[Senate Hearing 117-345]
[From the U.S. Government Publishing Office]
S. Hrg. 117-345
INTERNATIONAL POLICY UPDATE: THE TREASURY DEPARTMENT'S SANCTIONS POLICY
REVIEW AND OTHER ISSUES
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING INTERNATIONAL POLICY ISSUES
__________
OCTOBER 19, 2021
__________
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
48-365 PDF WASHINGTON : 2022
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Colin McGinnis, Policy Director
Dan Sullivan, Republican Chief Counsel
Dylan Clement, Republican Professional Staff Member
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
(ii)
C O N T E N T S
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TUESDAY, OCTOBER 19, 2021
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 34
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 35
WITNESS
Wally Adeyemo, Deputy Secretary, Department of the Treasury...... 5
Prepared statement........................................... 36
Responses to written questions of:
Chairman Brown........................................... 38
Senator Toomey........................................... 41
Senator Cortez Masto..................................... 52
Senator Sinema........................................... 56
Senator Rounds........................................... 59
Senator Tillis........................................... 61
Senator Hagerty.......................................... 62
Additional Material Supplied for the Record
U.S. Department of the Treasury Sanctions Review Release......... 65
The Treasury 2021 Sanctions Review............................... 67
(iii)
INTERNATIONAL POLICY UPDATE: THE TREASURY DEPARTMENT'S SANCTIONS POLICY
REVIEW AND OTHER ISSUES
----------
TUESDAY, OCTOBER 19, 2021
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met via Webex and in room 538, Dirksen Senate
Office Building, Hon. Sherrod Brown, Chairman of the Committee,
presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order. This hearing is in a
hybrid format. Members have the option to appear both in person
or virtually. Our sole witness is in person. Mr. Adeyemo,
welcome.
If there is a technology issue we will move on to the next
person. Our speaking order will be as usual, that is by
seniority of the Members who have checked in, alternating
Democrat and Republican.
Today we welcome Deputy Secretary Wally Adeyemo to this
Committee for an update on international policy issues.
Sanctions policy is an area where we have done important,
bipartisan work on this Committee. I thank Senator Toomey and
especially Senator Crapo, who was Chair when I was Ranking, up
until this year. We were able to make important progress in
holding countries like Russia and North Korea accountable.
Senator Toomey and I worked together to pass tough new fentanyl
sanctions, to help stem the flow of illegal opioids from China
and Mexico that have taken such a toll. Another heartbreaking
story on public radio today about what has happened in far too
many families in this country.
I am confident that we will be able to build on the
progress this year, in conjunction with President Biden and
Deputy Secretary Adeyemo.
Two weeks ago in this Committee, we explored the economic
and humanitarian crisis in Afghanistan, as Senator Toomey asked
us to, the role of sanctions, and how we can get more aid to
the Afghan people, without resources falling into the hands of
the Taliban.
Last week, a broad coalition of countries agreed to
substantially increase aid to Afghanistan. We continue to work
with our allies to ensure that aid can be delivered effectively
to the people there, despite sanctions against the Taliban.
Today, we will focus primarily on the findings and
recommendations of the months-long sanctions policy review that
Secretary Yellen, Deputy Secretary Adeyemo, and others directed
the Treasury Department to undertake.
The Department consulted with agencies across the
Government--State, Commerce, the intelligence community, and
others--as well as an array of private sector actors, including
banks, businesses, nonprofits, international NGO's, and
sanctions experts.
That comprehensive review examined important questions of
our current sanctions policy: Does the U.S. Government have the
right sanctions tools? Are we using them effectively with our
allies? Are we reassessing their application and adapting them
as we go? Are we targeting the right people, the right
entities, the right countries, in the right way, with the right
sanctions? Ultimately, are we actually changing the behavior of
targeted countries, entities, or people, where that is
obviously our goal?
I know that Treasury has recommendations on these and other
questions.
There are some guiding, bipartisan principles that this
Committee has recognized for years regarding sanctions, and let
me just briefly outline those. Number one, we should impose
sanctions on a multilateral basis whenever possible. They are
more effective, and they garner broader political and
diplomatic support if we impose them in coordination with our
allies.
Number two, preserving and strengthening humanitarian
exceptions and licensing are important to ensure that people do
not suffer from shortages of food, medicine, and other
necessities because of sanctions.
Number three, for sanctions to be effective they must have
clear targets, goals, and objectives. If we are trying to
change countries' and other actors' behavior, they need to
understand how, once they do better, they can free themselves
from sanctions.
Fourth, the U.S. must do a better job of regularly
assessing the effectiveness of sanctions. We need to
communicate those findings better to banks and other entities
that are implementing sanctions policy.
And last, the Executive branch must continue to support and
empower the dedicated public servants across the Government
charged with implementation and enforcement. As with any job,
workers are our greatest assets, whether at Treasury, at State,
on the Senate Banking, Housing, and Urban Affairs Committee or
in the intelligence community in our Government. They must have
the funding, the analytical tools, the technical expertise--
including in cryptocurrencies, as we have discussed--which need
a much closer look. They need the technology and the time to do
their jobs, particularly as we have increased the use of
sanctions all around the world.
Today's hearing will give Members a chance to survey other
international policy issues within our jurisdiction, and pose
any questions to the Deputy Secretary, which I am sure he is
prepared to address.
I thank Deputy Secretary Adeyemo for your work on these
issues, and look forward to your testimony.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. Deputy Secretary
Adeyemo, welcome back. Under President Biden, the Treasury
Department has advanced a number of troubling international
policies, some of which are clearly intended to circumvent the
will of Congress.
Let us take sanctions to start with. The Administration has
offered sanctions relief to our adversaries in the unrealistic
hope that they will make concessions inimical to their own
interests and nature. Consider Iran, for instance. To entice
Iran to reenter the flawed JCPOA, the Administration appears
willing to lift sanctions on Iran. Then the Administration
hopes Iran will commit to cease supporting terrorism and to
curb its ballistic missile program.
But let us be clear. Once sanctions are lifted, Iran will
never limit its malign behavior. The Administration clearly
intends to repeat the mistakes of the Obama administration and
reenter a treaty with Iran, despite bipartisan opposition and
without Senate approval.
In addition, the Administration has repeatedly failed to
comply with mandatory sanctions laws. Also, let us look at
Iran. Since President Biden was elected, according to the
International Energy Agency, Iran has doubled the amount of
crude oil it is selling to China to 600,000 barrels each day
this year. Even though these sales are illegal under sanctions
laws, the Administration has refused to impose congressionally
required sanctions on the Chinese buyers.
Take the case of Russia. The Administration has also chosen
to ignore a law requiring sanctions on Russia's Nord Stream 2
pipeline. The pipeline's project manager has been using
sanctioned Russian entities to construct and finance Nord
Stream 2, meaning the manager's integral role in the pipeline
is predicated on a massive sanctions evasion campaign.
Congress passed the Countering America's Adversaries
Through Sanctions Act, or CAATSA, to punish, among other
things, this very type of conduct: sanctions evasion. Congress
did this because sanctions evasion harms U.S. national security
interests, and in this instance, it is increasing Putin's
malign influence over Europe. But the Administration continues
to violate this statute in order to give Putin a pass.
Take the OECD tax agreement. As if all this were not
enough, the Administration is trying to enact an international
tax treaty that will harm U.S. competitiveness, and to do it
without obtaining the necessary two-thirds approval of the
Senate.
You will recall the tax increase consists of two pillars.
Pillar One is an unprecedented treaty change that would allow
foreign countries to tax American companies based on the
American companies' sales overseas. It is a tax revenue
transfer from us to them. Unsurprisingly, this is the priority
for other countries, who have long sought this tax transfer.
Pillar Two is a 15 percent global minimum tax on
multinationals' foreign income. Now this is the
Administration's attempt to justify the huge tax increase it
wants to impose on U.S. companies. Unsurprisingly, this is the
Administration's priority since it is an integral part of
dismantling the successful 2017 tax reforms.
But by imploring other countries to implement a global
minimum tax that will harm their own workers and businesses,
the Administration has implicitly acknowledged that their
proposed multinational tax increase will make U.S. workers and
businesses less competitive, if other countries either do not
implement a global minimum tax of their own or implement a
significantly lower rate than what the Administration is
proposing.
But here is a problem. There is a very real possibility
that other countries will not implement a global minimum tax.
They have only reluctantly agreed to that global minimum tax as
a condition, I mean, in return for getting Pillar One, the U.S.
tax revenue transferred to them. But as I say, implementing
Pillar One requires two-thirds approval in the Senate, and I do
not think that is going to happen.
