[Senate Hearing 116-36]
[From the U.S. Government Publishing Office]


                                                    S. Hrg. 116-36


 COMBATING ILLICIT FINANCING BY ANONYMOUS SHELL COMPANIES THROUGH THE 
             COLLECTION OF BENEFICIAL OWNERSHIP INFORMATION

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

                                HEARING

                               BEFORE THE

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

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING HOW REQUIRING BENEFICIAL OWNERSHIP INFORMATION COLLECTION AT 
  THE TIME OF COMPANY FORMATION CAN PROVIDE LAW ENFORCEMENT WITH KEY 
  DETAILS ABOUT THE ACTUAL OWNERS OF LEGAL ECONOMIC ENTITIES, AND TO 
 EVALUATE WHAT STEPS THE U.S. SHOULD TAKE TO MODERNIZE ITS BENEFICIAL 
         OWNERSHIP POLICY REGIME AND STRENGTHEN ITS ENFORCEMENT

                               __________

                              MAY 21, 2019

                               __________

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


[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


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

                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
36-988 PDF                  WASHINGTON : 2020                     
          
--------------------------------------------------------------------------------------



            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska                  JON TESTER, Montana
TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona              DOUG JONES, Alabama
JERRY MORAN, Kansas                  TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                     Gregg Richard, Staff Director

        John O'Hara, Chief Counsel for National Security Policy

            Laura Swanson, Democratic Deputy Staff Director

                    Colin McGinnis, Policy Director

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                         TUESDAY, MAY 21, 2019

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    28

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
        Prepared statement.......................................    28

                               WITNESSES

Kenneth A. Blanco, Director, Financial Crimes Enforcement Network 
  (FinCEN), Department of the Treasury...........................     4
    Prepared statement...........................................    30
    Responses to written questions of:
        Senator Cotton...........................................    45
        Senator Kennedy..........................................    47
        Senator Menendez.........................................    52
        Senator Warren...........................................    54
        Senator Cortez Masto.....................................    55
Steven M. D'Antuono, Acting Deputy Assistant Director, Criminal 
  Investigative Division, Federal Bureau of Investigation, U.S. 
  Department of Justice..........................................     6
    Prepared statement...........................................    33
    Responses to written questions of:
        Chairman Crapo...........................................    59
        Senator Brown............................................    60
        Senator Cotton...........................................    61
        Senator Kennedy..........................................    62
        Senator Moran............................................    62
        Senator Menendez.........................................    64
        Senator Warren...........................................    64
        Senator Cortez Masto.....................................    65
Grovetta N. Gardineer, Senior Deputy Comptroller for Bank 
  Supervision Policy and Community Affairs, Office of the 
  Comptroller of the Currency, Department of the Treasury........     8
    Prepared statement...........................................    39
    Responses to written questions of:
        Senator Cotton...........................................    67
        Senator Kennedy..........................................    68
        Senator Warren...........................................    72
        Senator Cortez Masto.....................................    73

              Additional Material Supplied for the Record

Letter Submitted by the American Bankers Association.............    77
Letter Submitted by the Consumer Bankers Association.............    79

                                 (iii)


                                                                   Page

Letter Submitted by the Credit Union National Association........    80
Letter Submitted by the National Fraternal Order of Police.......    82
ICBA Statement and White Paper...................................    84
Real Estate Joint Trades Letter..................................    96
Letter Submitted by the Due Process Institute and Freedomworks...    97
``Deutsche Bank Staff Saw Suspicious Activity in Trump and 
  Kushner Accounts'', David Enrich, New York Times...............    99
Letter Submitted by Steven R. Ross and Leslie B. Kiernan, Akin 
  Gump...........................................................   106
Letter to Bill Woodley, CEO Deutsche Bank U.S.A. Corporation, 
  from Senator Chris Van Hollen..................................   108

                                  (iv)

 
 COMBATING ILLICIT FINANCING BY ANONYMOUS SHELL COMPANIES THROUGH THE 
             COLLECTION OF BENEFICIAL OWNERSHIP INFORMATION

                              ----------                              


                         TUESDAY, MAY 21, 2019

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:04 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order. Welcome 
back to our panel of witnesses from our last hearing in 
November.
    The Committee will hear from today's witnesses about the 
need to deter money laundering and the financing of terrorism 
through the use of front companies, shell companies, shelf 
companies, opaque nominees, and other means to conceal and 
disguise the true beneficial owners of property and other 
assets.
    The purpose of today's hearing is to examine the difficult 
issues surrounding the need for and the manner of collecting 
what is known as ``beneficial ownership'' information from such 
anonymous corporate utilities.
    This hearing, from the perspective of law enforcement and a 
regulator, will be the first of two on the subject, with a 
second hearing focusing on various industry perspectives.
    Clearly, the vast majority of anonymous corporate vehicles 
used today serve legitimate purposes and are formed with no 
criminal intent.
    Therefore, we must bear in mind the amount of burden which 
may befall an overwhelming majority of small business owners.
    Yet over the years, law enforcement, the GAO, congressional 
committees in both chambers, and U.S.-led international bodies, 
like the Financial Action Task Force, have identified not only 
a high potential for their abuse, but have also identified far 
too many open investigations involving anonymous shells 
connected to money laundering, terrorist financing, corruption, 
weapons proliferation, sanctions evasion, and a host of other 
threats.
    High-profile leaks of serious tax abuses, such as found by 
investigative journalists in the Panama Papers and Paradise 
Papers, have further identified the use of anonymous corporate 
vehicles to accomplish illicit global financial activities.
    I applaud the work of FinCEN in developing its customer due 
diligence, or CDD, rule that went into effect a year ago this 
month.
    FinCEN engaged for years with industry and other 
stakeholders to issue a rule that requires certain covered 
financial institutions to collect information on identifiable 
people who actually own, control and profit from their 
corporations.
    The rule is an achievement in terms of obtaining some 
transparency into corporate ownership to protect the U.S. 
financial system from those who seek to abuse it.
    But the rule's strengths and weaknesses are a product of 
its design to focus collection requirements for beneficial 
ownership information only on certain financial institutions.
    The rule mainly helps financial institutions to mitigate 
risk, and the information received can provide some help to 
assist law enforcement in identifying criminal assets, 
accounts, and national security threats from those who use the 
financial system.
    The rule, however, does not reach all of the general 
population of millions of new corporate vehicles formed each 
year to operate in this country, nor especially those new 
corporations which are exported overseas that will never see an 
American financial institution, but still benefit from an 
American address.
    Working in partnership with our Government's law 
enforcement and regulatory agencies, for the nearly 50 years 
since enactment of the Bank Secrecy Act, the U.S. financial 
industry is on the front lines of preserving the integrity of 
the U.S. and international financial system, and I see no 
changing that anytime soon.
    The fine efforts of our financial institutions should not 
be in vain to the extent that they can address only part of the 
larger beneficial ownership problem.
    We will hear today some legitimate needs of law enforcement 
for a wider collection of more useful beneficial ownership 
information and for a place to store it all.
    From our regulator, we will learn about how that 
information should be stored, by whom, and under what 
conditions the privacy of that information is protected.
    I am confident that there are a number of solutions to this 
problem if Congress can work together, in the manner of FinCEN, 
to identify the parameters of the problem and take into account 
the consequences that such a daunting collection of information 
would have on all stakeholders.
    Senator Brown.

           OPENING STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. Thanks to the panel 
today for your public service. Thanks for joining us again.
    I appreciate Chairman Crapo calling this important hearing 
as a follow-up to previous hearings in the Committee on Bank 
Secrecy Act and anti- money-laundering reform efforts.
    This weekend we got a reminder of how important these 
issues are, courtesy of good, aggressive journalism by the New 
York Times that money-laundering specialists working for 
Deutsche Bank had repeatedly recommended the filing of 
suspicious activity reports on transactions by, we believe, 
Candidate Trump, President Trump, and Jared Kushner's 
organizations, including transactions with actors overseas. 
This comes on the heels of other regulators in the Trump 
administration weakening regulations on foreign banks, 
including on Deutsche Bank.
    Those experts at Deutsche apparently were overruled by 
senior Private Wealth Division officials. State regulators or 
House Financial Services Committee subpoenas, no matter how 
aggressive or effective, those subpoenas to Deutsche Bank, none 
of them can get at suspicious activity reports that are never 
filed, obviously, that are effectively quashed within the bank, 
never conveyed to the experts at FinCEN in the Treasury 
Department and the financial watchdogs that are supposed to 
assess these transactions.
    Compliance officials described a pattern at Deutsche of 
efforts like that to reject SAR filings for lucrative clients. 
We need to get to the bottom of what happened here. Everyone 
has to follow anti- money-laundering rules and laws, even 
Deutsche Bank, even U.S. regulators who tend to cover for 
Deutsche Bank. You do not get an exemption if you have a rich 
and powerful client. We have to hold financial institutions 
accountable if they break the rules. We have written to 
Deutsche Bank's CEO making that clear and demanding answers.
    While banks obviously have a key monitoring role, it is 
important that we require companies to provide basic 
information on their ownership when they are formed. In today's 
hearing, the first of two, we will focus on the transparency, 
anticorruption, and anti- illicit-financing benefits of 
requiring U.S. firms to provide this basic beneficial ownership 
information.
    This information would help address a longstanding problem 
for U.S. law enforcement in investigations of cases involving 
drug trafficking, counterterrorism, money laundering, Medicare 
and Medicaid fraud, human trafficking, and other crimes.
    Criminals, terrorists, and even rogue Nations use layer 
upon layer of shell companies to disguise and launder illicit 
funds that are the proceeds of these crimes. That makes it 
harder to hold bad actors accountable.
    Under current law, by the time law enforcement is able to 
actually go through the grand jury and subpoena process and 
pierce the corporate veil to discover who is behind these shell 
companies, the criminals--and the proceeds of their crimes--are 
long gone, often overseas, often out of reach of U.S. law 
enforcement.
    I am pleased we will hear Administration views, including 
from key officials from the FBI and FinCEN, on the importance 
of finally--after decades of criticism that the U.S. is a haven 
for anonymous shell companies--changing our laws to address 
this issue.
    Chairman Crapo and I agree: We must move forward to require 
complete ownership information--not front men, not those 
forming companies on behalf of those who will pull the strings 
from behind the curtain--but the actual owners of companies 
whom law enforcement can go to if the entity becomes involved 
in criminal activity.
    We can do this simply and efficiently and effectively, 
without unduly burdening small business, by requiring that 
ownership information be provided by all companies when they 
are formed, and then creating a database within FinCEN, 
controlled under tight privacy laws, accessible to law 
enforcement.
    None of the crimes we will discuss today--drug trafficking, 
human trafficking, Medicare fraud, and money laundering--are 
victimless crimes.
    For example, money laundering for drug cartels has a direct 
line to the opioid crisis in Ohio. Eleven people in my State 
die every day from addiction and overdose. Sinaloa cartel 
actors have been destroying thousands of families around this 
country.
    Human traffickers who exploit the misery of runaways in 
truck stops at the intersections of major interstate highways, 
especially in Toledo, Ohio, and across the country use the 
financial system to launder their profits.
    Medicare fraudsters cost the U.S. Government and private 
parties over $2.6 billion in 2017, according to the HHS 
Inspector General.
    That is why anti- money-laundering and beneficial ownership 
laws are so critical: They protect the integrity of our 
financial system; they provide critical intelligence to law 
enforcement to combat crime.
    Updating and strengthening our AML and beneficial ownership 
laws will give us a 21st century system to combat these crimes. 
I guarantee you criminals have long been revising, adjusting, 
and amending their tactics to circumvent them, staying one step 
ahead of the sheriff. We need to do our job.
    Thank you, Mr. Chairman.
    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.
    Next we will turn to Special Agent D'Antuono for his 
statement on behalf of the FBI's Financial Crimes Section and 
conclude with Senior Deputy Comptroller of the Currency 
Gardineer for her statement on behalf of the OCC.
    I want to thank you all again for your written testimony. 
It is very helpful to us and will be made a part of the record.
    The Committee has also received several written statements 
in support of today's proceeding, and I would like to make them 
a part of today's record as well. The five statements submitted 
are from the American Bankers Association, the Consumer Bankers 
Association, the Independent Community Bankers of America, the 
Credit Union National Association, and the Fraternal Order of 
Police. Is there any objection to making these a part of the 
record?
    [No response.]
    Chairman Crapo. Seeing none, so ordered.
    Finally, I ask our witnesses to remember to honor the 5-
minute rule for your oral testimony so that each Senator has an 
opportunity to ask you questions, and I remind our Senators 
that we, too, have a 5-minute rule that we intend to stick to.
    With that, Director Blanco, please begin your statement.

  STATEMENT OF KENNETH A. BLANCO, DIRECTOR, FINANCIAL CRIMES 
      ENFORCEMENT NETWORK (FINCEN), DEPARTMENT OF TREASURY

    Mr. Blanco. Thank you, Chairman Crapo, Ranking Member 
Brown, Members of the Committee. Thank you for having me here 
today to discuss collecting beneficial ownership information at 
the corporate formation stage in order to preserve our national 
security and protect our people from harm.
    Stories of ordinary people, taxpayers victimized by 
criminals exploiting and hiding behind the secrecy of shell 
companies are all too common. Opaque corporate structures such 
as shell corporations facilitate anonymous access to the 
financial system for every type of criminal and bad actor, 
including terrorists.
    A Russian arms dealer named the ``The Merchant of Death'', 
who sold weapons to terrorist organizations intent on killing 
Americans. Executives from a supposed investment group that 
defrauded more than 8,000 investors, most of them elderly, of 
over $1 billion. A New York company used to conceal Iranian 
Government ownership of a skyscraper in the heart of Manhattan, 
providing millions of dollars for Iranian proliferation and 
terror. A corrupt Venezuelan treasurer who received over $1 
billion in bribes.
    These crimes are very different, as are the dangers they 
pose and the damage they cause. The defendants and bad actors 
come from every walk of life and every corner of the globe. The 
victims, both direct and indirect, include Americans exposed to 
terrorist acts; elderly people losing their life savings; an 
entire country like Venezuela driven into devastation and 
hunger by despots through corruption.
    All these crimes have one thing in common: shell 
corporations were used to hide, support, prolong, and foster 
the crimes and bad acts they committed. These criminal 
conspiracies thrived at least in part because these wrongdoers 
could hide their identities and their illicit assets behind the 
secrecy of shell companies. Had beneficial ownership 
information been available and more quickly accessible to law 
enforcement and others, it would have been harder and more 
costly for them to hide what they were doing. Law enforcement 
could have been more effective in preventing these crimes from 
occurring in the first place or could have intercepted these 
crimes sooner and prevented the harm from spreading.
    One of the most effective ways to deter criminals and to 
stem the harms that flow from their actions--including harm to 
American citizens and our financial system--is to follow the 
money, expose illicit activity, and prevent networks from 
operating undetected or secretly benefiting from the enormous 
power of our economy and our financial system.
    To determine the true owner of a shell company or front 
company in the United States today requires law enforcement to 
undertake a time-consuming and resource-intensive process. It 
often requires human source information, grand jury subpoenas, 
surveillance operations, witness interviews, search warrants, 
and foreign legal assistance requests to get behind the 
outward-facing structure of these shell companies. The time and 
resources currently devoted to this could instead be used to 
further other important and necessary aspects of the 
investigation.
    As cross-border crime continues to proliferate, our efforts 
to combat the most sophisticated white-collar and 
cybercriminals require law enforcement to work with our 
partners all over the world to seek the evidence and witnesses 
necessary to build their cases. This, of course, is 
particularly important in cases where the overseas actors are 
targeting victims in the United States or targeting our 
financial system and industry. We need our foreign partners to 
have important information in a timely way in order to stop 
crime and arrest criminals overseas to prevent harm caused to 
us here at home.
    But because identifying beneficial ownership information in 
the United States can only be achieved today through a long, 
drawn-out process with many hoops, twists, and turns, our 
partners overseas are sometimes dissuaded from working with us 
to our peril.
    As more and more of our allies begin to collect beneficial 
ownership information at the corporate stage in their countries 
and make it accessible to law enforcement, the U.S. risks 
becoming a safe haven for bad actors looking to hide their 
assets. As Americans, we have always led in the areas of rule 
of law, security, and law enforcement. Our failure to lead here 
is perplexing to the global community that has come to rely on 
our leadership and our experience.
    Treasury is committed to working with Congress on 
developing a bipartisan solution to collecting the information 
and critical information to protect our national security and 
our Nation.
    In conclusion, the time has come to address this important 
issue. It is critical for the security of our Nation and the 
citizens that Congress act to eliminate one of the most useful 
tools used for criminals to commit their crimes, hide their 
proceeds, and subvert law enforcement.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Mr. Blanco.
    Mr. D'Antuono.

   STATEMENT OF STEVEN M. D'ANTUONO, ACTING DEPUTY ASSISTANT 
 DIRECTOR, CRIMINAL INVESTIGATIVE DIVISION, FEDERAL BUREAU OF 
           INVESTIGATION, U.S. DEPARTMENT OF JUSTICE

    Mr. D'Antuono. Thank you, Chairman Crapo, Ranking Member 
Brown, and Members of the Committee. I appreciate the 
opportunity to appear before you to discuss the use of shell 
companies in illicit finance.
    You will hear from my colleagues about the lack of 
transparency they see in their respective departments regarding 
corporate formation, shells, trusts, and real estate. I am here 
to highlight the impact on law enforcement and how the lack of 
transparency hamstrings our investigations.
    The Financial Action Task Force, known as ``FATF'', 
recently identified the lack of beneficial ownership law as a 
major vulnerability in the United States' fight against illicit 
finance. Our foreign partners have taken steps to address this 
issue in their jurisdictions; whereas, the lack of transparency 
in the U.S. continues to attract criminals looking to take 
advantage of our financial system. This gap in the U.S. law 
continues to be a point of frustration for domestic and foreign 
law enforcement as well as our financial institution partners.
    The FBI has countless investigations where criminals use 
shell and front companies to conceal their nefarious activities 
and true identities. Corporate ownership transparency is 
crucial to the FBI's ability to identify and disrupt illegal 
activities across a variety of threats, such as money 
laundering, fraud, human trafficking, narcotics trafficking, 
terrorist financing, and counterproliferation.
    Just last Wednesday, a Federal grand jury returned a 34-
count indictment regarding a Texas man's alleged use of 116 
shell companies, committing a $98 million fraud scheme. The 
defendant used those shell companies to open bank accounts, 
concealing his connection to the widespread fraud. A beneficial 
ownership repository would have helped the case agents and 
analysts peel back the layers of the shell companies and quite 
possibly could have reduced victim losses.
    The lack of transparency often causes dead ends or long 
delays in investigations. Case agents can spend months or even 
years uncovering the beneficial owners of corporate entities. 
Currently banks are required to obtain beneficial ownership of 
qualifying companies opening bank accounts under the CDD rule. 
However, the burden is on the banks to verify the information 
provided.
    Also, some financial institutions conveyed to me there is 
nothing to stop the company from going to another bank and 
providing them with different ownership information.
    Furthermore, if the company is foreign based, a case agent 
must work with the Department of Justice on a Mutual Legal 
Assistance Treaty, or MLAT, request to get the records. That 
process takes months to even years for a recipient country to 
provide the records, and ultimately, if the recipient country 
does not reply to the request, a case can be dead in the water. 
If the response reveals an additional shell company is the 
owner, the whole request process starts anew. And if the 
investigation is being done by one of our local, State, or 
tribal partners, they may not even have access to the MLAT 
process to request the foreign records.
    I often speak to colleagues in Western Europe and the Five 
Eyes about this very topic and the impressions of our legal 
structures. While working with our foreign partners, one of the 
most common questions we get is: Can you get me information on 
this Delaware company? Unfortunately, the answer is usually no 
because the ownership information is obscured.
    Our foreign partners are starting to act in their 
territories. The EU Parliament enacted legislation requiring 
member countries to implement beneficial ownership laws by 
2021. Several members have already implemented these laws. The 
U.K. passed a law in 2016 requiring beneficial ownership of 
corporations, property, and land be listed in a public 
registry.
    The U.K. has additional measures addressing trusts in a 
nonpublic registry and by 2021 is planning to add a new 
registry for overseas companies owning property and land in the 
U.K. This corporate registry has been successfully used by 
regulators and law enforcement as well as financial 
institutions conducting due diligence of customers. And when I 
ask our U.K. law enforcement partners if the new register is 
helpful to them, the answer is a resounding yes.
    The protection of the U.S. financial system has been one of 
the FBI's top priorities since our inception over a century 
ago. Increased transparency of beneficial ownership will assist 
law enforcement in every category of case we investigate, from 
national security to criminal matters. In order to remain 
effective at home and abroad, law enforcement needs an 
efficient method to identify corporate owners, property owners, 
and trust beneficiaries. Legislation closing these gaps will be 
welcomed by law enforcement and a step in the right direction 
providing us yet another tool in our toolbox to use to protect 
the American people.
    I thank you for this opportunity to speak today, and I look 
forward to answering the Committee's questions. Thank you.
    Chairman Crapo. Thank you, Mr. D'Antuono.
    Ms. Gardineer.

 STATEMENT OF GROVETTA N. GARDINEER, SENIOR DEPUTY COMPTROLLER 
 FOR BANK SUPERVISION POLICY AND COMMUNITY AFFAIRS, OFFICE OF 
  THE COMPTROLLER OF THE CURRENCY, DEPARTMENT OF THE TREASURY

