the opportunity to discuss the anti-money laundering (AML) 
and countering the financing of terrorism (CFT) regime in the United 
States and the value of the Bank Secrecy Act (BSA) in keeping our 
county strong and prosperous, our financial system secure, and our 
families and communities safe from harm.
    The reach, speed, and accessibility of the U.S. financial system 
make it an attractive target to money launderers, fraudsters, 
terrorists, cyber criminals, rogue states, transnational organized 
crime syndicates, gangs, and other bad actors. To combat efforts by 
these individuals, groups, or networks to use, abuse, or benefit from 
the U.S. financial system, we have developed and rigorously enforce one 
of the most effective AML/CFT regimes in the world. However, despite 
the strength of our AML/CFT framework, malicious actors will continue 
to attempt to exploit any vulnerability to move their illicit proceeds 
undetected through legitimate financial channels in order to hide, 
foster, or expand the reach of their criminal or terrorist activity. We 
must therefore be vigilant in our mission and work to stay ahead of 
these criminals and terrorists by: (1) aggressively investigating and 
pursuing illicit activity; (2) ensuring that we collect the financial 
intelligence necessary to support these investigations; (3) 
understanding the evolving trends and typologies of illicit activity; 
and (4) closing any regulatory gaps that expose our financial system to 
money laundering and the other underlying illicit activity that 
threaten our financial system and put our Nation, communities, and 
families in harm's way.
    Many of our efforts to identify and disrupt illicit finance threats 
and the underlying crimes depend on financial institutions fully 
complying with the BSA laws and regulations designed to protect the 
financial system. Financial intelligence reported to us by financial 
institutions serves as a key component of our efforts to target 
terrorist financiers, cyber criminals, human traffickers, fraudsters, 
weapons pro-
liferators, rogue regimes, and other illicit actors.
    One of my top priorities is to ensure that the AML/CFT framework 
remains strong and effective. My testimony today will focus on the 
importance of BSA information and our efforts to promote innovation and 
to improve the effectiveness and efficiency of the BSA framework.
The Importance of Bank Secrecy Act Information
    Financial institutions are on the front lines of our fight against 
financial crime. They play a key role in protecting our country by 
providing the information we need to keep illicit actors from using, 
exploiting, and benefiting from our financial system.
    Law enforcement, counter-terrorism agencies, financial regulators, 
and other stakeholders extensively use the financial intelligence that 
FinCEN collects under the BSA. The information collected is critical in 
many areas: investigations and prosecutions targeting criminals, 
terrorists, rogue states, and other bad actors; effective use of our 
enforcement tools and authorities such as USA PATRIOT Act special 
measures and Office of Foreign Assets Control sanctions; and developing 
and fine-tuning BSA policy. BSA reporting also allows us to take a 
macro view of financial crime. We can map out significant criminal 
networks and identify trends and patterns of criminal and terrorist 
activity, which we can then share with the financial community to 
strengthen their ability to identify and report priority illicit 
activity as well as assess risk.
    FinCEN and our law enforcement partners are able to do important 
things with the information provided by financial institutions. BSA 
data plays a critical role in keeping our country strong, our financial 
system secure, and our families safe from harm. When financial 
institutions report suspicions about elder fraud, human trafficking, 
cybercrime, narcotics trafficking, terrorism or other illicit activity, 
they provide incredibly valuable leads and ongoing support for law 
enforcement investigations and, importantly, they make it much harder 
for criminals to move or hide their illicit proceeds in the financial 
system.
    FinCEN is often asked whether financial institutions' compliance 
efforts are actually working. The short answer is, yes. If the system 
were not working, bad actors would not be working so hard to come up 
with new and creative ways to move their ill-gotten gains in and around 
the financial system.
    BSA information helps FinCEN further the core national security 
priority of protecting the financial system from exploitation by 
illicit actors or financial institutions with complicit insiders and 
broken controls. FinCEN does this in a number of ways, including 
through the use of Section 311 of the USA PATRIOT Act. This authority 
allows us to identify jurisdictions and financial institutions to be of 
primary money laundering concern and impose a range of special measures 
to safeguard the U.S. financial system. This powerful tool can lead to 
impactful systemic change.
    For example, in February 2018, FinCEN found Latvia-based ABLV Bank 
to be a foreign financial institution of primary money laundering 
concern and issued a notice of proposed rulemaking (NPRM) that would 
prohibit U.S. financial institutions from opening or maintaining 
correspondent accounts on behalf of ABLV. As discussed in the NPRM, 
ABLV's management institutionalized money laundering as a pillar of the 
bank's business practices. Its failure to implement effective AML/CFT 
policies and procedures made the bank attractive to a range of illicit 
actors, including parties connected to United States and United Nations 
(U.N.)-designated entities, some of which are involved in North Korea's 
procurement or export of ballistic missiles, in addition to corrupt 
officials and organized crime--significant amounts of which emanated 
from Russia. BSA information was critical in this particular case, as 
multiple U.S. financial institutions in recent years identified the 
same pattern of suspicious activity emanating from ABLV. This activity, 
which included banking for a significant number of shell companies 
processing large volumes of transactions with no apparent business 
purpose, led U.S. financial institutions to proactively close ABLV 
correspondent accounts on their own initiative, prior to the issuance 
of the NPRM.
    FinCEN uses the financial intelligence it collects to report 
suspicious behaviors related to money laundering and terrorist 
financing threats to industry through our Financial Institution 
Advisory Program. FinCEN can issue public and nonpublic advisories to 
alert financial institutions of specific illicit finance risks. 
Advisories often contain illicit activity typologies, red flags to 
facilitate monitoring, and guidance on complying with FinCEN 
regulations to address threats and vulnerabilities. In June 2018, 
FinCEN issued an advisory on human rights abuses enabled by corrupt 
senior foreign political figures and their financial facilitators, and 
in November 2017, FinCEN issued an advisory to further alert financial 
institutions to North Korean schemes being used to evade U.S. and U.N. 
sanctions, launder funds and finance the North Korean missile programs. 
Financial institutions may use this information to enhance their AML 
monitoring systems to develop more valuable suspicious activity 
reporting.
    BSA reporting also aides investigations tied to weapons 
trafficking, bulk cash smuggling, gang activity, significant fraud, 
transnational organized crime, human trafficking, bribery, healthcare 
fraud, corruption, embezzlement, narcotics, kleptocracy and third-party 
money laundering, among other crimes. We have nearly 500 Federal, 
State, and local law enforcement and regulatory agencies with direct 
access to FinCEN's database of BSA records. Within these agencies, 
there are an estimated 11,000 active users of BSA data. This consists 
of 149 SAR Review Teams and Financial Crimes Task Forces located all 
around the country, covering all 94 Federal judicial districts, 
including one in each State, the District of Columbia, and Puerto Rico. 
In the last 5 years, FinCEN query users have made more than 10 million 
queries of the FinCEN database.
    BSA data is also vital for unmasking and investigating criminal tax 
evasion and other crimes. Internal Revenue Service Criminal 
Investigation alone conducts more than 126,000 BSA database inquiries 
each year. And, 24 percent of its investigations begin with a BSA 
source. As my colleague from the Federal Bureau of Investigation (FBI) 
will discuss, financial intelligence is a key tool for FBI criminal 
investigations. All FBI subjects have their names run against the BSA 
database. More than 21 percent of FBI investigations use BSA data, and 
for some types of crime, like organized crime, nearly 60 percent of FBI 
investigations use BSA data. Roughly, 20 percent of FBI international 
terrorism cases contain BSA data.
    As the Financial Intelligence Unit of the United States, FinCEN 
also shares information with our international partners. From February 
2016 to February 2017, FinCEN made more than 900 spontaneous 
disclosures of BSA information to foreign partners on 3,500 individuals 
and 80 entities. In several cases, these disclosures provided details 
on suspected terrorists before they were involved in major plots
or attacks. This resulted in more than 100 active investigations, the 
issuance of
international arrest warrants, new listings on national terrorism 
sanctions lists, at least 25 visas revoked, and at least two 
convictions.
    BSA information can also help financial institutions and other 
reporting entities assess and manage AML risks. The information 
obtained as a result of complying with BSA recordkeeping and reporting 
requirements helps institutions better understand their customers and 
any transactional risks they may pose. BSA data can help financial 
institutions develop unique insights to better partner with law 
enforcement and FinCEN around shared illicit finance priorities and 
threats.
    The diligence that each financial institution exercises complying 
with their recordkeeping and reporting obligations keeps our Nation, 
our communities, and our families safe. Simply put, BSA information: 1) 
provides leads; 2) helps expand cases and assembles pieces of the 
puzzle or illuminates networks we would not see otherwise; and 3) helps 
alert us to trends in illicit activity so that we can get ahead of the 
harm, deter it, or prevent the harm from spreading.
    I want to emphasize this last point. While data from BSA reporting 
can assist with specific investigations, that does not mean, if it is 
unrelated to a specific case, it is any less valuable. FinCEN and law 
enforcement officials regularly analyze and work with the data to 
connect networks, understand trends and typologies, and develop red 
flags. When BSA data is combined with other information--such as open 
source data, research, and law enforcement information--we can see so 
much more. It maps out connections that we would not otherwise see or 
even know about, bringing criminal and terrorist networks out of the 
shadows.
    We are getting better at this every day, but we believe we can do 
much more. Part of getting better and doing more includes providing 
both our financial institutions and delegated examiners better and more 
consistent feedback on how we use BSA data so they understand our 
priorities and how to better use their resources more effectively and 
efficiently in a more targeted and focused way.
    One area we need to strengthen is addressing the misuse of legal 
entities by criminals seeking to access the financial system 
anonymously for money laundering and other illicit activities. FinCEN's 
Customer Due Diligence rule, which was implemented by covered financial 
institutions in May 2018, requires those institutions to identify and 
verify the identity of the beneficial owners of their legal entity 
customers at account opening. Although that is an important step in 
preventing the ability of criminals to hide behind a company with 