So the Administration is either going to impose its global
minimum tax increase on American companies anyway, without the
countries we compete with having enacted a corresponding tax
increase, or they are going to violate the Constitution by
modifying our existing tax treaties without obtaining the two-
thirds consent of the Senate.
Let us turn quickly to the FSOC Climate Risk Report. This
is the latest troubling international policy proposal from the
Administration. We expect this report to come out soon. It is
likely to claim that global warming poses a systemic risk to
the financial system.
Now I acknowledge that global warming is real. However, it
does not follow from this that there is a new systemic risk to
the financial system. We have had severe weather events since
the dawn of time. And as the economist, John Cochrane, has
explained to this Committee, major weather events, and I quote,
``have never come close to causing systemic financial crises,''
end quote, and there is no scientifically validated possibility
to change this in the near future.
Our Democratic colleagues should acknowledge this reality
and offer their proposals on climate change through the
legislative process, which they are doing, including calling
for a ``carbon'' tax, in which this very dangerous tax-and-
spend measure they are contemplating will make energy prices
higher.
But that legislative approach is not enough for our
Democratic colleagues. They also want to use unaccountable
financial regulators to really misuse their power and
essentially cutoff the supply of capital to fossil fuel
companies.
Well, all across America we are already seeing what happens
when the regulatory environment discourages the development of
necessary energy sources. Energy prices spike. This dynamic
will only get much worse if financial regulators are pressured
to starve the energy sector of the capital it needs to provide
Americans the energy they need.
Deputy Secretary Adeyemo, I look forward to discussing
these issues with you today.
Chairman Brown. Thank you, Senator Toomey.
Wally Adeyemo was sworn in as Deputy Secretary of the
Treasury in March of 2021. He has spent the majority of his
career in public service convening Governments and companies
and organizations to move toward achieving common goals. He
came to the Treasury Department from the Obama Foundation,
where he served as president beginning August 2019. He served
as a senior advisor before that at the Center for Strategic and
International Studies and at BlackRock. He held a number of
roles in public service before this. He holds a BA from the
University of California at Berkeley and a JD from Yale Law
School.
Deputy Secretary Adeyemo, it is good to have you here.
Welcome. Please begin.
STATEMENT OF WALLY ADEYEMO, DEPUTY SECRETARY, DEPARTMENT OF THE
TREASURY
Mr. Adeyemo. Chairman Brown, Ranking Member Toomey, and
Members of the Committee, thank you for giving me the
opportunity to speak to you today about the National Advisory
Council on International Monetary and Financial Policies report
to Congress, the Treasury Department's priorities, and our
outlook for the global financial system.
As you know, the international financial institutions form
the core of the international financial architecture that is
consistent with our economic interest. It is no accident that
the U.S. economy is the largest in the world, that our
financial markets are the deepest and most liquid, and that
dollar is the world's reserve currency. Our economic success is
the result of the policy choices we made coming out of World
War II, alongside the hard work and determination of the
American people.
America's interest in a strong, stable, and rules-based
economic order is also deeply entwined with our foreign policy
and national security interest. Our economic objectives cannot
succeed if the international financial system facilitates the
illicit flow of funds to oppressive regimes, terrorist groups,
cybercriminals, and other malign actors.
Bearing this in mind, Secretary Yellen requested a review
of Treasury's use of financial and economic sanctions since the
terrorist attacks of September 11, 2001. The review identified
four primary challenges to the continued effectiveness of our
sanctions regime: one, our adversaries' attempts to build
payment systems allowed them to avoid the dollar-based
financial system; two, technological changes like the growth of
digital currencies; three, the need to permit the flow of
legitimate humanitarian assistance and avoid collateral impact
on nontarget populations; and finally, four, ensuring that
sanctions are always deployed alongside other measures as part
of an overarching national security strategy.
I want to briefly describe to the Committee the five
initiatives Treasury is advancing to respond to these
challenges and modernize the use of sanctions.
One, adopting a policy framework. Treasury will adopt the
use of a structured policy framework in order to inform its
recommendations on the use of sanctions. This framework will
seek to ensure that sanctions support clear policy objectives
within a broad strategy; reflect input from technical experts
and other critical sources of information, including the
intelligence community; incorporates multilateral cooperation
and are easily understood, enforceable, and reversible. The
framework will be a tool to improve the use of sanctions, not a
means to prevent it.
Two, improving access to humanitarian assistance. Treasury
will work to expand sanctions exceptions, where appropriate, to
support the flow of legitimate humanitarian assistance,
incorporating lessons learned from the last 20 years. The
Department is committed to consistently providing clear
guidance in the context of all applicable sanctions regimes,
including the continued flow of legitimate humanitarian aid to
heavily sanctioned jurisdictions.
Three, regular assessment of sanctions programs. Treasury
plans to use the sanctions policy framework on a regular basis
to review sanctions programs and authorities and make
recommendations to augment, adapt, or wind down individuals'
authorities, or to list or delist particular entities.
Four, improve sanctions coordination and communication. The
threat of sanctions alone, not even the imposition, remains a
powerful tool of economic statecraft. In order to calibrate the
use of this tool, Treasury needs to communicate and coordinate
more effectively with stakeholders affected by the use of
financial sanctions. This includes U.S. allies and partners,
financial institutions, and other actors within the financial
system, nonprofit organizations, and the media. We will do this
by using existing forms where we meet with our allies and
partners to coordinate and collaborate on sanctions as well as
build a more formal mechanism for receiving feedback and advice
and providing information to stakeholders.
Five, we plan to modernize our operational capabilities. As
the threats to our Nations change, sanctions must also adapt.
Treasury must invest in changes to its workforce and technical
capabilities to meet these evolving threats. This will involve
streamlining current functions as well as making workforce and
infrastructure investments to take on growing threats like
ransomware and other cybercrime. This effort will require
building on current processes in some areas and changes in
others. Certain changes may be implemented in the near term
while other will require further deliberation and analysis to
determine the best path forward in collaboration with the State
Department and other Executive branch partners. In many cases,
support and advice from key partners like Congress will be
critical.
Members, sanctions are not only an important tool of the
United States, they play an important role in maintaining the
rules-based global economy, which has benefited the world for
generations. I look forward to working with Members of this
Committee to continue advancing U.S. international economic
leadership abroad and creating opportunities for Americans at
home. I am happy to take your questions.
Chairman Brown. Thank you, Mr. Deputy Secretary. Your staff
has put a lot of time and work into this. You have laid out
general principles and recommendations. What are the most
important and urgent findings and recommendations, and will any
of them require congressional approval?
Mr. Adeyemo. Thank you, Senator, and I want to thank you
and your staff and the staff of this Committee for spending a
great deal of time with those of us at Treasury, talking about
the sanctions review. As you will see from the report and also
from my testimony this morning, the findings we have largely
align with the principles this Committee has outlined.
The key for us is making sure that as we think about
sanctions on a go-forward basis we are making the investments
today to keep up with innovations, not only technology but
innovations by our adversaries that are attempting to bypass
our sanctions. This will require us to do more multilaterally,
frankly by doing more multilaterally put ourselves in a place
where when we decide to act unilaterally we have greater power
in terms of our ability to effect change, the change of
behavior, which is the ultimate goal of sanctions.
We are going to need to work with Congress to advance
things like creating the type of opportunities within the
Executive branch to hire staff who understand issues like
crypto going forward, so looking to Congress to help us with
hiring authorities. The President's fiscal year 2022 budget
includes additional resources which will allow us to build on
the technological expertise that we need in the Treasury
Department, and will also help us bring on the type of
workforce we need to ensure that we are able to meet these
challenges going forward.
A great deal of the work that we need to do will need to
happen with our Executive branch colleagues, but we look
forward to also working with Congress to advance these
important goals.
Chairman Brown. Thank you. This review strikes me as
especially important because the last time U.S. sanctions were
reviewed comprehensively was 20 years ago, and it resulted in
the enactment of a new law requiring exclusion of trade and
agriculture and medicine and medical products from sanctions.
Clearly we need to work harder to avoid collateral consequences
in sanctions on humanitarian aid.
So my question is this. Especially as the pandemic
continues to put all of us at risk, as variants mutate around
the globe, what specific new steps are you recommending that
Treasury take to mitigate the harm to humanitarian aid efforts?
Mr. Adeyemo. Senator, it is critical that especially in
areas where sanctions are used, humanitarian assistance is able
to continue to flow. We have learned a great deal from what we
have done over the last 20 years. You will see that some of
that has been applied to some of the sanctions programs that we
have introduced recently. For example, the President's
Executive order with regard to actions occurring in Ethiopia.
When we issued that Executive order we also put out general
licenses at the same time to assure that humanitarian
assistance would continue to flow.