    Ms. Gardineer. Chairman Crapo, Ranking Member Brown, and 
Members of the Committee, thank you for the opportunity to 
appear today to discuss the threats posed to our financial 
system by the use of shell companies and some methods to better 
identify the true beneficial owner of assets. The Office of the 
Comptroller of the Currency welcomes the congressional focus on 
protecting the financial system from misuse through effective 
implementation of the beneficial ownership legal regime. We 
support legislative action to improve the regime's 
effectiveness. One suggestion is for Congress to establish a 
consistent, nationwide requirement that legal entities provide 
and update accurate beneficial ownership information. Such a 
requirement would ensure that financial institutions have a 
resource against which they can verify the beneficial ownership 
data provided when a company opens a bank account. 
Alternatively, Congress could consider creating a centralized 
database for the maintenance of the beneficial ownership 
information.
    Today's beneficial ownership requirements are part of the 
customer due diligence rule issued by FinCEN in 2016. That rule 
became effective in May of 2018. It requires banks to establish 
and maintain policies and procedures to identify the beneficial 
owners who own 25 percent or more of a legal entity customer, 
as well as the individual who controls the legal entity, when 
that customer opens a new account.
    Banks must also verify the identity of each named owner 
according to risk-based procedures. Further, the rule requires 
banks to conduct ongoing monitoring and incorporate customer 
information into systems for identifying suspicious 
transactions and on a risk basis to maintain and update 
customer information.
    The OCC examines national banks, Federal savings 
associations, and Federal branches of foreign banking 
organizations to ensure compliance with the requirements of the 
rule.
    The experience our examiners have gained from their review 
of bank compliance with these requirements has provided the OCC 
with unique insights into current challenges banks face in 
meeting the goals of the rule. This perspective has helped us 
develop recommendations to strengthen the beneficial ownership 
regime for our financial system. Through our examination 
process, the OCC has found that banks have generally 
implemented appropriate policies and procedures for identifying 
beneficial ownership and verifying their identities in 
compliance with the rule's requirements.
    However, our examinations also have identified several 
challenges the industry faces in achieving the rule's 
objectives. My written statement discusses several challenges. 
However, the most significant obstacle we have observed is the 
absence of reliable sources against which a bank can 
independently verify the accuracy of the beneficial ownership 
information provided when a legal entity opens an account.
    Unfortunately, many States do not collect this information 
at the time a company is formed or in subsequent filings or 
reports. Where this information is collected, there is no 
consistency in the information captured or maintained.
    To address these challenges, the OCC supports congressional 
action to require legal entities to provide consistent 
information when they are formed or registered. We recommend 
that all legal entities be required to provide their ownership 
information as a condition of having a bank account in the 
United States. They also should be required to periodically 
update their information to ensure that it remains accurate. 
The data should be collected in a consistent format to ensure 
completeness, regardless of where a legal entity is formed. 
Finally, individuals providing beneficial ownership information 
should be held accountable for making false statements.
    While we support a requirement for legal entities to 
provide consistent data, Congress alternatively could consider 
the creation of a centralized database to house beneficial 
ownership information. Providing a reliable source for banks to 
verify the information is critical to meeting the objectives of 
the beneficial ownership rule.
    Regardless of how information is captured, we are keenly 
aware of the importance of establishing a balance between the 
need for this information and important data protection and 
privacy rights. Congress could consider reviewing best 
practices from other jurisdictions that use corporate 
registries to collect and maintain beneficial ownership 
information and consider how these could apply to U.S. needs. 
Careful consideration should be given to implementing security 
measures governing access to the data. Providing a better 
source for banks to verify the accuracy of the beneficial 
ownership data they will receive will allow them to better 
comply with the requirements and intent of the beneficial 
ownership rule.
    Thank you again for inviting me today, and I look forward 
to your questions.
    Chairman Crapo. Thank you very much, Ms. Gardineer.
    Mr. Blanco, I will ask my first question to you. It 
basically is--succinctly, if you can--what exactly should the 
United States do? What should Congress do in terms of creating 
a beneficial ownership regime?
    Mr. Blanco. Thank you for that question, Chairman. Look, I 
think whatever regime, it should be simple; it should be 
concise. For example, if you mirror what the CDD does, it is 
six questions, seven questions at best. It is the information. 
It is very basic information: date of birth, address, phone 
number, who are the beneficial owners. Very simple, and we can 
make it work. I think that is the best advice I can give you.
    Chairman Crapo. And who should collect that data?
    Mr. Blanco. I think that the consensus here is that data 
needs to be collected in one place, and wherever you put it, as 
long as you resource that place correctly, whether it is at 
FinCEN or some other location, I think that is going to be 
essential to law enforcement, that you can go one-stop 
shopping, that you can go to one place, and as long as it is 
appropriately protected, that it is guarded, that there is a 
mechanism for people who should be looking at it, and there is 
a mechanism for those people who abuse it or go into it, and 
there is punishment at the end of the day. Those are critical. 
It is important information that law enforcement needs to have, 
and we have an obligation to secure it.
    Chairman Crapo. Well, thank you. And this question would be 
to each of you, and, again, since time is brief for our 
questions, please be as succinct as you can. But there has been 
some suggestion--as an example, the Consumer Bankers 
Association and the material that they submitted for today's 
record recommends that the responsibility for collection of the 
beneficial ownership information be shifted from the banks to 
FinCEN. What do you each think of that proposal?
    Mr. Blanco. Chairman, when you say ``shifted,'' what does 
that mean? Because the CDD rule is in place, and I think the 
banks are collecting that information. And, by the way, even 
before the CDD rule was passed, many banks were collecting that 
information regardless of the CDD rule because it was helping 
them in their risk-based approach at the end of the day.
    Chairman Crapo. So you say leave it the way it is but store 
it?
    Mr. Blanco. I think the banks should collect it, and I 
think we should be collecting it at the point of incorporation. 
I think you have both of those models.
    Chairman Crapo. But I think I heard you say a centralized 
source--I do not know who that would be--should be created by 
Congress.
    Mr. Blanco. Well, yes, I mean, you have to have one 
location where you get the beneficial ownership information at 
incorporation stage where you can find it. Whether it is at 
FinCEN or some other place, law enforcement needs to be able to 
know where to go with the appropriate protections--right?--and 
the way to keep it safe, centralized location.
    One of the problems, Senator, with the CDD rule that is 
collected by the banks, it is how many hundreds of thousands of 
banks, and law enforcement cannot go to one place to get it, 
right?
    Chairman Crapo. Understood.
    Mr. Blanco. So you want a central location.
    Chairman Crapo. OK. So, Mr. D'Antuono and Ms. Gardineer, 
you have each got about a minute to respond.
    Ms. Gardineer. Senator, the banks do, in fact, collect the 
customer due diligence information. It is vital to helping them 
establish a strong BSA platform, and it helps in their risk-
based approach to understand who their customers are.
    The issue and the gap that we have seen is that once they 
collect that information about beneficial ownership at account 
opening, there is no source for them to go to to verify the 
accuracy and the completeness and the truthfulness of that 
information. So what we are suggesting is that there be a 
centralized place where that information is collected, either 
at formation by the States or in a centralized database at a 
national level that would allow both the banks to verify the 
accuracy of the information but it would allow a one-stop shop 
for law enforcement also to collect that information.
    Chairman Crapo. Thank you.
    Mr. D'Antuono.
    Mr. D'Antuono. Yes, sir. And from a law enforcement 
perspective, a central repository, some place we can go, a one-
stop shop, as Ken put it, is extremely helpful. Right now there 
are, you know, 50 different States that we have to go through 
for corporation information if they even keep what they--or as 
robust of a system, they are all different. So for us to go to 
one location, it is going to be quicker and faster, less time-
consuming for us than the process that we have right now. 
FinCEN does a very nice job with the BSA filings as the 
repository for them. It is a system that we know in law 
enforcement. We have a portal. We have access to the data. It 
is something that is easy. They are a very good partner with us 
as well. So, you know, from a law enforcement perspective, 
FinCEN is a good place to store a lot of this information.
    Chairman Crapo. So I am hearing consensus that we need a 
centralized beneficial ownership collection system. I have got 
6 seconds left. Can you each give me your--and I heard Mr. 
D'Antuono suggest that he thinks FinCEN is a good place for 
that. Any disagreement with that?
    Mr. Blanco. The only caveat, as long as we are resourced 
appropriately to take in that new data, and the way we take it 
in, depending on what you are asking for, right? Because if you 
are asking for a lot of bells and whistles, it is going to cost 
more. So I just want to make sure that it is resourced.
    Ms. Gardineer. And the OCC supports FinCEN or any entity 
that could keep the information safe, but provide that access.
    Chairman Crapo. All right. Thank you.
    Senator Brown.
    Senator Brown. Thanks, Mr. Chairman.
    Mr. Blanco, I will start with you. I noted in my opening 
statement the New York reports Deutsche Bank's Private Wealth 
Division, sidestepping standard procedures, quashed suspicious 
activity reports that senior compliance officials had prepared 
on business activities of the Trump and the Kushner 
organizations. Were you aware of those activities at Deutsche?
    Mr. Blanco. Senator, because of the rules and the 
procedures at Treasury, just like I had at the Department of 
Justice, I cannot comment on any--whether I knew about it, 
whether there was an open investigation, whether we do not have 
an open investigation. All I can tell you is that the 
information is out there, and we will look at whatever 
information is appropriate, if there is something appropriate 
there.
    Senator Brown. So does that mean you are planning to look 
into it?
    Mr. Blanco. Senator, it is out there. Investigative 
agencies can look at it if that is what they want to do. I am 
not telling you I am going to look at it. I am not telling you 
I am looking at it now. I am not telling you I will not look at 
it.
    Senator Brown. If the information is out there, why would 
you not look at it?
    Mr. Blanco. I have read the information, Senator, and will 
take whatever appropriate action needs to be taken, if action 
needs to be taken at all. I am not going to say whether we are 
doing something or not. I think that would be inappropriate. I 
think that is unfair to the individuals. I think it is unfair 
to the institution. And, frankly, at the end of the day, I 
think whether we are looking at it or not----
    Senator Brown. How would you expect a complex bank like 
Deutsche Bank, which has been found in violation of U.S. anti- 
money-laundering laws, which has a pretty sordid past--of all 
the large financial institutions in the world, this one is 
certainly near the top in terms of misbehavior, and our own 
regulators have found them that, and our own regulators are now 
sort of it is OK, I guess. But how do you handle these 
politically exposed persons? I mean, what should you be doing? 
What should they be doing?
    Mr. Blanco. Well, I think every financial institution needs 
to follow the rules and the obligations of BSA and what we 
expect for them. It is a risk-based approach, and I think that 
there are certain--it depends on who their client is and how 
well they know their client, and all those things come into 
play. But, you know, we have in the past talked about 
politically exposed individuals, PEPs, and we have an advisory 
out on PEPs, and we expect that there should be some scrutiny 
or heightened scrutiny with respect to individuals----
    Senator Brown. So that--sorry to interrupt. That means that 
if a senior--if a bank is serving a major client politically 
exposed and the bank officials reject SAR filings recommended 
by senior compliance staff, you would consider that wrong?
    Mr. Blanco. No, Senator. It depends on the institution. It 
depends on whether----
    Senator Brown. It depends on if he is running for President 
or not?
    Mr. Blanco. Well, I got to tell you, it really depends on 
whether or not they know their customer and whether or not they 
know what the information--the information that they are 
receiving----
    Senator Brown. So if they know their customer--OK. I will--
--
    Mr. Blanco. Senator, it would be--everything is fact-
specific, right? At the end of the day, it could be quite 
appropriate, depending, and I do not know the facts in this 
case. I have no idea. But it depends on the facts of the case. 
It could very well be that the bank felt comfortable that the 
information that they were receiving, that they knew their 
customer, they knew why they were doing it, and they felt 
comfortable taking that risk. Each bank is different, and each 
case is different. That is why----
    Senator Brown. I will just leave it at this: I would assume 
that because this bank has had a history of violations, that 
you would look a little bit more aggressively and critically at 
what--at least the advice from many on this Committee would be 
for you to do that when banks have the reputation that Deutsche 
Bank has. This is not a community bank in Sycamore, Ohio.
    Mr. Blanco. Deutsche Bank aside, because I do not want to 
comment on Deutsche Bank or any particular bank, I can tell you 
we take all factors into consumer when we decide that we are 
going to look at them, whether civilly or look at them in any 
other way. You know, we take a look at all the factors.
    Senator Brown. Understand many other regulators in this new 
Trump administration are seeming to help Deutsche Bank on other 
issues. Understand that as you make these decisions. OK.
    I have questions real quick for Mr. D'Antuono. You have 
been working for years to secure beneficial ownership 
information from companies at their formation. Thank you for 
that. Describe the urgency of the threat to the U.S. financial 
system. And as you do that, would you work in a concrete sense 
of the ways you have seen bad actors use shell companies?
    Mr. D'Antuono. Yes, sir. I have got 30 seconds to do this, 
so----
    Senator Brown. Well, take as long as you want, actually. I 
mean, within limits, Mr. Chairman, of course.
    Mr. D'Antuono. So money laundering just in general is a 
huge issue, as I testified before this Committee, you know, $2 
trillion globally, $300 billion at least in the United States, 
and that is just a small estimate, I think. So beneficial 
ownership goes hand in hand with money laundering and the 
ability for criminals to abscond with the proceeds of the 
crime.
    As you stated in your statement before, money laundering is 
not a victimless crime. It is definitely something that people 
do not see when they are doing money laundering that there is 
not a victim at the end of the rainbow. There is. It could be 
an elderly person. It could be anyone. So it is extremely 
important for us to dive into the money-laundering issues, and 
beneficial ownership is extremely time-consuming for us to 
unravel the shells, peel back that onion, if you will. I will 
be using that a lot as a reference. In an onion, there are a 
lot of layers. As we peel back each one, we see more and more 
layers, and that takes time.
    So it is extremely important. We have cases that we put in 
the statement and I put in my statement that it takes us 6 
months to a year or longer to do because we do not have the 
information that is readily available for us. We can get it 
done, but sometimes we hit the hurdle that we cannot jump over.
    Senator Brown. Thank you.
    Chairman Crapo. Thank you.
    Senator Toomey.
    Senator Toomey. Thanks very much, Mr. Chairman, and thanks 
for doing this hearing. I have no doubt that there are many 
very bad people who use shell companies to commit some very bad 
crimes.
    I am concerned. I think one of the things I would like to 
understand better is whether the burden that we are currently 
contemplating imposing on perfectly innocent parties--and I 
think everybody acknowledges that the vast, overwhelming 
majority of shell companies in America are completely legal and 
appropriate and proper and there is no criminal activity there. 
And so we need a balance between the burden we impose on people 
to provide this information relative to whatever benefit law 
enforcement is able to obtain from it.
    So in this latter category, one of the questions that comes 
to mind, you know, if we require beneficial ownership 
information at the time of formation and maybe we have got a 
somewhat complex joint venture with multiple parties, for 
instance, I worry would the owner be guilty of a crime or 
subject to a civil penalty for having an inaccurate--portraying 
an inaccurate picture to the best of his ability. I also wonder 
if criminals would simply lie on the form. So if El Chapo 
decided he wanted to launder some money and use a shell company 
to do it, I doubt that he is going to put on the beneficial 
ownership ``El Chapo, Narco Kingpin''.
    So I guess one question would be, to start with Director 
Blanco, how does FinCEN know when the information it has is 
accurate? What percentage of the information you have do you 
think is inaccurate? And why couldn't bad guys simply use an 
alias or otherwise disguise their true identity? And how would 
you know if they did?
    Mr. Blanco. Thank you, Senator, for that question. So you 
have got a lot there.
    First of all, that is fine. Let them come in and lie. To 
me, as a former prosecutor, that is consciousness of guilt, and 
that is another factor that I use and it is another red flag 
that I have that shows their intent. And, by the way, it would 
not just be El Chapo. It is his nominee who is coming in to 
incorporate on his behalf, which now all of a sudden I know who 
he is. I have got his driver's license. I have got his date of 
birth. I have got his address. Steve and his team can track him 
down. And then he has got a list of at least four other people 
who might have equity ownership and then a controlling person. 
Right there I have got six pieces of information I did not have 
before.
    So, fine, let them lie. We will track them down. And if you 
compare that----
    Senator Toomey. But on day one, there is no indication that 
there is a criminal--eventually, if you have other information, 
then you use this, I guess.
    Mr. Blanco. Yes, or that information comes in, and we see--
to your point, there is a source of information that tells us 
that the person is either lying or there is criminal activity 
afoot. So this information helps us. It tells us where to go. 
And if you compare it with their CDD information at a financial 
institution and that information is incorrect, that is another 
red flag, and the bank will then file a SAR, then alerting 
other--it is a little bit more complex than you give.
    Senator Toomey. Let me ask--I am going to run out of time 
here. Mr. D'Antuono, can you give us an example of a specific 
crime that you think you would have been able--that you know 
of, that is public information, that you could have prevented 
had you had the beneficial ownership about a shell company? And 
how would that information have allowed you to prevent the 
crime?
    Mr. D'Antuono. Well, the specific crime, this beneficial 
ownership transcend every case that we have. So, specifically, 
I will give you a health care fraud example which we just had, 
a health care fraud case that was taken down I think a couple 
months ago. It was one of the largest takedowns we ever had. It 
was on medical braces, telemedicine, all that stuff. There were 
130 shell companies within that. It was a $1 billion industry. 
So Medicare got bilked out of billions of dollars, I think 
estimated at maybe about $1 to $2 million per month that they 
were running through. So, you know, if we are able to unpeel 
that onion, that is 130 companies that it is going to take a 
long time for us to figure out.
    You know, as Ken pointed out----
    Senator Toomey. Can I just----
    Mr. D'Antuono. Yes.
    Senator Toomey. I just want to really understand it 
specifically. So are you suggesting that had you had the 
beneficial ownership information--and I assume it would have 
had to have been accurate to matter, which is a question. But 
had you had it and had it been accurate, then maybe you would 
have been able to shut them down sooner and diminish the crimes 
they were committing?
    Mr. D'Antuono. Correct, or prevent less victims. So the one 
I talked about in my statement, the $98 million fraud, it was 
116 shell companies there, too. In that case, the banks did a 
very good job of identifying that, and I believe we got that 
through BSA filings. So that is something that we can then use 
to then unravel that. But that took a while for us to do, too. 
So we can stop victims possibly. But you never can define the 
negative.
    Senator Toomey. Thanks very much, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Reed.
    Senator Reed. Well, thank you to the panel for your 
testimony and welcome back to all of you.
    Mr. Blanco, if an executive in a banking institution 
receives information from the analysis indicating that a report 
should be filed, is there any requirement for him or her to 
justify why the filing is not taking place? You alluded to the 
fact where they know the client, et cetera, but wouldn't it be 
appropriate to have some type of written documentation that can 
be reviewed by regulators?
    Mr. Blanco. I think that would probably be the best 
practice, Senator, to have that happen. Whether it is a 
requirement or not depends on the relationship that the bank 
executive has with the individual. There are a whole bunch of 
factors there. They could very easily say this is something 
that we have done in the past with this individual, and it has 
always proved to be perfectly fine; there is nothing nefarious 
going on here, and we feel comfortable taking the risk on this.
    Senator Reed. But at this point, frankly, totally within 
the discretion, you would not hear of it at all unless after 
the fact someone, as in the case of Deutsche Bank, came forward 
and said, ``We have filed these repeated requests,'' I think 
SAR filings, ``and they were ignored.'' So you would not know 
as our chief regulator or one of our chief regulators that this 
behavior is going on. Is that correct?
    Mr. Blanco. I probably would not know. That is true, 
Senator.
    Senator Reed. And I think one of the other issues here, 
too--and it has been alluded to consistently in your previous 
testimony, Mr. D'Antuono--this is a national security issue. 
This goes to the heart of our not just commercial activity but 
our national security. Is that correct?
    Mr. D'Antuono. Yes, sir, we see it in counterproliferation 
cases, and we see it in terrorist financing cases. We see it 
across the board on national security.
    Senator Reed. And, in fact, I think both of you made the 
point that this, you know, rather than being kind of an 
annoyance for all these upstanding citizens that are just 
forming these shell companies, this is really an investment in 
national security that would protect everyone. Is that fair, 
Mr. Blanco.
    Mr. Blanco. Absolutely.
    Senator Reed. Mr. D'Antuono.
    Mr. D'Antuono. Yes, sir.
    Senator Reed. Ms. Gardineer.
    Ms. Gardineer. Yes.
    Senator Reed. Let me ask you, Ms. Gardineer, and then I 
will also ask Mr. Blanco, too, how many enforcement actions 
have you taken against banking institutions that have 
improperly failed to file the SARs or indicate money 
laundering?
    Ms. Gardineer. Senator Reed, we do take enforcement 
actions. The exact number I do not have, but I am happy to get 
that information back to you.
    Senator Reed. Would you please do that?
    Ms. Gardineer. Yes, I will.
    Senator Reed. And, Mr. Blanco, how many enforcement 
actions?
    Mr. Blanco. At FinCEN it would depend because what you are 
talking about is--look, we just want them to get it right many 
times. It is not a ``gotcha'' game for us. And I think that is 
true, too, with what we are asking here. So it really depends 
on what you want. Are you talking about an engagement? Are you 
talking about an actual penalty? All those things are 
different. But we can get back to you on that, Senator.
    Senator Reed. I wish you would because, frankly, we can 
have an elaborate set of rules, but if they are--you know, if 
someone is admonished by ``Do a better job next time,'' rather 
than essentially punished, those rules are ignored or, you 
know, this is not important, they will never find out. I think 
enforcement is absolutely critical.
    Mr. D'Antuono, was that your position, too?
    Mr. D'Antuono. Yes, sir. Without the punishment at the end 
of it, if there is nothing there to make people do it, it is 
going to be more difficult for law enforcement.
    Senator Reed. It is a paper drill. And the perpetrators 
know that, too. That is why you find occasions that Danske 
Bank, which was a notorious money launderer, when they looked 
into some of these companies that they were daily passing 
millions and millions of dollars through on behalf of Russian 
oligarchs, they were all located in the same small building in 
London, and all of them listed on their official sort of 
charter that their activities were ``dormant.'' That should be 
a clue to anybody at a banking institution that something is 
wrong here. And if we do not start enforcing rather than just 
admonishing, that will go on and on and on.
    Again, my final comments. This goes to national security. 
It also goes to election security. The Eastern District of 
Virginia indicted a whole series of activities involving the 
Internet Research Agency, which the Mueller report indicated 
was designed for information warfare against the United States 
of America. And this Kremlin-linked troll organization held 
approximately 14 bank accounts in the name of 10 LLC 
affiliates, and they described their activities as ``all in 
furtherance of a series of vague contracts that obscured or 
falsely stated the true intended use of the funds.'' So, one, I 
think that is something important. Two, a final question. Are 
you particularly sensitive to this activity in the context of 
the 2020 election?
    Mr. Blanco. Senator, we look at it all. We are interested 
in everything that affects national security, so in that sense, 
we will be keeping an eye----
    Senator Reed. But is it a priority? Because, frankly, this 
is not a theoretical question. There is real concern that the 
2020 election could be seriously compromised by activity just 
like this.
    Mr. Blanco. I share your concern, Senator.
    Senator Reed. Is it a priority?
    Mr. Blanco. It is going to be.
    Senator Reed. Thank you.
    Thank you very much, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chair.
    Mr. Blanco, do you agree that it is critical for FinCEN to 
receive timely, accurate, and complete reporting of suspicious 
financial activities so that you can effectively police against 
money laundering?
    Mr. Blanco. Yes, Senator.
    Senator Menendez. Do you still hold that view if the 
suspicious activity involves individuals in our Government?
    Mr. Blanco. It does not matter who it is.
    Senator Menendez. So 2 days ago, the New York Times 
reported that in 2016 and 2017, Deutsche Bank, which has been 
found to have laundered billions of Russian money and which has 
lent billions of dollars to the President's companies, failed 
to report to FinCEN multiple suspicious transactions involving 
entities controlled by President Trump. And, Mr. Chairman, I 
ask that the article be entered into the record.
    Chairman Crapo. Without objection.
    Senator Menendez. Are you aware of any suspicious activity 
reports that involve the President, his family, or any of his 
business entities?
    Mr. Blanco. Senator, as I mentioned to Senator Brown 
earlier, I am not going to comment on any particular case or 
any particular bank. I can tell you--or confirm----
    Senator Menendez. I did not ask you to comment on cases or 
banks. I asked you, are you aware of any suspicious activities?
    Mr. Blanco. Senator, I am not going to comment on any 
particular suspicious activity----
    Senator Menendez. Are you aware of the article in the New 
York Times?
    Mr. Blanco. I heard about it over the weekend, yes.
    Senator Menendez. You have not read it?
    Mr. Blanco. I have not read it, no. I have been briefed on 
it.
    Senator Menendez. I think you are a very smart man. It 
would not take very long to read it, but it might be very 
informative to you.
    Now, let me ask you something, and I also want to ask Ms. 
Gardineer. Do you believe banks are more or less likely to file 
suspicious activity reports on a transaction involving a 
President, especially given this President's propensity to 
single out companies on social media?
    Ms. Gardineer. Senator, banks are required to file 
suspicious activity reports following the rules that FinCEN has 
set forth. That is our supervisory expectation.
    Senator Menendez. But do you think that they may be a 
little loath to do so when they are going to be singled out by 
the President of the United States?
    Ms. Gardineer. Senator, the OCC's expectation is that the 
banks will follow the rules that have been set forth, that they 
file the suspicious activity reports based on the policies and 
procedures that they have in place, utilizing the systems that 
they have, and to report all suspicious activity accordingly.
    Senator Menendez. Mr. Blanco.
    Mr. Blanco. Senator, I am sorry?
    Senator Menendez. I am asking you the same question.
    Mr. Blanco. I missed the question.
    Senator Menendez. Do you believe that banks are more or 
less likely to file suspicious activity reports when they 
involve someone like the President of the United States who 
will single them out?
    Mr. Blanco. Senator, it depends on what their risk space 
is. It depends on what their factors are. It depends on who 
their client is. It depends on how well they know their 
customers. It really depends. And I could not put myself in 
their position. I do not know the facts of that case.
    Senator Menendez. Well, even to the extent that when you 
say it depends upon their risk space, that creates problems for 
me, the risk space. The law is the law. You are supposed to 
comply with it.
    Mr. Blanco, what other avenues does FinCEN have to discover 
suspicious activity if banks fail to self-report?
    Mr. Blanco. Well, it depends on whether they are being 
examined and we find ways to do that. It depends on whether 
there is somebody inside who makes a comment or decides to 
reach out to law enforcement. It also depends on what we are 
seeing as a pattern of filings or nonfilings in our database. 
So there are a number of ways that we could ultimately find out 
or come into possession of information.
    Senator Menendez. So if you read in a major article in a 
major newspaper information that suggests that, would that be 
something that might lead you to look at it?
    Mr. Blanco. Hypothetically, yes. But, Senator, one thing I 
have to say--and I think we all agree. Look, we are all adults 
here. Just because it is in the newspaper does not mean it is 
true. At the end of the day, it is out there----
    Senator Menendez. Oh, I am fully aware of that, but it does 
not mean that it is false, either.
    Mr. Blanco. I am not saying it is false either.
    Senator Menendez. So, therefore, it should be reviewed.
    Ms. Gardineer, let me ask you, what type of activity 
described in the New York Times article would lead the OCC to 
conduct a special Bank Secrecy Act compliance examination, 
especially if the bank has a history of skirting anti- money-
laundering laws?
    Ms. Gardineer. Senator, the bank that is implicated in that 
article is not supervised by the OCC.
    Senator Menendez. OK. And if it were, would that type of 
activity be such that would lead to conduct a special Bank 
Secrecy Act examination?
    Ms. Gardineer. I think that additional information that 
comes into the hands of our examiners, when looking at the four 
pillars of an effective BSA/AML program, would help us in 
formatting the type of exam we would go in and where we would 
see weaknesses that we would want to follow up on.
    Senator Menendez. Finally, what penalties are assessed if 
banks fail to self-report a transaction that is later 
discovered by law enforcement?
    Ms. Gardineer. There are a lot of tools that we have 
disposable to us, Senator Menendez. We are able to do anything 
from citing matters requiring attention all the way to formal 
enforcement actions. The circumstances and the case facts are 
generally specific that result in the appropriate type of 
enforcement given the allegations and what we have as far as 
the facts.
    Senator Menendez. Well, let me just say as a concluding 
remark, I have a real concern that we act in ways in which it 
seems that it is the cost of doing business, and the cost of 
doing business does not let us know about money laundering in a 
way that is effective, especially at a time that we have 
foreign influences both in our elections, as Senator Reed has 
discussed, and other entities. As the author of a whole host of 
sanctions, I get concerned that both the money-laundering 
side--last time you were here we talked about the purchases of 
real estate properties in blind--in ways that do not let us see 
money laundering take place. We need to ratchet up the cost--it 
is no longer the cost of doing business. It is breaking the 
law. And I look forward to the regulators actually pursuing 
vigorously when someone is actually breaking the law.
    Chairman Crapo. Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. I thank all of 
you for your testimony.
    As Senator Brown pointed out, Deutsche Bank has an abysmal 
compliance record when it comes to anti- money-laundering 
statutes. They have paid billions of dollars of fines for their 
failure to abide by sanctions, anti- money-laundering statutes, 
and tax laws, including a major settlement in 2017 with the 
Federal Reserve for ``failing to maintain an effective program 
to comply with anti- money-laundering laws.''
    Mr. Blanco, if a company has a track record of 
noncompliance, would you agree that they should receive 
heightened scrutiny from FinCEN?
    Mr. Blanco. Without addressing that specific bank or 
institution, Senator, I think that you always use past 
practices or past incidences either to give closer scrutiny or 
to hold them accountable. But I do not know if that----
    Senator Van Hollen. I understand. I understand. Just taking 
the concept to the facts here, I would hope that means that 
FinCEN is hot on the tail of Deutsche Bank right now.
    I was worried about this issue, both Deutsche Bank's 
noncompliance as well as how they would deal with conflict-of-
interest provisions regarding the President and members of the 
President's family back in April 2017, and I wrote to Deutsche 
Bank asking what procedures they may have in place to deal with 
this issue. Here is the letter I received back dated May 10, 
2017:
    ``Dear Senator Van Hollen: We write in response to your 
letter dated April 12, 2017, to our client, Deutsche Bank, 
regarding its reported banking relationship with the President 
of the United States, his family, and certain related entities. 
You express concern about the potential for conflicts of 
interest and seek certain information and assurances from 
Deutsche Bank with respect to such matters.''
    They go on to write: ``The bank has in place policies, 
processes, and other controls to address issues such as those 
referenced in your letter. The bank recognizes the heightened 
sensitivity of managing relationships with clients who hold 
public office or perform a public function in the United States 
and has accordingly taken steps to ensure that its policies, 
processes, and controls address the potential for conflicts of 
interest and safeguarding the integrity of the decision-making 
process with regard to such clients.''
    Now we get the New York--and, Mr. Chairman, I would ask 
that both my original letter and the response be placed in the 
record.
    Chairman Crapo. Without objection.
    Senator Van Hollen. Now we get the New York Times story, 
which makes clear that one of the people whose job it was to 
review suspicious activity reports that had been triggered, 
first of all, by their computer system, that the person who is 
an expert in reviewing them recommended they be reported. And 
yet somebody on the business side of the bank overruled that, 
even though, according to reports, the normal process would be 
not to have somebody outside of the sort of immediate review of 
SARs report look into it. And now I hear you say that you have 
not read the New York Times piece, and I understand that you 
are not making a public statement about investigation. But you 
do follow the facts, do you not, when it comes to these cases?
    Mr. Blanco. Of course I do, Senator. I do not have to 
specifically read the article. I mean, I got briefed on it. I 
have heard about it. We have seen it on the news.
    Senator Van Hollen. I understand, but you can--we do not 
know the full accuracy of this report, but we have allegations 
from a whistleblower who is now on the record. And I would just 
point out if FinCEN has not already been in touch with that 
whistleblower, in my view, that is gross negligence, because 
the facts are in plain sight--or the alleged facts are in plain 
sight. And it is essential, it seems to me, that the public 
trust and the integrity of FinCEN that these be actively 
pursued.
    Now, I referenced earlier a case with respect to the 
Russian money laundering. My understanding is that Deutsche 
Bank has still not provided information--at least to my 
knowledge, it has not been shared with Congress--about the 
Russians who were behind the anonymous shell companies that 
were caught up in the 2017 action.
    Has Deutsche Bank been forthcoming in providing information 
about the Russians behind those anonymous shell corporations?
    Mr. Blanco. Senator, I am assuming the question is to me?
    Senator Van Hollen. Yes.
    Mr. Blanco. Senator, I am not going to address what may be 
an ongoing investigation, whether they have, whether they have 
not, whether there is an ongoing investigation or not. We are 
going to hold all those individuals who--whether they have 
complied or not, we are going to hold them accountable----
    Senator Van Hollen. Mr. Blanco, I think this--and I know 
Senator Warner is here, obviously the Ranking Member on the 
Intelligence Committee, but I would suggest, Mr. Chairman and 
Ranking Member, this Committee has a direct interest in 
protecting the--making sure the anti- money-laundering laws are 
obeyed. I mean, that is why this is a timely hearing. And I 
would hope we would make arrangements, on a confidential basis 
if necessary, to get information regarding the enforcement of 
those money-laundering laws. As I said, I am very disturbed 
that, after seeking assurances that Deutsche Bank had in place 
these provisions, that they seem to have short-circuited their 
own procedures in this case. And so I hope we would work to get 
to the bottom of it.
    I thank you.
    Chairman Crapo. Thank you.
    Senator Jones.
    Senator Jones. Thank you, Mr. Chairman and Ranking Member, 
for this hearing today, and thank you to the witnesses. This is 
very, very important. As a former prosecutor, I can tell you we 
are long overdue, long overdue to enact legislation to 
counteract the use of anonymous shell corporations in illicit 
activity. Long, long overdue.
    Requiring the reporting of beneficial owners is reasonable. 
It is a simple requirement that can help save American lives. 
If we want to help our law enforcement across this country 
fight human trafficking, to fight the spread of illegal drugs, 
to crack down on terrorist financing, help convict white-collar 
criminals, which is difficult sometimes, beneficial ownership 
legislation is an absolutely required step.
    I appreciate Senator Toomey raising a couple of questions, 
but the fact is that we have statutes on the book now where 
people lie--they lie to get bank loans. They lie to any number 
of things, and we use that information. That is a tool for the 
prosecutors to use. We cannot understand and know the specific 
crimes that legislation like this may prevent, and that is OK 
because we do not know how many terrorist plots that we have 
prevented and stopped. We do not know how many white-collar, we 
do not know how many drug traffickers who stop short of that. 
So we will never be able to know what we stopped. But the idea 
is we have got to do something because it is a huge, huge 
problem.
    I want to try to get to a couple of questions now that I 
have given a speech. I want to follow up real quick, Mr. 
Blanco, just very quick, kind of yes or no, on the--I do not 
want to talk about the Deutsche Bank and the New York Times. 
Let us talk about the Deutsche Bank concept. OK? And there is a 
whistleblower. But would a strong whistleblower provision in 
anti- money-laundering legislation assist you, assist the 
Department and others?
    Mr. Blanco. Senator, I believe it would. The devil is in 
the details.
    Senator Jones. All right. I got you. That is all I need.
    All right. Let us go to the FinCEN's customer due diligence 
rule that has been in effect over a year now that requires 
companies provide banks with information on their owners. I 
think that was a nice step forward. But it also maybe shows a 
few limits of FinCEN's ability to have access to information.
    I have got a number of issues that I could go through, but 
rather than just trying to talk about that, can you and Ms. 
Gardineer address a little bit how a Federal beneficial 
ownership reporting requirement could help complement and 
supplement the CDD rule? Mr. Blanco.
    Mr. Blanco. It supplements the CDD rule because it looks 
for a different kind of information from different places. It 
also supplements the CDD rule by acting as a verification. You 
can bounce it off each other. If the information is not 
correct, it gives you sort of the red flag that something may 
be afoot. So those are the kinds of things, by not having this, 
what you are losing is you are losing a central repository 
because there is no central repository for the CDD rule either. 
There is no one-stop shopping. You lose standardization because 
right now you have 54, you know, different--whether they are 
States or Commonwealths that have a different standard looking 
for different things. So you are losing that, too. You are 
losing duality, which is verification process of each other. 
And you lose accountability because, you know, you can lie on 
your bank account, as you well know, prosecuting those kind of 
cases, and there is very little penalty, if any, at all. We are 
insisting that there is a penalty in the sense that if it is 
abused, if the information is abused. We are also insisting on 
some kind of common-sense approach to address whether or not it 
is a mistake or whether it is intentional.
    Senator Jones. Thank you. Briefly.
    Ms. Gardineer. Senator Jones, I agree with my colleague, 
Director Blanco. I would say that the banks are engaged in 
collecting this information when an account is owned, but as 
Director Blanco said, there is no way to verify the identity of 
those individuals who are opening the account. There is no 
independent verification.
    Also, the collection allows the banks to collect identity 
information, but it does not require that they verify the 
information that is being provided about ownership interest. So 
there would be the additional ability to validate the ownership 
information that is being gathered by the banks as well.
    And to both of my colleagues, I think it is vital that law 
enforcement would then have a one-stop shop that would allow 
them to get to that information much more quickly than 
accessing subpoenaed information from the banks or across a 
variety of States and jurisdictions.
    Senator Jones. All right. Real quick, Director Blanco, one 
of the concerns has always been that this information might be 
leaked, that it would get out in the public. But from what I 
can tell, FinCEN has done a heck of a job--I mean, you get--I 
cannot remember, I cannot begin to think of how many SARs you 
get each day, and there are some pretty strict penalties for 
that, and it has been very successful. Is that correct?
    Mr. Blanco. That is correct, Senator, and we have a 
rigorous process.
    Senator Jones. Awesome. And we would expect to keep that 
rigorous process with any new legislation on beneficial 
ownership.
    Mr. Blanco. Agreed.
    Senator Jones. All right. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman.
    First of all, let me add very briefly my voice to Senator 
Brown and Senator Van Hollen in terms of some of the recent 
press reports. I do think it is very, very worthy of further 
investigation and answers that both my colleagues have 
requested.
    Let me also compliment Senator Jones for his leadership on 
the efforts that I have been involved with as well to try to 
bring a little modernization to both AML and the beneficial 
ownership component, and I appreciate the support on both sides 
of the aisle.
    I think we all know, I think Mr. D'Antuono in his written 
testimony cited the fact that the Financial Action Task Force 
on money laundering put out a report in 2006 that said America 
was way behind. And then we put out another report in 2016 that 
said, while most of the EU has actually made progress, we are 
still way behind. And it would be my hope that this would be an 
area that the Committee could take up, because I think as 
Senator Jones already mentioned, the fact is the U.S. has 
fallen so far behind and we have so many shell companies, that 
so much illicit activity is taking place, and I think there are 
ways that we can sort through this. I think there are ways we 
can do this in a bipartisan way.
    I think not he question of beneficial ownership, which 
Senator Jones already raised, I think there is a lot of 
agreement that FinCEN should manage that Federal database that 
would be that one-stop shop, that would not provide an undue 
burden.
    One of the ideas that we have been thinking about is having 
beneficial ownership only reported upon incorporation and that 
you would only need an update when there was a change in that 
beneficial ownership. We have seen in the U.K. on average an 
ownership is about 1.1 persons per company. I do not think 
there would be any major difference between the U.S. and the 
U.K.
    So, Mr. Blanco, let me start with you. If we had this 
approach--and I know there are a variety of approaches--report 
beneficial ownership upon incorporation and then only when 
there are significant changes in ownership, that would be a 
fairly straightforward approach, and do you think that approach 
would be workable and would actually help minimize the burden 
on small businesses?
    Mr. Blanco. I think it is workable, simple, and I think it 
could be effective.
    Senator Warner. And do you think you have--given enough 
flexibility, do you think FinCEN could utilize existing 
processes and procedures such as updating State business 
licenses or quarterly tax filings to further make sure that 
there is not some major new burden placed upon small 
businesses?
    Mr. Blanco. Senator, that gets a little bit more 
complicated. If what you are asking us to do is verify the 
information, I would just be candid with you; that would be a 
big mistake. There would be no way that FinCEN could be able to 
verify that information. I mean, there are other ways that it 
could be verified, short of self-verification itself. But 
having FinCEN do that work----
    Senator Warner. I am not looking so much here about 
verification. I recognize the number of businesses and your 
limited resources. But at least in terms of a collection point, 
we could do this with an already existing collecting point so 
that it is not some new requirement.
    Mr. Blanco. Oh, yes, I mean, we can intake this new 
information with relative ease depending on whether it is 
resourced, and it depends, Senator, on what you are asking us 
to do and how you are asking us to store it. But we can store 
it, secure it, and effectively disseminate it appropriately.
    Senator Warner. And, again, echoing Senator Jones has 
already asked, this notion that if we collected beneficial 
ownership, it would somehow be leaked out, I do think with the 
volume of materials you already handle with both SARs and other 
reporting, you have got a pretty good record of not having 
leakages. Do you think you could bring that same type of 
protections to a beneficial ownership regime?
    Mr. Blanco. Absolutely.
    Senator Warner. And, Mr. D'Antuono, do you want to, again--
I know you have testified on this already--speak to the real 
need here to make sure within law enforcement that, without 
this tool around beneficial ownership, you know, we are not 
really going to be able to give you the tools you need to make 
sure that these shell companies are not misused at the level 
that both this international organization pointed out both in 
2006 and then rereported in 2016? Can you speak to that?
    Mr. D'Antuono. Yes, absolutely, sir. It is time consuming. 
Doing any investigations, be it witness interviews, 
surveillance, legal process, the MLAT process, they all take 
time, and peeling back that onion is going to take us time. And 
when it is obscured again and again into different layers, it 
takes more and more time for us to get to it. You add on the 
top of it where there could be hundreds of shell companies in 
one investigation, that is a lot of time that it takes for an 
investigator or an analyst to look at.
    So one central repository with all the information, the 
identifiers, someone that we can go talk to, someone that might 
be a weak link, somebody that maybe set up the company, but 
knows who the true beneficial owner really is, and if they 
falsify it, there is no--there is no way we can stop somebody 
from falsifying information on those documents. But if we have 
enforcement and we can enforce the law, then that is going to 
help us in our investigations, and people that we talk to, to 
put that hook on them, to say what is truly behind this.
    Senator Warner. I know my time has expired, but we could do 
that in a way that would not unduly penalize someone who made a 
mistake in terms of initial filing.
    Mr. D'Antuono. We do not investigate or we do not prosecute 
people that make mistakes.
    Senator Warner. And I would just say, Mr. Chairman, I think 
in this space there has been a lot of good work done by Senator 
Jones and others on AML. I think there is a path forward that 
we have seen from the U.K. and the vast majority of the EU on 
beneficial ownership. And it would be my hope, Mr. Chairman, 
that you and the Ranking Member could take some of the good 
work that is being put together, and this could be an area 
where we could put much-needed reform in place.
    Chairman Crapo. Thank you.
    Senator Sinema.
    Senator Sinema. Thank you, Mr. Chairman. And thank you to 
our witnesses for being here today.
    In 2018, nearly 86 percent of the hard narcotics that 
flowed into Arizona came through our ports of entry. Over the 
years the Sinaloa cartel and other criminal groups have moved 
millions of pounds of methamphetamine and heroin from Mexico 
through Arizona. Arizonans so clearly bear the brunt of 
Washington's failure to address our southern border crisis.
    But drugs are not the only thing trafficked across our 
southern border. People, including women and children, are 
often smuggled across the southern border, sometimes against 
their will. On their journeys and when they arrive, they face 
exploitative conditions, including forced labor and physical 
and sexual abuse.
    Earlier this year, the leader of the Sinaloa cartel, 
Joaquin Guzman, also known as ``El Chapo,'' was convicted of 
laundering billions of dollars through the U.S. banking system. 
Federal agents now believe that his brother has picked up the 
cartel's operations in Arizona. Think about that for a second. 
The most dangerous drug cartel operating in Arizona is fueling 
its operations to the tune of billions of dollars through the 
same U.S. banks that we all use. That is pretty outrageous.
    So I also serve on the Homeland Security Committee, and as 
Arizona's senior Senator, I am working to secure the border 
with a smart, comprehensive, and bipartisan approach. But to 
defeat these drug cartels and keep Arizona families safe, we 
need more than just physical border security. We need to cutoff 
the finances that fuel their operations and shut them out of 
the U.S. banking system. So we are working to strengthen U.S. 
anti- money-laundering laws to stop drug cartels, fight 
terrorism, and end the scourge of human and sex trafficking.
    After this drug money makes its way through the U.S. 
financial system, cartels like Sinaloa park these dollars in 
shell companies or in real estate. Mr. Guzman's trial 
illustrated all of these methods. So one way to prevent 
criminals from hiding behind companies and operating in plain 
sight is through the collection of beneficial ownership 
information, so I would like to start there.
    Mr. Blanco, thanks for being here. How would collecting 
beneficial ownership information at the time of incorporation 
enhance FinCEN's ability to cutoff drug cartel financing?
    Mr. Blanco. It would be tremendous. As you know, Senator, 
whether it is a front company, whether it is a shell company, 
or whether they are using nominees, Chapo Guzman is not going 
to put the company in his name. That is not going to happen.
    Senator Sinema. Right.
    Mr. Blanco. And I guess maybe now he can, but, you know, 
no, it is not going to happen. So at the end of the day, what 
you want is you want to put people on the line when they come 
and they open their company and they look at you eye to eye, 
who are you, where do you live, what is your company, who are 
the beneficial owners, that is different, and also them knowing 
that you are holding them accountable, which is incredibly 
important, whatever legislation you are going to draft, you 
need to make sure that the penalty is appropriate.
    Senator Sinema. Thank you.
    Mr. Blanco. I mean appropriate. For example, as the FBI was 
saying earlier, as Steve was saying earlier, you do not want to 
hold--we are not after the mom-and-pop. We are not after the 
farmer. We want the information. We want to go after the person 
who is intentionally thwarting or the criminal who is going 
after it.
    Senator Sinema. And as you know, each year drug traffickers 
launder hundreds of billions of dollars of dirty money through 
a practice known as ``trade-based money laundering.'' It is one 
of the hardest methods to detect because criminals use 
legitimate trade in some form to disguise their criminal 
proceeds. Sinaloa made TBML an art form.
    So my question is for both you and Mr. D'Antuono. Relative 
to more traditional money-laundering strategies like 
structuring, could you both speak to some of the unique 
challenges that FinCEN and the FBI face in identifying and 
stopping TBML? And how can more centralized, up-to-date 
beneficial ownership information assist in focusing our limited 
resources to improve investigation and enforcement efforts?
    Mr. D'Antuono. So I will take this, Ken. TBML is a huge 
issue in money laundering. It is a time-intense, resource-
draining-intense investigation. They use shell companies 
tremendously in that. I am the Chair of the Money Laundering 
Working Group for the Five Eyes countries. We have discussions 
about TBML all the time across those lanes. We are all 
combating that across the globe because it is--it is difficult 
for us to really dive into those cases. They are so intense. 
There is a lot of data. The shell companies, the beneficial 
ownership repository would go very well for a tool for us to be 
used to combat trade-based money laundering. As we pointed out, 
El Chapo is not going to list El Chapo on the application. It 
would be great if he did. But----
    Senator Sinema. Unlikely.
    Mr. D'Antuono. Unlikely. But it is one of those things 
where there might be that nominee in that account--there will 
be that nominee in that account that we can then go to and put 
the hand on them and say if there is some bite to this law or a 
law, we can then enforce that and say, ``What is truly the 
story?'' And that is where we come in. That is what we do in 
law enforcement. That is our tools.
    Senator Sinema. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Chairman Crapo. Thank you.
    And that concludes our questioning. Again, I thank the 
witnesses for your repeat appearance and for all of the support 
and help you are giving us in getting a handle on the right way 
to attack this issue.
    For Senators wishing to submit questions for the record, 
those questions are due in 1 week, on Tuesday, May 28th. And to 
the witnesses, again, I ask that as you receive questions from 
Senators, if you would promptly respond.
    Thank you again for being here today. This hearing is 
adjourned.
    [Whereupon, at 11:22 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
    The hearing will come to order. Welcome back to our panel of 
witnesses from our last hearing in November.
    The Committee will hear from today's witnesses about the need to 
deter money laundering and the financing of terrorism through the use 
of front companies, shell companies, shelf companies, opaque nominees, 
and other means to conceal and disguise the true beneficial owners of 
property and other assets.
    The purpose of today's hearing is to examine the difficult issues 
surrounding the need for and manner of collecting what is known as 
``beneficial ownership'' information from such anonymous corporate 
utilities.
    This hearing, from the perspective of law enforcement and a 
regulator, will be the first of two on the subject, with a second 
hearing focusing on various industry perspectives.
    Clearly, the vast majority of anonymous corporate vehicles used 
today serve legitimate purposes and are formed with no criminal intent 
whatsoever.
    Therefore, we must bear in mind the amount of burden which may 
befall an overwhelming majority of small business owners.
    Yet, over the years, law enforcement, the GAO, congressional 
committees in both chambers, and U.S.-led international bodies, like 
the Financial Action Task Force, have identified not only a high 
potential for their abuse, but have also identified far too many open 
investigations involving anonymous shells connected to money 
laundering, terrorist financing, corruption, weapons proliferation, 
sanctions evasion, and a host of other threats.
    High profile leaks of serious tax abuses, such as found by 
investigative journalists in the Panama Papers and Paradise Papers, 
have further identified the use of anonymous corporate vehicles to 
accomplish illicit global financial activities.
    I applaud the work of FinCEN in developing its Customer Due 
Diligence, or ``CDD'' Rule, that went into effect a year ago this 
month.
    FinCEN engaged for years with industry and other stakeholders to 
issue a rule that requires certain covered financial institutions to 
collect information on identifiable people who actually own, control, 
and profit from their corporations.
    The rule is an achievement in terms of obtaining some transparency 
into corporate ownership to protect the U.S. financial system from 
those who seek to abuse it.
    But, the rule's strengths and weaknesses are a product of its 
design to focus collection requirements for beneficial ownership 
information only on certain financial institutions.
    The rule mainly helps financial institutions to mitigate risk, and 
the information received can provide some help to assist law 
enforcement in identifying criminal assets, accounts, and national 
security threats from those who use the financial system.
    The rule, however, does not reach all of the general population of 
millions of new corporate vehicles formed each year to operate in this 
country, nor especially those new corporations which are exported 
overseas that will never see an American financial institution, but 
still benefit from an American address.
    Working in partnership with our Government's law enforcement and 
regulatory agencies, for the nearly 50 years since enactment of the 
Bank Secrecy Act, the U.S. financial industry is on the front lines of 
preserving the integrity of the U.S. and international financial 
system, and I see no changing that anytime soon.
    The fine efforts of our financial institutions should not be in 
vain to the extent that they can address only part of the larger 
beneficial ownership problem.
    We will hear today some legitimate needs of law enforcement for a 
wider collection of more useful beneficial ownership information, and 
for a place to store it all.
    From our regulator, we will learn about how that information should 
be stored, by whom and under what conditions the privacy of that 
information is protected.
    I am confident that there are a number of solutions to this problem 
if Congress can work together, in the manner of FinCEN, to identify the 
parameters of the problem and take into account the consequences of 
such a daunting collection of information would have on all 
stakeholders.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR SHERROD BROWN
    Thank you, Mr. Chairman, for calling this important hearing as a 
follow-up to previous hearings in the Committee on Bank Secrecy Act and 
anti- money-laundering reform efforts.
    This weekend we got a reminder of how important these issues are, 
courtesy of reporting by the New York Times that money laundering 
specialists working for Deutsche Bank had repeatedly recommended the 
filing of suspicious activity reports on transactions by President 
Trump's and Jared Kushner's organizations, including transactions with 
actors overseas.
    But those experts were over-ruled by senior Private Wealth Division 
officials. Even State regulators or House Financial Services Committee 
subpoenas to Deutsche Bank can't get at suspicious activity reports 
that are never filed--that are effectively quashed within the bank and 
never conveyed to the experts at FinCEN in the Treasury Department and 
the financial watchdogs that are supposed to assess these transactions.
    And compliance officials described a pattern at Deutsche of efforts 
like that to reject SAR filings for lucrative clients. We need to get 
to the bottom of what happened here. Everyone has to follow anti- 
money-laundering laws and rules--you don't get an exemption if you have 
a rich and powerful client. And we have to hold financial institutions 
accountable if they break the rules. I've written to Deutsche Bank's 
CEO making that clear, and demanding answers.
    While banks obviously have a key monitoring role, it's also 
important that we require companies to provide basic information on 
their ownership when they're formed. In today's hearing, the first of 
two, we'll focus on the transparency, anticorruption and anti- illicit-
financing benefits of requiring U.S. firms to provide this basic 
beneficial ownership information.
    This information would help address a longstanding problem for U.S. 
law enforcement in investigations of cases involving counterterrorism, 
drug trafficking, money laundering, Medicare and Medicaid fraud, human 
trafficking, and other crimes.
    Criminals, terrorists, and even rogue Nations use layer upon layer 
of shell companies to disguise and launder illicit funds that are the 
proceeds of crimes. That makes it harder to hold bad actors 
accountable.
    Under current law, by the time law enforcement is able to actually 
go through the grand jury and subpoena process, and pierce the 
corporate veil to discover who is behind these shell companies, the 
criminals--and the proceeds of their crimes--are long gone, often 
overseas and out of reach of U.S. law enforcement.
    I am pleased that today we will hear Administration views, 
including from key officials from the FBI and FinCEN, on the importance 
of finally--after decades of criticism that the U.S. is a haven for 
anonymous shell companies--changing our laws to address this issue.
    Chairman Crapo and I agree--we must move forward to require 
complete ownership information--not front men, not those forming 
companies on behalf of those who will pull the strings from behind the 
curtain--but the actual owners of companies who law enforcement can go 
to if the entity becomes involved in criminal activity.
    We can do this simply, efficiently, and effectively, without unduly 
burdening small businesses or others, by requiring that ownership 
information be provided by all companies when they're formed, and then 
creating a database within FinCEN, controlled under tight privacy laws, 
that would be accessible to law enforcement.
    None of the crimes we'll discuss today--drug trafficking, human 
trafficking, Medicare fraud, money laundering--are victimless crimes.
    For example, money laundering for drug cartels has a direct line to 
the opioid crisis in Ohio, where Sinaloa cartel actors have been 
destroying thousands of families.
    Human traffickers who exploit the misery of runaways in truckstops 
at the intersections of major interstate highways in Ohio and across 
the country, use the financial system to launder their profits.
    Medicare fraudsters cost the U.S. Government and private parties 
over $2.6 billion in 2017, according to the HHS Inspector General, and 
have generated about $3.3 billion in recovered funds so far this year.
    That's why anti- money-laundering and beneficial ownership laws are 
so critical: they protect the integrity of our financial system, and 
provide critical intelligence to law enforcement to combat crime.
    Updating and strengthening our AML and beneficial ownership laws 
will give us a 21st century system to combat these crimes. I guarantee 
you criminals have long been revising, adjusting, and amending their 
tactics to circumvent them.
    I know today's witnesses have thought about these issues for years, 
and have been pressing for such reform for much of their careers. I 
welcome you all back to the Committee, and look forward to your 
perspectives.
                                 ______
                                 