hidden beneficial owners when opening an account, the collection of 
beneficial ownership information is also critical at the time a company 
is being incorporated. FinCEN and the Department of the Treasury more 
broadly have prioritized increasing transparency in corporate 
formation, and we look forward to working with Congress on this 
important issue.
Regulatory Reform--Strengthening the AML/CFT Framework
    A strong and effective AML/CFT framework keeps illicit actors out 
of the financial system. We recognize that to remain strong and 
effective, we must keep pace with evolving forms of illicit finance 
threats. To that end, we are taking a hard look at the BSA and the 
broader AML/CFT regime. We want to upgrade and modernize our system 
where needed to make sure we have the right framework in place to meet 
the current and evolving challenges well into the future.
    To achieve this objective, FinCEN is working closely with the 
Federal Banking Agencies, State regulators, law enforcement, and the 
private sector to identify ways to improve the effectiveness and 
efficiency of the BSA regime. Our goal is to ensure that financial 
institutions are devoting their resources to identify and report 
activity that relates to the highest priority national security and law 
enforcement interests.
    This effort requires a multi-prong approach with three key 
priorities: (1) understanding BSA value; (2) promoting responsible 
innovation; and (3) fostering information sharing, including through 
public-private partnerships.
Understanding BSA Value
    One key component of FinCEN's reform efforts is to better identify 
and quantify the value and use of bank and other financial institution 
reporting, including a thorough, data-driven analysis of BSA reporting 
to inform our decisionmaking. While we are eager to improve and reform 
the BSA framework, we believe it is important to ensure that any change 
is supported by such an assessment and a clearer understanding of how 
to measure the effectiveness of BSA data.
    As part of this effort, we are evaluating the suspicious activity 
report (SAR) and currency transaction report (CTR) requirements, 
including reporting thresholds. We are also looking at whether certain 
types of SAR reporting can or should be streamlined. With respect to 
thresholds, we have identified some initial concerns, especially from 
our law enforcement partners, that significant increases in the 
respective thresholds could reduce the amount of valuable financial 
intelligence available to Treasury, law enforcement, and other key 
domestic and international partners. For example, FinCEN recently 
reviewed CTR filings to assess how much of that financial intelligence 
we might lose if the threshold were doubled to approximately $20,000. 
In that circumstance, FinCEN would lose over 60 percent of CTR-based 
financial intelligence on which FinCEN and law enforcement, in 
particular, currently rely to support investigations and analysis. 
Increasing the threshold to $30,000 would result in a loss of close to 
80 percent of currently provided data--in this case, the type of data 
points that enable the identification of illicit networks and the 
initiation or expansion of investigations. In addition, it is important 
to consider how changing practices can highlight the suspiciousness of 
a cash transaction, even in low amounts. Because customers often rely 
on wire transfers instead of cash deposits and withdrawals, a cash 
deposit of $10,000 can be a valuable source of information.
    BSA reporting has significant tactical value that supports, among 
other efforts, existing law enforcement and sanctions investigations or 
provides new leads and information to start those efforts. It also 
provides significant strategic value, ranging from studies of trends to 
identification of typologies associated with new illicit finance 
schemes, such as illicit use of cryptocurrencies, which are used to 
develop and implement risk mitigation responses. Financial reporting 
also supports operations, including through the sharing of information 
with international partners to support efforts related to terrorist 
financing, proliferation financing, political corruption, drug or human 
trafficking, human rights abuses and corruption, and many other 
important illicit finance and national security issues.
    For these reasons, we believe it is important to take a holistic 
view when considering thresholds, and ensure we examine the relative 
value of the SARs and CTRs.
    The FinCEN led Bank Secrecy Act Advisory Group (BSAAG), a 
statutorily mandated advisory group, and its working groups will be 
critically important as we evaluate these ideas and translate them into 
concrete actions. The BSAAG allows representatives from Federal 
regulatory and law enforcement agencies, financial institutions, and 
trade groups to advise FinCEN and others on the operations of the BSA. 
As the chair of the BSAAG, I am responsible for ensuring that relevant 
issues are placed before the BSAAG for review, analysis, and 
discussion. BSAAG has already established working groups that are 
either focusing on some of these ideas or may focus on some of these 
ideas in the future.
    While we are conducting a data driven analysis, we are looking for 
ways we can enhance effectiveness and efficiency now. Treasury and the 
Federal Banking Agencies formed a working group to work closely on 
specific initiatives aimed at achieving this goal. And, I personally, 
meet with my counterparts every month to discuss these issues. Each 
day, law enforcement investigators rely on valuable information 
provided by our country's financial institutions. As Federal 
regulators, we recognize that providing this valuable information costs 
time, talent, and money. We have an obligation to support and promote 
innovative ways to make complying with BSA responsibilities as 
effective and efficient as possible, while making sure that the 
effective use of that hard-won information is not diminished.
    FinCEN also engages with all the Federal Functional Regulators 
responsible for the supervision of the U.S. financial sector to provide 
clarity on the BSA regulatory framework to industry through the BSAAG. 
In addition, FinCEN meets monthly with its banking counterparts through 
the Federal Financial Institution Examination Council's Anti-Money 
Laundering Working Group. Together, we are updating the Anti-Money 
Laundering Examination Manual for depository institutions.
Promoting Responsible Innovation
    A second prong of our reform efforts is also one of my highest 
priorities. That is, to promote responsible innovation and creative 
solutions to combat money laundering and terrorist financing.
    Innovation in financial services can be a great thing when it 
provides customers greater access to an array of financial services and 
at faster speeds than ever before. However, as industry evolves and 
adopts these new technologies, we also must be cognizant that financial 
crime evolves right along with it, or indeed sometimes because of it, 
creating opportunities for criminals and bad actors, including 
terrorists and rogue states. Our role at FinCEN is to protect and 
secure our financial system from those who seek to misuse important 
technological advancements for nefarious purposes--harming victims 
while undermining trust in our financial system upon which innovation 
and our country prosper.
    In recent years, financial institutions have become more proactive 
in their AML/CFT approach, in some cases building sophisticated 
internal financial intelligence units devoted to identifying strategic 
and cross-cutting financial threats. Financial institutions have been 
improving their ability to identify customers and monitor transactions 
by experimenting with new technologies that rely on artificial 
intelligence and machine learning. Many institutions are also working 
closer together to share information to get a more accurate picture of 
risks and illicit activity. We encourage these innovations and are open 
to discussing any ideas financial institutions may have to improve AML/
CFT compliance.
    Within Government, we are also exploring new and better ways to 
collect and use data. We are exploring more powerful and innovative 
tools to analyze the reporting that we collect to be more proactive and 
effective in our approach to keeping our Nation strong, our financial 
system prosperous and secure, and communities and families safe from 
harm. We are continuously developing our technological capabilities and 
expertise to remain in step with the evolution of industry as well as 
the threat that persistently seek to take advantage of new 
vulnerabilities. We will be just as persistent. We are working hard on 
the dynamic infrastructure across analytic, operational, policy, and 
legal areas to be as agile and forward-looking as the world in which we 
operate and the financial system that is our mission to protect and 
advance.
    Our collective innovative approaches and use of technology to 
derive higher quality information to address priority threats advances 
the underlying purpose of the BSA. I am committed to a long-term and 
collaborative approach with all our partners in this regard; we are 
much more effective when we work together. In this time of change, 
working closely with financial institutions and others in fostering 
innovation and leveraging technology is a priority. We are in close 
contact with all of our regulatory, law enforcement, and industry 
partners regarding emerging technology use cases in the financial 
industry. In fact, we have an innovation working group as part of the 
BSAAG that includes all our relevant stakeholders and where we can 
discuss these issues in depth.
    We want to support innovation that advances the U.S. financial 
system. Therefore, that means regular engagement with industry on 
developments they are working on so that we can assess and address 
potential threats and gaps. We are in constant conversation with our 
regulatory partners on what they are seeing and who among us is best 
placed to cover emerging threats or gaps, including any guidance or 
regulatory changes that we need to work on to ensure that industry is 
developing advancements that minimize vulnerabilities.
Public-Private Information Sharing
    This leads me to my final priority in this space--effective 
information sharing. Collaboration between the Government and the 
private sector, including through better communication of risks, to 
further the objectives of the BSA. Financial institutions are often the 
first to detect and block illicit financing streams, combat financial 
crimes, and manage risk. Enhancing public-private partnerships that 
reveal and mitigate vulnerabilities is one of our top priorities. To 
make these partnerships work, we are arming the private sector with 
information that enhances their ability to identify and report 
suspicious activity. One way we accomplish this is through FinCEN 
Exchange. FinCEN Exchange brings financial institutions, FinCEN, and 
law enforcement together to facilitate greater information sharing 
between the public and private sectors.
    FinCEN collaborates closely with law enforcement and uses a number 
of mechanisms to provide feedback to financial institutions. Feedback 
is an important component of enhancing information sharing. We interact 
daily with our law enforcement counterparts, and FinCEN hosts liaisons 
from 10 different law enforcement agencies to support our common 
missions. FinCEN holds regular meetings among these law enforcement 
liaisons to discuss mutual areas of concern and make sure that the BSA 
data is available to support their investigations. In addition to 
ensuring that BSA data is properly used, disseminated, and kept secure, 
these liaisons are a key conduit for FinCEN's routine collaboration 
with their parent agencies on a wide range of overlapping issues 
related to the administration of the BSA and combating illicit finance.
    FinCEN has a number of other mechanisms to facilitate law 
enforcement input and feedback to financial institutions:

    Bank Secrecy Act Advisory Group (BSAAG). The BSAAG is a key forum 
for law enforcement, regulators, and representatives from financial 
institutions to engage directly, and to exchange information and 
provide feedback in a dynamic environment. In addition to plenary 
meetings, representatives from law enforcement, regulators, and 
industry participate in the BSAAG working groups focused on discrete 
areas of concern and interest related to the BSA.
    FinCEN Director's Law Enforcement Awards Program. In this program, 
FinCEN identifies investigations where BSA data has played a 
significant role in the success of a case to highlight the value of BSA 
data to the financial community.
    Section 314 Program. FinCEN's 314 Program Office provides ongoing 
statistical feedback received on the utility of the 314(a) Program and 
also develops case descriptions or studies of instances in which the 
use of 314(a) by law enforcement has been particularly valuable to 
significant investigations. To date, 26 case studies have been made 
available to the financial institutions via FinCEN's Secure Information 
Sharing System.
    FinCEN Advisories. FinCEN solicits feedback on emerging trends in 
financial crime typologies and related red flags from U.S. law 
enforcement and incorporates it into FinCEN Advisories that are 
disseminated to financial institutions.
    FinCEN Exchange: The Exchange is a public-private information-
sharing program that brings financial institutions, FinCEN, and law 
enforcement together to facilitate greater information sharing between 
the public and private sectors. In close coordination with law 
enforcement, it provides information to support specific matters 
through Section 314(a) of the USA PATRIOT Act and other authorities in 
order to provide financial institutions with broader typologies to help 
them identify illicit activity. These types of exchanges enable the 
private sector to better identify risks and provide FinCEN and law 
enforcement with critical information to disrupt money laundering and 
other financial crimes.
    FinCEN will continue to develop new ways to provide feedback to 
financial institutions on the value and benefit of their reporting. We 
want financial institutions to focus on developing information that 
will be highly valuable to Government. To be fair, financial 
institutions don't always know what we need. We have to tell them, and 
we have to tell them what we need in a way that allows financial 
institutions to re-prioritize resources in the most effective manner. I 
welcome further dialogue with the Committee, law enforcement, industry, 
and any other stakeholders on this subject.
Conclusion
    I would like to thank the Committee for its efforts on this 
important matter. Combating money laundering and illicit finance 
threats secures our financial system, keeps our Nation safe and 
prosperous, and protects our communities and families from harm. 
Working together to improve our AML/CFT regime is vitally important. I 
look forward to your questions.
                                 ______
                                 