One of the challenges that we have is that we often will
announce sanctions programs and then wait to hear from
humanitarian groups before we then issue guidance to provide
them with the ability to continue to flow humanitarian
assistance into these areas. Our goal now needs to be to ensure
that we take the lessons that we have learned from the last 20
years and ensure that humanitarian assistance can be provided
alongside our sanctions programs in order to meet the needs of
people who are suffering in these areas. Especially during this
moment of COVID, ensuring that medicine and food can get to
these affected people is not only consistent with our values
but it will help us end the pandemic globally.
Chairman Brown. A number of critics have argued that the
sort of clumsy use or the overuse of sanctions, of unilateral
sanctions by the U.S., especially during the Trump
administration, played into the hands of our adversaries. How
concerned are you about efforts by China and Russia and others
to insulate themselves from U.S. sanctions, including by moving
away from dollarized transactions, creating new financial
messaging systems, or taking other similar steps? Do you view
these efforts, if they were to persist and intensify, as posing
a threat to the U.S. dollar as the world's reserve currency?
Mr. Adeyemo. Senator, my view is that the U.S. dollar as
the world's reserve currency will remain, for a number of
reasons, including the fact that we have made the needed
investments in America. Ultimately, people are going to want to
invest in America and do business here because of the strength
of our economy and the openness of our system and the certainty
of our laws.
But it is true that if we do not use sanctions
appropriately it will drive not only our adversaries but a
number of others to look for ways around the use of the dollar
in their financial dealings. Our goal then needs to be to make
sure that we do two things. One is that in using our sanctions
we need to use a framework that is consistent with the
principles, frankly, that this Committee has been outlining for
a long time, but in addition to doing that we need to try and
multilateralize our sanctions whenever possible. While it is
hard to avoid being engaged in financial transactions that
avoid the dollar, it is even harder to avoid financial
transactions that avoid the dollar, the euro, the pound, and
the yen. That is why it is critical that more often we try to
do things multilaterally with our allies and partners going
forward.
Chairman Brown. Thank you. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman. Deputy Secretary
Adeyemo, I cannot help but note the irony of your discussing
how and why it is so important that we preserve the ability to
impellent a sanctions regime in the future when you and the
Administration choose not to implement sanctions that statute
currently requires.
Let us take the case of Iranian oil sales to China. The
Iran Freedom and Counter-Proliferation Act, IFCA, prohibits the
purchase of Iranian oil. Yet according to the International
Energy Agency satellite data, since January of this year China
has been importing around 600,000 barrels of Iranian oil per
day.
And the Administration knows it. On September 28, Reuters
reported that, and I quote, ``A senior U.S. official said, `We
are aware of the purchases that Chinese companies are making of
Iranian oil,' '' end quote.
Now I am sure you acknowledge that IFCA requires sanctions
on purchase of Iranian oil, right?
Mr. Adeyemo. Senator, the law does require that.
Senator Toomey. OK. And you acknowledge that Chinese
companies are buying Iranian oil in very significant
quantities, right?
Mr. Adeyemo. Senator, I am aware that a number of people
are attempting to buy Iranian oil, and our goal is to make sure
that----
Senator Toomey. OK. But we are not talking about attempts.
It is a factual matter that Chinese entities are routinely,
daily, buying hundreds of thousands of barrels of Iranian oil,
in direct violation of our sanctions regime, right?
Mr. Adeyemo. Senator, we continue to monitor purchases of
Iranian oil, and we look forward to using----
Senator Toomey. OK. So you are making my point. I am going
to submit a written question, and for the sake of time I would
appreciate a written answer as to why it is that you believe
that the mandatory nature of this sanctions statute is somehow
optional, because it is actually not, and we all know that this
is going on.
Let us move on to Nord Stream 2. So since early July,
several other Senators and I have been very concerned that the
Administration is again violating the statute by not
sanctioning the project manager of the Nord Stream 2 pipeline,
that is Nord Stream 2 AG, under Section 228 of CAATSA. And here
is the problem. Nord Stream 2 pipeline project, the whole
project is riddled with sanctioned Russian entities, ranging
from the project owner to various contractors, vessels, certain
employees, they are all subject to sanctions, already
established sanctions.
OK. So Gazprom illustrates why the Treasury Department is
violating this law. The Obama administration imposed sectoral
sanctions, or SSI sanctions, on Gazprom due to Russia's efforts
to destabilize Eastern Ukraine. Now I am sure you do not
dispute that Gazprom is currently subject to SSI sanctions,
right?
Mr. Adeyemo. Yes, Senator.
Senator Toomey. OK. So CAATSA Section 228 goes after
entities facilitating sanctions evasions on behalf of, and I
quote, ``any person subject to sanctions imposed by the United
States with respect to the Russian Federation,'' end quote. On
OFAC, that is to say the Treasury's own website, the answer to
FAQ Number 546 explicitly makes it clear that persons subject--
I am quoting now--``Persons subject to sanctions imposed by the
United States with respect to the Russian Federation includes
persons listed on the SDN list or the SSI list,'' end quote.
So we have established that Gazprom is a party sanctioned
by the U.S. Government for the purpose of CAATSA 228, so you
could ask, OK, so what does that have to do with Nord Stream 2
AG? Well, on its own website, Nord Stream 2 AG describes itself
as a project company established by Gazprom for the purpose of
planning construction and subsequent operation of Nord Stream 2
pipeline. And again, I am sure you agree that Gazprom did, in
fact, set up Nord Stream 2 AG to construct and operate the
pipeline, right?
Mr. Adeyemo. Senator, we have talked about this issue
several times, and I agree with you that we need to do
everything we can to implement CAATSA. As I have said to you
previously, we are currently working with intelligence
community to----
Senator Toomey. I understand. But let me just finish this,
because this is important and we are going to run out of time.
So we also know that Nord Stream 2 AG has facilitated
sanctions evasions for Gazprom. Now you might ask, well, how do
we know that? Well, we know this because the State Department
has told us this, right? In a May 2021 report, the State
Department said that Nord Stream 2 AG has, and I quote,
``knowingly facilitated deceptive or structured transactions to
provide vessels for the construction of Nord Stream 2
pipeline.'' And just adding on, and I am sure you will confirm
again, that it was, in fact, Treasury lawyers signed off on the
evidentiary package that the State Department used for this
determination.
So you have acknowledged that Gazprom is sanctions. You
acknowledged that Gazprom set up Nord Stream 2 AG. I believe
you acknowledged that Nord Stream 2 AG has facilitated
sanctions evasions, and certainly your lawyers did when the
State Department concluded that Nord Stream 2 AG has
facilitated sanctions evasions to get vessels involved in this.
Do you acknowledge that Nord Stream 2 AG did all this on
behalf of Gazprom?
Mr. Adeyemo. Senator, as I have said, we are committed to
working with you and this Committee to hold Gazprom responsible
for its activities that violate our sanctions.
Senator Toomey. But you are not answering a direct question
here. Do you knowledge that Nord Stream 2 AG has engaged in the
activity that is laid out by the State Department, on behalf of
Gazprom?
Mr. Adeyemo. Senator, we support the State Department's
report. We worked with them on that report. Their report was
based on a separate authority than the one that we are talking
about today, which is CAATSA. With regard to CAATSA, we are
committed to making sure that we work with----
Senator Toomey. Let me just close by saying, look, it is
very clear what is going on here. Gazprom created Nord Stream 2
to evade sanctions. That was the entire purpose. Everything
around this picture are the sanctioned entities, and they
needed Nord Stream 2, they needed an unsanctioned entity in
order to bypass the sanctions. That is exactly what we passed
CAATSA for, on a bipartisan basis, and it is completely
unacceptable that it is not being implemented.
Chairman Brown. Thank you, Senator Toomey. Senator Tester
is recognized for 5 minutes, from Montana.
Senator Tester. Yeah. Thank you, Mr. Chairman. Look, your
testimony highlighted the important work of countering China's
unfair trade practices, and it is true they are the pacing
threat to us and the world today. It is a key focus of mine in
the Defense Subcommittee, which I chair, and it is why I pushed
so hard to get the Bipartisan Infrastructure Bill across the
finish line in the Senate, and will continue to push to get
across the finish line in the House.
But from your perspective, in your role as Deputy
Secretary, what is the most effective way to address what China
is doing with particularly currency manipulation?
Mr. Adeyemo. Senator, thank you for the question and thank
you for your work on those important issues. My view is that
the most important thing that we can do with regard to
competing with China is making the investments in the United
States that you have taken a leadership role on, like the
Infrastructure Bill that has passed the Senate and is currently
in the House.