                PREPARED STATEMENT OF KENNETH A. BLANCO
Director, Financial Crimes Enforcement Network (FinCEN), Department of 
                              the Treasury
                              May 21, 2019
    Chairman Crapo, Ranking Member Brown, Members of the Committee, 
thank you for having me here today to discuss eliminating anonymous 
shell corporations by collecting beneficial ownership information in 
order to preserve our national security and protect our people from 
harm.
    A Russian arms dealer nicknamed the ``The Merchant of Death'', who 
sold weapons to a terrorist organization intent on killing Americans. 
Executives from a supposed investment group that perpetrated a Ponzi 
scheme that defrauded more than 8,000 investors, most of them elderly, 
of over $1 billion. A complex nationwide criminal network that 
distributed oxycodone by flying young girls and other couriers carrying 
pills all over the United States. A New York company that was used to 
conceal Iranian assets, including those designated for providing 
financial services to entities involved in Iran's nuclear and ballistic 
missile program. A former college athlete who became the head of a 
gambling enterprise and a violent drug kingpin who sold recreational 
drugs and steroids to college and professional football players. A 
corrupt Venezuelan treasurer who received over $1 billion in bribes.
    These crimes are very different, as are the dangers they pose and 
the damage caused to innocent and unsuspecting people. The defendants 
and bad actors come from every walk of life and every corner of the 
globe. The victims--both direct and indirect--include Americans exposed 
to terrorist acts; elderly people losing life savings; a young mother 
becoming addicted to opioids; a college athlete coerced to pay 
extraordinary debts by violent threats; and an entire country driven to 
devastation by corruption. But all these crimes have one thing in 
common: shell corporations were used to hide, support, prolong, or 
foster the crimes and bad acts committed against them. These criminal 
conspiracies thrived at least in part because the perpetrators could 
hide their identities and illicit assets behind shell companies. Had 
beneficial ownership information been available, and more quickly 
accessible to law enforcement and others, it would have been harder and 
more costly for the criminals to hide what they were doing. Law 
enforcement could have been more effective and efficient in preventing 
these crimes from occurring in the first place, or could have 
intercepted them sooner and prevented the scope of harm these criminals 
caused from spreading.
    Financial sanctions could have been leveraged sooner to disrupt 
global threats, block assets within U.S. jurisdiction, identify 
sanctions evaders, and incentivize behavior change. With clearer 
information on the actors behind front companies, the efficacy of the 
Office of Foreign Assets Control's (OFAC) sanctions and the Financial 
Crimes Enforcement Network's (FinCEN) anti- money-laundering 
authorities would improve, enabling us to more effectively secure our 
Nation and achieve our foreign policy goals.
Case Examples
    Viktor Bout was engaged in international arms trafficking for many 
years, arming some of the most violent conflicts around the globe. 
Known as ``The Merchant of Death'', Bout was finally apprehended when 
he agreed to sell millions of dollars' worth of weapons to confidential 
informants representing they were acting on behalf of the Fuerzas 
Armadas Revolucionarias de Colombia (the ``FARC''), a U.S. designated 
terrorist organization, with the specific understanding that the 
weapons were to be used to attack U.S. helicopters in Colombia. 
Specifically, he agreed to sell 700-800 surface-to-air missiles, over 
20,000 AK-47 firearms, 10 million rounds of ammunition, five tons of C-
4 plastic explosives, ``ultralight'' airplanes outfitted with grenade 
launchers, and unmanned aerial vehicles. To support his vast arms 
dealing business, Bout incorporated at least 12 shell corporations in 
Texas, Florida, and Delaware.
    Robert Shapiro, owner of Woodbridge Group of Companies LLC, and his 
former Directors of Investments were charged with orchestrating a 
massive Ponzi scheme from 2012 to 2017. They promoted speculative and 
fraudulent securities to potential investors, targeting elderly 
investors who had Individual Retirement Accounts (IRAs) through high-
pressure sales tactics, deception, material misrepresentations, and 
investor manipulation. Shapiro and his group were responsible for 
fraudulently stealing $1.2 billion from more than 8,000 retail 
investors, most of them elderly retirees. At one point, Shapiro and his 
coconspirators had approximately 600 employees working for them, and 
used roughly 100 U.S. shell corporations to hide assets and further 
their Ponzi scheme.
    Kingsley Iyare Osemwengie and 17 other coconspirators used call 
girls, couriers, commercial carriers, and the U.S. mail to distribute 
oxycodone pills all over the United States, thereby contributing to our 
current opioid addiction epidemic. More than 70 couriers took nearly 
800 flights to 40 different U.S. cities that the conspiracy used to 
move drugs and money. Osemwengie and other coconspirators netted 
millions of dollars of drug proceeds that allowed them to live opulent 
lifestyles. They maintained luxury residences in Las Vegas, Nevada, and 
Miami, Florida, and drove high-end automobiles, including two Mercedes-
Benzes and four Bentleys. Osemwengie's complex oxycodone network hid 
the source of their income behind several U.S. shell companies.
    Bank Melli, a bank owned and run by the Government of Iran that was 
designated under a counterproliferation authority and now is subject to 
counterterrorism sanctions, hid the fact that it owned and operated a 
skyscraper on Manhattan's Fifth Avenue generating millions upon 
millions of dollars for the Iranian Government and its malign 
activities, right under the nose of U.S. authorities. Bank Melli 
violated U.S. sanctions by, among other things, creating two shell 
companies in New York to generate revenue for the Iranian regime.
    Owen Hanson, leader of the violent ``ODOG Enterprise'', operated an 
international drug trafficking, gambling, and money laundering 
enterprise in the United States, Central and South America, and 
Australia from 2012 to 2016. Hanson trafficked hundreds of kilograms of 
cocaine, heroin, methamphetamine, MDMA (ecstasy), anabolic steroids, 
and Human Growth Hormone (HGH), including to numerous professional 
athletes, earning millions of dollars in illegal proceeds. He also 
operated a vast illegal gambling operation focused on high-stakes 
wagers placed on sporting events, using threats and violence against 
his gambling and drug customers to force compliance. Hanson set up 
numerous domestic shell companies to launder the proceeds of his 
crimes, hide assets, and continue his criminal enterprise.
    Alejandro Andrade Cedeno, a former Venezuelan national treasurer, 
received over $1 billion in bribes from coconspirators in exchange for 
using his position as Venezuelan national treasurer to select them to 
conduct currency exchange transactions at favorable rates for the 
Venezuelan Government. He received cash as well as private jets, 
yachts, cars, homes, champion horses, and high-end watches from his 
coconspirators. As part of his plea agreement, Andrade agreed to a 
forfeiture money judgment of $1 billion and forfeiture of all assets 
involved in the corrupt scheme, including real estate, vehicles, 
horses, watches, aircraft, and bank accounts. This corrupt Venezuelan 
public official funneled the proceeds of his bribery to U.S. shell 
companies.
Impact on National Security and Safety of Citizens
    Stories of ordinary people and taxpayers victimized by criminals 
exploiting and hiding behind the secrecy of shell companies are all too 
common. Opaque corporate structures such as shell corporations 
facilitate anonymous access to the financial system for every type of 
criminal and terrorist activity. Narcotraffickers, corrupt leaders, 
rogue States, terrorists, and fraudsters of all kinds establish 
domestic shell companies to mask and further criminal activity, to 
invest and buy assets with illicit proceeds, and to prevent law 
enforcement and others from efficiently and effectively investigating 
tips or leads. We recognize that corporations, limited liability 
companies, partnerships, and other entity structures play a vital role 
in domestic and global commerce, but they are also vulnerable to abuse, 
and currently pose a gap--a dangerous gap--in our national security 
apparatus that we need to address.
    FinCEN's recent Customer Due Diligence Final Rule (CDD rule), which 
requires the collection of beneficial ownership information when 
opening an account at a bank or other financial institution, is but one 
critical step toward closing this national security gap. The second 
critical step in closing this national security gap is collecting 
beneficial ownership information at the corporate formation stage.
    One of the most effective ways to deter criminals and to stem the 
harms that flow from their actions--including harm to American citizens 
and our financial system--is to follow the money, expose illicit 
activity, and prevent networks from operating undetected or secretly 
benefiting from the enormous power of our economy and financial system. 
Identifying and disrupting illicit financial networks not only assists 
in the prosecution of criminal activity of all kinds, but also allows 
law enforcement to halt and dismantle criminal organizations and other 
bad actors before they harm our citizens or our financial system.
    It also allows us to use economic statecraft to expose and dissuade 
nefarious activity that threatens our country and the integrity of the 
global financial system, including through OFAC's sanctions and 
FinCEN's authorities, such as identifying primary money laundering 
concerns under Section 311 of the USA PATRIOT Act.
    Money laundering and its associated crimes and bad acts undermines 
the rule of law and our democracy because it supports and rewards 
corruption and other crimes, allowing it to grow and fester. As such, 
our efforts to combat money laundering directly affect the safety and 
security of the American public, the stability of our Nation, and its 
national security.
    As a former State and Federal prosecutor, I know firsthand how 
difficult it is to trace assets hidden through a variety of legal 
entities. To determine the true owner of a shell company or front 
company in the United States today requires law enforcement to 
undertake a time-consuming and resource-intensive process. It often 
requires human source information, grand jury subpoenas, surveillance 
operations, witness interviews, search warrants, and foreign legal 
assistance requests to get behind the outward facing structure of these 
shell companies. This takes an enormous amount of time--time that could 
be used to further other important and necessary aspects of an 
investigation--and wastes resources, or prevents investigators from 
getting to other equally important investigations. The collection of 
beneficial ownership information at the time of company formation would 
significantly reduce the amount of time currently required to research 
who is behind anonymous shell companies, and at the same time, prevent 
the flight of assets and the destruction of evidence.
Global Impact
    As cross-border crime continues to proliferate--and it is most 
certainly proliferating--our efforts to combat the most sophisticated 
white-collar and cybercriminals require law enforcement to work with 
our partners all over the world to seek the evidence and witnesses 
necessary to build their cases. We need to collaborate with our foreign 
counterparts, not only to investigate crimes that have been committed 
and to cooperate on sanctions, but also to intercept ongoing crimes and 
to prevent crimes from occurring in the first place. We must be nimble 
in order to coordinate quickly, effectively, and fluently with our 
counterparts abroad. Criminals and other bad actors do not have borders 
and do not comport with the rule of law. To combat them, we need to 
work seamlessly with our foreign counterparts in a way that is 
efficient and effective.
    Just as we receive significant assistance from our foreign partners 
in our investigations and prosecutions, we too must provide significant 
assistance to them in researching the beneficial owners of U.S. shell 
companies. This coordination is especially important when crimes are 
being planned by overseas actors targeting victims in the United 
States, or when bad actors use our financial system or opaque corporate 
structures to victimize people globally, including in the United 
States. The bottom line is that we need our foreign partners to have 
important information in a timely way, in order to stop and arrest 
criminals overseas to prevent harm caused to us here at home. This 
balanced model of reciprocity in information sharing is a vital tool in 
modern prosecution--whether the prosecutor is sitting in the United 
States, Europe, South America, or elsewhere.
    However, identifying beneficial ownership information in the United 
States can only be achieved today through a long, drawn-out process 
with many hoops, twists, and turns. This often dissuades some of our 
partners overseas from working with us. Indeed, the Financial Action 
Task Force (FATF)--a global intergovernmental body responsible for 
developing and promoting policies to protect the global financial 
system against money laundering and other threats, composed of 38 
members, including all the G7 countries and our most reliable 
partners--recognized and highlighted in the 2016 Mutual Evaluation this 
issue as one of the most critical gaps in the United States' compliance 
with its standards. FATF noted that the lack of beneficial ownership 
information significantly slows investigations because determining the 
true ownership of bank accounts and other assets often requires that 
law enforcement undertake a time-consuming and resource-intensive 
process. While we have since implemented customer due diligence 
requirements, more must be done. Collecting beneficial ownership 
information at company formation would assist us and our foreign 
partners as we collaborate to stop criminals, seize and forfeit illicit 
assets, and protect the public.
    As more and more of our allies begin to collect beneficial 
ownership information at the incorporation stage in their countries and 
make it accessible to law enforcement, the U.S. risks becoming a safe 
haven for bad actors looking to hide their assets. As Americans, we 
have always led in the areas of rule of law, security, and law 
enforcement. Our failure to lead here is perplexing to the global 
community that has come to rely on and expect our leadership.
Conclusion
    In conclusion, the time to address this important issue is now. As 
Treasury Secretary Mnuchin has stated several times in Congressional 
testimony, beneficial ownership information at corporate formation is 
an important issue to the Department of the Treasury. It is critical 
for the security of our Nation and its citizens that Congress act to 
eliminate one of the most useful tools used by criminals to perpetrate 
their crimes, hide their proceeds, and subvert law enforcement. That is 
why we appreciate this Committee's work on this issue, and we hope to 
work with Congress on developing a bipartisan solution to collecting 
this important information to protect our national security and the 
people of our Nation. I am happy to take any questions you may have.
                                 ______
                                 
