[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]