In terms of the issue of currency manipulation, the
President and Secretary have been very clear that we will not
allow any country to unfairly use its currency to push for more
exports. As you know, on a semiannual basis the Treasury
Department puts out a report on foreign exchange intervention
that highlights countries that violate the international rules
in this area. When it comes to China, we are committed to
holding them accountable for all of their unfair actions, both
unilaterally, in the United States, but also working
multilaterally with our allies and our partners, because know
that fundamentally the actions that China takes do not only
hurt American consumers and American workers but they hurt the
consumers and workers around the world.
Senator Tester. So let me ask you this. Is there anything
that you need from Congress, specifically this Committee, any
additional authorities?
Mr. Adeyemo. Senator, at the moment I think that Congress
providing us with the authorities to pull together the foreign
exchange report is what we need. We are working actively with
the USTR and other agencies within the Government to use our
tools to hold China and others accountable, and we look forward
to continuing to consult with you if there are additional
authorities that we need.
Senator Tester. OK. From the standpoint of cryptocurrency,
has that changed how the Treasury Department deals with
sanctions?
Mr. Adeyemo. Senator, as we highlighted in the sanctions
review, cryptocurrencies has required us to look at ways that
we can try to deal with potential sanctions evasions, and we
have highlighted this by taking certain actions with regard to
cryptoactors who are using this means of payment for things
like ransomware. It will require us to also invest more in
different parts of our workforce going forward and improving
our technology infrastructure.
Senator Tester. How often are you seeing cryptocurrencies
being used to avoid sanctions?
Mr. Adeyemo. Senator, we recently put out a report, just
last week, highlighting the use of cryptocurrencies in
ransomware, to the tune of several hundred million dollars of
collections through cryptocurrencies. We recognize that a
number of actors who seek to impact our national security are
using cryptocurrencies to try and get around our sanctions
regimes. In terms of a quantifiable number, we know it is more
than several hundred million dollars, and our goal has got to
be to try and identify those where it exists and to stop it
using the tools that Congress has provided us.
Senator Tester. So from your perspective, do you think that
cryptocurrency should be a regulated market in a way that is
similar to our conventional monetary system?
Mr. Adeyemo. Senator, from my perspective, one of the
things that we have benefited from a great deal in the United
States is innovation. Innovation has helped drive our economy,
and financial innovation has done that. But it is important
that as we think about those innovations we also have a
regulatory regime that protects consumers and protects our
national security. We are going to need to use the tools like
the BSA and AML laws to make sure that we are protecting our
national security, but there is also going to be a need to work
with Congress to decide on whether we need additional tools in
this space as well.
Senator Tester. OK. Last question. You talked about reserve
currency quickly, and you talked about the fact that we have it
and we are probably not going to lose it. I have a little
different perspective, but I want to hear yours. Could you tell
me what impact defaulting on the debt might have on our status
with reserve currency and the uncertainty that might create?
Mr. Adeyemo. Senator, as Secretary Yellen has said, a
default on the U.S. debt would be catastrophic from the
standpoint of our credibility, not only to our creditors but
our credibility in the world, and would have a clear impact on
people's trustworthiness in the United States and our ability
to meet our commitments.
Senator Tester. And so you would see that as a giant step
in the wrong direction as far as maintaining our reserve
currency status?
Mr. Adeyemo. Yes, Senator. Ultimately, the reason that the
United States dollar is the reserve currency in the world is
because people trust the United States economy. They have
confidence in the investments and the decisions that we make.
And if we were to not pay our bills on time it would send
ricochets through those people who have confidence in our
economy.
Senator Tester. OK. Thank you, Mr. Chairman. Thank you.
Chairman Brown. Thank you, Senator Tester. Senator Scott is
recognized from South Carolina, from his office.
Senator Scott. Thank you, Mr. Chairman, and thank you, Mr.
Adeyemo, for being with us today. I have a couple of questions
for you. I noticed that Senator Tester started asking questions
about the plan to make sure that we do not default on our debt,
or the consequences of us defaulting on our debt, and without
any question I have read a number of reports that suggest that
the plan that was going to be in place to make sure that we did
not default on our debt was already being thought through, wise
planning from my perspective.
Here is a question, though, that is not related to
sanctions, even though I know that we are talking about
sanctions, but it would be impossible for me not to ask a
question about the current proposals coming out of the
Administration as it relates to the ability to investigate and/
or have access to every transaction in every American's banking
accounts or financial accounts, based on simply $600 of flow
coming through. I know that some proposals have $600, others
have $10,000.
The challenge is, whether it is $600 or $10,000, it
captures basically the same number of accounts. Ultimately, if
someone pays $800 a month in rent, that is $9,600. With any
other transactions you break the $10,000 threshold. If you were
a senior citizen receiving Social Security, with the average
Social Security check being around $1,500, or $18,000 a year,
your financial institution then has to report to the IRS your
account.
I do not know what in the world the IRS will do with the
information that they receive from these financial
institutions. I say this with the backdrop of the last Democrat
administration. We saw the IRS not peering into but
investigating nonprofit religious organizations and
conservative organizations without expanding their power or
their reach.
So my concern is that as we see this Administration's
proposal to give more access to the IRS to peer in and
investigate, frankly, $600 of flow in and out of accounts of
every American, that essentially captures all Americans'
transactions in this country. If you are looking for tax
cheats, that is a terrible way of figuring it out. But if you
are, in fact, looking at a big Government proposal to have the
ability to investigate every single transaction of a financial
institution of your account, my account, and their accounts,
well, this might be a good direction to go in. And I would love
to hear why you think it is important for every American's
transactions to be made available to the IRS.
Mr. Adeyemo. Senator, thank you for that question because
it gives me an opportunity to make clear the President's policy
goal, which is to make sure that wealthy taxpayers who are
avoiding taxes in this country pay the taxes that they owe. As
you know, the top 1 percent of income earners in this country
fail to pay more than $150 billion in taxes each year. And the
reason for this is because they do not earn income the same way
that most of your constituents do, which is by getting a W-2,
which is information that a teacher or a truck driver or any
other employees' company provides to them, but also then
provides to the IRS.
The reality is wealthy people often earn their income
through partnerships or other ways in which they can sell an
asset for $2 million, put that $2 million in the bank account,
and tell the IRS that they only earned $100,000.
What the President seeks to do is level the playing field
so that wealthy individuals are forced to pay taxes in the same
way that working-class people do every day in this country. We
are committed to----
Senator Scott. Thank you. Let me just follow up on your
answer, because I do think you raise an important point, and I
hope everyone who is watching is listening to what I think is
an explanation that requires a little more questions.
Let me think of it this way. The top 2 percent of Americans
make about $18 out of every $100 but they pay about $36 out of
every $100 in taxation. Sixty percent of Americans pay no
Federal taxes. Here is my question. For those 60 percent that
pay no Federal taxes, you are literally going to be having the
access to investigate their accounts too.
So if you are looking to simply find the tax cheats of the
top 1 percent or 2 percent of Americans, you do not need a
threshold of $600. You do not need a threshold of $10,000.
Frankly, you do not even need a threshold of $100,000. What
this threshold of $600 or $10,000 does, it captures all the
information, all the transactions of everyday Americans, not
the rich ones but the ones working paycheck to paycheck, should
not be forced to have an additional burden on their plates
about whether or not the IRS is going to be investing them,
whether or not someone is going to be harassing them. That is
not about millionaires and billionaires. That is an actual
additional burden on working-class Americans. We can do better
than that.
Thank you for your answer.
Mr. Adeyemo. Can I just respond quickly?
Chairman Brown. Mr. Secretary, of course.
Mr. Adeyemo. The President is willing to work with Congress
on the threshold, on ways to protect those who earn W-2s, and
those who get Social Security payments. Our ultimate goal is
making sure that wealthy people who do not pay the taxes that
they owe, pay those taxes in order to make sure that we have
the money to pay for things like infrastructure and childcare
in this country.
Chairman Brown. Senator Menendez----
Senator Scott. Mr. Chairman, I appreciate you giving my
time to the witness to respond. I will simply say this, that if
you are looking for a way to make sure that people pay their
fair share of taxes, I have got to tell you that this proposal
is not in the same universe of accomplishing that goal. This
proposal, whether it is $600 or $10,000, if you exclude the
Social Security recipients at $1,500, you still have the vast
majority of Americans, working paycheck to paycheck, with an
additional burden, with another thing to be concerned about,
from their Government. That is not the way the free market
should work. It is certainly not the way that we want our
country working, that every single American has to be concerned
about the IRS. Those three letters are scary enough without
giving them more access to our accounts unnecessarily,
especially for working-class Americans.
Thank you very much for your response.
Chairman Brown. Senator Menendez from New Jersey is
recognized.