               PREPARED STATEMENT OF STEVEN M. D'ANTUONO
  Acting Deputy Assistant Director, Criminal Investigative Division, 
         Federal Bureau of Investigation, Department of Justice
                              May 21, 2019
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
I am pleased to appear before you today to discuss the usefulness of 
beneficial ownership information to our Nation's law enforcement. This 
hearing is an important step forward towards developing the laws needed 
to effectively combat illicit financing through the use of anonymous 
vehicles, such as shell companies, and the Federal Bureau of 
Investigation (FBI) appreciates being consulted on these incredibly 
important matters.
Overview
    The U.N. Office on Drugs and Crimes estimates that global illicit 
proceeds total more than $2 trillion annually, and proceeds of crime 
generated in the United States were estimated to total approximately 
$300 billion in 2010. For an illegal enterprise to succeed, criminals 
must be able to hide, move, and access these illicit proceeds--often 
resorting to money laundering and increasingly utilizing the anonymity 
of shell and front companies to obscure the true beneficial ownership 
of an entity.
    The pervasive use of shell companies, front companies, nominees, or 
other means to conceal the true beneficial owners of assets is a 
significant loophole in this country's Anti- Money Laundering (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 require information regarding the identity of 
individuals who ultimately own or control legal entities upon formation 
of these entities.
    Not only does the State-level regime lack beneficial ownership 
information, no Federal-level system exists to consolidate or 
supplement the information that is collected under the various State 
regimes. Moreover, except in very narrow circumstances, current Federal 
laws do not require identification of beneficial owners at account 
opening with financial institutions.
    The FBI has countless investigations, spanning criminal and 
national security threats, in which illicit actors, operating both 
domestically and internationally, use shell and front companies to 
conceal their nefarious activities and true identities. The strategic 
use of these entities makes investigations exponentially more difficult 
and laborious. The burden of uncovering true beneficial owners can 
often handicap or delay investigations, frequently requiring 
duplicative, slow-moving legal process in several jurisdictions to gain 
the necessary information. This practice is both time consuming and 
costly. The ability to easily identify the beneficial owners of these 
shell companies would allow the FBI and other law enforcement agencies 
to quickly and efficiently mitigate the threats posed by the illicit 
movement of the succeeding funds.
    In addition to diminishing regulators', law enforcement agencies', 
and financial institutions' ability to identify and mitigate illicit 
finance, the lack of a law requiring production of beneficial ownership 
information attracts unlawful actors, domestic and abroad, to abuse our 
State-based registration system and the U.S. financial industry. Many 
of the United States' closest partners require beneficial information 
in order to detect illicit finance and protect their financial systems. 
The Nations with the most effective AML and counterterrorist financing 
(CFT) regimes require documentation of beneficial owners for ``legal 
persons,'' generally referring to corporations, trusts, and property, 
held in a centralized database easily accessible by Government 
agencies. If corporation, trust, and real property owners in the United 
States were required to disclose beneficial ownership, and this 
information was made available to regulators and law enforcement 
through a central repository, the United States would more vigorously 
be able to identify and mitigate illicit actors and protect the U.S. 
financial system.
Nature of the Problem
    In recent years there have been multiple assessments, undertaken by 
the Financial Action Task Force (FATF), as well as the Department of 
the Treasury, which highlight the vulnerabilities faced by the United 
States as a result of a near complete lack of transparency into 
beneficial ownership.
    Financial Action Task Force (FATF). The FBI is part of the 
Treasury-led U.S. delegation to FATF. The FATF is an independent 
intergovernmental body that develops and promotes policies to protect 
the global financial system against money laundering, terrorist 
financing, and the financing of proliferation of weapons of mass 
destruction. The FATF Recommendations are recognized as the global AML 
and CFT standards.
    FATF's Guidance on Transparency and Beneficial Ownership, found in 
FATF Recommendations 24 and 25, States that countries should take 
measures to prevent the misuse of legal persons [such as shell 
companies, corporate structures, and other entity structures] for money 
laundering and terrorist financing by ensuring that legal persons are 
sufficiently transparent. The fundamental principle is that countries 
should ensure that there is adequate, accurate, and timely information 
on the beneficial owner or owners that can be obtained or accessed in a 
judicious fashion by competent authorities without impediments.
    In its 2016 Mutual Evaluation Report (MER) of the United States' 
Anti- Money Laundering and Counter Terrorist-Financing regime, the FATF 
highlighted the lack of beneficial ownership information issue as one 
of the most critical gaps in the United States' compliance with FATF 
standards. Specifically, the MER stated that ``serious gaps in the 
legal framework prevent access to accurate beneficial ownership 
information in a timely manner,'' and that ``fundamental improvements 
are needed in these areas.''
    FATF noted that this issue can significantly mitigate law 
enforcement's and regulators' ability to combat illicit finance in the 
United States. Determining the true ownership of bank accounts and 
other assets often requires that U.S. law enforcement undertake a time-
consuming and resource-intensive process, providing ample time for 
movement of funds or additional layering to conceal the ownership or 
location of funds. 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. The lack of a current legal requirement 
to collect beneficial ownership information also undermines financial 
institutions' ability to determine which of their clients pose 
compliance risks, which in turn harms banks' ability to guard against 
money laundering.
    Furthermore, in a 2018 report titled Concealment of Beneficial 
Ownership, FATF found that, ``the lack of [available beneficial 
ownership in select] countries is a major vulnerability, and 
professionals operating in countries that have not implemented 
appropriate regulations [ . . . ] represent an unregulated `back-door' 
into the global financial system.''
    2018 National Money Laundering Risk Assessment. This risk 
assessment, authored by the Department of Treasury, in consultation 
with the many agencies, bureaus, and departments of the Federal 
Government that also have roles in combating illicit finance including 
the FBI, identifies the money laundering threats, vulnerabilities, and 
risks that the United States currently faces. The risk assessment noted 
that law enforcement agencies observed that misuse of legal entities 
posed a significant money laundering risk and that efforts to uncover 
the true owners of companies can be resource-intensive, especially when 
those ownership trails lead overseas or involve numerous layers. The 
assessment further noted that the lack of obligation for certain 
financial institutions to identify the natural persons who control or 
own a corporate customer had allowed individuals to access financial 
services anonymously by acting through shell companies.
    Specifically in the section on Vulnerabilities and Risks, the risk 
assessment noted that, ``bad actors consistently use shell companies to 
disguise criminal proceeds and U.S. law enforcement agencies have no 
systematic way to obtain information on the beneficial owners of legal 
entities. The ease with which companies can be incorporated under State 
law, and how little information is generally required about companies' 
owners or activities, raises concern about a lack of transparency.'' 
Though the Assessment went on to state that the impediment merely 
slowed down rather than thwarted law enforcement investigations, it 
later noted that ``complex ownership structures featuring layers of 
corporate entities, trusts, or nominee owners-punctuated by the 
involvement of foreign natural or legal persons--also present 
challenges.''
Challenges for Law Enforcement
    There are numerous challenges for Federal law enforcement when the 
true beneficiaries of illicit proceeds are concealed through the use of 
shell or front companies. A number of these challenges are outlined 
below. It is important to note that while the FBI and other Federal law 
enforcement agencies may have the resources required to undertake long 
and costly investigations and thus mitigate to a small degree some of 
the challenges, the same is often not true for State, local, and tribal 
law enforcement.
    The process for the production of records can be lengthy, anywhere 
from a few weeks to many years, and this process can be extended 
drastically when it is necessary to obtain information from other 
countries, which may require a Mutual Legal Assistance Treaty (MLAT) 
requests to those countries. If the beneficial ownership information 
being sought pertains to an entity which is registered in a 
jurisdiction with which the United States has no bilateral MLAT, 
obtaining records may be impossible.
    Finally, if an investigator obtains the ownership records, either 
from a domestic or foreign entity, the investigator may discover that 
the owner of the identified corporate entity is an additional corporate 
entity, necessitating the same process for the newly discovered 
corporate entity. Many professional launderers and others involved in 
illicit finance intentionally layer ownership and financial 
transactions in order to reduce transparency of transactions. As it 
stands, it is a facially effective way to delay an investigation.
Potential Solutions To Mitigate Challenges
    A significant number of the challenges described above could be 
mitigated by requiring legal entities to disclose beneficial ownership 
information, and by creating a central repository of that information 
which would be available to law enforcement and regulators. There are 
numerous examples of such requirements around the world, including by 
some of our closest partners.
    The Fourth Anti- Money Laundering Directive required European Union 
(EU) member States to ensure that legal entities incorporated in their 
territory obtain and hold accurate and current information on 
beneficial ownership. This beneficial ownership information was held in 
a central register in that member State, but the registers were not 
required to be public until the European Parliament adopted the Fifth 
Anti- Money Laundering Directive in 2018. Section 25 of the directive 
deals directly and unequivocally with the requirement that member 
States acquire and retain corporate beneficial ownership:

        (25) member States are currently required to ensure that 
        corporate and other legal entities incorporated within their 
        territory obtain and hold adequate, accurate, and current 
        information on their beneficial ownership. The need for 
        accurate and up-to-date information on the beneficial owner is 
        a key factor in tracing criminals who might otherwise be able 
        to hide their identity behind a corporate structure. The 
        globally interconnected financial system makes it possible to 
        hide and move funds around the world, and money launderers and 
        terrorist financers as well as other criminals have 
        increasingly made use of that possibility.