              PREPARED STATEMENT OF GROVETTA N. GARDINEER
Senior Deputy Comptroller, Compliance and Community Affairs, Office of 
                   the Comptroller of the Currency *
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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.)
---------------------------------------------------------------------------
    For banks, BSA compliance requires analyzing large volumes of 
transactions to identify features that are suspicious, in the context 
of criminal and possibly terrorist elements that are dedicated to, and 
expert in, concealing the true nature of the transactions they 
undertake. As banks' BSA compliance programs have advanced to address 
these requirements, so has the sophistication and determination of 
money launderers, terrorist financiers, and other criminals in finding 
other ways to gain access to our institutions. Risks are constantly 
evolving, as criminal elements alter their tactics to avoid detection. 
As part of the supervision process, OCC examiners analyze BSA data 
trends, including currency transaction reports (CTRs) and suspicious 
activity reports (SARs), to aid in identifying areas of potential risk 
that may require supervisory attention. In cases where examiners 
identify areas of concern, deficiencies, or violations, the examination 
scope typically includes performing transaction testing in targeted 
areas to determine the scope of the potential problem and requirements 
for corrective action.
    One tool that the OCC has developed to help assess BSA/AML and OFAC 
risk in community banks is the Money Laundering Risk (MLR) System, an 
annual data collection, review, and assessment process that allows the 
OCC to identify potentially higher-risk areas within the community bank 
population. The MLR data collection process identifies indicators of 
BSA/AML and OFAC risk at an institutional level by identifying the 
products and services offered by these institutions, as well as the 
customers and geographies they serve. Examiners utilize this 
information regarding a bank's overall risk activities to appropriately 
scope and plan examinations. This approach not only allows the OCC to 
focus its resources, but also affords the agency flexibility to shift 
examination emphasis in response to the ever-changing money laundering 
typologies and criminal schemes that are present in the environments in 
which our banks operate. The MLR System also gives the agency a 
horizontal view of the quantity of BSA/AML risk, and trends in that 
risk, across the OCC's portfolio of community banks.
OCC's Reform Initiatives
    It is critical that the nearly 50-year-old BSA/AML regime be 
updated and enhanced to address today's threats and better utilize the 
capabilities of modern technology in protecting the financial system 
from illicit activity. Therefore, the OCC in 2018 has taken a 
leadership role in coordinating discussions with the Federal Deposit 
Insurance Corporation (FDIC), Board of Governors of the Federal Reserve 
System (FRB), National Credit Union Administration (NCUA), Treasury, 
and FinCEN (collectively, the ``agencies'') to identify and implement 
ways to improve the efficiency and effectiveness of BSA/AML 
regulations, supervision, and examinations, while continuing to meet 
the requirements of the statute and regulations, support law 
enforcement, and reduce BSA/AML compliance burden.
    The agencies have taken a number of actions to further these 
objectives. For example, the agencies established a working group 
earlier this year, which currently is focused on a number of work 
streams designed to: promote innovative and proactive approaches to 
identify, detect, and report financial crime, and meet BSA/AML 
regulatory obligations; and clarify that the agencies do not have a 
zero-tolerance approach to BSA/AML supervision and enforcement but 
rather employ a risk-based approach to the examination process. The 
agencies are committed to modernizing the regulatory regime in ways 
that encourage institutions to dedicate resources to the areas of 
highest risk for illicit finance activities. The working group also 
recognizes that one important path to enhancing BSA/AML effectiveness 
is to encourage banks to develop innovative approaches to risk 
management and compliance by using new technologies and processes.
    The agencies, through the efforts of the working group, recently 
released a joint statement clarifying ways in which community banks 
with a lower BSA risk profile may be able to increase efficiency and 
reduce burden in their BSA/AML compliance programs through the sharing 
of BSA resources. The statement describes how these banks can 
effectively use collaborative arrangements to share human, technology, 
or other resources related to BSA compliance to reduce costs, increase 
operational efficiency, and leverage specialized expertise.
    Recently, the OCC, working with FinCEN and the other agencies, took 
additional action to reduce compliance burden and enhance the risk 
focus of the BSA regime. On September 28, 2018, the agencies, with the 
concurrence of FinCEN, issued an order granting an exemption from the 
requirements of the customer identification program rules (CIP) 
implementing section 326 of the PATRIOT Act for certain loans.\2\ The 
affected loans are those extended by banks and their subsidiaries to 
commercial customers to facilitate purchases of property and casualty 
insurance policies. These are generally referred to as insurance 
premium finance lending or premium finance loans. The agencies 
determined, and FinCEN concurred, that providing this exemptive relief 
is consistent with the purposes of the BSA and safe and sound banking.
---------------------------------------------------------------------------
    \2\ OCC Bulletin 2018-35, ``Order Granting Exemption from Customer 
Identification Program Requirements for Premium Finance Lending.'' 
September 28, 2018 (https://occ.gov/news-issuances/bulletins/2018/
bulletin-2018-35.html).
---------------------------------------------------------------------------
    The OCC also is engaged with other members of the Federal Financial 
Institutions Examination Council (FFIEC) and FinCEN to revise the 
FFIEC's BSA/AML Examination Manual. We expect that these revisions will 
further define the FFIEC members' application of their risk-based 
approach to supervision. Such additional clarity will support resource 
management efforts so banks can better meet their BSA compliance 
obligations.
OCC Supervisory Improvements
SAR and CTR Filings
    The requirement for banks to identify and report suspicious 
financial transactions is an important part of the BSA's regime for 
protecting our financial system. SAR filings provide law enforcement 
access to information needed to initiate and conduct investigations of 
possible illicit finance transactions. There are literally millions of 
SARs in the centralized database maintained by FinCEN, and the vast 
majority have been filed by OCC-supervised banks. The massive number of 
filings represents a significant workload for the industry, and it is 
important that the significant human, financial, and compliance 
resources used to file SARs are focused on providing information that 
is truly useful to law enforcement.
    The OCC is engaged with banks to evaluate the effectiveness of 
their SAR systems to ensure that the information being reported is 
timely and compliant. To better clarify the instances when a SAR is 
required to be filed, and to maximize the value of information 
contained within each SAR, the OCC supports additional collaboration 
among banks, examiners, law enforcement and other stakeholders to 
consider how the types and content of SAR filings can be improved. For 
example, the OCC supports setting up communication channels through 
which law enforcement can clarify the types of SAR data that is most 
and least useful in criminal investigations so that bank and examiner 
resources can be better targeted and ultimately used more effectively. 
The OCC is committed to working with the key stakeholders on this 
effort to appropriately target activities and transactions that warrant 
the scrutiny of law enforcement.
    Likewise, with respect to CTR reporting, the OCC is working with 
FinCEN and the other agencies to identify ways that the process can be 
made more efficient, and to clarify the agencies' approach to 
examinations for compliance with the CTR requirements. In this regard, 
the OCC intends to explore a range of CTR requirements with the other 
agencies, FinCEN and law enforcement including the appropriateness of 
the current CTR threshold, opportunities to tailor the content of the 
CTRs, and efficiencies for banks filing relatively few CTRs each month 
to file their CTRs on a quarterly basis. Our objective would be to 
identify ways to provide burden relief for institutions with lower risk 
profiles while balancing law enforcement's need for information. If 
agreement is reached on recommendations in these areas that require 
legislative action, we will provide them to Congress.
Technological Innovation
    Technology generally has been used across the financial sector to 
increase customer convenience, access to financial products, and 
operational efficiency.
    Likewise, there is significant potential for technological 
innovation to transform BSA/AML compliance. In addition to assisting 
banks' efforts to control their costs, innovation is increasingly 
necessary to counter constantly changing threats, as illicit financing 
methods evolve to exploit vulnerabilities in existing systems.
    New technologies such as artificial intelligence (AI) and machine 
learning offer banks opportunities to better manage their costs and 
increase the ability of their monitoring systems to identify suspicious 
activity, while reducing the number of false positive alerts and 
investigations. Technology can provide significant advancements for the 
future of BSA/AML compliance and some banks have already begun 
researching available technology and applying it to their programs. For 
example, some banks have started using AI to more accurately identify 
suspicious activity and generate information that will assist law 
enforcement in more accurately detecting transaction patterns and 
threats. At the same time, other banks have explored ways to limit 
compliance costs including by contracting with third parties with 
specialized technology and knowledge to provide them with BSA/AML 
services.
    The OCC encourages banks to explore technology that allows them to 
maintain their risk focus and gain process and system efficiencies. To 
this end, the agency is actively engaged in discussions with banks and 
other stakeholders regarding ways to explore enhanced technology usage 
while maintaining the current strong protections for the financial 
system.
Legislative Recommendations
    The OCC has identified areas in which legislative changes could 
increase the impact and efficiency of BSA/AML regulation and compliance 
programs. The OCC generally supports legislative changes that would 
reduce unnecessary industry burden and compliance costs, and allow for 
more effective information sharing related to
illicit finance. We believe the changes described below could reduce 
compliance
burden while still ensuring that regulators and law enforcement have 
the information they need to address illicit finance.
Review of BSA/AML Regulations
    In 2016, the Federal banking agencies initiated a comprehensive 
review of our regulations pursuant to the Economic Growth and 
Regulatory Paperwork Reduction Act (EGRPRA). During the process, BSA/
AML regulations were the source of significant public comment. However, 
BSA/AML regulations are not subject to the EGRPRA process. As noted in 
the FFIEC's Joint Report to Congress on EGRPRA in March 2017, BSA/AML 
was one of the three most discussed issues during the agencies' review 
of regulations affecting the entities that we regulate. This is 
consistent with the significant number of comments the agencies 
received during the previous EGRPRA review in 2007, an indicator that 
BSA/AML is regularly a top priority for stakeholders. As the agency 
with rule-writing authority for most of the current BSA/AML regulatory 
regime, FinCEN could benefit from recommendations for regulatory 
improvement and to respond to public concerns about BSA/AML 
regulations.
    Our experience has demonstrated that there is no shortage of ideas 
to reform the BSA and reduce the burden of BSA/AML regulations. 
Therefore, Congress could consider legislation requiring a regular 
review of the BSA/AML regulations, similar to the EGRPRA process, to 
identify those regulations that may be outdated, redundant or 
unnecessarily burdensome. Congress could direct this review to include: 
(1) consultation with the Federal banking agencies, law enforcement 
agencies, and other stakeholders, as appropriate; (2) solicitation of 
public comment, including specific comment on technology with the 
potential to reduce costs and burdens on financial institutions; and 
(3) submission of a report to Congress on the results of its review.
Technical Correction
    Additionally, Congress may want to consider providing a technical 
clarification to the BSA's existing safe harbor to correct uncertainty 
caused by several court decisions. Currently, the BSA provides 
protection from civil liability for SARs made to appropriate 
authorities, including supporting documentation, regardless of whether 
such reports are filed pursuant to the SAR instructions. Because the 
SAR safe harbor does not address intent and some courts have imposed a 
``good faith'' requirement, there is considerable uncertainty among 
institutions about the potential liability for filing SARs, if the 
suspicions underlying those SARs are not later fully investigated or 
proven through a criminal proceeding. As a result, many institutions 
are reluctant to file SARs voluntarily and even are concerned about 
liability for SARs filed pursuant to BSA requirements, which makes an 
already burdensome process more complicated. Legislation could clarify 
that an institution may file a SAR without running the risk that it 
will be exposed to civil litigation for simply complying with Federal 
law.
Information Sharing
    The OCC recognizes the importance of ensuring that the agencies' 
BSA/AML enforcement authorities remain current and relevant. We think 
there are opportunities, consistent with appropriate legal 
requirements, to modify the existing BSA safe harbor to encourage 
institutions to share information without incurring liability. The OCC 
would support legislation to expand the information sharing safe harbor 
in Section 314(b) of the USA PATRIOT Act beyond money laundering and 
terrorist financing to include mortgage fraud, cyber fraud and other 
financial crimes, and to eliminate or modify the notice requirement to 
FinCEN, which may limit the ability of financial institutions to share 
information.
Conclusion
    Comptroller Otting has placed a high priority on reforming and 
modernizing the BSA/AML regime. Aligning our supervisory policy more 
closely with the risks that are present in OCC-supervised banks, while 
at the same time supporting efforts to better rationalize and manage 
compliance costs and target resources to the areas of highest risk are 
key priorities that we balance with our commitment to preserving the 
integrity of the national financial system. Working with the other 
Federal banking agencies, FinCEN, law enforcement, the financial 
industry, and Congress to maintain a regulatory environment in which 
OCC-supervised banks successfully combat illicit finance is key to 
achieving our mission. We believe that the actions currently underway, 
and proposed today, will further this goal.
                                 ______
                                 