Senator Menendez. Thank you, Mr. Chairman. Mr. Secretary,
would you agree that sanctions are one of the few peaceful
tools of diplomacy?
Mr. Adeyemo. Senator, I do agree that sanctions are an
effective tool of diplomacy that are peaceful.
Senator Menendez. I appreciate that the Treasury Department
is thinking through how to ensure that sanctions remain an
effective tool, but I am concerned that this review does not
reflect a holistic approach to sanctions. I mean, I see the
Treasury Department as basically the entity that once an
Administration decides to pursue sanctions in pursuit of
peaceful diplomacy somewhere in the world is the executor of
those sanctions.
I think most people would agree that sanctions are a
foreign policy tool, but this review is basically a Treasury-
centric product that does not address the many sanctions
authorities implemented by the State Department and largely
pays lip service to the State Department's role in sanctions.
At the same time, I get the sense that the State Department
often struggles to play an effective role. They do not match up
well to Treasury's resources and capacity in this area.
So my question to start off is, why spend all of this time
and effort on a review when it is a single-agency product
rather than one that is reflective of the overall foreign
policy component that should be the driving force, I think, in
our sanctions policies?
Mr. Adeyemo. Senator, I completely agree that sanctions are
a tool that are driven by foreign policy decisions that are
made, and mainly driven by the State Department and the
National Security Council. But given the importance of this
tool and the use of the tool, we wanted to make sure that we
are ensuring that the tool is effective going forward, and we
worked closely with the State Department with regard to this
report, and we look forward to working closely with them----
Senator Menendez. Well, let me ask you this. I do not know
how closely you worked, but would you consider a join effort
with State, moving forward?
Mr. Adeyemo. We do plan a joint effort with State, going
forward.
Senator Menendez. Let me ask you, you know, sanctions are
only as good as they are enforced, like any other law. If you
have a law--you know, there is a red light and you go through
the red light, unless there is the likelihood there will be an
enforcement against you for doing so, you will go through the
red light. Same thing in terms of sanctions, in a more
significant context.
I have raised this before, but I am deeply concerned that
China is continuing to buy oil, in significant--significant--
quantities, from Iranians, both subverting international
sanctions and impacting the oil market. I am disappointed that
the United States, and for that fact the rest of the
international community, does not seem to be holding China
accountable for these violations.
What steps are you taking to enforce sanctions on China to
comply with the law?
Mr. Adeyemo. Senator, at the Treasury Department we are
committed to complying with the law and to seeking intelligence
on the companies and entities that are purchasing illegal oil
and to holding them accountable. We are happy to provide you
and your staff with a classified briefing on the steps we are
taking with regard to those entities.
Senator Menendez. Well, I appreciate that you are committed
to it, but only sanctioning actually makes it relevant, at the
end of the day. And this is being done in plain view. I mean,
we are talking about, you know, millions and millions of
barrels of oil that are being purchased by China from Iran, in
clear view of everyone in the international community. I do not
know how much due diligence is ultimately necessary to find out
that which is available to the public eye. So I really look
forward to hearing what you are going to do in that regard.
I also look forward to understanding, for example, you
know, Turkey and the S-400. They are talking about making more
purchases. When we wrote this law, we wrote it in such a way so
that certain actions are mandatory in nature, not
discretionary, but yet we have seen, both the past
Administration and this Administration, not necessarily
enforcing the mandatory nature of the sanctions. Why not?
Mr. Adeyemo. Senator, I am committed to enforcing mandatory
sanctions where we have the proof and evidence to do so. We
rely heavily on the counsel of career lawyers at the Treasury
Department and the DOJ in terms that enforcement and also on
the intelligence that we have at hand.
Senator Menendez. Well, I love lawyers but they can kill
every process in the world. The reality is that I find that
Congress' intent is habitually subverted by both the previous
Administration, and so far, in some cases, this Administration.
Last question. When can expect to see designations related
to the Executive order on imposing sanctions on certain persons
with respect to the humanitarian and human right crisis in
Ethiopia that was issued by the Administration on September
17th?
Mr. Adeyemo. Senator, we are committed to finding a
peaceful resolution to the situation in Ethiopia, and the
President has issued an Executive order and we continue to work
with parties to bring them to the table. But it made it very
clear that we are also willing to use that Executive order to
do so. As the process continues, we will continue to evaluate
sanctions targets and are committed to keeping you informed as
we do so.
Senator Menendez. OK. I appreciate you are very committed,
but I have to be honest with you, I do not see the commitment
in action, and so I am looking forward to the action on these
and others. And I have other questions I will submit for the
record.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Menendez. Senator Daines
from Montana is recognized from his office.
Senator Daines. Mr. Chairman, thank you, and I want to
extend a warm welcome to our witnesses, and I appreciate this
opportunity to discuss a few matters that are affecting the
security of our Nation.
Over the past year, China has exerted increasing pressure,
both militarily as well as financially on Taiwan, its neighbors
in the South China Sea, while at the same time hedging itself
from international pressure with new antisanctions laws.
Mr. Adeyemo, how does China's decision not to extend
antisanctions laws into Hong Kong inform our own strategy for
deterring aggression and assuring our allies in the South
Pacific?
Mr. Adeyemo. Senator, thank you for the important question,
and I think this speaks to why we believe it is critical that
as we move forward on sanctions we look for, at every
opportunity, the ability to do them multilaterally. Frankly,
our adversaries are seeking to find ways around our sanctions
every day, and the best way to ensure that they are unable to
do that is by making sure that our sanctions are not just
driven by the United States but by the international community
made up of our allies and partners.
While the economic impact of our sanctions is great, my
bringing along our allies and partners we increase the
political impact of isolation, which matters to our adversaries
and puts us in a better position to enforce these sanctions
over the long term.
Senator Daines. Mr. Adeyemo, I agree with you, the
multilateral approach is a good approach, and I would encourage
you to head in that direction.
In addition to these antisanctions laws, China's main goal
in the development of the digital yuan is to establish an
alternative to the U.S. financial system and one that is immune
to sanctions. How can we ensure that our sanctions policy does
not risk the centrality of the U.S. dollar as a dollar-based
institution and the U.S. payment networks that carry importance
that are far beyond the specific country that is being
sanctioned?
Mr. Adeyemo. Senator, again I think that one of the things
we need to do as we think through how to make sure that we
further enhance the dollar-based financial system is ensuring
that our allies and our partners remain bought into that
system, by working more with them going forward.
In addition to doing that, we need to do many of the things
this Committee has been calling for, for a long time, in terms
of the principles that you have outlined, making sure that when
we do use sanctions we are using them as part of a clearly
defined strategy, that we are allowing for humanitarian access
to continue to flow. When it comes to a country like China, it
is true that they are trying to find means around our financial
system to avoid sanctions, but it is difficult for countries,
our adversaries, to find a means around not only the U.S.
financial system but the financial systems of our partners and
allies as well.
Fundamentally, by taking actions in unison with other
countries, we put ourselves in a better position to make sure
that we maintain the dollar-based financial system globally and
also that we are able to hold our adversaries accountable for
actions that they take that are in violation of international
laws and norms.
Senator Daines. Thank you. Speaking of adversaries, just
earlier this month, without warning or explanation, the Biden
administration lifted sanctions on two Iranian entities
involved in the military missile programs, the Mammut
Industrial Group and a subsidiary, Mammut Diesel. This action
contradicts earlier assurance by President Biden that he would
not ease sanctions until Iran reversed its course on the
pursuit of a nuclear weapon.
Mr. Adeyemo, why did the Administration lift sanctions on
these two entities?
Mr. Adeyemo. Senator, I want to assure you this was not in
response to a change in Administration policy but rather in
response to legal actions that were taking place. I am happy to
provide you with a more detailed briefing on those legal
actions in another setting.
Senator Daines. Of course, it gave us, I think, great
concern. And so perhaps a more direct question would be, does
the President remain committed to preventing Iran from
obtaining a nuclear weapon, or should we expect to see more of
these, I think what I would call them, quiet concessions?
Mr. Adeyemo. So Senator, again, I want to make clear that
this was not a concession but rather in response to a legal
action. The President remains committed to ensuring that Iran
does not have a nuclear weapon. He has made that if Iran
reenters the JCPOA we are willing to take steps in that regard,
but not before.
Senator Daines. Last, on Afghanistan, as the Nation
continues to deal with the terrible aftermath of President
Biden's very abrupt withdrawal from Afghanistan, questions
remain as to how the U.S. is going to prevent the rise of
terrorism and address the growing humanitarian crisis in that
Nation. Do you foresee a scenario where the United States would
relinquish the frozen Afghan Central Bank reserve to the
Taliban?