    The Fifth Directive requires public access to data on the 
beneficial owners of most legal entities, with the exception of trusts, 
through the use of a central register. The access to data on the 
beneficial owners of trusts will be accessible without any restrictions 
to authorities, Financial Intelligence Units, banks and other 
professional sectors subject to anti- money-laundering rules, as well 
as other persons who can demonstrate a legitimate interest in the trust 
data. The directive also addresses the necessity to share the 
information between member States, in order to ensure the effective 
monitoring and registration of information on beneficial ownership. EU 
member States have a January 2020 deadline to implement the direction 
into national law.
    The United Kingdom (U.K.) has enacted perhaps the most robust 
beneficial ownership legislation to date. The U.K. has registers of 
beneficial ownership for three different types of assets: companies, 
real property, and trusts. Information on the beneficial ownership of 
companies is publicly available. For property owned by overseas 
companies and legal entities, the public beneficial ownership database 
is set to launch by 2021. The register for trusts is not public, but is 
available to law enforcement.
    In July 2017, bilateral agreements between the U.K. and the Crown 
Dependences and Overseas Territories related to the sharing of 
beneficial ownership information went into effect. These Crown 
Dependencies and Overseas Territories include the Isle of Man, the 
British Virgin Islands, the Cayman Islands, and many others. Under the 
terms of these agreements, U.K. law enforcement has access to company 
beneficial ownership information in support of investigations. This 
information must be made available within 24 hours of a request. Our 
colleagues at the U.K.'s National Crime Agency have continually noted 
the immense value of such information in their investigations.
    These frameworks can provide valuable insight into the critical 
aspects of a successful system for maintaining, accessing, and sharing 
accurate beneficial ownership information.
Examples of Cases Hindered by Obscured Beneficial Ownership Information
    As referenced above, the FBI continues to have a plethora of 
investigations, spanning criminal and national security investigations 
that have been impacted by the use of shell or front companies by bad 
actors. Examples of several such instances can be found below, 
categorized by crime problem:
    Kleptocracy. Recently, in a joint FBI and Internal Revenue 
Service--Criminal Investigations (IRS-CI) investigation, the Department 
of Justice filed civil forfeiture complaints aggregating to $1.7 
billion brought under the Kleptocracy Asset Recovery Initiative related 
to the 1Malaysia Development Berhad (1MDB) investigation. From 2009 
through 2015, more than $4.5 billion in funds belonging to 1MDB was 
allegedly misappropriated by high-level officials of 1MDB and their 
associates. 1MDB was created by the Government of Malaysia to promote 
economic development in Malaysia through global partnerships and 
foreign direct investment. The associated funds were intended to be 
used for improving the well-being of the Malaysian people. However, 
using fraudulent documents and representations, the coconspirators 
allegedly laundered the funds through a series of complex transactions 
and shell companies with bank accounts located in the United States and 
abroad. These transactions allegedly served to conceal the origin, 
source and ownership of the funds, and ultimately passed through U.S. 
financial institutions to then be used to acquire and invest in assets 
located in the United States and overseas.
    Included in the forfeiture were multiple luxury properties in New 
York City, Los Angeles, Beverly Hills, and London, mostly titled in the 
name of shell companies, as well as paintings by Van Gogh, Monet, 
Picasso, a yacht, several items of extravagant jewelry, and numerous 
other items of personal property. The investigation into the location 
and holders of the assets associated with the alleged 1MDB scheme was 
made much more difficult by the shell companies with connections in 
foreign destinations.
    Drug Traffickers, Political Corruption, and Tax Evasion. Perhaps 
the most public revelation into alleged illicit actors' use of shell 
companies to conceal ownership was the former Panamanian law firm 
Mossack Fonseca. Documents from the firm were leaked by an anonymous 
source to the International Consortium of Investigative Journalists 
(ICIJ). These documents, referred to as ``the Panama Papers'', purport 
to show how Mossack Fonseca engaged or facilitated international 
financial crimes, including alleged money laundering and tax evasion, 
using shell companies and nominees. Several prominent foreign 
politicians were identified as clients of Mossack Fonseca, leading to 
multiple heads of State resigning. Mossack Fonseca opened thousands of 
shell companies for their customers, for whom they could many times not 
even identify. These customers, at times, allegedly included known 
international narcotics traffickers.
    Mossack Fonseca was not just for international clients. A 
significant number of their clients were allegedly Americans or 
individuals involved in U.S.-based commerce. When a regulator or law 
enforcement official looked up the names of the shell entities in 
State-held registries, they would find the registered Agent as the law 
firm or one of its subsidiaries, not a true owner or anyone actually 
associated with the entity. In many instances, a U.S. regulator or law 
enforcement entity was precluded from identifying the beneficial owner 
even via legal process as Mossack Fonseca could not or would not 
provide the information. These anonymous shell companies allegedly used 
the U.S. financial system for their anonymous owners' benefits.
    Mossack Fonseca also had U.S.-based subsidiaries that established 
thousands of U.S.-based shells in Nevada, Florida, Wyoming, and likely 
other States. When officials scrutinized a shell company created by one 
of the Mossack Fonseca subsidiaries, all that the investigator could 
learn was that the Agent was ``MF Nevada'' or the like. Thereafter, the 
subsidiary Mossack Fonseca entities made it difficult to obtain any 
additional information. This, of course, made investigating the shell 
entities extremely time-consuming, inefficient, and difficult.
    Sanctions Evasion. Another example of note is the Karl Lee 
investigation. Li Fangwei, a/k/a Karl Lee, and several of his Chinese 
shell and front companies were designated by the Department of the 
Treasury's Office of Foreign Assets Control (OFAC) as the principal 
supplier to the Government of Iran's ballistic missile program. He 
owned a graphite and metallurgical production factory in Dalian, China, 
and was supplying Iran with various military and metallurgical items. 
Lee used his Chinese shell and front companies to surreptitiously 
exploit the U.S. financial system to supply weapons of mass destruction 
to Iran. Lee was indicted on seven counts of International Emergency 
Economic Powers Act (IEEPA) violations, money laundering, and related 
schemes. Approximately $7 million was seized from U.S.-based 
correspondent bank accounts associated with Lee's foreign-based 
accounts. Some of Lee's attempted sales involved U.S. businesses, who 
were unaware of the Lee's role as beneficial owner of the concealed 
Chinese shells.
    During the Karl Lee investigation the FBI faced numerous hurdles 
due to the litany of overseas shell corporations. Attempting to unravel 
Lee's shell network that had penetrated the U.S. financial system 
delayed the investigation many months and nearly proved insurmountable. 
One major challenge was that most of the U.S.-based correspondent banks 
did not collect basic know your customer information for the shell 
corporation accounts and permitted transactions to be blindly 
conducted. Thankfully, one bank did collect this information, which 
enabled the FBI to start to unravel Lee's illegal proliferation and use 
of the U.S. financial system. This fundamental information proved 
crucial to the investigation but only existed by chance, not by legal 
requirement.
    Crimes Against Children/Human Trafficking. In April 2018, the 
Department of Justice announced the seizure of Backpage.com, the 
Internet's leading forum for prostitution ads, including ads depicting 
the prostitution of children. In 2018, seven defendants were charged 
with 93 counts of prostitution related charges, money laundering, and 
transactional money laundering. Eventually, the Government seized over 
$140 million worth of USD and bitcoin.
    Approximately 97 percent of Backpage's revenue came from selling 
ads related to prostitution, which included children and victims of 
human trafficking. In approximately 2015, major credit card providers 
stopped allowing transactions with the site and almost no banks would 
provide banking serves for Backpage. The owners and operators of the 
website turned to opening shell companies in the United States, Europe, 
Asia, and South America in order to continue to operate as a company. 
Eventually, Backpage's entire revenue stream was predicated on 
concealing the receipt of money from people purchasing advertisements. 
The owners opened shell companies in order to obtain bank and merchant 
accounts. Backpage also accepted prepaid gift cards and digital 
currency, which it then sold and exchanged for cash, then moved into 
bank accounts of the shell companies in order to fund its operation.
    Unwinding these shell companies and their bank accounts took many 
months due to the lack of readily available beneficial ownership 
information. Additionally, had the banks known who the beneficial 
owners of the shell companies were, they likely would not have provided 
banking services and the revenue platform would have been eliminated. 
Thus, the criminal activity could have been starved of income and the 
abuse of children and human trafficking victims could have been halted 
years earlier than it was.
    Health Care Fraud. On April 9, 2019, FBI and Department of Justice 
officials announced the disruption of one of the largest Medicare fraud 
schemes in U.S. history. An international fraud ring allegedly bilked 
Medicare out of more than $1 billion by billing it for unnecessary 
medical equipment--mainly back, shoulder, wrist, and knee braces, as 
part of Durable Medical Equipment (DME) orders. The alleged illegal 
activity in this scheme included medical equipment companies that paid 
a firm in the Philippines to recruit individuals, who were Medicare 
patients and may or may not have had a medical need for the braces. The 
companies then allegedly paid doctors kickbacks to telemedicine 
companies that arranged for doctors to prescribe unnecessary braces 
``without any patient interaction or with only a brief telephonic 
conversation with patients they had never met or seen.'' Some of the 
telemedicine companies concealed these kickbacks by using fraudulent 
invoices and having the payments made to shell companies, which were 
located in foreign countries and established in the name of nominee 
owners. Some of the 130 DME companies associated with the investigation 
also were valueless shell companies used to conceal the true owner-
operators of the businesses. The DME companies at times hired legal 
counsel and some of the owners used straw individuals to establish new 
DME companies when Medicare would perform audits of their illegitimate 
DME business practices. The DME owners would merely move its existing 
business into the new DME company and establish new bank accounts under 
the new DME name. During its operation, DME representatives provided 
banks with the names of the straw individuals, purporting to be the 
owners of the business. By doing this, the financial institutions were 
unable to easily flag the routine fraudsters as such.
    The proceeds of this fraudulent scheme were allegedly laundered 
through international shell corporations and used to purchase exotic 
automobiles, yachts, and luxury real estate in the United States and 
abroad. The massive, months-long investigation known as ``Operation 
Brace Yourself'' spanned 20 FBI field offices and involved several 
partner agencies, including the IRS Office of the Inspector General, 
the Department of Health and Human Services' Office of the Inspector 
General, Center for Medicare and Medicaid Services, U.S. Secret 
Service, and the Department of Veterans' Affairs.
    Investment Fraud. In a joint FBI, IRS-CI, and U.S. Postal 
Inspection Service case, six individuals were ultimately charged in 
2009 for their part in running a $168,000,000 hard-money lending Ponzi 
scheme. The scheme involved the use of opaque corporate structures and 
shell entities to conceal fraud and self-dealing. Duane Slade, Guy 
Williams, and Brent Williams were the primary executives that created 
complicated investment structures and used shell companies to divert 
investors' assets. Money was siphoned from the primary investment fund 
into related shell companies, which were actually owned by the 
executives of the primary investment firm, unbeknownst to the 
investors. These executives were then able to convince multiple 
investors to purchase equity into what amounted to valueless shell 
entities. The executives even contrived a loan of investors' money from 
the primary investment to one of the shells. Though no money actually 
changed hands, the executives paid themselves a $400,000 fee for 
arranging the loan.
    Due to the convoluted nature of these interrelated shell companies 
and investment products, dozens of citizens were defrauded out of their 
life savings. Had either the citizens or the banks which provided 
banking services had a clearer picture of who owned which entities, the 
fraud may have been prevented. Finally, the multiyear, multiagency 
investigation took countless days and hours of investigation, during 
which the subjects continued to dissipate assets unknown to law 
enforcement.
    Drug Trafficking and Money Laundering. The Trevino-Morales 
brothers, alleged to be the head of the Los Zetas Mexican drug cartel, 
were indicted in Texas for their roles in using the race horse industry 
and shell companies to launder millions of dollars in drug proceeds. 
Miguel Trevino-Morales, the alleged head of Los Zetas, claims to have 
killed 385 U.S. citizens during his association with the cartel. The 
brothers structured drug proceeds into anonymous or straw shell company 
bank accounts within the U.S. financial system. The Trevino-Morales 
brothers would then purchase vast numbers of race horses from auctions 
on behalf of the shells, then sell the horses between the shells in 
order to make the deposits of vast sums of drug proceeds into their 
bank accounts look legitimate. Finally, if one of the race horses 
started winning money, they would back-date a sale of the horse into 
the known entity of the brother not outwardly associated with the Los 
Zetas, who would then deposit the winnings in furtherance of the drug 
enterprise.
    The wide use of shell companies, in both the United States and 
Mexico, made it nearly impossible for banks and investigators to 
associate the drug cartel with horses and bank accounts. If not for 
solid witness testimony and extremely diligent forensic accounting, it 
would have been difficult to prove the case. In total, 10 defendants 
were found guilty of money laundering related charges, a money 
judgement of $60 million was rendered, 522 race horses were seized (and 
sold for $12 million), two U.S.-based horse ranches were seized as well 
as two airplanes used by the cartel.
Conclusion
    I want to thank the Committee for holding this hearing and for 
calling attention to the threat posed by obscured beneficial ownership. 
The United States 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. Together with our domestic and 
international law enforcement partners, the FBI is committed to 
continuing this conversation with Congress and looks forward to 
developing and strengthening beneficial ownership laws.
                                 ______
                                 
              PREPARED STATEMENT OF GROVETTA N. GARDINEER
  Senior Deputy Comptroller for Bank Supervision Policy and Community 
 Affairs, Office of the Comptroller of the Currency, Department of the 
                                Treasury
                              May 21, 2019
Introduction
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
thank you for the invitation to appear before you today to discuss the 
threats posed to our financial system by the use of shell companies and 
other methods to conceal the true beneficial owners of assets. The 
Office of the Comptroller of the Currency (OCC) welcomes the 
Congressional focus on protecting the financial system from misuse by 
bad actors through effective implementation of the beneficial ownership 
legal regime, and we support legislative action to improve the regime's 
framework by creating a requirement for legal entities to provide 
consistent information regarding the identification of their beneficial 
owners.
    The OCC charters, supervises, and regulates more than 1,200 
national banks, Federal savings associations, and Federal branches of 
foreign banks (collectively, ``banks'') that cover virtually the entire 
range of bank asset sizes and business models. Our supervised banks 
range in size from very small community banks to the largest most 
globally active U.S. banks. The vast majority of them, about 968, have 
less than $1 billion in assets, while more than 60 have greater than 
$10 billion in assets. Together, they hold $12.7 trillion in assets--
almost 70 percent of all the assets of the commercial U.S. banks. These 
institutions touch the lives of most American families in some way.
    Fundamental to our mission as a banking supervisor, is the 
requirement that banks soundly manage their risks, meet the needs of 
their communities, comply with applicable laws and regulations, and 
provide fair access to financial services and fair treatment of their 
customers. To this end, the OCC is committed to ensuring that the banks 
we supervise have established the appropriate policies, processes, and 
procedures to implement these requirements as part of strong and 
effective BSA/AML compliance programs.
    In his testimony last week, Comptroller Otting noted that one of 
his top priorities is improving the efficiency and effectiveness of the 
BSA/AML framework, while continuing to support law enforcement and 
protect the financial system from those who seek to exploit it for 
illicit purposes. Additionally, the Comptroller expressed his concerns 
about the increased burden of BSA/AML compliance on banks. These are 
the OCC priorities that bring me here today. Our examiners' frontline 
insight, knowledge, and experience can inform the Committee of how BSA 
compliance programs are designed and implemented in the banks we 
supervise. This perspective also provides unique insights into where 
there are gaps and what can be done to strengthen the beneficial 
ownership regime used by our financial system.
    My testimony describes the challenges that are emerging as our 
banks work to implement the provisions of the Customer Due Diligence 
Requirements for Financial Institutions or CDD Rule, \1\ and highlights 
the OCC's support for the establishment of a consistent, nationwide 
requirement for legal entities to provide accurate beneficial ownership 
information. Alternatively, Congress could consider creating a 
centralized database for the maintenance of beneficial ownership 
information. In either case, a standardized approach to allow for the 
verification of beneficial ownership data would benefit law 
enforcement, regulators, and the banks supervised by the OCC.
---------------------------------------------------------------------------
     \1\ The CDD Rule issued by FinCEN on May 11, 2016, covers both 
beneficial ownership requirements codified at 31 CFR 1010.230, and the 
customer due diligence requirements codified at 31 CFR 1020.210 (banks, 
savings associations, and credit unions).
---------------------------------------------------------------------------
The Importance of Collecting Beneficial Ownership Information
    The beneficial ownership requirements of the CDD Rule were 
established by FinCEN in May 2016, with a mandatory compliance date of 
May 2018. These provisions of the CDD Rule established a comprehensive 
regulatory requirement to identify, and verify, on a risk basis, the 
identities of, beneficial owners of legal entities. These requirements 
support the important goal of the BSA to protect the Nation's financial 
system from use by criminals for illegal purposes. It also supports the 
effective implementation of the economic sanctions programs 
administered and enforced by the U.S. Treasury Department's Office of 
Foreign Assets Control (OFAC). A critical objective of the CDD Rule is 
to help prevent criminals, or prohibited individuals and entities, from 
maintaining anonymity by using legal entities to shield their illegal 
activities from detection by law enforcement.
    Prior to the issuance of the CDD Rule's beneficial ownership 
requirements in 2016, banks generally utilized the 2010 Interagency 
Guidance on Obtaining and Retaining Beneficial Ownership. The guidance 
explained that, with respect to certain accounts posing heightened 
risk, banks could take certain steps to identify and verify beneficial 
owners, in order to reasonably understand both the sources and uses of 
funds in the account and the relationship between the legal entity 
customer and the beneficial owners. As a result, prior to the CDD Rule, 
many OCC-supervised banks had policies and procedures in place to 
identify beneficial owners as a part of their general prudent risk 
management practices; however, the absence of a comprehensive 
regulatory requirement created opportunities for bad actors to misuse 
legal entity accounts.
    In some cases individuals could disguise their ownership in legal 
entities through the use of false representatives and multiple 
ownership layers using special purpose vehicles, private investment 
companies, and trust arrangements. Disguised, these parties could 
effectively send and receive funds anonymously or engage in tax 
avoidance. In addition, front companies could comingle the proceeds of 
legitimate and illegitimate business activities, and legitimate 
companies could conduct illegitimate business in trade-based money-
laundering schemes. These examples expose vulnerabilities in the 
national BSA/AML regime, where the lack of comprehensive beneficial 
ownership information has not only hampered law enforcement 
investigations, but has also negatively impacted international 
cooperation and limited banks' ability to effectively identify and 
report suspicious activity.
    The U.S. National Money Laundering Risk Assessment published by the 
Department of the Treasury in 2018 noted that the misuse of legal 
entities poses a significant money laundering risk. The risk assessment 
also noted that law enforcement efforts to uncover the true owners of 
companies can be resource intensive, especially when those ownership 
trails lead overseas or involve numerous layers of ownership through 
multiple legal entities. It is widely recognized that the abuse and 
misuse of legal entities to hide illicit sources of funds or a criminal 
beneficial owner is a common feature of money laundering and corruption 
schemes.
Bank BSA Compliance Programs and the CDD Rule
    The OCC views the implementation of the CDD Rule as an integral 
part of a bank's BSA/AML compliance program to detect the abuse of 
legal entities for criminal purposes. Under the long-standing BSA 
regulatory regime, each bank's BSA/AML compliance program must be 
designed to (1) identify and verify on a risk-basis the identity of 
each of its customers; (2) conduct appropriate risk-focused due 
diligence on those customers; and (3) identify, monitor and report 
suspicious activity. The beneficial ownership requirements of the CDD 
Rule are designed to improve the information on which banks conduct 
their risk-based customer due diligence, as noted above. Overall, the 
BSA/AML compliance program requirements establish a solid foundation to 
safeguard against banks being used as vehicles either to launder money 
for drug traffickers and other criminal organizations, to facilitate 
the financing of terrorist acts, or to permit prohibited parties 
unauthorized access to the U.S. financial system.
    The CDD Rule specifically requires banks to establish and maintain 
written policies and procedures reasonably designed to (1) identify the 
beneficial owners of each legal entity customer at the time a new 
account is opened; (2) verify the identity of each beneficial owner 
according to risk-based procedures; (3) understand the nature and 
purpose of customer relationships in order to develop customer risk 
profiles; and (4) conduct ongoing monitoring to identify and report 
suspicious transactions and, on a risk basis, to maintain and update 
customer information. The beneficial ownership provisions of the CDD 
Rule require banks to identify, and verify the identity of, as many as 
five individuals for each legal entity customer. Banks must identify 
each individual (up to four) who owns 25 percent or more of the equity 
interests in a legal entity, and, for each legal entity, one individual 
who exercises management control of that legal entity. Banks may choose 
to implement stricter written internal policies and procedures for the 
collection and verification of beneficial ownership information than 
the requirements prescribed by the Rule.
    Although the beneficial ownership requirements were issued in the 
2016 CDD final rule, compliance was not required until May 2018. Prior 
to the May 2018 compliance date, the OCC regularly reviewed the extent 
to which banks had designed and implemented appropriate risk-based 
policies and procedures for identifying beneficial ownership. OCC 
examiners determined that banks made good use of the transition period 
after the issuance of the rule to make changes in their policies and 
procedures for account opening, as well as to implement operational 
changes for suspicious activity monitoring and other systems, in order 
to meet their obligations under the CDD Rule.
    Subsequent to the mandatory May 2018 compliance date of the CDD 
Rule, the OCC conducted a number of reviews where we found that, 
overall, most banks examined had taken the necessary steps to come into 
compliance with the rule. These preliminary examination results 
indicated that banks have generally been diligent and compliant in 
designing and implementing appropriate policies and procedures for 
identifying beneficial owners and verifying their identities. More 
recently, the OCC has begun to conduct more in-depth examinations, and 
examiners have identified a relatively small number of violations of 
the requirements related to beneficial ownership identification, as 
those banks continue to work to adjust systems, implement policies and 
procedures, and test for compliance.
Challenges in Implementing the CDD Rule
    The beneficial ownership requirements of the CDD Rule have moved 
toward creating a more comprehensive process for collecting and 
verifying beneficial ownership information. However, the rule also 
imposes significant challenges and costs on banks, and it cannot fill 
certain gaps in the beneficial ownership regime, as described below. 
These concerns may be best addressed through legislation establishing a 
consistent, nationwide requirement for legal entities to provide and 
update accurate beneficial ownership information, or by the creation of 
a centralized database for legal entities to provide and update this 
information. Some of the challenges with the CDD Rule relate to 
verification of ownership and control information, periodic updating 
requirements, ownership thresholds and recordkeeping requirements. For 
many banks, the new policies and procedures required by the CDD Rule 
result in costly new training obligations for all employees that are: 
(1) responsible for opening accounts and establishing customer 
relationships; (2) involved in bank operations and information systems 
and security; and (3) involved in compliance functions. There are also 
new costs associated with adjusting, testing and validating account 
opening and monitoring systems to ensure that they are capturing the 
required information and account level activity appropriately. These 
requirements have the potential for increasing bank compliance costs, 
particularly for smaller community banks.
    Ownership Information Verification and Updates--The biggest 
challenge that we have observed in achieving a fully effective 
beneficial ownership regime is the absence of any reliable sources 
against which a bank can independently verify the accuracy of 
beneficial ownership information it obtains from a legal entity 
customer at account opening. Currently, beneficial ownership 
information is generally not collected by State or tribal governments 
at the time of company formation or in subsequent filings or reports. 
Moreover, to the extent such information is collected, there is no 
consistent system banks can access and rely upon to verify that the 
ownership and control information obtained from their customers are 
accurate. Beneficial ownership requirements under the CDD Rule require 
banks to establish and maintain written procedures that are reasonably 
designed to identify, and verify the identity of, beneficial owners of 
legal entity customers. Banks may identify the beneficial owners by 
obtaining either a certification form, or the information prescribed in 
that form, from the individual opening the account on behalf of the 
legal entity. The required standard of accuracy of the information is 
to ``the best of the individual's knowledge.'' There is no regulatory 
requirement for banks to verify the ownership or the control 
information that has been provided. Banks can rely on that information 
unless they have knowledge of facts that ``would reasonably call into 
question the reliability'' of the information
    Moreover, as noted above, the CDD Rule provides for banks to rely 
on the accuracy of information obtained from an individual ``to the 
best'' of that individual's knowledge, and also requires no further 
action in the absence of knowledge by a bank of facts that ``would 
reasonably call into question the reliability'' of the information. In 
cases of higher-risk customer relationships, this reliance may pose 
substantial risk, not just to the bank but also to the broader 
financial sector.
    Ownership Thresholds--Under the CDD Rule, banks are required to 
identify owners at or above the 25 percent threshold established; 
however, this type of inflexible threshold permits bad actors to 
structure legal entities using multiple entities, trust arrangements, 
and other legal forms to create numerous ownership layers so that 
ownership percentages are below the threshold. Where ownership 
interests exist below the 25 percent threshold, some true owners may 
not be identified by the bank opening the account.
    In the case of legal entities that may be engaging, or planning to 
engage, in illicit activity, by the time that entity approaches a bank 
to open an account, it is likely that beneficial owners who wish to 
remain anonymous have already structured the ownership of the legal 
entity to lower the percentage of their interests below the threshold. 
Consideration should be given to establishing a consistent, nationwide 
requirement that cannot be easily circumvented and would require legal 
entities to provide, update, and verify information regarding the 
identity and holdings of legal entity owners, or alternatively, to the 
creation of a Federal database for the maintenance of beneficial 
ownership information.
    The consistent collection and maintenance of this information would 
reduce the potential risk that owners who are bad actors will remain 
hidden and, if this information were made available for banks to access 
on an as-needed basis, banks could more efficiently and accurately 
identify and verify owners at, and below, the current threshold.
    Recordkeeping--The CDD Rule requires that banks reconfirm the 
required beneficial ownership information for every new account opened 
by a legal entity customer. While there is evidence that some legal 
entities are misused by criminals, in the vast majority of cases, these 
entities serve legitimate business purposes and have sound business 
reasons for establishing several accounts. The current rule increases 
the compliance burden on banks to meet these requirements, because 
these requirements now apply across all legal entity customers, 
regardless of the associated risk. Prior to the 2016 beneficial 
ownership requirements, banks were required by regulation to identify 
beneficial owners only in limited categories of cases, and did so based 
on bank risk management policies in others. The burden of compliance 
with the CDD Rule is further increased by the requirements related to 
changes in beneficial ownership information and the need to maintain 
multiple sets of beneficial ownership information and supporting 
documentation, depending on the number of new accounts established by a 
legal entity.
Establishing a Nationwide Requirement
    To assist in addressing these challenges, the OCC supports 
legislation to create a consistent, nationwide requirement for legal 
entities to provide, update, and verify accurate beneficial ownership 
information, or alternatively, the creation of a centralized database 
to maintain this information. The requirement to provide this 
information should apply to all domestic legal entities and to legal 
entities incorporated in foreign jurisdictions as a condition to having 
a bank account in the United States. To best address the critical risks 
we have discussed, the information should be provided in a consistent 
format to the appropriate State or tribal government at the time of 
corporate formation, and should be updated along with the filing of the 
regular reporting required of legal entities. For entities already in 
existence at the time such legislation is adopted, the same level of 
beneficial ownership information could be provided with the next-
scheduled corporate report.
    We note that collecting information on foreign legal entities and 
ownership is more challenging than for domestic entities, due to their 
incorporation in other jurisdictions. However, cross-border transaction 
activity presents a higher money laundering and terrorist financing 
risk, and, therefore, the collection and verification of beneficial 
ownership information for these legal entity customers is critical. As 
a result, we would recommend that these foreign entities be required to 
report ownership information either at the time of State registration 
or upon establishing an account relationship with a U.S. financial 
institution.
    Under this information collection process, consideration should be 
given to applying the exemptions for certain legal entities (e.g., 
financial institutions, publicly listed companies), that are currently 
available under the CDD Rule. Appropriate degrees of access to the 
collected information should be made available to law enforcement, 
regulators, banks, and others engaged in the fight against financial 
crime. The OCC would effectively use this information as a part of the 
examination and supervisory processes as well as in any enforcement and 
investigation activities.
    In addition to basic company information, legal entities should be 
required to disclose beneficial owners. A uniform format should be 
established for this information to ensure consistency and completeness 
regardless of the State or tribal government in which a legal entity is 
formed. Individuals providing beneficial ownership information on 
behalf of the legal entity should be required to attest to the 
truthfulness of the identity and ownership provided and be held 
accountable for making false statements.
    While we support legislation to create a consistent, nationwide 
requirement or centralized database for beneficial ownership 
information, we are keenly aware of the importance of establishing a 
balance between the need for law enforcement, regulators, and banks to 
access this information and important data protection and privacy 
rights. Recent examples of data breaches and misuse of personal 
information that have put individuals at risk reminds us of the vital 
need to protect the security of the information that will be collected 
and maintained in this database. Careful consideration should be given 
to implementing required security measures such as setting a range of 
access levels to data or information sets based on criteria for 
demonstrating legitimate need. Congress should consider reviewing best 
practices in place in the European Union and other jurisdictions that 
have established and maintain corporate registries to collect and 
maintain beneficial ownership information.
Benefits of a Nationwide Requirement for Beneficial Ownership Data
    There are important benefits that could be derived from the 
creation of a consistent, nationwide requirement for legal entities to 
provide and update accurate and complete beneficial ownership 
information, or from a centralized database for this information. For 
example, law enforcement could be more focused on substantive 
investigative steps, by reducing the amount of effort and time required 
to identify, request and obtain beneficial ownership information 
collected by numerous banks about a variety of legal entities and then 
maintained by those banks in a wide variety of formats. With a 
consistent approach for providing or maintaining this data, banks and 
law enforcement could both be more confident of the reliability of 
accessible beneficial ownership information.
    A nationwide requirement for legal entities to provide this 
information, or the creation of a centralized Federal database, in a 
consistent format also could reduce regulatory burden by providing 
banks with a transparent way to check the accuracy of the information 
they obtain from legal entity customers and streamline recordkeeping 
requirements. In addition, it could alleviate the requirement to obtain 
and verify identity information for beneficial owners. As well, because 
the ownership information would be already available, there could be a 
process for banks to update information on ownership changes, as 
appropriate. A requirement for the person providing beneficial 
ownership to attest to its accuracy would further strengthen the 
system.
    By addressing the challenges arising from the implementation of the 
rule and reducing regulatory burden, a nationwide requirement, or a 
centralized database would allow banks to spend less time on training, 
reporting, and processing paperwork, so banks could focus resources on 
analyzing available information to make more informed judgements and 
determine whether the information provided by its legal entity customer 
is reasonable and reliable. Extending the consistent requirement to 
report ownership information to include foreign legal entities doing 
business in the U.S. would also support bank efforts to establish the 
accuracy of information they receive from these entities and would 
otherwise be unable to validate, since these entities are incorporated 
outside of the United States. Banks could also receive fewer 
information requests and subpoenas from law enforcement pertaining to 
this information since law enforcement likely would be able to access 
the information directly from the State and tribal governments 
responsible for incorporating the legal entities.
    Finally, a nationwide requirement for legal entities to provide 
beneficial ownership information could enhance overall customer 
experiences with their banks by relieving some of the burdensome and 
duplicative information requirements on legal entity customers. Banks 
would be able to rely on the information contained in the database for 
both identification and verification purposes and the information would 
be updated accordingly. As a result, banks would no longer have to 
continually contact the customer and the information would be verified.
Conclusion
    The spirit and underlying purpose of the CDD Rule are focused on 
identifying hidden beneficial owners who could be potential bad actors, 
to support successful investigations and assist law enforcement in 
preserving the overall integrity of the Nation's financial system. The 
risks associated with failing to identify beneficial owners of legal 
entities and the impact of such failures have been well documented. 
However, implementation of the CDD Rule by itself is only a partial 
step toward achieving those objectives and our law enforcement goals 
cannot be met by banks alone. Full realization requires a partnership 
between the private and public sectors working together to provide law 
enforcement agencies with meaningful, accurate, and timely information. 
It requires that there be other sources of information and data to 
support the current efforts by the banks. For these reasons, we support 
the development of a consistent, nationwide system for legal entities 
to provide and update accurate and complete beneficial ownership 
information of domestic legal entities and foreign legal entities doing 
business in the United States--or, in the alternative, the creation of 
a centralized database to maintain that information--to complete and 
complement the efforts already undertaken by banks supervised by the 
OCC. The collection of such information serves a critical purpose for 
law enforcement. The preservation of the integrity of our financial 
system and our national security cannot rest solely with the banks. We 
stand ready to work with the Committee and its Members to develop a 
solution on this important issue.
                                ------                                