               PREPARED STATEMENT OF STEVEN M. D'ANTUONO
   Section Chief, Criminal Investigative Division, Federal Bureau of 
                  Investigation, Department of Justice
                           November 29, 2018
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
I am pleased to appear before you today to discuss our Nation's anti-
money laundering (AML) laws. This hearing is an important step forward 
toward strengthening these laws, and the FBI appreciates being 
consulted on these incredibly important matters.
I. Background
    The U.N. Office on Drugs and Crimes estimates that annual illicit 
proceeds total more than $2 trillion globally, and proceeds of crime 
generated in the United States were estimated to total approximately 
$300 billion in 2010, or about 2 percent of the overall U.S. economy at 
the time. However, for an illegal enterprise to succeed, criminals must 
be able to hide, move, and access the proceeds of their crimes. Without 
usable profits, the criminal activity cannot continue. This is why 
criminals resort to money laundering.
    Money laundering involves masking the source of criminally derived 
proceeds so that the proceeds appear legitimate, or masking the source 
of moneys used to promote illegal conduct. Money laundering generally 
involves three steps: placing illicit proceeds into the financial 
system; layering, or the separation of the criminal proceeds from their 
origin; and integration, or the use of apparently legitimate 
transactions to disguise the illicit proceeds. Once criminal funds have 
entered the financial system, the layering and integration phases make 
it very difficult to track and trace the money.
II. Money Laundering Threats
    Criminals employ a host of methods to launder the proceeds of their 
crimes. Those methods range from well-established techniques for 
integrating dirty money into the financial system, such as the use of 
cash, to more modern innovations that make use of emerging technologies 
to exploit vulnerabilities. Some of the more well-known methods of 
money laundering are described below.
    Illicit Cash. Cash transactions are particularly vulnerable to 
money laundering. Cash is anonymous, fungible, and portable; it bears 
no record of its source, owner, or legitimacy; it is used and held 
around the world; and is difficult to trace once spent. Additionally, 
despite its bulk, cash can be easily concealed and transported in large 
quantities in vehicles, commercial shipments, aircrafts, boats, 
luggage, or packages; in special compartments hidden inside clothing; 
or in packages wrapped to look like gifts. Criminals regularly attempt 
to smuggle bulk cash across the United States' borders using these and 
other methods.
    Cash-intensive sources of illicit income include human smuggling, 
bribery, contraband smuggling, extortion, fraud, illegal gambling, 
kidnapping, and prostitution. Drug trafficking, however, is probably 
the most significant single source of illicit cash. Customers typically 
use cash to purchase drugs from street-level drug dealers, who in turn 
use cash to purchase their drug supply from mid-level distributors. 
Mid-level distributors purchase drugs from wholesalers using cash, and 
wholesalers often make payment to their suppliers in cash. Mexican drug 
trafficking organizations responsible for much of the United States' 
drug supply commonly rely on multiple money laundering methods, 
including bulk cash smuggling, to move narcotics proceeds across the 
U.S.-Mexico border into Mexico.
    Trade-Based Money Laundering (``TBML''). Drug trafficking 
organizations also use money brokers to facilitate TBML. In complex 
TBML schemes, criminals move merchandise, falsify its value, and 
misrepresent trade-related financial transactions, often with the 
assistance of complicit merchants, in an effort to simultaneously 
disguise the origin of illicit proceeds and integrate them into the 
market. Once criminals exchange illicit cash for trade goods, it is 
difficult for law enforcement to trace the source of the illicit funds.
    This particular method of money laundering also harms legitimate 
businesses. For example, the U.S. Department of Treasury's 
(``Treasury's'') National Money Laundering Assessment (2015) notes that 
transnational criminal organizations may dump imported goods purchased 
with criminal proceeds into the market at a discount just to expedite 
the money laundering process, putting legitimate merchants at a 
competitive disadvantage. Drug trafficking organizations also use money 
brokers to facilitate TBML.
    Misuse of Banks. U.S. banks handle trillions of dollars of daily 
transaction volume. Most Americans use depository financial 
institutions--such as commercial banks, savings and loan associations, 
and credit unions--to conduct financial transactions. Those who do not 
have access to these institutions, or who choose not to use depository 
financial institutions, may conduct financial transactions using money 
services businesses (``MSBs'') such as money transmitters, check 
cashers, currency exchangers, or businesses that sell money orders, 
prepaid access devices, and traveler's checks. Some MSBs themselves may 
also engage the services of depository financial institutions to settle 
transactions. Banks may also hold accounts with other banks in order to 
facilitate transactions in the country of the bank where the account is 
held. For example, some foreign banks establish correspondent 
relationships with U.S. banks to enable them to conduct business and 
provide services to their non-U.S. clients in the United States without 
the expense of establishing a presence in the United States.
    The sheer volume of business that banks handle on a daily basis 
exposes them to significant money laundering risks. In fact, in most 
money laundering cases, criminals employ banks at some point to hold or 
move illicit funds.
    Because they play such a significant role in the U.S. financial 
system, banks are often the front line in AML efforts by establishing 
effective BSA programs. Effective BSA programs play a critical role in 
the fight against criminal activity. For example, effective BSA 
programs help financial institutions detect efforts to launder illicit 
proceeds, which can, in turn, prevent those funds from ever entering 
the U.S. financial system. Accurate and timely suspicious activity 
reporting can be a critical source of information for law enforcement 
investigations. Further, domestic collection of BSA information 
improves the United States' ability to respond to similar requests from 
foreign law enforcement for investigative assistance, thus increasing 
our ability to fight financial crime on the global stage.
    Criminals frequently seek to thwart or evade these requirements. 
For example, criminals may structure cash deposits to avoid threshold 
reporting requirements, or seek out complicit merchants who will accept 
their illicit proceeds without reporting the transactions. Criminals 
may also misuse correspondent banking services to further their illicit 
purposes. Because U.S. banks may not have a relationship with the 
originator of a payment when they receive funds from a correspondent 
bank, banks may face additional challenges in evaluating the money 
laundering risks associated with those transactions. When criminals 
successfully deploy these techniques, they are one step closer to 
``cleaning'' their illicit proceeds--with significant consequences for 
our financial system.
    Obscured Beneficial Ownership. Increasingly, sophisticated 
criminals seek access to the U.S. financial system by masking the 
nature, purpose, or ownership of their accounts and the sources of 
their income through the use of front companies, shell companies, or 
nominee accounts with unknown beneficial owners. Front companies 
typically combine illicit proceeds with lawful proceeds from legitimate 
business operations, obscuring the source, ownership, and control of 
the illegal funds. Shell companies typically have no physical 
operations or assets, and may be used only to hold property rights or 
financial assets. Nominee-held ``funnel accounts'' may be used to make 
structured deposits in multiple geographic locations and corresponding 
structured withdrawals in other locations. All of these methods obscure 
the true owners and sources of funds.
    Misuse of MSBs. While many MSBs engage in legitimate business 
activities, they, too, can serve as a means for criminals to move 
money. Although MSBs have customer verification requirements above 
certain thresholds and other BSA obligations, individuals who use MSBs 
may do so in a one-off fashion, without establishing an ongoing 
relationship that banks maintain with their customers, which can make 
it more difficult to identify money laundering. While MSBs are subject 
to BSA compliance requirements, some MSBs may fail to register with the 
proper authorities and thus they are acting as unlicensed MSBs, making 
it more likely that AML violations at those MSBs go undetected.
    Prepaid Access Cards. Prepaid access cards, also known as stored 
value cards, may be used as an alternative to cash. Prepaid access 
cards provide access to funds that have been paid in advance and can be 
retrieved or transferred through an electronic device such as a card, 
code, serial number, mobile identification number, or personal 
identification number. They function much like traditional debit or 
credit cards, and can provide portable, and potentially anonymous ways 
to access funds.
    Prepaid access cards are used by criminals in a variety of ways. 
Criminals can direct Federal or State tax authorities to issue 
fraudulent tax refunds on prepaid debit cards. Drug traffickers have 
been known to convert drug cash to prepaid debit cards, which they then 
use to purchase goods and services or send to drug suppliers, who use 
the cards to withdraw money from a local ATM.
    Virtual Currencies. Virtual currencies offer yet another 
alternative to cash. Criminals use virtual currencies to conduct 
illicit transactions because these
currencies offer potential anonymity. This is because virtual currency 
transactions are not necessarily tied to a real world identity and 
enable criminals to quickly move criminal proceeds among countries.
    Some internet sites using virtual currencies are promoted 
specifically for criminal use. For example, until the Government shut 
it down in 2013, Liberty Reserve, which billed itself as the internet's 
largest payment processor and money transfer system and allowed users 
around the world to send and receive payments using virtual currencies, 
was used by online criminals to launder the proceeds of Ponzi schemes, 
credit card trafficking, stolen identity information, and computer 
hacking schemes. Liberty Reserve's founder, Arthur Budovsky, built and 