Mr. Adeyemo. Senator, I see no situation in which we would
allow the Taliban to have access to the reserves that belong to
the Afghan people. We believe that it is essential that we
maintain our sanctions against the Taliban, but at the same
time find ways for legitimate humanitarian assistance to get to
the Afghan people, and that is exactly what we are doing.
Senator Daines. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Daines. Senator Van
Hollen of Maryland is recognized for 5 minutes.
Senator Van Hollen. Thank you, Mr. Chairman. Welcome, Mr.
Adeyemo. Good to see you. And I agree that sanctions are only
one tool in our national security and foreign policy toolbox,
but as you indicated, they can play an important role in
enforcing a rules-based international system.
You would agree, would you not, that China grossly violated
its international obligations when it cracked down on democracy
in Hong Kong.
Mr. Adeyemo. I agree, Senator.
Senator Van Hollen. And while we know that sanctions cannot
always succeed in reversing malign conduct, if we raise the
costs of those actions we send a signal that, whether it is
China or another country, if they want to engage in this kind
of aggressive behavior elsewhere they will pay a price. But
that only works if they actually pay a significant price.
After China's actions in Hong Kong, the Congress passed
legislation--Senator Toomey and I authored legislation, the
Hong Kong Autonomy Act--which requires the Executive branch to
impose sanctions on officials that are complicit in the
crackdown in democracy, and importantly, on financial
institutions that helped facilitate those individuals.
Senator Toomey and I wrote to Secretary Yellen back in
June, applauding the Administration for sanctioning some
individuals, but raising the question about whether or not the
Administration had been successful in identifying any financial
institutions that facilitated those.
There have been conversations since, but as of today, is it
your testimony that the Department of Treasury cannot identify
any financial institutions that facilitate the individuals that
you have applied sanctions to?
Mr. Adeyemo. Senator, as we said then, we have not found
financial institutions that facilitate those types of
transactions, but it is something we are continuing to look at.
I think you made a clear point that one of the goals is to
increase the cost to people who take these types of actions,
and from our perspective, not only doing this unilaterally but
working with our allies to raise the cost is critically
important as well.
Senator Van Hollen. Well, let me turn to another piece of
legislation that Senator Toomey and I, and Senator Brown
passed, called the BRINK Act, which applied sanctions against
any financial entities facilitating North Korea's malign
activities. And it was modeled after the Iran sanctions
legislation so it was mandatory and secondary sanctions.
To date, despite the fact that a U.N. group identified lots
of financial institutions that they say are helping North Korea
evade those sanctions, the Administration, neither the previous
one nor the current Administration, the Biden administration,
has imposed sanctions on any of these financial institutions
since the passage of the BRINK Act. Is it your testimony today
that we have not identified any financial institutions that are
helping North Korea violate the sanctions?
Mr. Adeyemo. Senator, as you know well, over the last
decade we have sanctioned a number of financial institutions
that have been facilitating trade with North Korea and holding
responsible a number of people who have taken these actions.
While we may not have taken sanctions under the act that has
been passed, we do appreciate the authority that Congress has
given us that will allow us, in the future, to do so. And as we
find financial institutions that violate the law and facilitate
this trade we are committed to taking these actions.
Senator Van Hollen. Yeah, here is the issue. The issue is
that it is not just authority in the BRINK Act. It is a
requirement. They are mandatory sanctions. And they are
mandatory sanctions on any entities, anywhere in the world,
that are facilitating the North Korean regime. And so my
question remains--and you can get back to me--are you familiar
with the U.N. reports that have been done, where they actually
identify, by name, entities around the world that are helping
North Korea violate the sanctions regime? Are you aware of
those reports?
Mr. Adeyemo. Senator, I am aware of those reports.
Senator Van Hollen. OK. And have we looked at the reports,
and have we concluded that they are wrong?
Mr. Adeyemo. Senator, we have not concluded that the
reports are wrong. What we have not done is found evidence
sufficient for the mandatory sanctions that are required under
the BRINK Act. But we look forward to continuing to look for
that evidence and to working with you and your staff to use the
mandatory sanctions that have been passed by Congress to hold
North Korea accountable and to make sure that we are able to
prevent them from advancing their weapons of mass destruction
program.
Senator Van Hollen. Well, I appreciate that. You know, the
Appropriations Committee, we just released our appropriations
bills for public review yesterday. I chair the FSGG
Subcommittee, and we have language in there really directing
the Executive branch to provide us with an update. Because we
have, on the one hand, the U.N. report that identifies, by
name, these entities, and yet we have not seen any action. And
if the reason is that we do not have sufficient evidence, I
would love to sit down with you and go over that.
Thank you, Mr. Chairman.
Mr. Adeyemo. Senator, I am happy to do that.
Chairman Brown. Thank you, Senator Van Hollen. Senator
Cramer from North Dakota is recognized for 5 minutes.
Senator Cramer. Thank you, Chairman Brown. Thank you,
Ranking Member Toomey. Thank you, Mr. Secretary, for being
here.
I want to follow up on a couple of things. First of all,
both Senator Toomey and Senator Menendez and others, but
especially the two of them, have certainly emphasized the
expressions of commitment have not led to action in terms of
enforcing, and in the case of Nord Stream 2, where I want to
drill down a little bit, certainly CAATSA.
And that is a pretty big problem, because you said
something else about, I think it was to Senator Scott, about
multilateral coordination is really important. Nord Stream 2
has been strongly opposed by the European Union Parliament, I
mean on two votes of like 400-100, and that is just rounding up
the lower number and down the higher number.
So it is hard for me to see much commitment when the
President announces, just sort of out of the blue, the lifting
of sanctions on Nord Stream 2, an authority he does not even
have.
And I think that we have concluded that the State
Department determined that Nord Stream 2 AG has facilitated
sanctions evasion. On whose behalf? On whose behalf? I mean,
who is the winner here? Why did the President lift the
sanctions? Why are we facilitating this? I mean, on whose
behalf is this being done?
Mr. Adeyemo. Senator, I appreciate the concerns, and they
are concerns that we share. What we are doing, within the
Treasury Department, is making sure that we are looking for any
evidence that we can that will allow us to use the mandatory
sanctions that Congress provided to us. We have met, on several
occasions, with Members of the Committee staff here to hear
from them in terms of the evidence that they have. We have also
worked closely with the Department of Justice to make sure that
we have a good understanding of the legal authorities that we
have in order to be in a place where we can take actions when
we have the appropriate evidence.
Senator Cramer. But the President's actions are completely
unilateral, they were outside of the law, and I want to know on
whose behalf it was done? I mean, the European Union or
multinational relationship, overwhelmingly opposed this
completing of Nord Stream 2.
And let me tell you a couple of good reasons why it is a
bad idea, in the first place, Nord Stream 2. Because it has
natural gas, produced in Russia, moved via pipeline, like Nord
Stream 2. Besides captivating European allies to a single
source, setting that aside for a moment, has, through the
lifecycle of that gas, a 41 percent higher greenhouse gas
emission footprint than natural gas produced in the United
States and liquified and sent to the same European allies. And
that does not even include the methane leakage.
So what I am trying to wrap my mind around is what is the
good reason for lifting sanctions? And I know you are looking
for every legal reason to enforce the law, which is interesting
to me, but what is your theory, if you do not know, why the
President would have done something like this?
Mr. Adeyemo. Senator, we share your concerns with regard to
the Nord Stream 2 project. Ultimately, our goal here is the
same as yours, which is to make sure that we provide for the
security of our key allies while doing it in a way that does
not further those that seek to destabilize the region.
Our role, at Treasury, is to make sure that we use the
mandatory sanctions authorities that you have provided, and
that is what we are committed to doing when we have the
sufficient evidence to do so.
Senator Cramer. Well, I am concerned about the bigger
picture. I mean, here we are going to send the President, and
most of the Cabinet, it seems, to Glasgow, to try to convince
the world to be as good as we are. Although we have a Secretary
of Energy who, in North Dakota last week, said we, the United
States, does not have the moral authority to hold China
accountable when they are emitting three times more greenhouse
gas emissions than we are. They are on a trajectory to become
responsible for 100 percent of greenhouse gas emissions growth,
while we are on the decline.
And I am just having a heck of a time understanding why we
apologize for the United States while covering for China, who
just, as you know, we just learned, had a very successful
circumventing of the globe of a missile. It is very, very
concerning, and I am just concerned about whose side this
Administration is on when it comes to both our economy and,
frankly, even, frankly, to climate change.
What I see is a transfer of climate guilt to big polluters
as somehow making us feel better, and then I do not know what
they are going to say in Glasgow that is going to be convincing
to our allies. But thank you for your testimony, and I yield.