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

Q.1. ``De-Risking''--Lawful Businesses Losing Access to Banking 
Services: Preamble: I've heard concerns from constituents that 
are losing access to banking services because the bank says 
``you present a regulatory risk'' but the regulators deny they 
are the issue, saying ``this isn't on us, we never said you 
can't bank that industry.'' Both regulators and the bankers 
point fingers at one another, and the businesses are caught in 
the middle. One example is the nonbank ATM business, the kind 
of ATM that you might see at a gas station or rest stop.
    How do we address this regulatory gray area that hurts 
lawful American businesses?

A.1. At FinCEN, we share your concerns about unwarranted de-
risking. When FinCEN uses the term ``de-risking'', we are 
talking about instances in which a financial institution seeks 
to avoid perceived regulatory risk by terminating, restricting, 
or denying services to broad classes of clients, without case-
by-case analysis of risk or consideration of mitigation 
options. This is often discussed in the cross-border and 
correspondent banking context, but the term may be applied in 
the context of some domestic financial relationships as well.
    Over the past few years, the Treasury Department, in 
coordination with our regulatory partners, has issued a number 
of statements, such as a ``Joint Fact Sheet on Foreign 
Correspondent Banking'' that highlights the efforts of U.S. 
authorities to implement a fair and effective regulatory regime 
and clarifies further the U.S. Government's approach to 
supervision and enforcement. The Fact Sheet describes the 
expectations of U.S. regulators, the supervisory examination 
process, and the use of enforcement actions. In addition, when 
issuing advisories to highlight areas of potential financial 
crime risk, FinCEN has stressed that such advisories should not 
put into question a financial institution's ability to maintain 
or otherwise continue appropriate relationships with customers 
or other financial institutions, and should not be used as the 
basis to engage in wholesale or indiscriminate de-risking of 
any class of customers or financial institutions.
    Treasury has engaged with financial institutions directly 
to explain these supervisory expectations and the importance of 
the risk-based approach. Through bilateral engagement and 
multilateral fora including the Financial Action Task Force and 
its nine regional bodies, Treasury has worked with countries to 
improve their anti- money laundering and countering the 
financing of terrorism (AML/CFT) regimes.
    To continue to address de-risking, we first need to remain 
vigilant to take steps to engage with the private sector and 
other key stakeholders to stay up-to-date on the scope and 
scale of the issue, as new developments arise. In addition, we 
should continue to take a close look at the Bank Secrecy Act 
(BSA) and our broader AML/CFT regime. We want to upgrade and 
modernize our system where needed in order to make sure that we 
build and maintain the right framework--one that appropriately 
leverages innovative approaches undertaken by financial 
institutions and others--to have the highest quality 
information available to combat money laundering, the 
associated crimes that go with it, including terrorist 
financing, and illicit finance risks. We are actively working 
on important efforts to improve the BSA/AML regime, including, 
among other things:

    Reviewing ways in which financial institutions can 
        take innovative and proactive approaches to identify, 
        detect, and report financial crime and meet BSA/AML 
        regulatory obligations;

    Reviewing the risk-based approach to the 
        examination process;

    Reviewing the agencies' approach to BSA/AML 
        supervision and enforcement.

Q.2. What is the process for businesses or industries, provided 
they operate lawfully, to seek the type of safe harbor that a 
bank compliance officer would need in order to offer them 
services? If nothing exists at the moment, what can regulators 
do to ease concerns about banking the lawful businesses 
currently being ``de-risked'' such as pawnbrokers, non-ATMs, 
etc.?

A.2. FinCEN has noted in several contexts that better 
understanding of business practices and risk mitigation 
practices across different categories of actors within the 
financial sector is an important component to help address 
concerns of de-risking. We have promoted cross-industry 
communications in this regard. As for what the banking agencies 
can do in particular to address this concern, we respectfully 
refer you to the Federal Banking Agencies.

Q.3. We all operate according to the incentives we face. Law 
Enforcement is incentivized to reduce crime and terrorism, as 
it should be. In light of that, what should Congress write in 
legislation that ensures the collection and use of beneficial 
ownership information will occur in a manner that limits the 
burden on the folks that pay our salaries, i.e., the private 
sector?

A.3. To be effective, it is necessary that there be 
consequences for failing to provide or providing false 
beneficial ownership information, and as such, we support 
appropriate civil and criminal penalties. To be clear, however, 
our intent is not to go after accidental errors or oversights, 
but rather, to penalize efforts to purposefully subvert the 
requirement.

Q.4. I'm aware that your interest is not in going after small 
businesses. What concrete incentives and protections should we 
write into legislation to make sure that 100 percent of 
beneficial ownership information will be used to go after 
anonymous shell companies engaged in illicit activity?

A.4. FinCEN is committed to working with our partners in 
Congress to develop appropriate mechanisms to mitigate effects 
on small business, including penalty structures that avoid 
subjecting such businesses to liability for inadvertent 
mistakes.

Q.5. I'm aware that there must be penalties for not submitting 
beneficial ownership information, or else the database won't be 
very useful. But am I going to hear from a Little Rock nail 
salon owner that FinCEN is hassling them about whether her 
sister, who owns 15 percent of the LLC and occasionally pitches 
in at the nail salon, has ``substantial control'' over the 
business? Should there be any protocols to prevent FinCEN from 
contacting business in cases where there's no substantiated 
evidence that the business is an anonymous shell company 
engaged in illicit finance?

A.5. See previous answer.

Q.6. Do you agree that getting an envelope in the mail from the 
``Financial Crimes Enforcement Network'' (FinCEN) would be 
intimidating for the owner of a nail salon in Jonesboro, AR?

A.6. See previous answer.

Q.7. Your testimony talks about ``anonymous shell companies'' 
used to aid terrorists, cartels, and human traffickers. All are 
worthy targets. So how can you ensure that this collection of 
data will never be used to hassle or intimidate a nail salon or 
dry cleaner, provided they made a good-faith attempt at 
answering the questions on beneficial ownership and are not 
suspected of a crime?

A.7. See previous answer.

Q.8. What about if we include a provision that says that all 
communication from FinCEN to small business includes an option 
to contact an Ombudsman?

A.8. We look forward to continue working with Congress on 
developing appropriate solutions to mitigate impacts on small 
business.

Q.9. And how about an option, in cases where there is no 
criminal investigation yet open, for the comment or complaint 
to the Ombudsman to be also be forwarded to the businesses' 
members of Congress?

A.9. See previous answer.
                                ------                                


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

Q.1. Banks De-risking--I continue to hear that BSA/AML 
compliance burdens are causing some banks to de-risk. This 
concerns me, as it should all, that various Main Street 
businesses in operation for years are apparently having, 
without explanation, their accounts and banking services 
terminated because of banks in fear of not meeting supervisory 
expectations which may result in enforcement actions. 
Additionally, we are receiving word of consumer customers' 
debit cards being declined by their bank at point of sale in 
some of these same Main Street businesses.
    Can you comment on what steps we need to take in order to 
craft proper policy solutions to address unwarranted de-
risking?

A.1. At FinCEN, we share your concerns about unwarranted de-
risking. When FinCEN uses the term ``de-risking,'' we are 
talking about instances in which a financial institution seeks 
to avoid perceived regulatory risk by terminating, restricting, 
or denying services to broad classes of clients, without case-
by-case analysis of risk or consideration of mitigation 
options. This is often discussed in the cross-border and 
correspondent banking context, but the term may be applied in 
the context of some domestic financial relationships as well.
    Over the past few years, the Treasury Department, in 
coordination with our regulatory partners, has issued a number 
of statements, such as a ``Joint Fact Sheet on Foreign 
Correspondent Banking'' that highlights the efforts of U.S. 
authorities to implement a fair and effective regulatory regime 
and clarifies further the U.S. Government's approach to 
supervision and enforcement. The Fact Sheet describes the 
expectations of U.S. regulators, the supervisory examination 
process, and the use of enforcement actions. In addition, when 
issuing advisories to highlight areas of potential financial 
crime risk, FinCEN has stressed that such advisories should not 
put into question a financial institution's ability to maintain 
or otherwise continue appropriate relationships with customers 
or other financial institutions, and should not be used as the 
basis to engage in wholesale or indiscriminate de-risking of 
any class of customers or financial institutions.
    Treasury has engaged with financial institutions directly 
to explain these supervisory expectations and the importance of 
the risk-based approach. Through bilateral engagement and 
multilateral fora including the Financial Action Task Force and 
its nine regional bodies, Treasury has worked with countries to 
improve their anti- money laundering and countering the 
financing of terrorism (AML/CFT) regimes.
    To continue addressing de-risking, we first need to remain 
vigilant to take steps to engage with the private sector and 
other key stakeholders to stay up-to-date on the scope and 
scale of the issue, as new developments arise. In addition, we 
should continue to take a close look at the Bank Secrecy Act 
(BSA) and our broader AML/CFT regime. We want to upgrade and 
modernize our system where needed in order to make sure that we 
build and maintain the right framework--one that appropriately 
leverages innovative approaches undertaken by financial 
institutions and others--to have the highest quality 
information available to combat money laundering, the 
associated crimes that go with it, including terrorist 
financing, and illicit finance risks. We are actively working 
on important efforts to improve the BSA/AML regime, including, 
among other things:

    Reviewing ways in which financial institutions can 
        take innovative and proactive approaches to identify, 
        detect, and report financial crime and meet BSA/AML 
        regulatory obligations;

    Reviewing the risk-based approach to the 
        examination process;

    Reviewing the agencies' approach to BSA/AML 
        supervision and enforcement.

Q.2. Beneficial Ownership Disclosure on Nonprofits--Over the 
past decade, there have been a number of bills introduced in 
the House and Senate to require disclosure of beneficial 
ownership information. The main thrust of the effort to pass 
these bills has been on getting information on who owns or 
controls corporations and LLCs to prevent money laundering and 
terrorist financing. Each of these bills has exempted certain 
low-risk entities from its provisions, such as publicly traded 
companies, insurance providers, and public utilities. The 
``Corporate Transparency Act''--the main bill in the House 
right now--includes these types of exemptions. But several 
other types of common, low-risk entities may not be exempt, and 
I'm concerned about the ability of these types of entities to 
comply with yet another costly Government regulatory regime 
that has significant criminal liability for even minor 
paperwork violations. This is particularly an issue of concern 
to a number of small, volunteer-run nonprofit organizations 
that could find themselves subject to beneficial ownership 
disclosure requirements.
    I understand that the CTA bill in the House would exempt 
from beneficial ownership reporting requirements nonprofit 
entities that are covered under 501(c), 527, or 4947(a)(1) of 
the Tax Code. But not all nonprofits within this universe of 
entities are exempt because the Bill imposes two additional 
requirements that must be met. The nonprofit organization must: 
(1) not have been denied tax exempt status and (2) have 
``timely'' filed its most ``recently due annual information 
return with the IRS.'' These two additional requirements raise 
a number of issues and will undoubtedly lead to many unintended 
and draconian results because inadvertent failure to satisfy 
these requirements are common--especially for small, volunteer-
run nonprofits.
    With respect to the requirement that a nonprofit file 
``annual information returns,'' there are numerous annual 
information returns they are required to file. These include 
IRS Forms 990, 990-PF, 990-T, 1096, 1097, 1098, and 945. There 
are a number of legitimate reasons why one of these reports may 
not be ``timely'' filed, and failure to timely file an annual 
return is quite common among smaller nonprofits due to the 
nature of the nonprofits and their reliance on volunteers, who 
may be unsophisticated, and lack resources to understand IRS 
annual filing requirements.
    Do you think it is necessary or fair to subject a nonprofit 
that fails to timely file one of these information reports to 
the beneficial ownership disclosure requirements of the CTA and 
other bills?

A.2. FinCEN has actively worked with its congressional partners 
to develop appropriate standards for beneficial ownership 
reporting that mitigate impacts on business (especially arising 
from inadvertent mistakes) while ensuring that FinCEN collects 
information that is useful for law enforcement purposes. We are 
committed to continuing to work collaboratively with 
stakeholders in this area.

Q.3. What public purpose does it serve?

A.3. See previous response.

Q.4. Is it some type of a ``red flag'' that law enforcement has 
named as a warning sign that a nonprofit is engaged in money 
laundering or terrorist financing?

A.4. Terrorism or money laundering financial red flags 
generally focus on the source, destination, and type or pattern 
of financial transactions associated with the actor or entity, 
and/or the transactional parties and financial institutions 
owning, initiating, receiving or facilitating related financial 
transactions. FinCEN is unaware of any red flags exclusively 
based on the tardy filing of required tax reports by a 
nonprofit or other business.

Q.5. Given that the IRS recently changed its rules to 
automatically revoke the exempt status for nonprofits that fail 
to file three consecutive annual information returns, would 
such entities find themselves permanently subject to the 
beneficial ownership disclosure requirements of the CTA?

A.5. This could depend on the specific legislative proposal. As 
FinCEN has said previously, we are committed to working with 
stakeholders to craft appropriate reporting requirements that 
ensure the efficacy of the database while mitigating unintended 
consequences.

Q.6. According to the Urban Institute, 16 percent of the 
nonprofit sector lost its tax exempt status as a result of this 
rule change. Although many of these groups had their exemptions 
restored, wouldn't these same organization be permanently 
subject to the disclosure requirements even after their 
exemption had been reinstated because ``they were denied tax 
exempt status'' by revocation of their exempt status?

A.6. See previous answer.

Q.7. With these issues in mind, isn't there room for 
improvement to the exemptions afforded to certain types of 
nonprofit and other entities under CTA before Congress rushes 
to impose this massive new regulatory regime?

A.7. We look forward to continue working with Congress on 
developing a solution to address your concern.

Q.8. There are a variety of legitimate reasons why many donors 
to nonprofit organizations desire to remain anonymous and often 
create a corporation or LLC to house their nonprofit grant-
making functions to charitable and other nonprofit 
organizations. Similarly, many nonprofit organizations provide 
membership and governance rights to these corporations and LLCs 
in order to help with long-term governance succession planning 
desired by a major contributor, where providing an individual 
the same right carries inherent risks because individuals 
unlike organizations may become incapacitated or pass with the 
resulting governance and membership rights ceasing to exist.
    Under the Corporate Transparency Act and other recent 
legislation, nonprofit entities described in section 501(c), 
527, or 4947(l)(1) of the Tax Code would be exempt from the 
beneficial ownership disclosure requirements these bills seek 
to impose.
    If the general policy is that NPOs should be exempted from 
disclosing their ``beneficial owners,'' shouldn't the same 
policy be applied to corporations and LLCs that have as their 
primary purpose providing grant funds to, or a governance role 
in, a nonprofit also be exempt from these requirements?

A.8. We look forward to continue working with Congress on 
developing a solution to address your concern.

Q.9. Often these same corporations and LLCs might be disclosed 
by name on a nonprofit's publicly available annual information 
return. In recent years, we have seen several instances in 
which information on donors to nonprofit groups and causes--
similar to the beneficial ownership information required to be 
disclosed by the Corporate Transparency Act--has been leaked to 
the media or another organization. This has made the personal 
information of these donors ripe for abuse by those seeking to 
punish, harass, or deter donations to causes with which they 
disagree.
    Do you agree that the disclosure of the personal 
information of donors to certain causes has been used in ``name 
and shame'' campaigns in the past and could be used to harass 
or intimidate donors?

A.9. It is also important to make sure that any information 
collected by FinCEN is secure and protected against misuse. As 
with other information collected by FinCEN under the Bank 
Secrecy Act, we support robust civil and criminal penalties for 
any unauthorized disclosures or other misuse of any beneficial 
ownership information collected by FinCEN. Protecting all 
information collected by FinCEN is a high priority for FinCEN 
and the Treasury Department, and we would bring that same 
commitment to securing any beneficial ownership information 
provided to us.

Q.10. Would you agree that any legislation Congress passes 
should ensure protections against the public disclosure of 
individuals who fund constitutionally protected issue advocacy 
through nonprofit organizations?

A.10. Yes.

Q.11. What safeguards can ensure that this data is not abused 
by State attorneys general and other elected officials to 
target people who disagree with them?

A.11. FinCEN has a number of safeguards in place to guard 
against abuse by users granted access to Bank Secrecy Act (BSA) 
data. To begin with, FinCEN conducts an annual inspection of 
the data usage for each BSA data access Memorandum of 
Understanding (MOU) holder. Prior to the inspection, FinCEN 
reviews the number of agency employees with direct access, the 
number of queries conducted, and the Query Audit Log (QAL) of 
all direct BSA data users. The QAL provides information related 
to a user's activity within the BSA system of record to include 
who ran a query, the time and date of the query, as well as the 
name or identifier queried. It also gives FinCEN the ability to 
monitor how State coordinators are servicing law enforcement 
agencies within their jurisdiction that do not have direct 
access. In the FinCEN Portal/FinCEN Query system, State 
coordinators are required to record what agency they are 
running queries for if it is not their home agency. FinCEN 
monitors this information as part of its broader review of 
State coordinator activity. During the inspection, FinCEN also 
reviews all aspects of the MOU, the Security Plan for 
safeguarding the BSA data, and the BSA data Re-Dissemination 
Guidelines with the respective agency coordinator to ensure the 
agency is fully aware of its responsibilities, and that the 
State coordinator is conveying those responsibilities to their 
agency's authorized users.
    FinCEN also conducts monthly reviews of all agencies' use 
of BSA data. These monthly reviews include reviewing the QAL to 
determine if users are displaying irregular behavior, such as 
running their own name or conducting a bulk download of BSA 
data. FinCEN also reviews the QAL in order to ensure users 
provide adequate information indicating the purpose of their 
BSA searches. Users provide this information in a search 
justification field within FinCEN Query. When reviewing the 
QAL, if FinCEN identifies an instance where a user provided 
insufficient information in the search justification field, 
FinCEN will contact the user to ensure that the indicated 
justification is consistent with the type of query they 
conducted, and to reiterate the user's obligation to fully 
justify every search moving forward, consistent with the terms 
of their access agreement.
    All authorized users of the data, to include the State 
attorneys general with whom FinCEN maintains MOUs, must also 
complete mandatory online training every 2 years. This training 
encompasses the proper use and handling of BSA data. On an 
annual basis, all authorized users must also accept a user 
acknowledgement, which sets forth data protection information 
to include proper use and handling of BSA data.
    Finally, FinCEN is actively working with congressional 
stakeholders to identify and implement additional protections 
with respect to beneficial ownership information collected in 
the BSA database. We are committed to taking all appropriate 
steps to guard against the misuse of the information.

Q.12. Do you envision that State attorneys general would have 
access to beneficial ownership information if they desired it 
for an investigations they asserted involved a criminal matter 
of any kind?

A.12. This would depend on the specific legislative proposal. 
As indicated previously, FinCEN is committed to working with 
Congress to develop appropriate parameters for accessing the 
information.
                                ------                                


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

Q.1. As the ranking member of the Senate Foreign Relations 
Committee and an author of several pieces of sanctions 
legislation, I don't believe the current rules on cash 
purchases of real estate are strong enough to catch criminal 
foreign actors such as kleptocratic oligarchs, drug cartels, 
and rogue Governments or individuals, seeking to evade 
sanctions. Unfortunately, the U.S. is still a safe and easy 
place to hide money.
    Have anonymous companies formed in the U.S. impeded your 
investigations and made it more difficult for law enforcement 
and national security officials to enforce sanctions and combat 
kleptocracy? If so, please explain how.