operated Liberty Reserve expressly to facilitate large-scale money 
laundering for criminals around the globe by providing them near-
anonymity and untraceable financial transactions. In 2016, Budovsky 
pleaded guilty to money laundering charges and was sentenced to 20 
years in prison.
    Purchase of Real Estate and Other Assets. Criminals also convert 
their illicit proceeds into clean funds by buying real estate and other 
assets. Foreign government officials who steal from their own people, 
extort businesses, or seek and accept bribery payments, in particular, 
have also used this method to funnel their illicit gains into the U.S. 
financial system. Recent investigations and prosecutions have revealed 
that corrupt foreign officials have purchased various U.S. assets to 
launder the proceeds of their corruption, from luxury real estate and 
hotels to private jets, artwork, and motion picture companies. The flow 
of kleptocracy proceeds into the U.S. financial system distorts our 
markets and threatens the transparency and integrity of our financial 
system. For example, when criminals use illicit proceeds to buy up real 
estate, legitimate purchasers--businesses and individuals--are 
foreclosed from buying or investing in those properties. Moreover, 
kleptocracy erodes trust in Government and private institutions, 
undermines confidence in the fairness of free and open markets, and 
breeds contempt for the rule of law, which threatens our national 
security.
III. FBI Efforts to Counter Money Laundering Threats
    To effectively disrupt the evolving threat posed by money 
laundering, the FBI employs a variety of tools and collaborates with 
its domestic and international law enforcement partners. Included below 
are just some examples of these tools and partnerships.
    Working Groups and Task Forces. The FBI's AML efforts are housed in 
the Criminal Investigative Division's Money Laundering, Forfeiture and 
Bank Fraud Unit (``MLFBU''). Whether originating within the Cyber 
Division, Counterterrorism Division, Counterintelligence Division, or 
Criminal Investigative Division, the MLFBU is responsible for 
supporting all cases with a money laundering nexus. MLFBU works to 
ensure all FBI Field Offices and Legal Attaches effectively utilize AML 
statutes and the strategic use of asset forfeiture in their 
investigations, where appropriate. These units and squads work closely 
with the Department's Money Laundering and Asset Recovery Section 
(``MLARS'') which falls under the Criminal Division. MLARS leads the 
Department's AML efforts and works with U.S. Attorneys' Offices around 
the country, other Government agencies, and domestic and international 
law enforcement colleagues to pursue complex, sensitive, multi-
district, and international money laundering and asset forfeiture 
investigations.
    Money laundering transcends borders representing a significant 
cross-programmatic threat to the national and economic security of the 
United States; therefore, the FBI has prioritized opening and working 
investigations relating to money laundering facilitation (``MLF'') and 
facilitators. The MLF threat targets professional gatekeepers/
controllers providing the laundering service for a fee. Facilitators 
move illicit funds often without concern or knowledge of the underlying 
specified unlawful activity (``SUA''). MLF may encompass complicit 
third parties who knowingly launder illicit proceeds through the U.S. 
financial system, on behalf of their clients; complicit financial 
institutions (which can include banks, broker dealers, hedge funds, and 
MSBs); or TBML operations manipulating value systems to move value. 
Individuals and groups engaged in this activity employ typologies such 
as real estate investing, establishing money mule networks, exploiting 
financial institutions, stock or commodities manipulation, TBML, shell, 
shelf and front company formations, as well as the exploitation of 
virtual currency and emerging payment systems.
    Addressing complicit financial institutions (banks, broker dealers, 
hedge funds, and MSBs), professional money launderers and gatekeepers 
(e.g., accountants, attorneys, and brokers), TBML networks, unlicensed 
MSBs, and emerging payment systems has a larger disruption and 
dismantlement effect on criminal activities than traditionally only 
addressing the underlying SUA.
    The FBI's strategy aligns with MLARS' recent focus on money 
laundering facilitators. In addition, large districts, such as Southern 
District of New York (``SDNY''), also have dedicated prosecutors to 
Money Laundering Units. MLARS and SDNY have been prosecuting money 
laundering as the primary criminal violation.
    In addition--and as part of its efforts to fight global corruption 
and money laundering on the international stage--the FBI prioritizes 
the Department's Kleptocracy Asset Recovery Initiative. Large-scale 
corruption by foreign government officials who steal from their people 
and seek to invest those funds in the U.S. financial system erodes 
citizens' trust in Government and private institutions alike, 
undermines confidence in the fairness of free and open markets, and 
breeds contempt for the rule of law. Accordingly, this initiative seeks 
to protect the U.S. financial system from the harmful effects of large 
flows of corruption proceeds, and, whenever possible, to return stolen 
or illicit funds for the benefit of the citizens of the affected 
countries.
    The FBI actively participates in several interagency task forces as 
well. We are a member of the Organized Crime Drug Enforcement Task 
Forces (``OCDETF''), which draws upon the resources of Federal, State, 
local, and tribal law enforcement partners to identify, target, 
disrupt, and dismantle drug trafficking and other transnational 
criminal organizations that often seek to launder illicit drug proceeds 
through the U.S. financial system. The FBI is a vital member of OCDETF 
Strike and Task Forces and the OCDETF strategy that combines the 
resources and expertise of its 10 Federal agency members--the Drug 
Enforcement Administration (``DEA''); the FBI; the Bureau of Alcohol, 
Tobacco, Firearms and Explosives; the Department's Criminal Division; 
The Department of Labor Inspector General; the U.S. Marshals Service; 
the Internal Revenue Service, Criminal Investigation Division 
(``IRS''); the Homeland Security Investigations, Immigration and 
Customs Enforcement (``HSI''); U.S. Secret Service; the U.S. Coast 
Guard; and U.S. Postal Inspection Service--in cooperation with MLARS, 
the 93 U.S. Attorneys' Offices, and State and local law enforcement. 
The FBI has been a key leader within the OCDETF Fusion Center to 
leverage Bank Secrecy Act data to aid money laundering investigations.
    The FBI is also part of the Treasury-led U.S. delegation to the 
Financial Action Task Force (``FATF''), the inter-governmental body 
responsible for developing and promoting policies to protect the global 
financial system against money laundering and other threats. The United 
States currently holds the FATF presidency and is one of 34 current 
members of FATF representing the largest economies of the world, as 
well as associate members and regional organizations. The FATF monitors 
the progress of its members in implementing anti-money laundering and 
counter-terrorist financing measures through a comprehensive assessment 
of a member-nation's anti-money laundering and counter-terrorist 
financing regime.
    Internationally, the FBI participates in the Five Eyes Law 
Enforcement Group's Money Laundering Working Group (``FELEG MLWG''). 
The mission of the group is to collaborate, inspire and innovate to 
prevent, disrupt, and dismantle the money laundering activities and 
capabilities of international crime groups and networks impacting 
adversely on FELEG jurisdictions. The FELEG MLWG is comprised of 
members from the Australian Federal Police, Australian Criminal 
Intelligence Commission, New Zealand Police, the Royal Canadian Mounted 
Police, the United Kingdom's National Crime Agency, the DEA, the IRS, 
HSI, and the FBI.
    Use of BSA Filings. Financial intelligence generated by BSA 
reporting is of critical importance to law enforcement when 
investigating and prosecuting both criminal activities and matters of 
national security. The value of BSA intelligence to law enforcement 
cannot be over-stated as one BSA filing could be the key difference in 
successfully disrupting and dismantling a criminal or national security 
threat to the United States and our citizens. Before elaborating, it is 
important to remember that BSA reporting is subject to strict 
confidentiality requirements, in part to encourage financial 
institutions to report information as openly and comprehensively as 
possible. BSA information is to be used by law enforcement for lead 
purposes only. FinCEN, which maintains and oversees BSA reporting, has 
also implemented strict controls governing access to such information 
to ensure it is not misused and remains confidential. With that said, 
information from Suspicious Activity Reports (``SARs''), Currency 
Transaction Reports (``CTRs''), Form 8300, Reports of International 
Transportation of Currency or Monetary Instruments (``CMIRs''), and 
other reports is used on both a proactive and reactive basis to 
investigate specific individuals and entities and to identify leads, 
connect the dots, and otherwise advance investigations.
    Information from SARs, CTRs, CMIRs, and other BSA reporting can 
also help law enforcement agencies see the broader picture of a 
criminal network by tracing the money to those generating the illicit 
proceeds and those that redistribute them. One example of how the FBI 
uses the critical information in SARs is to assist with investigations 
involving foreign financial institutions that maintain correspondent
accounts with U.S. banks in order to transact in U.S. dollars. SARs 
involving correspondent bank transactions are of extreme value as most 
U.S. correspondent banks monitor transactions across their 
correspondent banks' customers and report those transactions in depth 
in SAR narratives. In many complex international transactions, one to 
four correspondent accounts are used, which makes tracing difficult. 
However, current SAR reporting can enable law enforcement to comprehend 
and trace financial trails through numerous correspondent accounts.
    More generally, the FBI conducts data analysis of BSA filings to 
support existing cases and lay the groundwork for new ones. For its 
existing cases, the FBI has created a BSA Alert System that searches 
subjects' names, dates of birth, social security numbers, telephone 
numbers, email addresses, and other identifying information across BSA 
filings; the results of this are automatically emailed to case agents. 
These searches hit on an average of 4,000 BSA filings and produce an 