Mr. Adeyemo. Senator, ultimately the President believes
that climate change is a global responsibility, but the
transition to a clean energy economy is an opportunity for the
United States, in which if we make the investments that are
needed we can become a leader in selling American goods and
service around the world that help to meet the needs of climate
change.
Senator Cramer. And I am all on board. I argued to stay in
Paris with the last Administration for those very reasons. But
I am not seen that kind of leadership anymore. I mean, the
approval of Nord Stream 2, there are multiple bad things about
it, and I have not found one good one, including on whose
behalf we facilitated these sanctions breaches.
Chairman Brown. Senator Warren from Massachusetts is
recognized for 5 minutes.
Senator Warren. Thank you, Mr. Chairman. So giant
corporations and the wealthy have worked hard to rig the tax
code so that they can pay lower taxes than everyone else. And
now the Democrats are looking to try to make the tax code just
a little bit fairer, and hordes of lobbyists are fighting us,
tooth and nail, to stop it.
The whole thing is disgusting, but one fight is downright
breathtaking, even in this cesspool, and that is the lobbyists'
fight to protect the ability of their wealthiest clients to
cheat on their taxes.
Millions of hardworking Americans file their taxes honestly
every year. Their employers send them W-2 forms that say
exactly how much they earned in wages, right down to the penny.
And then the employers also send a copy of that to the IRS.
This is called third-party reporting, and it helps taxpayers
fill out their tax forms accurately. It also helps the IRS zero
in on tax cheats if the numbers do not add up.
Wage earners, from cashiers to teachers, are subject to
third-party reporting, but the wealthy get their money in other
ways, and mostly the IRS does not get any information, no
third-party reporting, to keep them honest.
So Deputy Secretary Adeyemo, let us consider a
multimillionaire with several mansions, who sells one of those
mansions for several million dollars more than they paid for
it. That is taxable income. But does the IRS get third-party
verification of how much profit they made?
Mr. Adeyemo. No, they do not, Senator.
Senator Warren. All right. Let us ask about a partner in a
law firm or a private equity fund. When they get millions of
dollars as a distribution of profits from their firm, does the
IRS get true, third-party verification of how much money they
make?
Mr. Adeyemo. No, they do not.
Senator Warren. OK. So when rich people rake in millions in
sales or profit distributions, they are on the honor system. So
tell me, Deputy Secretary, how is the honor system working
right now?
Mr. Adeyemo. It is not working well, Senator. As you know
the top 1 percent of earners in America underpay their taxes by
more than $150 billion each year, almost $2 trillion over the
course of 10 years.
Senator Warren. More than $150 billion a year is lost by
these top earners. And that is exactly why Congress is
considering a simple new, third-party reporting requirement.
Under this proposal, banks would report just two very general
numbers to the IRS each year: total dollars that come into an
account and total dollars that have gone out. This means the
IRS can spot wealthy tax cheats that have millions of dollars
flowing into an account but they are not reporting any money on
their tax return.
Now many rich people are happy now with the current system,
and the banks who serve them are also happy. So they have
started a campaign to keep the IRS in the dark about tax
cheating, and some of these folks are just outright lying about
the proposal, claiming, for example, that it would give the IRS
information on individual transactions. And some Republicans
have picked up on these lies.
So let us go through some of these. Deputy Secretary
Adeyemo, just to set the record straight, under this proposal
if I bought new tires or a couch or a cow, would the IRS know
about it?
Mr. Adeyemo. No, they would not, Senator.
Senator Warren. Well, if I paid my friend, Sherrod, back
for buying me a cup of coffee, would the IRS know about it?
Mr. Adeyemo. No, they would not, Senator.
Senator Warren. Would anything, anything at all in this
proposal, cause the IRS to increase audit rates on folks making
less than $400,000 a year?
Mr. Adeyemo. No, Senator. It would actually allow us to
reduce audits on those individuals and increase our ability to
go after those who are more likely to cheat the system by
underpaying their taxes, which are wealthy taxpayers.
Senator Warren. Well thank you, Deputy Secretary. You know,
this proposal would help unrig our tax system just a little
bit, making sure that the wealthy have to pay the taxes they
owe, just like everyone else does.
So tell me, why have the lobbyists been fighting this
proposal so fiercely? Small businesses have been putting
together W-2s for their employees every year for a zillion
years. Do not tell me that the banks cannot do this.
Mr. Adeyemo. Senator, those who do not seek to pay their
fair share will go to no ends to try and avoid taxation, and
that is exactly what we are seeing here. The President's goal,
ultimately, is to level the playing field so that wealthy
individuals have to pay taxes in the same way that working
class pay every day in America.
Senator Warren. Well, thank you very much. You know, the
Democrats are fighting for tax reforms that will help ensure
that the very rich and giant corporations start paying their
fair share. And I get it that the lobbyists and the rich people
that they represent are going to fight us with everything they
have got, including spending millions and millions of dollars
on these campaigns. But we need to make the tax system fairer,
and this is one of the critical ways we can do it.
Thank you for your help on this. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren.
I am not clear. No one is in the room, although Senator
Hagerty is about to return, I understand. Senator Cortez Masto,
or Senator Tillis from his office, perhaps, or Senator Cortez
Masto from hers?
[No response.]
Chairman Brown. Senator Ossoff from his?
[No response.]
Chairman Brown. Senator Smith from hers?
[No response.]
Chairman Brown. One moment.
[Pause.]
Chairman Brown. Senator Hagerty is just a couple of moments
out. I will ask one more question to the Deputy Secretary.
The White House gathered, as you know, over 30 Nations last
week and called for accelerated cooperation to combat
international ransomware efforts. This effort shows your focus,
the Administration's focus on protecting the community of U.S.
companies from such attacks.
How can Congress work more effectively and cooperatively,
Mr. Deputy Secretary, with Treasury to address the problems of
sanctions violations through cryptocurrency in cases of
ransomware?
Mr. Adeyemo. Senator, thank you for the important question,
and as you know, recently we sanctioned our first
cryptoexchange for the facilitation of ransomware payments. We
are committed to continuing to look at using our sanctions
authorities to go after those that use cryptopayments to
violate our laws by committing crimes.
We want to work closely with Congress. One of the most
important areas for us, frankly, is ensuring that we have a
workforce that understands these issues, going forward. So we
look forward to both looking for the authorities to hire the
people we need but also to the budget increases that are part
of the President's fiscal year 2022 budget, in order to make
sure that we have the personnel needed to address the issues
cryptocurrency, but also other changes that are happening in
the payment system that are making it harder for our sanctions
regimes to effectuate the type of behavioral changes we want
from our adversaries.
Chairman Brown. Talk for a moment, too, about international
cooperation to disrupt ransomware.
Mr. Adeyemo. As you know, Senator, many of these
cryptoexchanges and cybercriminals that facilitate ransomware
exist outside the United States and have an impact here. Our
goal is to work closely with our allies and partners to disrupt
those actors that exist in their countries, and a big piece of
this is going to be ensuring that these countries also take
actions to make sure that anti- money laundering rules are
followed by cryptoexchanges that exist in their countries, and
that they are extending the protections that exist within their
traditional financial sector to cryptocurrencies and to
financial technologies that are started in their jurisdictions.
Chairman Brown. Thank you, Mr. Secretary. Senator Toomey
has one more question.
Senator Toomey. Thank you, Mr. Chairman. Mr. Adeyemo, my
question is this. Does the Administration intend to try and
bypass the Senate's treaty approval process to implement Pillar
One of the international tax agreement that the Administration
is pursuing?
Mr. Adeyemo. Senator, we, of course, look forward to
working closely with you on the implementation of the
international tax agreement. As the agreement is not completed
I cannot speak to the process for working with Congress on
those portions. But what we do know, based on the conversations
we have had with our international partners, with Congress, and
with the business community, is that the American business
community is supportive of Pillar One, because they see it as a
way of creating a level playing field throughout the world for
them, going forward.
Senator Toomey. Well, some of the business community are
supportive and some are not. I would point out that the U.S.
has 58 bilateral tax treaties in force. All of them were
approved by a two-thirds vote in the U.S. Senate.
And here is the problem. If you cannot answer the question
of how you are going to impellent this, that obviously suggests
there is some uncertainty about whether it will be implemented.
It was Pillar One that was the motivation for other countries
to agree to Pillar Two, which is the increase in the global
minimum tax. If they do not know for sure that they are going
to get Pillar One, and they have good reason to doubt it, then
it is not at all clear to me that they are going to go ahead
and impose Pillar Two, which they were reluctant to do in any
case.
So my suggestion would be before the Administration and our
Democratic colleagues go ahead and impose this huge tax
increase on American multinationals, which might not be met by
a corresponding tax increase with other countries'
multinationals, you might want to pause and get this figured
out.