A.1. Kleptocrats and sanctions evaders, as well as 
narcotraffickers, corrupt leaders, rogue States, terrorists, 
and fraudsters of all kinds establish anonymous domestic shell 
companies to mask and further criminal activity, to invest and 
buy assets with illicit proceeds, and to prevent law 
enforcement and others from efficiently and effectively 
investigating tips or leads. To determine the true owner of a 
shell company or front company in the United States today 
requires law enforcement to undertake a time-consuming and 
resource-intensive process. It often requires grand jury 
subpoenas, witness interviews, and foreign legal assistance 
requests to get behind the outward facing structure of these 
shell companies. This takes an enormous amount of time and 
wastes resources, time that could be used to further other 
important and necessary aspects of an investigation, or 
prevents investigators from getting to other equally important 
investigations. If beneficial ownership information is readily 
available and more quickly accessible to law enforcement and 
others, it would be harder and more costly for criminals to 
hide what they are doing. Law enforcement can be more effective 
and efficient in preventing these crimes from occurring in the 
first place, or perhaps intercept them sooner and prevent the 
scope of harm these criminals cause from spreading.
    Although arising infrequently in sanctions enforcement 
matters, the existence of anonymous companies formed in the 
United States complicates--and in some instances can 
undermine--such matters. When encountered during an enforcement 
investigation, anonymous U.S. companies tend to employ the use 
of anonymous trusts as the company's equity holders--thereby 
effectively masking the company's true beneficial owners. This 
basic structure, i.e., the use of companies owned by anonymous 
trusts, has been used to obscure the true beneficial owner of 
companies, aircraft, and real property. Such circumstances make 
it markedly more difficult to prove the occurrence of apparent 
violations of economic sanctions.

Q.2. Would you agree that this has undermined the effectiveness 
of our sanctions regimes on Russia, Venezuela, Iran, North 
Korea, and others?

A.2. Yes, when such anonymous U.S. companies are encountered 
during sanctions enforcement investigations.

Q.3. Do you believe that FinCEN is currently collecting enough 
beneficial ownership information on high risk real estate 
transactions across the country?

A.3. FinCEN has longstanding concerns about the ability of 
illicit actors to hide the origins of the proceeds of 
potentially unlawful activity by using legal entities to 
purchase real estate. To partially address these concerns, 
FinCEN has issued regulations placing anti- money-laundering 
(AML) program obligations on many businesses involved in real 
estate transactions, including depository institutions, 
residential mortgage loan originators, and the housing 
Government sponsored enterprises (i.e., Fannie Mae, Freddie 
Mac, and the Federal Home Loan Banks). Together, these entities 
are involved in real estate transactions involving a mortgage 
or other similar form of external financing and report 
suspicious activity related to such transactions. FinCEN is 
additionally concerned about the potential that suspicious 
activity may take place through all-cash transactions because 
such transactions generally do not closely involve these 
businesses with AML program and suspicious activity report 
reporting obligations. To address FinCEN's concerns about such 
all-cash transactions, FinCEN issued the Real Estate Geographic 
Targeting Orders (GTO) in 2016, and has gradually changed and 
reissued these GTOs to obtain beneficial ownership information 
useful for FinCEN to understand the risks associated with 
certain real estate transactions. FinCEN is currently engaging 
with law enforcement about the results of these GTOs and 
analyzing the data reported to determine the extent to which 
additional collection is warranted in this regard.

Q.4. Would you find it helpful for Congress to authorize the 
ongoing collection of beneficial ownership information for all 
high risk real estate transactions?

A.4. FinCEN is committed to working with Congress to explore 
the potential for a permanent reporting authority for the real 
estate sector. This reporting requirement may be the most 
appropriate way to obtain valuable information--such as the 
buyers' source of funds and the beneficial owner of the 
property--to monitor and address the money laundering risks in 
real estate without overburdening the industry.

Q.5. Would requiring companies to disclose their true 
beneficial owners at the time of formation assist law 
enforcement in their investigations and help keep Americans 
safe from national security threats?

A.5. Yes. We look forward to continue working with Congress on 
developing a solution to collecting this important information 
to protect our national security and the people of our Nation.

Q.6. On July 1, the U.S. will relinquish its presidency of the 
Financial Action Task Force to China.
    Can you briefly describe China's expected priorities in 
this area?

A.6. According to Chinese officials, China will have three main 
presidential priorities, including undertaking a review of the 
strategic challenges and emerging risks facing the Financial 
Action Task Force; new technologies, specifically, completing 
guidance on digital identity; and improving supervision. They 
have also said that they support ongoing work related to 
terrorist financing, beneficial ownership, proliferation 
financing, and improving the standards across the global 
network. They said China will also work to raise awareness on 
wildlife trafficking.

Q.7. How is FinCEN planning to continue the U.S. focus on 
international counterproliferation financing given developments 
in North Korea and the upcoming Chinese presidency?

A.7. One of the U.S. presidential priorities of the FATF was 
countering proliferation financing. In conjunction with the 
U.S. presidency of the FATF, I led the work of the FATF Heads 
of FIU Forum from October 2018 until June 2019. One of the 
U.S.G. priorities for this year was to learn more about FIU 
activities in the field of countering proliferation financing 
(CPF) concerning weapons of mass destruction. The Heads of FIU 
Forum's work, which FinCEN led, was innovative. FinCEN drafted 
a compendium, detailing information on CPF activities of almost 
two dozen FIUs in primarily FATF jurisdictions. As a result of 
this work, FinCEN can better target specific FIUs for 
information on PF and, possibly, partner on joint CPF efforts.
                                ------                                


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

Q.1. According to a recent New York Times report, frontline 
Deutsche bank employees recommended that the bank file 
suspicious activity reports following a series of transactions 
by entities linked to President Trump and by a real estate 
company then-owned by White House Senior Advisor Jared Kushner, 
but their judgment was overturned by higher-level bank 
managers. According to employees, the bank's approach to 
entities linked with Trump and Kushner were ``part of a pattern 
of the bank's executives rejecting valid reports to protect 
relationships with lucrative clients.''
    Has any political appointee in the Trump administration 
discussed or received any nonpublic information, held by 
FinCEN, including a suspicious activity report, about Deutsche 
Bank, or transactions associated with President Trump, Mr. 
Kushner, any members or their families or any organizations 
with which they're associated?

A.1. Federal law prohibits disclosure of Bank Secrecy Act 
information, including whether or not such information has been 
received or collected.
                                ------                                


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

Q.1. A bill under consideration in the House, the Corporate 
Transparency Act (H.R. 2513), would require corporations and 
limited liability corporations to disclose their true 
``beneficial owners'' to FinCEN. It establishes control as any 
person or entity owning 25 percent or more of the equity of the 
company or who receives substantial economic benefit from the 
assets to be disclosed at the time the company is formed. Is 
this the right definition of beneficial owner? Could a 25 
percent floor encourage owners to engage in misleading 
ownership structures to avoid registration?

A.1. For the sake of consistency and clarity, Treasury supports 
using the current Customer Due Diligence regulatory definitions 
of beneficial ownership to determine which entities should 
statutorily be providing beneficial ownership information. 
Legal entities would be required to provide the name, address, 
date of birth, social security number or passport number, and 
possibly the driver's license number, of any natural person 
with 25 percent or more interest in the company, and of one 
individual who has substantial managerial responsibility to 
control the company.

Q.2. Do you recommend we make reliable beneficial ownership 
information available to regulatory, tax, and other law 
enforcement authorities but do not create a beneficial 
ownership registry available to the public?

A.2. Yes, our position is that beneficial ownership information 
should be collected and filed with FinCEN in a nonpublic 
database that holds other Bank Secrecy Act (BSA) mandated 
reports. Currently, FinCEN authorizes access to the BSA 
information to law enforcement, regulatory and national 
security partners through existing BSA agreements and 
mechanisms. These agreements require our partners receive 
annual training on the proper use and search of the FinCEN 
Query system and the data contained therein. FinCEN also 
monitors data usage and query searches for appropriateness.

Q.3. What rules should we put in place to ensure regulatory, 
tax, and other law enforcement entities can track ownership if 
an owner sells her/his shares?

A.3. For investigative purposes, it is important that the 
beneficial ownership information collected is accurate and up-
to-date. FinCEN looks forward to working with the Committee to 
provide appropriate mechanisms for updating beneficial 
ownership.

Q.4. There have been a number of proposals for collection of 
beneficial ownership information over the years including: 
States collecting this information; IRS making this information 
available since they collect that information; making banks 
collect it and verify it before any accounts can be opened; 
requiring all business entities to report to a centralized 
agency like FinCEN. In your opinion, what is the best mechanism 
or mechanisms to collect beneficial ownership information?

A.4. I understand there are different models on collecting 
beneficial ownership information and how FinCEN and law 
enforcement could obtain it. In weighing the privacy concerns 
with the ability of law enforcement to access the information 
in an efficient manner, Treasury believes that beneficial 
ownership information should be collected and stored with 
FinCEN.

Q.5. At this point, the consensus seems to require Federal--not 
State--collection of information. If that changes and a State 
collection mechanism is recommended, how would we adequately 
fund the development or modification of 51 systems to collect 
and distribute this information? How will compliance be 
measured? How do you ensure a national standard for the States?

A.5. The National Association of Secretaries of State and the 
respective Secretaries of States would be best positioned to 
address beneficial ownership data collection system development 
and compliance at the State level.

Q.6. If there is a requirement that the States notify their 
customers of a requirement to report beneficial ownership to a 
centralized agency--What should that notification look like? 
Will there be any funding to the States to accomplish proper 
notification? How will compliance be measured?

A.6. FinCEN is committed to work closely with the National 
Association of Secretaries of State and the respective 
Secretaries of State to remind companies through their annual 
renewal requirements of their responsibility to keep their 
beneficial ownership information updated and correct. We have 
not developed any language to date.

Q.7. If we reform our laws to require that the ownership of 
companies are reported to FinCEN and law enforcement, how will 
that affect corrupt authoritarian leaders and their associates 
who loot their Nation's treasury and then hide their money in 
democratic Nations? Are there other countries which publish 
which foreign leaders hide wealth outside of their country in 
other Nations?

A.7. The fear of having hidden assets exposed to seizure is a 
powerful disincentive for corrupt leaders or other bad actors 
to establish shell companies and financial accounts in 
countries requiring reporting of beneficial ownership. FinCEN's 
analysis of Real Estate Geographic Targeting Order (GTO) 
filings, which identify the beneficial owners behind the 
nonfinanced purchase of residential real estate, revealed that 
the GTOs likely deterred the use of shell companies to invest 
proceeds of high-risk illegal activities in residential real 
estate. This finding suggests that requiring the collection of 
beneficial ownership information at corporate formation could 
deter bad actors from using corporations to hide high-risk 
illicit proceeds.
    Further, for those who commit crimes and engage in 
conspiracy where shell companies are used to hide identities 
and illicit assets, it would be harder and more costly for 
criminals to hide their activity when beneficial ownership 
information is readily available and more accessible to law 
enforcement. Law enforcement can be more effective and 
efficient in preventing these crimes from occurring, or can 
intercept them sooner and prevent the scope of harm corrupt 
authoritarian leaders and their associates caused from 
spreading. Additionally, cooperation with our foreign partners 
is paramount. This collaboration is necessary not only to 
investigate crimes and to prevent them from occurring, but in 
order to coordinate quickly, effectively, and fluently with our 
foreign partners. As Treasury officials have said publicly, 
criminals and other bad actors do not have borders and do not 
comport with the rule of law. To combat them, we need to work 
seamlessly with our foreign counterparts in a way that is 
efficient and effective. In order to do so, as we receive 
significant assistance from our foreign partners, we must be 
able to provide significant assistance to them, including the 
beneficial ownership information of U.S. shell companies. This 
will allow us to globally tackle the issue of corrupt 
authoritarian leaders and their associates who loot their 
countries and hide their assets around the world. As more of 
our allies begin to collect beneficial ownership information, 
the U.S. risks becoming a safe haven for these actors to hide 
their assets.
    FinCEN is unaware of any countries that publish lists of 
foreign leaders known or suspected of hiding wealth in foreign 
jurisdictions. However, consistent with Financial Action Task 
Force recommendations, a number of international organizations 
and countries have made efforts to develop public or private 
lists of politically exposed persons (PEPs). For example, the 
European Union's (EU) Fifth Money Laundering Directive requires 
that all EU member States create a list of national public 
offices and functions that qualify as politically exposed. The 
Directive entered into force in July 2018 and all member States 
are required to implement requirements into their national law 
by January 2020. Similarly, the Financial Action Task Force of 
South America has made efforts to develop a regional list of 
PEPs, although these efforts have been constrained by the 
challenge of updating such lists. Finally, at least one State, 
Mexico, maintains a list of exposed Government positions, but 
not the names of the position-holders.

Q.8. How can law enforcement use big data to stop anonymous 
shell companies from allowing criminals, terrorists, and money 
launderers to hide their money and facilitate illegal 
activities?

A.8. We respectfully refer you to the law enforcement community 
for a response to this question. FinCEN is not in a position to 
offer perspectives on law enforcement's analytical tradecraft, 
or the specific ways in which big data factors into the 
investigative techniques law enforcement agencies use to 
disrupt criminal abuse of anonymous shell companies. As it does 
with all the information that it maintains, FinCEN would 
support law enforcement efforts with FinCEN's own tactical and 
strategic analysis. Analysis of large volumes of transactional 
data reported to FinCEN under its special collection 
authorities could, among other things, reveal new nodes and 
networks of front companies tied to an array of concerning 
activities. In turn, this analysis could assist the law 
enforcement community further map out the connections between 
the illicit nodes, their nexus to the U.S., and ultimately help 
advance their investigative efforts.

Q.9. What role do you see State law enforcement playing in 
stopping anonymous shell companies? If the data is only 
available to FinCEN, how will State agencies and officials 
charged with fighting crimes like money laundering and tax 
evasion perform their core responsibilities?

A.9. We respectfully refer you to the State law enforcement 
community for a response to this question. FinCEN values its 
relationship with State law enforcement agencies and considers 
them important partners in the country's efforts to disrupt all 
types of financial crime. However, we are not in a position to 
provide insight into the numerous ways State agencies perform 
their core responsibilities currently, or how the lack of 
beneficial ownership information as an investigative tool 
potentially hampers their ability to carry out their respective 
missions.
    Further, if this information is collected in the FinCEN 
database, depending on the legislation, some State agencies and 
law enforcement may be able to access this information per the 
terms of the legislation.

Q.10. What has been the involvement of State banking 
supervisors in discussions regarding updates to the Bank 
Secrecy Act and anti- money-laundering rules? Should State 
banking regulators be more involved in these discussions 
regarding BSA/AML?

A.10. State bank supervisors, through the Conference of State 
Bank Supervisors (CSBS), participate in a Bank Secrecy Act 
Advisory Group discussion that is focusing on strategic AML 
priorities and leveraging technology, information sharing, and 
human resources to effectively and efficiently detect and deter 
criminal activity in the U.S. financial system. The discussions 
aim to identify opportunities to reform and modernize the 
existing anti- money-laundering system through legislation, 
regulation, guidance, technology, and information sharing. CSBS 
also participates in the Federal Financial Institution 
Examination Council discussions. Both of these groups are 
addressing the issues you raise.

Q.11. What has been the impact of the Geographical Targeting 
Orders requirements in Las Vegas?

A.11. As of April 11, 2019, covered businesses had reported 
1,027 covered transactions from Clark County, Nevada (Las 
Vegas), pursuant to the Real Estate Geographic Targeting Orders 
(GTOs). 268 of these transactions (or 26 percent) had a 
beneficial owner, purchaser's representative or purchaser who 
is the subject of a Suspicious Activity Report. FinCEN has 
analyzed this and other GTO data to identify potential 
investigative leads and shared this information with Federal 
and local law enforcement partners in Nevada. FinCEN is working 
with its law enforcement partners to assess how to maximize the 
impact of this data on law enforcement investigations. This 
data has already proven useful to FinCEN's ongoing efforts to 
assess the money laundering risks in the real estate sector.

Q.12. Will requiring registration of beneficial owners reduce 
or eliminate money laundering of art? If not, what else should 
we consider?

A.12. The collection of beneficial ownership information will 
bolster financial transparency, make it more difficult for 
wrongdoers to conduct covert illicit activity, and will better 
enable law enforcement to detect and disrupt money laundering 
and terrorist networks. Overall, the reduction of money 
laundering is a goal and expected outcome of beneficial 
ownership collection. This applies across many industries, 
though it is difficult to quantify the specific impact on a 
particular industry relative to other industries. To the extent 
other measures should be considered in regards to the art 
industry, we look forward to continue working with Congress on 
developing a bipartisan solution to address your concern.
                                ------                                


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

Q.1. November 29, 2018, Unanswered Questions for the Record--
After testifying before the Committee on Banking, Housing, and 
Urban Affairs on May 21, 2019, at our hearing entitled, 
``Combating Illicit Financing by Anonymous Shell Companies 
Through the Collection of Beneficial Ownership Information'', a 
number of questions were submitted directly to you but never 
answered. In order to complete the hearing record, please 
answer the below questions as resubmitted for this hearing:
    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.
    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.

Q.3. ``Real'' 2-way Information Sharing--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.

Q.4. 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.
    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 cyberattacks?

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

Q.1. Key Role of Financial Intelligence in Counterterrorism--
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. 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.

Q.3. 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.
    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 COTTON
                    FROM STEVEN M. D'ANTUONO

Q.1. We all operate according to the incentives we face. Law 
Enforcement is incentivized to reduce crime and terrorism, as 
it should be. In light of that, what should Congress write in 
legislation that ensures the collection and use of beneficial 
ownership information will occur in a manner that limits the 
burden on the folks that pay our salaries, i.e., the private 
sector?

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

Q.2. I'm aware that your interest is not in going after small 
businesses. What concrete incentives and protections should we 
write into legislation to make sure that 100 percent of 
beneficial ownership information will be used to go after 
anonymous shell companies engaged in illicit activity?

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

Q.3. I'm aware that there must be penalties for not submitting 
beneficial ownership information, or else the database won't be 
very useful. But am I going to hear from a Little Rock nail 
salon owner that FinCEN is hassling them about whether her 
sister, who owns 15 percent of the LLC and occasionally pitches 
in at the nail salon, has ``substantial control'' over the 
business? Should there be any protocols to prevent FinCEN from 
contacting business in cases where there's no substantiated 
evidence that the business is an anonymous shell company 
engaged in illicit finance?

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

Q.4. Do you agree that getting an envelope in the mail from the 
``Financial Crimes Enforcement Network'' (FinCEN) would be 
intimidating for the owner of a nail salon in Jonesboro, AR?

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

Q.5. Your testimony talks about ``anonymous shell companies'' 
used to aid terrorists, cartels, and human traffickers. All are 
worthy targets. So how can you ensure that this collection of 
data will never be used to hassle or intimidate a nail salon or 
dry cleaner, provided they made a good-faith attempt at 
answering the questions on beneficial ownership and are not 
suspected of a crime?

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

Q.6. What about if we include a provision that says that all 
communication from FinCEN to small business includes an option 
to contact an Ombudsman?

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

Q.7. And how about an option, in cases where there is no 
criminal investigation yet open, for the comment or complaint 
to the Ombudsman to be also be forwarded to the businesses' 
members of Congress?

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


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

Q.1. With every iteration of beneficial ownership reporting 
legislation, credible organizations have voiced concern about 
the vagueness and uncertainty about the various terms, such as 
``substantial control'' and ``substantial economic benefit'' 
that are among the thresholds for people being direct or 
indirect beneficial owners that the head of a small business 
must report.
    Given the concerns about the clarity of these definitions 
and the fact that most beneficial ownership bills repose it to 
future rulemaking to really define the essential terms of this 
reporting regime, there is real interest in the penalties 
associated with failing to meet the reporting standards. There 
is also real concern about the abuse of the information 
collected given that a wide array of Federal, State, and local 
officials can access it if they claim it is related to a 
criminal investigation.
    Most of the beneficial ownership bills introduced to date 
threaten business owners with criminal penalties for 
``knowingly providing or attempting to provide, false or 
fraudulent beneficial ownership information, including a false 
or fraudulent identifying photograph and for `knowingly' 
disclosing the existence of a subpoena or request for 
beneficial ownership information.''
    We are all aware that a knowing standard for a criminal 
penalty is vague and does not require proof of a bad purpose. 
For example, it is a much lower threshold than a ``willful'' 
violation which requires that a person must act with the 
knowledge that the conduct was unlawful.
    Most beneficial ownership bills do not threaten Government 
actors with any penalty for the abuse or improper disclosure of 
beneficial ownership information. To the extent they do, they 
impose a willfulness standard for Government actors to be 
deemed criminally liable, such as under the proposed amendment 
to the Corporate Transparency Act that was posted before a 
mark-up on the bill was delayed in the House Financial Services 
Committee. This tracks with provisions in the Bank Secrecy Act 
punishing agency employees for willful abuse or willful 
unauthorized disclosure of Suspicious Activity Reports (SARs) 
and certain other specified filings.
    Would each of you be willing to have the employees of your 
agency subject to Federal criminal penalties for ``knowingly'' 
making an unauthorized disclosure of or otherwise mishandling 
the beneficial ownership data you want to collect?
    If not, please explain why that is a bad idea.

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


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

Q.1. 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 more so, 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. Response not received in time for publication.

Q.2. 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.
    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.

Q.3. Use of Online Platforms for Laundering--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.
    How have the various social media platforms been working 
with your agencies to assist with financial crimes such as 
money laundering and fraud?

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

Q.4. How has the rise of cryptocurrencies and alternative 
payment platforms presented challenges to your investigative 
and regulatory functions?

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

Q.5. How are your respective agencies addressing this?

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


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

Q.1. Have anonymous companies formed in the U.S. impeded your 
investigations and made it more difficult for law enforcement 
and national security officials to enforce sanctions and combat 
kleptocracy? If so, please explain how.

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

Q.2. Would you agree that this has undermined the effectiveness 
of our sanctions regimes on Russia, Venezuela, Iran, North 
Korea, and others?

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

Q.3. Do you believe that FinCEN is currently collecting enough 
beneficial ownership information on high risk real estate 
transactions across the country?

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

Q.4. Would you find it helpful for Congress to authorize the 
ongoing collection of beneficial ownership information for all 
high risk real estate transactions?

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

Q.5. Would requiring companies to disclose their true 
beneficial owners at the time of formation assist law 
enforcement in their investigations and help keep Americans 
safe from national security threats?

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

Q.6. On July 1, the U.S. will relinquish its presidency of the 
Financial Action Task Force to China.
    Can you briefly describe China's expected priorities in 
this area?

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

Q.7. How is the FBI planning to continue the U.S. focus on 
international counterproliferation financing given developments 
in North Korea and the upcoming Chinese presidency?

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


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

Q.1. According to a recent New York Times report, frontline 
Deutsche bank employees recommended that the bank file 
suspicious activity reports following a series of transactions 
by entities linked to President Trump and by a real estate 
company then-owned by White House Senior Advisor Jared Kushner, 
but their judgment was overturned by higher-level bank 
managers. According to employees, the bank's approach to 
entities linked with Trump and Kushner were ``part of a pattern 
of the bank's executives rejecting valid reports to protect 
relationships with lucrative clients.''
    How many politically exposed individuals have been 
convicted of crimes using evidence gleaned from suspicious 
activity reports?

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

Q.2. Has any political appointee in the Trump administration 
discussed or received any nonpublic information obtained by the 
FBI, about Deutsche Bank, or financial transactions associated 
with President Trump, Mr. Kushner, any members or their 
families, or any organizations with which they're associated?

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


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

Q.1. A bill under consideration in the House, the Corporate 
Transparency Act (H.R. 2513), would require corporations and 
limited liability corporations to disclose their true 
``beneficial owners'' to FinCEN. It establishes control as any 
person or entity owning 25 percent or more of the equity of the 
company or who receives substantial economic benefit from the 
assets to be disclosed at the time the company is formed. Is 
this the right definition of beneficial owner? Could a 25 
percent floor encourage owners to engage in misleading 
ownership structures to avoid registration?

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

Q.2. Do you recommend we make reliable beneficial ownership 
information available to regulatory, tax, and other law 
enforcement authorities but do not create a beneficial 
ownership registry available to the public?

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

Q.3. What rules should we put in place to ensure regulatory, 
tax, and other law enforcement entities can track ownership if 
an owner sells her/his shares?

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

Q.4. There have been a number of proposals for collection of 
beneficial ownership information over the years including: 
States collecting this information; IRS making this information 
available since they collect that information; making banks 
collect it and verify it before any accounts can be opened; 
requiring all business entities to report to a centralized 
agency like FinCEN. In your opinion, what is the best mechanism 
or mechanisms to collect beneficial ownership information?