average of 2,000 alerts every month. In August 2018, for example, the 
FBI disseminated 2,356 alerts based on 7,747 BSA records. From January 
2017 to June 2018, BSA reporting was directly linked to the main 
subjects of approximately 25 percent of pending FBI investigations (up 
from 8.9 percent in 2012).
    Additionally, all BSA records securely reside on the FBI's 
enterprise data warehouse and can be queried and accessed by 
approximately 34,000 FBI employees based on their need to know and job 
responsibilities. Individual agents and analysts can accordingly 
supplement ongoing investigations with financial intelligence from BSA 
reports on a real-time basis.
    The FBI also proactively uses data analysis to identify new cases. 
For example, using a process known as Targeted Suspicious Activity 
Reports (``TSARs''), FBI analysts run against SAR filings a series of 
search terms and criteria related to money laundering, terrorist 
financing, human trafficking, fraud, corruption, transnational 
organized crime, and other schemes. The persons reported on these SARs 
are automatically searched against FBI case files and watchlist data. 
The results of this TSAR process are incorporated into reports 
disseminated to the appropriate field offices. FBI analysts may also 
combine these reports with additional information to create targeting 
packages, which are distributed to specific field offices to initiate 
new investigations. Moreover, Department attorneys and investigators 
participate in SAR review teams covering the 94 U.S. Federal judicial 
districts. These dedicated teams review and analyze individual SAR 
filings to determine whether to open new cases.
    Outreach to Financial Institutions. Since the FBI relies heavily on 
BSA data, we work closely with financial institutions to ensure open 
lines of communication. We routinely sit down with banks, both large 
and small, to discuss what SARs were helpful to our operations and what 
type of data is useful for future filings. By providing this feedback, 
the quality of SARs continually improves which means the FBI has better 
data to support our investigations. The FBI has also begun conducting 
outreach to banks to share declassified information, to include certain 
selectors, in an effort to marry their SARs with existing case 
information. This allows the banks to submit a proactive filing based 
on articulable intelligence, not just typologies.
IV. Current Challenges to Law Enforcement Activities
    Though the FBI has many successes investigating money laundering 
cases, we still face significant challenges in bringing to justice 
those who threaten our financial system and national security by 
laundering the proceeds of their crimes.
    Opaque Corporate Structures. The pervasive use of front companies, 
shell companies, nominees, or other means to conceal the true 
beneficial owners of assets is one of the greatest loopholes in this 
country's AML regime. Under our existing regime, corporate structures 
are formed pursuant to State-level registration requirements, and while 
States require varying levels of information on the officers, 
directors, and managers, none requires information regarding the 
identity of individuals who ultimately own or control legal entities--
also known as beneficial ownership--upon formation of these entities.
    The FATF highlighted this issue as one of the most critical gaps in 
the United States' compliance with FATF standards in an evaluation 
conducted 2 years ago. FATF noted that the lack of beneficial ownership 
information can significantly slow investigations because determining 
the true ownership of bank accounts and other assets often requires 
that law enforcement undertake more time-consuming and resource-
intensive process. For example, investigators may need grand jury 
subpoenas, witness interviews, or foreign legal assistance to unveil 
the true ownership structure of shell or front companies associated 
with serious criminal conduct, rather than having reliable beneficial 
ownership information readily available as a starting point.
    Criminals exploit these gaps for their illicit purposes, often 
seeking to mask the nature, purpose, or ownership of their accounts and 
the sources of their income through the use of front companies, shell 
companies, or nominee accounts. Without truthful information about who 
owns and controls an account, banks may not be able to accurately 
analyze account activity and identify legitimate (or illegitimate) 
transactions.
    The Treasury Department's recent Customer Due Diligence Final Rule 
(CDD rule) is a step toward a system that makes it difficult for 
sophisticated criminals to circumvent the law through use of opaque 
corporate structures. As of May 2018, the CDD rule requires that 
financial institutions collect and verify the personal information of 
the beneficial owners who own, control, and profit from companies when 
those companies open accounts. The collection of beneficial ownership 
information will generate better law enforcement leads and speed up 
investigations by improving financial institutions' ability to monitor 
and report suspicious activity, and will also enable the United States 
to better respond to foreign authorities' requests for assistance in 
the global fight against organized crime and terrorism.
    The CDD rule is a remedial step to degrade illicit actors' use of 
opaque shell structures to conceal movement of illicit funds. The rule 
will improve law enforcement's ability to pierce corporate veils and 
unmask the underlying individuals and entities that are initiating and 
benefiting from transactions. Important as it is, however, the CDD rule 
is only one step toward greater transparency. As noted, the lack of an 
obligation to collect beneficial ownership information at the time of 
company formation is a significant gap. More effective legal frameworks 
are needed to ensure that criminals cannot hide behind nominees, shell 
corporations, and other legal structures to frustrate law enforcement, 
including stronger laws that target individuals who seek to mask the 
ownership of accounts and sources of funds.
    A recent case involving Teodoro Nguema Obiang Mangue, the Second 
Vice President of Equatorial Guinea, highlights the challenge of 
successfully prosecuting money laundering schemes when parties have 
concealed the true ownership of bank accounts and assets. In that case, 
Nguema Obiang reported an official government salary of less than 
$100,000 a year during his 16 years in public office. Nguema Obiang, 
however, used his position and influence to amass more than $300 
million in assets through fraud and corruption, money which he used to 
buy luxury real estate and vehicles, among other things. Nguema Obiang 
then orchestrated a scheme to fraudulently open and use bank accounts 
at financial institutions in California to funnel millions of dollars 
into the United States. Because U.S. banks were unwilling to deal with 
Nguema Obiang out of concerns that his funds derived from corruption, 
Nguema Obiang used nominees to create companies that opened accounts in 
their names, thus masking his relationship to the accounts and the 
source of the funds brought into the United States. The Department 
ultimately reached a settlement of its civil forfeiture actions against 
assets owned by Nguema Obiang. However, the Department needs effective 
legal tools to directly target these types of fraudulent schemes and 
protect the integrity of the U.S. financial system from similar 
schemes.
    Evidence Collection Involving Foreign Entities. The assistance of 
our interagency and international partners is an important element of 
the Department's success in its AML efforts. Because money often moves 
across multiple countries in the global economy, U.S. law enforcement 
depends on the cooperation of foreign counterparts to aggressively 
investigate money laundering cases touching the United States. Domestic 
and international law enforcement partners must work together to obtain 
evidence and to trace, freeze, and seize assets wherever they are 
located. The ability to pursue investigative leads in transnational 
criminal investigations and terrorist financing cases using foreign 
bank records is vital to successful AML efforts on the international 
stage.
    Under the existing authority in Title 31 U.S.C.  5318(k), foreign 
banks are not required to produce records in a manner that would 
establish their authenticity and reliability for evidentiary purposes. 
The statute also does not contain any anti-tip-off language, meaning 
that banks who receive subpoenas could disclose the subpoenas to 
account holders or others, thereby compromising an ongoing 
investigation. The only sanction provided under current law is the 
closure of the correspondent account, which, in most cases, will not 
result in the production of the records, and may in fact impede law 
enforcement investigations. There is no procedure to seek to compel 
compliance with subpoenas to foreign banks, nor any explicit authority 
to impose sanctions for contempt. Finally, the current statute provides 
that no effort can be taken by the Attorney General or the Secretary of 
Treasury to close the correspondent account or a foreign bank when the 
foreign bank has brought proceedings to challenge enforcement of the 
subpoena.
    Small Dollar Transactions. The FBI is also focused on terrorists' 
and criminals' use of smaller-dollar transactions to move funds easier, 
faster, cheaper, and more frequently. Maintaining the current dollar 
threshold for BSA reporting is especially key considering the terror 
financing methods used by ISIS compared to those used by al-Qa'ida. 
Although ISIS raised significant amounts of revenue from illicit oil 
sales and extortion, many ISIS supporters and operatives send funds in 
small dollar amounts, including to recruit and support foreign 
terrorist fighters and to support external operations. Small-dollar 
transactions are is being used by homegrown violent extremists and 
international terrorists to conduct their activities, though these 
transactions are also used by individuals and organizations looking to 
launder money for personal gain. Criminals and terrorists are relying 
less on large transactions which means they aren't necessarily 
accumulating at dollar amounts previously investigated and prosecuted. 
Today's terrorists only need a couple thousand dollars to join 
terrorist networks abroad or just a few hundred dollars to conduct an 
attack here in the homeland. Furthermore, figures from FinCEN show that 
nearly 80 percent of CTR filings in 2017 were for amounts below $30,000 
and nearly 60 percent of CTR filings in 2017 were for amounts below 
$20,000. Some examples of low-dollar BSA filings that have resulted in 
law enforcement investigations and prosecutions for terrorism and other 
crimes include:

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

A.2. Several FinCEN-specific financial intelligence tools such 
as the Demand Letter, Foreign Financial Agency, 314(a), and 
Geographic Targeting Order tools are highly valuable to FinCEN, 
law enforcement partners investigating money laundering, and 
our partners in the Office of Terrorism and Financial 
Intelligence, including the Office of Foreign Assets Control, 
which focuses on sanctions. These tools allow FinCEN to 
generate targeted reporting that would otherwise be 
unavailable.
    We continue to strive to improve our communication with 
financial institutions and the public about the value of our 
AML regime. Providing feedback is essential as it helps the 
private sector focus on priorities.
    We also must make sure that financial institutions are 
devoting their resources toward high value activities and are 
encouraged to innovate with new technologies and approaches. In 
recent years, for example, financial institutions have become 
more proactive in their AML/CFT approach, in some cases 
building sophisticated internal financial intelligence units 
devoted to identifying strategic and cross-cutting financial 
threats. Financial institutions have been improving their 
ability to identify customers and monitor transactions by 
experimenting with new technologies that rely on artificial 
intelligence and machine learning.
    We encourage these innovations. These initiatives advance 
the BSA's underlying purpose.
Beneficial Ownership/Anonymous Shell Companies
Q.3.a. Let me explore with you further my question on 
beneficial ownership posed during the hearing. I've given one 
example. The Panama Papers and other similar document leaks 
have revealed myriad others involving the widespread use of 
shell corporations by wealthy bad actors seeking to not only 
evade lawful tax collection, but to facilitate all kinds of 
financial crime.
    How would you describe the urgency of the threat to the 
U.S. financial system posed by anonymous shell companies, and 
by the lack of a coherent national framework for identifying 
beneficial ownership at the point of company formation?

A.3.a. The misuse of corporate structures, such as shell 
companies, continues to be a significant problem both in the 
United States and abroad: criminals form such structures to 
hide their true identity and access the international financial 
system by setting up bank accounts in the names of such 
structures to facilitate money
laundering, evade sanctions, and commit other financial crimes. 
Thus, the lack of transparency of beneficial ownership of 
companies when they are formed and when they open accounts at 
financial institutions presents significant opportunities for 
abuse. It is critical to ascertain beneficial ownership at both 
these touchpoints in order to address this vulnerability and 
help protect the financial system from abuse. FinCEN has 
addressed the transparency at account opening through the 
recently implemented Customer Due Diligence (CDD) Rule. A 
national framework for identifying beneficial ownership at the 
point of company formation would help mitigate this threat.

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

A.3.b. FinCEN has seen shell companies used in all spheres of 
illicit activity, both domestic and international, where 
criminals seek to hide the identity of beneficial owners or the 
ultimate source and application of funds derived from or 
intended for illicit activities. The identity of a shell 
company as the originator or beneficiary of high-dollar 
financial transactions may lend legitimacy to the transactions 
since business-related activity is often considered less 
suspicious than transactions involving personal accounts or 
individual counterparties. The shell company is ultimately only 
useful to the bad actor if law enforcement cannot easily obtain 
the identity of the beneficial owner behind the shell company 
and/or the financial accounts established in the name of the 
shell company.
Shifting BSA Oversight Back to FINCEN
Q.4. I'm sure you are familiar with the Clearinghouse 
Association report earlier this year on these issues. One 
Clearinghouse recommendation is to have FINCEN's BSA oversight 
authority over large banks--delegated to Federal banking 
agencies over 20 years ago--returned to FINCEN. But many have 
noted FINCEN does not have the bandwidth to make such a radical 
change.
    Do you have a view on this recommendation? Do you know what 
this change would require of FinCEN, in terms of additional 
Federal funding and personnel? Why would we redo an oversight 
system that has been working reasonably well, when bank 
examiners already have extensive expertise and experience with 
these large entities on BSA issues, and have been doing this 
job successfully for many years?

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

A.5. The United States maintains one of the strongest and most 
robust AML regimes in the world. Although the laws and 
regulations are very effective, FinCEN continuously evaluates 
BSA regulations and authorities to ensure that the AML/CFT 
framework is as effective, efficient and not unduly burdensome 
to financial institutions as possible. We are continuously 
looking for ways to enhance the regime and encourage 
responsible innovation so that it keeps pace with the rapidly 
evolving illicit finance threats and changing world of 
financial services and technology. Among other things, we have 
begun a data driven analysis to assess how each stakeholder and 
consumer of the BSA data values and uses that data. It is 
important that any changes to the BSA and its implementing 
regulations be based on a greater understanding of the current 
value and uses of such information that is rooted in concrete 
analysis. As we identify opportunities to improve our AML/CFT 
regime, we will engage with Congress on potential solutions 
that require a statutory response.
Scope of AML Reporting
Q.6. As witnesses at prior hearings have discussed, there are 
entities and persons not currently regulated or required to 
have AML programs in place, that some argue really ought to be 
captured if the system is to be comprehensive.
    Can you give us a sense of the scope of entities and 
persons you think we ought to have in mind, beyond the banking 
sector, when contemplating an update to our current anti-money 
laundering framework and its underlying authorities?

A.6. FinCEN continuously evaluates BSA regulations and 
authorities to ensure that the U.S. AML/CFT framework is as 
effective, efficient, and not unduly burdensome to financial 
institutions as possible. We also continually strive to ensure 
that we are deploying our existing authorities as effectively 
and strategically as possible. For example, FinCEN has been at 
the forefront of regulating money transmission involving 
virtual currency, and we actively support law enforcement 
investigations involving virtual currency and related financial 
crimes. FinCEN works to combat the threats presented by both 
traditional and emerging payment systems--while promoting 
responsible technological innovation throughout the financial 
sector. That said, we are constantly assessing potential 
emerging gaps and threats due to technological evolution. We 
will continue to work closely with our regulatory partners as 
well as Congress for coordinated policy development and 
coverage.
    In this regard, we would not object to Congress considering 
codifying elements of money transmission to involve the 
transmission of currency, as well as value that substitutes for 
currency. Currently under consideration by this Committee is a 
House-passed bill, the ``FinCEN Improvement Act of 2019,'' that 
will make this clarification in 31 U.S.C.  310.
    Additionally, as Congress pursues any efforts to address 
technological innovations, FinCEN would encourage Congress to 
consider the nature of economic activities as a whole that are 
meant to be captured under anti-money laundering and other 
financial statutes, and then examine the definitions and 
requirements established in statute to determine if they, as 
originally written, still capture Congress's intent for 
regulated financial activity.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   LReal estate agents?

   LTitle agents?

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

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


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

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

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

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

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

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

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

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

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

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

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


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

Information-Sharing by Banks
Q.1. Current law allows bank information-sharing only in cases 
of terrorism or money laundering and even then does not allow 
sharing of actual SARs. Some have advocated for expanding 
banks' ability to share information, to take advantage of 
technological advances. Others have sounded alarms about the 
need to strengthen privacy safeguards around bank-to-bank 
information sharing, particularly where an individual's access 
to financial services may be at risk if negative but inaccurate 
information on them gets into the system, as with inaccurate 
credit reporting.
    What additional steps do you think are needed to ensure 
that expanding information sharing among banks doesn't put 
customers at greater risk of unjustified exclusion from the 
financial system because of inaccurate information being 
shared? In particular, if we were to consider expanding 
information-sharing, should we require a system of redress or 
information correction for such individuals, and if so how 
would you envision that process working?

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


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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

   LReal estate agents?

   LTitle agents?

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

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

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