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

Q.5. At this point, the consensus seems to require Federal--not 
State--collection of information. If that changes and a State 
collection mechanism is recommended, how would we adequately 
fund the development or modification of 51 systems to collect 
and distribute this information? How will compliance be 
measured? How do you ensure a national standard for the States?

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

Q.6. If there is a requirement that the States notify their 
customers of a requirement to report beneficial ownership to a 
centralized agency--What should that notification look like? 
Will there be any funding to the States to accomplish proper 
notification? How will compliance be measured?

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

Q.7. If we reform our laws to require that the ownership of 
companies are reported to FinCEN and law enforcement, how will 
that affect corrupt authoritarian leaders and their associates 
who loot their Nation's treasury and then hide their money in 
democratic Nations?

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

Q.8. How can law enforcement use big data to stop anonymous 
shell companies from allowing criminals, terrorists, and money 
launderers to hide their money and facilitate illegal 
activities?

A.8. Response not received in time for publication.

Q.9. What role do you see State law enforcement playing in 
stopping anonymous shell companies? If the data is only 
available to FinCEN, how will State agencies and officials 
charged with fighting crimes like money laundering and tax 
evasion perform their core responsibilities?

A.9. Response not received in time for publication.

Q.10. We know that foreign adversaries create anonymous 
companies and fund those companies to facilitate attacks on 
free and fair democratic elections in our country and other 
democracies. How frequently are these attacks happening in our 
country?

A.10. Response not received in time for publication.

Q.11. How will reporting beneficial ownership to the FBI ensure 
that we won't have a repeat of Russian attacks on our election 
by choosing and funding one candidate as we had in 2016?

A.11. Response not received in time for publication.

Q.12. What was the impact of the Geographical Targeting Orders 
requirements in Las Vegas?

A.12. Response not received in time for publication.

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? All of the above?

A.13. Response not received in time for publication.

Q.14. Will requiring registration of beneficial owners reduce 
or eliminate money laundering of art? If not, what else should 
we consider?

A.14. Response not received in time for publication.

Q.15. Correspondent Banking--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.15. Response not received in time for publication.

Q.16. 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.
    How prevalent is money laundering through real estate?

A.16. Response not received in time for publication.

Q.17. What has been the impact of the Geographical Targeting 
Orders requirements for the communities where this is a 
problem?

A.17. Response not received in time for publication.

Q.18. Did the reporting requirements reduce money laundering in 
real estate or just move the money laundering through real 
estate to other cities?

A.18. Response not received in time for publication.

Q.19. 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.19. Response not received in time for publication.

Q.20. Should Congress expand anti- money-laundering 
requirements for real estate transactions?

A.20. Response not received in time for publication.

Q.21. If so, should it focus on prevention or just require 
reporting?

A.21. Response not received in time for publication.

Q.22. 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.22. Response not received in time for publication.
                                ------                                


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

Q.1. De-Risking--Lawful Businesses Losing Access to Banking 
Services--Preamble: I've heard concerns from constituents that 
are losing access to banking services because the bank says 
``you present a regulatory risk'' but the regulators deny they 
are the issue, saying ``this isn't on us, we never said you 
can't bank that industry.'' Both regulators and the bankers 
point fingers at one another, and the businesses are caught in 
the middle. One example is the nonbank ATM business, the kind 
of ATM that you might see at a gas station or rest stop.
    How do we address this regulatory gray area that hurts 
lawful American businesses?

A.1. The mission of the OCC is to ensure that national banks 
and Federal savings associations (collectively ``banks'') 
operate in a safe and sound manner, provide fair access to 
Financial services, treat customers fairly, and comply with 
applicable laws and regulations. We take all aspects of that 
mission seriously. Failures in providing fair access and fair 
treatment can cut off economic opportunity for legitimate bank 
customers. The OCC generally does not direct banks to open, 
close, or maintain accounts. These decisions are made by bank 
management and boards of directors. Banks are expected to 
identify and assess risks associated with the customers' 
business and transactional activity and to design and implement 
a sound risk management system consisting of policies, 
processes, personnel, and control systems to measure, monitor, 
and control those risks.
    In furtherance of our mission, the OCC makes a concerted 
effort to consistently communicate our position on acceptable 
risk management practices and supervisory expectations to the 
banking industry and our examination staff, through a variety 
of formats including public statements and bulletins on the OCC 
website.
    Additionally, the OCC meets with representatives from 
various industry groups to learn about any concerns they may 
have related to the provision of services by banks, These 
meetings provide an opportunity both to understand the 
interaction of banks with their customers and to communicate 
our position on acceptable risk management practices and 
supervisory expectations to those outside the banking industry.

Q.2. What is the process for businesses or industries, provided 
they operate lawfully, to seek the type of safe harbor that a 
bank compliance officer would need in order to offer them 
services? If nothing exists at the moment, what can regulators 
do to ease concerns about banking the lawful businesses 
currently being ``de-risked'' such as pawnbrokers, non-ATMs, 
etc.?

A.2. The OCC has clearly stated its policy, as described above 
that decisions to open, close, or maintain individual accounts 
are made by bank management and boards of directors, so long as 
they understand and effectively manage the risks associated 
with the customer. The OCC does not direct banks to open, 
close, or maintain individual accounts.
                                ------                                


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

Q.1. Stanford Ponzi Scheme and TD Bank--TD Bank has grown 
exponentially since entering the United States retail market in 
2005. As of year end 2018, TD had nearly 400 billion in assets 
and is the 8th largest financial holding company in the United 
States. While this rapid expansion in the United States is 
impressive, it could not have happened with the necessary 
regulatory approvals from, among others, the OCC.
    Nor has TD Bank's record been spotless during this time of 
rapid growth in the United States. As the correspondent bank 
for the Stanford Financial Group, TD Bank was in a position to 
detect the second largest Ponzi scheme in United States 
history. Stanford turned to TD Bank when no other bank would 
provide correspondent services to Stanford because of the 
obvious signs that Allen Stanford and his organization were 
engaged in criminal conduct. Stanford was convicted for 
numerous crimes, including conspiracy to commit money 
laundering. The FBI also investigated Stanford for money 
laundering on behalf of a Mexican drug cartel.
    Stanford Financial's money laundering would not have been 
possible without its correspondent relationship with TD Bank.
    To your knowledge, has the OCC ever investigated TD's 
relationship with Stanford? Has it ever been considered as part 
of a regulatory approval process in connection with TD Bank's 
expansion in the U.S.? Do you believe, as I do, that it is a 
relevant consideration?

A.1. The OCC has regulatory authority over the U.S. licensed or 
chartered banking entities of Toronto-Dominion Bank Group 
(TDBG) which includes TD Bank, N.A. However, the OCC does not 
regulate nor have any supervisory authority over Stanford 
International or Toronto-Dominion Bank (Toronto, Canada). The 
OCC conducted a review to determine if the U.S. entities of 
TDBG had a relationship with Stanford International and did not 
find evidence of a relationship. Given that the Stanford Ponzi 
scheme and fraudulent activities referenced in your question 
did not take place in an OCC-supervised institution, it would 
not be appropriate to consider those activities during the 
regulatory approval process for the U.S. entities we supervise.

Q.2. Banks De-risking--I continue to hear that BSA/AML 
compliance burdens are causing some banks to de-risk. This 
concerns me, as it should all, that various Main Street 
businesses in operation for years are apparently having, 
without explanation, their accounts and banking services 
terminated because of banks in fear of not meeting supervisory 
expectations which may result in enforcement actions. 
Additionally, we are receiving word of consumer customers' 
debit cards being declined by their bank at point of sale in 
some of these same Main Street businesses.
    Can you comment on what steps we need to take in order to 
craft proper policy solutions to address unwarranted de-
risking?

A.2. In furtherance of our mission, the OCC makes a concerted 
effort to consistently communicate our position on acceptable 
risk management practices and supervisory expectations to the 
banking industry, through a variety of formats including public 
statements and bulletins on the OCC website. The OCC has 
clearly stated its policy, as described above, that decisions 
to open, close, or maintain individual accounts are made by 
bank management and boards of directors, so long as they 
understand and effectively manage the risks associated with the 
customer. The OCC does not direct banks to open, close, or 
maintain individual accounts. This message is also consistently 
communicated to banks during examinations and meetings that 
specifically address customer risk management practices.
    Additionally, the OCC meets with representatives from 
various industry groups to learn about any concerns they may 
have related to the provision of services by banks. These 
meetings provide an opportunity both to understand the 
interaction of banks with their customers and to communicate 
our position on acceptable risk management practices and 
supervisory expectations to those outside the banking industry.
    Regarding consumer's debit cards being declined at point of 
sale, this could be caused by a number of reasons that are 
separate from the issue of banks de-risking customers. As 
mentioned above, the OCC does not direct banks to close any 
individual accounts and does not direct banks to decline 
transactions. OCC staff is available to provide additional 
background information regarding this issue.

Q.3. Workable Exemption for Subsidiaries of Exempt Entities--
Over the years iterations of beneficial ownership legislation 
have contained various exemptions to the definition of the term 
``corporation'' and ``limited liability company'' that have the 
effect of reducing the scope of this legislation to remove from 
the reporting requirements various types of entities about 
which we generally feel there is enough disclosure and 
regulation to make beneficial ownership reporting unnecessary.
    For instance, the Corporate Transparency Act that the House 
is considering is representative of how beneficial ownership 
bills have proposed dealing with subsidiaries of exempt 
entities. It uses this method to ensure that reporting of 
individual beneficial owners won't be required for most 
publicly traded companies, banks, credit unions, insurance 
companies, utilities, and other large entities.
    Importantly, bills like the Corporate Transparency Act also 
have an exception for certain subsidiaries of these exempt 
entities, but only if the subsidiary was both ``formed and 
owned'' by the exempt entity.
    The dual requirements that the subsidiary was both ``formed 
AND owned'' by the exempt entity will compel beneficial 
ownership reporting for many subsidiaries of exempt entities 
that may be wholly owned by an exempt entity but were not 
formed by it. This is not uncommon.
    Do you feel it is important to deny an exemption from 
beneficial ownership reporting to the subsidiary of a public 
company, bank, or insurance company that is not exempt in its 
own right simply because it was not ``formed'' by the company 
that owns it?

A.3. The current beneficial ownership rule exempts U.S. 
entities when at least 51 percent of its common stock or 
analogous equity interest is held by a listed entity. A listed 
entity is an entity whose common stock or analogous equity 
interests are listed on the New York Stock Exchange, the 
American Stock Exchange (currently known as NYSE American), or 
NASDAQ stock exchange. Thus, the subsidiary is a U.S. entity 
and the listed company is listed on a U.S. exchange. See 31 CFR 
1010.230(e)(2)(ii).
    According to FinCEN, these U.S. entities are excluded from 
the Rule because they are subject to public disclosure and 
reporting requirements that provide information similar to what 
would otherwise be collected under the Rule. See, FIN-2018-
G001, FinCEN Frequently Asked Questions Regarding Customer Due 
Diligence Requirements for Financial Institutions, April 3, 
2018.
    Consistent with the current framework, we feel it is 
important to continue to provide an exemption from beneficial 
ownership reporting for noncontrolling investments in U.S. 
legal entities by U.S. listed entities since ownership and 
control information relating to these investments/entities 
would be subject to public disclosure and reporting 
requirements.
    However, there are situations where these 51 percent 
investments/entities would not be subject to public disclosure 
and reporting requirements, for example, non-U.S. subsidiaries 
of U.S. listed entities are not exempt under the current 
beneficial ownership framework. As a result, we would recommend 
that separate reporting requirements continue to be implemented 
for non-U.S. subsidiaries.
    Finally, it should be noted that different standards apply 
to banks. Under the current framework, a legal entity customer 
is exempt from the beneficial ownership rule if it is a 
financial institution regulated by a Federal functional 
regulator or a bank regulated by a State regulator. As a 
result, the investment/ownership standard applicable is based 
upon whether the entity is a financial institution that is 
regulated by a Federal functional regulator.

Q.4. Also, what is your view of what constitutes sufficient 
ownership by an exempt entity to satisfy the ``owned'' 
threshold of this ``formed and owned'' requirement?
    Is it 100 percent ownership?

A.4. Consistent with the current framework we recommend that 
ownership interests of 51 percent of U.S. entities by U.S. 
listed entities be indicative of control.

Q.5. Is it a simple majority ownership interest?

A.5. As set forth in the response immediately above, consistent 
with the current framework we recommend that ownership 
interests of 51 percent of U.S. entities by U.S. listed 
entities be indicative of control.

Q.6. Under the Corporate Transparency Act and similar proposals 
won't it be left to future regulations to define this 
threshold--regulations which can be changed by a future 
Administration?

A.6. Regulations would be able to provide more flexibility to 
address situations where ownership and control information 
relating to these investments/entities changes and they may no 
longer be subject to public disclosure and reporting 
requirements.

Q.7. Should Congress not spell out the threshold for ownership?

A.7. As set forth in the response immediately above, 
regulations would be able to provide more flexibility to 
address situations where ownership and control information 
relating to these investments/entities changes and they may no 
longer be subject to public disclosure and reporting 
requirements.

Q.8. And why should it require that a subsidiary have been 
``formed'' by an exempt entity that owns it?

A.8. We see little distinction in whether the U.S. entity was 
formed by the U.S. listed entity or subsequently acquired by 
the U.S. listed entity. In both cases, if the ownership 
interest exceeds 51 percent, the listed entity would be the 
control person and control information relating to these 
investments/entities would be subject to public disclosure and 
reporting requirements.

Q.9. Surely investigators can learn all they want about a 
subsidiary of an exempt entity given the nature of these 
entities and the degree to which they have fixed known 
locations, personnel, and operations, could they not?

A.9. We agree that the information to be reported through the 
beneficial ownership database would otherwise be available as a 
result of the public disclosure and reporting requirements for 
U.S. listed entities and their majority owned subsidiaries.

Q.10. What is the compelling reason to limit the exemption for 
a subsidiary of an exempt entity to only those that are BOTH 
``formed and owned'' (however those terms may ultimately be 
defined by regulation)?

A.10. As previously noted, and as consistent with the current 
framework, we do not see a compelling reason to limit the 
exemption for a majority owned subsidiary.
                                ------                                


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

Q.1. According to a recent New York Times report, frontline 
Deutsche bank employees recommended that the bank file 
suspicious activity reports following a series of transactions 
by entities linked to President Trump and by a real estate 
company then-owned by White House Senior Advisor Jared Kushner, 
but their judgment was overturned by higher-level bank 
managers. According to employees, the bank's approach to 
entities linked with Trump and Kushner were ``part of a pattern 
of the bank's executives rejecting valid reports to protect 
relationships with lucrative clients.''
    If a bank were to decline to file an otherwise warranted 
suspicious activity report in order to maintain its 
relationship with a lucrative client, would that be consistent 
with the Bank Secrecy Act and other relevant rules and 
regulations?

A.1. Since the Federal Reserve is the primary regulator of this 
institution, the OCC cannot speak to the specifics of the case. 
However, all financial institutions are required by law to file 
a Suspicious Activity Report (SAR) when the characteristics of 
the transaction meets the legal standards in the SAR 
regulations. Failure to do so could result in civil money 
penalties and/or enforcement actions, depending on the severity 
and frequency of the unreported suspicious activity.

Q.2. According to the report, ``dozens of politically exposed 
clients of the private-banking division, including Mr. Trump 
and members of his family were not'' receiving the scrutiny at 
Deutsche Bank typically applied to people in politically 
important and sensitive positions. If Deutsche Bank declined to 
file otherwise warranted suspicious activity reports to avoid 
``provok[ing] the President's wrath,'' would that be consistent 
with the Bank Secrecy Act and other relevant rules and 
regulations?

A.2. Please see our response to Question 1 above.

Q.3. Deutsche Bank is currently operating under a consent order 
with the Federal Reserve that ``requires it to do more to stop 
illicit activities.'' Does the OCC share information with the 
Federal Reserve with respect to compliance with this order? 
What is the OCC's position about whether Deutsche Bank is in 
compliance with that order?

A.3. The OCC is not the Federal regulator for this institution. 
In general, the OCC works closely with other banking 
supervisors and FinCEN to share supervisory information when 
permissible and appropriate.

Q.4. Has any political appointee in the Trump administration 
discussed or received any nonpublic information about an OCC 
examination or enforcement action related to Deutsche Bank?

A.4. The OCC is not the Federal regulator for Deutsche Bank. 
This question may be more appropriately addressed to the 
Federal Reserve which regulates this institution.
                                ------                                


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

Q.1. A bill under consideration in the House, the Corporate 
Transparency Act (H.R. 2513), would require corporations and 
limited liability corporations to disclose their true 
``beneficial owners'' to FinCEN. It establishes control as any 
person or entity owning 25 percent or more of the equity of the 
company or who receives substantial economic benefit from the 
assets to be disclosed at the time the company is formed. Is 
this the right definition of beneficial owner? Could a 25 
percent floor encourage owners to engage in misleading 
ownership structures to avoid registration?

A.1. The current Customer Due Diligence (CDD) Rule has a 
similar threshold in the definition of beneficial owners that 
banks must identify. Subject to exclusions from the definition 
of a legal entity customer, for each account opened by a legal 
entity, the CDD Rule requires banks to identify the following 
individuals:

    each individual, if any, who, directly or 
        indirectly, through any contract, arrangement, 
        understanding, relationship, or otherwise, owns 25 
        percent or more of the equity interests of a legal 
        entity customer (i.e., the ownership prong); and

    a single individual with significant responsibility 
        to control, manage, or direct a legal entity customer, 
        including an executive officer or senior manager (e.g., 
        a Chief Executive Officer, Chief Financial Officer, 
        Chief Operating Officer, Managing Member, General 
        Partner, President, Vice President, or Treasurer); or 
        any other individual who regularly performs similar 
        functions (i.e., the control prong). This list of 
        positions is illustrative, not exclusive, as there is 
        significant diversity in how legal entities are 
        structured.

    Under this definition, a legal entity will have a total of 
between one and five beneficial owners (i.e., one person under 
the control prong and zero to four persons under the ownership 
prong).
    A similar inflexible threshold in a requirement that 
corporations and limited liability corporations disclose 
beneficial owners to FinCEN may permit bad actors to structure 
legal entities using multiple entities, trust arrangements, and 
other legal forms to create numerous ownership layers so that 
ownership percentages are below the threshold and some true 
owners may not be identified. One possible mechanism to address 
this concern would be to require the individual providing the 
information on behalf of a legal entity to attest to the 
truthfulness of the information provided.

Q.2. Do you recommend we make reliable beneficial ownership 
information available to regulatory, tax, and other law 
enforcement authorities but do not create a beneficial 
ownership registry available to the public?

A.2. Yes, we recommend that you make reliable beneficial 
ownership information available to regulatory, tax, and other 
law enforcement authorities but not create a beneficial 
ownership registry that is available to the public. Since 
beneficial ownership information includes personally 
identifiable information, this data should be afforded 
appropriate protections from general public disclosure. As I 
discussed during my testimony, while the OCC supports 
legislation to create a consistent, nationwide requirement or 
centralized database for beneficial ownership information, we 
are keenly aware of the importance of establishing a balance 
between the need for law enforcement, regulators, and bank 
access to this information and important data protection and 
privacy rights.
    Regulatory, tax, and other law enforcement authorities 
could use this information to fulfill their respective missions 
while having effective data protection frameworks in place to 
safeguard their use of the information. Giving the general 
public access to this information, however, would create larger 
concerns over privacy issues.

Q.3. What rules should we put in place to ensure regulatory, 
tax, and other law enforcement entities can track ownership if 
an owner sells her/his shares?

A.3. The sale of shares should be captured at the time of the 
transaction and reported to the appropriate authorities within 
a certain time period. However, to reduce burden and capture 
the entire change in ownership profile, the sale and purchase 
should be recorded in a single form to capture both ends of the 
transaction and the resulting change in ownership percentage.

Q.4. There have been a number of proposals for collection of 
beneficial ownership information over the years including: 
States collecting this information; IRS making this information 
available since they collect that information; making banks 
collect it and verify it before any accounts can be opened; 
requiring all business entities to report to a centralized 
agency like FinCEN. In your opinion, what is the best mechanism 
or mechanisms to collect beneficial ownership information?

A.4. The OCC supports the establishment of a consistent, 
nationwide requirement for legal entities to provide accurate 
beneficial ownership information. There are a number of 
different mechanisms that could effectively accomplish this 
goal of creating a standardized approach to allow for the 
verification of beneficial ownership data that would benefit 
law enforcement, regulators, and the banks supervised by the 
OCC.

Q.5. At this point, the consensus seems to require Federal--not 
State--collection of information. If that changes and a State 
collection mechanism is recommended, how would we adequately 
fund the development or modification of 51 systems to collect 
and distribute this information? How will compliance be 
measured? How do you ensure a national standard for the States?

A.5. There are a number of different operational and funding 
mechanisms that have been proposed in the past which could 
effectively support a beneficial ownership information 
collection system. With regard to ensuring a national standard 
for collection of information by the States, legislation could 
provide minimum data elements to collect, or perhaps a sample 
form, similar to the beneficial ownership form template used in 
the CDD Final Rule. States could be given the option to use the 
template or their own form as long as it contains the requisite 
elements. Compliance could be measured, for example, through 
reviews or audits of business license or tax filings, if 
ownership information was required to be provided on either of 
those forms.

Q.6. If there is a requirement that the States notify their 
customers of a requirement to report beneficial ownership to a 
centralized agency--What should that notification look like? 
Will there be any funding to the States to accomplish proper 
notification? How will compliance be measured?

A.6. States may be able to communicate this requirement to 
their customers by including the notification in the packages 
of information/instructions provided to prospective corporate 
registration applicants on the relevant agency websites and in 
the registration forms themselves. Such notification could 
inform the impacted parties of the requirement to accurately 
report beneficial ownership information, the reason for this 
requirement, where and how to report the information, the 
timeframe for doing so, and possible penalties for 
noncompliance or providing false statements.
    There have been past proposals for mechanisms to provide 
funding for the States, and any such funding could be 
coordinated through collective State representation, such as 
the National Association of Secretaries of State. As noted 
above, compliance could be measured, for example, through 
reviews or audits of business license or tax filings, if 
ownership information was required to be provided on either of 
those forms.

Q.7. What has been the involvement of State banking supervisors 
in discussions regarding updates to the Bank Secrecy Act and 
anti- money-laundering rules? Should State banking regulators 
be more involved in these discussions regarding BSA/AML?

A.7. While the BSA is a Federal statute, the Federal agencies 
that are members of the Federal Financial Institutions 
Examination Council (FFIEC) regularly coordinate with State 
banking supervisors where there are overlapping processes or 
coordinated approaches to supervision, for example, updating 
the FFIEC BSA/AML examination procedures. State banking 
regulators are represented in FFIEC proceedings by the 
Conference of State Bank Supervisors and State Liaison 
Committee, which actively participate in these types of 
discussions. While not a member of the FFIEC, FinCEN also 
participates actively in the FFIEC's BSA/AML Working Group, 
which includes discussion of rulemaking proposals.

Q.8. You have worked at the OCC for a long time. Have you ever 
written a letter to someone who commented on a rule telling 
them you disagreed with their comments?

A.8. No, I have never written a letter to a commenter in 
response to a comment the agency received during a rulemaking.
    In general, when the OCC receives comments in response to a 
request for comment during the rulemaking process, the agency 
will enter the comments received into a docket and publish them 
on the Regulations.gov website. Comments received, including 
attachments and other supporting materials, are part of the 
public record and subject to public disclosure.
    OCC staff then review and consider these comments as part 
of the rulemaking process, including summarizing and addressing 
comments in the preambles of final rules published in the 
Federal Register.

Q.9. Have you ever published an op-ed critiquing comments from 
members of the public on an OCC proposed rule?

A.9. The OCC has published no article nor made any other 
criticism of comments submitted in response to a formal 
rulemaking. The article by Deputy Comptroller of the Currency 
Barry Wides, which was published in the American Banker on 
March 25, 2019, responded to inaccurate public comments made in 
the press, online, and in other public settings. The article is 
available at https://www.americanbanker.com/opinion/setting-
the-record-straight-on-cra-reform.

Q.10. Will you ensure comments on bank mergers are not 
relegated to a separate CRA process but instead considered as 
part of the merger application?

A.10. The OCC will continue to comply with requirements of the 
statute. Referring actionable comments to supervision staff 
allows those comments to be reviewed and addressed in the most 
expedient manner.

Q.11. Will you ensure access to information through the Freedom 
of Information Act with timely responses without requiring high 
fees?

A.11. The OCC will continue to comply with the Freedom of 
Information Act and applicable policies regarding fees and fee 
waivers.

Q.12. There has been an epidemic of fake comments on 
controversial issues. How will you ensure that comments on 
proposed rules and mergers are accurate and not based on stolen 
identities?

A.12. The OCC is not familiar with data suggesting an 
``epidemic of fake comments on controversial issues'' and would 
welcome the opportunity to review such data. While the OCC 
cannot control the advocacy techniques and letter-writing 
practices used by many, the agency reviews each letter 
submitted. Identical letters, often the result of form letters, 
typically do not present additional new information and are 
easily grouped together in responding to those comments.
              Additional Material Supplied for the Record
              
 [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
 
 [all]