Mr. Adeyemo. Senator, as you know, countries like Germany,
France, the U.K., have higher minimum taxes than we do. Ireland
and a number----
Senator Toomey. Not with respect to the income of foreign
subsidiaries.
Mr. Adeyemo. These countries are all committed to
increasing them to the global minimum tax.
Senator Toomey. Yes. But as I said, that was as a
condition. It was conditioned on them getting Pillar One, and
you are not able to explain how you are going to get Pillar One
implemented. So you have to question their commitment if they
are not going to get what they bargained for.
Chairman Brown. Senator Ossoff from Georgia is recognized
from his office.
Senator Ossoff. Thank you, Mr. Chairman, and thank you Mr.
Adeyemo for your service and your testimony today.
The comprehensive sanctions review that Treasury has
undertaken in the first 6 months of the Administration--I
appreciate the details that have been referred to the
Committee--you have highlighted a number of what you assess to
be success stories in that document. Could you please identify
for the Committee one or two high-profile instances where U.S.
sanctions have been ineffective, have not achieved their
objectives, or where the cost or externalities of the sanctions
have exceeded the benefit, from Treasury's perspective?
Mr. Adeyemo. Senator, as we say in the sanctions review we
did not conduct a comprehensive review of each one of the 37
sanctions programs that are authorized by the Executive branch
or Congress. Rather, this review was focused on a forward-
looking assessment of what we can do to make sure this remains
an effective tool.
What we learned, though, was that the places where we can
improve sanctions going forward speak to some of the things
that we could have done better in the past, for example,
ensuring that we continue to use a framework for evaluating
when sanctions are imposed and ensuring that humanitarian
assistance is able to be provided to people in conflict zones.
We have learned a great deal about doing both of these
things over the last 20 years, and we look forward to applying
them on a go-forward basis to our sanctions program.
Senator Ossoff. Thank you, Mr. Adeyemo, but you do specify
a number of cases where you believe U.S. sanctions policy has
been effective. So I think in the interest of ensuring that we
are improving U.S. policy, having undertaken a clear review of
past policy, can you please specify cases where U.S. sanctions
policy has not functioned as intended or effectively? The
cases, for example, that inform the general assessment that you
just shared with respect to humanitarian aid in conflict zones.
Mr. Adeyemo. Senator, I think one of the challenges that we
identified was the fact that because we did not have a clear
framework for evaluating the imposition of sanctions in each
one of the instances in the past it makes it hard to evaluate
the success of those sanctions programs. As we said in the
report and I said earlier, we did not evaluate each sanctions
program or each sanction that was put in place, so I am not in
a position to tell you where one could have been done better or
done differently.
What I can tell you is that on a go-forward basis we look
forward to applying a framework that aligns with the principles
that this Committee has spoken of, going forward, to ensure
that we are in a place where we can evaluate the success of
sanctions and decide where we need to do more or do less in
order to effectuate our foreign policy goal and to ensure that
sanctions are usable well into the future, as a foreign policy
tool.
Senator Ossoff. Mr. Adeyemo, the report--and I believe I am
looking here at the full review and Executive summary--
specifies cases in Iran, a case with respect to the Cali
Cartel, sanctions targeting Libyan assets following the fall of
Khadafi's regime in 2011, the designation of over 1,600
terrorist entities as success stories, I am asking you where
our sanctions have not succeeded. Is it that you have not
identified any such cases, or is there a lack of willingness to
acknowledge policy failure in public?
Mr. Adeyemo. No, Senator, you are right that in the report
we do acknowledge a number of cases where we have seen clear
success. As we said in the report, we did not focus in on each
individual program or authority but rather we looked for
themes, and we highlighted those themes, and I did so earlier
in my testimony, of places where we need to make sure that we
address challenges.
Some of those challenges are challenges that we need to
address that are internal challenges, one making sure that we
are able to allow humanitarian assistance to flow and to making
sure that sanctions are used as part of an overarching
strategy. But some of the challenges are created by our
adversaries and changes in technology. For example, our
adversaries are attempting to find ways to get around our
sanctions program, and the advent of cryptocurrencies and
things of that nature make it harder for sanctions to be
effective.
Senator Ossoff. Mr. Adeyemo, with respect to my time being
limited--and I may already be over my time--what I am asking is
for you to identify. We are trying to learn lessons here. You
have conducted a review of U.S. sanctions policy. You have
identified in that review specific success stories. Please,
with my remaining time, identify one or two specific examples
where U.S. sanctions policy has been ineffective, so that the
Congress can benefit from the review you have undertaken and
deliberate how best to improve the statutes that govern these
policies.
Mr. Adeyemo. Senator, as I said, the review was focused on
the idea of us looking into the future as to what we can do to
use sanctions going forward. We did not spend time looking at
the individual sanctions policies. I am more than happy to
follow up with you and your staff to talk about any of the
sanctions programs that you would particularly like to discuss,
but our goal of the review was to look at what we could do
going forward to make sure that sanctions remain an effective
tool. In order to do that, we do need to address the challenges
that the review found, which we have clearly articulated, both
in the report and I have done in my testimony today, in order
to make sure that going forward this tool is effective.
Senator Ossoff. Yeah. Mr. Adeyemo, we will need to meet in
person, because the purpose of this hearing is a policy update
on the Treasury Department's sanctions policy review, and if we
are unable, in a public setting, to articulate or discuss any
specific cases where U.S. sanctions policy has been
ineffective, beyond generalities, then I think we have more
work to do. So I look forward to meeting with you so that we
can work together to improve U.S. policy. Thank you.
Chairman Brown. Senator Hagerty from Tennessee is
recognized for 5 minutes.
Senator Hagerty. Chairman Brown, Ranking Member Toomey,
thank you for holding this important hearing, and Deputy
Secretary, it is very good to be with you today.
As I have said before, the financial system in America is
the envy of the world, and we need to do everything that we can
to safeguard it from malicious activity and malign behavior.
The ability to access America's financial markets is a
privilege. We must also appreciate the national security
importance of using the financial tools in our arsenal to
counter America's adversaries and to constrict our enemy's
financial lifeblood.
Just this weekend, we saw reports that the Chinese
Communist Party surprised the U.S. intelligence community over
the summer as they tested nuclear-capable hypersonic weaponry.
This is a missile that circles the globe at speeds more than
five times the speed of sound in a way that is harder to track
and defend against before racing toward its target.
Reports of such activity underscore the challenging
environment that faces America today. We must use every tool in
our arsenal to defend our interests and make it clear to our
adversaries that America means business. We must do so in a
manner that does not inadvertently harm U.S. dollar's current
status in the world and make certain that we remain the world's
reserve currency.
Mr. Deputy Secretary, I agree with a number of the
recommendations in the report that you have been discussing
today. For example, clarity around sanctions is critical for
enforcement, and we must ensure that costs to American small
businesses are minimized. The report notes that if allowed to
proliferate unchecked, digital assets could offer our
adversaries a means to end-run our sanctions and harm the
efficacy of those sanctions. The Chinese Communist Party has
taken the extreme approach of banning all private sector
cryptocurrency activity.
Your predecessor at the Treasury Department recently wrote
about the need to protect security in a manner that does not
crush innovation, and I agree, and I think you do too. And we
must understand China's ambitions in this space with its
digital yuan, China's potential desire to facilitate sanctions
evasion, and the associated national security implications for
the United States.
So I would like to ask you, how will the Biden
administration and the Department of Treasury continue to lead
in the digital assets arena in a way that protects us from the
malign behavior of actors that we have been discussing and
criminal activities that we might foresee?
Mr. Adeyemo. Senator, thank you for the question, and I
think one of the most important things for us is to remind
ourselves that innovation is something that has been good for
our economy, and we need to make sure that we create an
environment that allows that innovation to exist but that we
want to make sure that we have regulatory rules for the road
that protect consumers, investors, and our national security.
Doing that will require us to extend our existing
regulatory apparatus to address these issues but also
potentially work with Congress where we may need new regulatory
rules of the road to address new innovation. But the thing that
we want to make sure that we continue to do is that we create
room for helpful innovation that will help advance our economic
interest.
Senator Hagerty. I appreciate the perspective, and I think
that many of us look forward to working with you in that
regard.
I would like to turn to another point, and that has to do
with the World Bank and the IMF and the influence of Communist
China. Last month, the law firm of WilmerHale released findings
from its investigation into data irregularities with the
important World Bank's Doing Business Reports. These reports
bill themselves as providing objective measures of business
regulations for local firms in some 190 economies.
The report found that the data describing the business
climate in China was changed because of pressure by then-World
Bank CEO Kristalina Georgieva. Her goal evidently was to
inflate China's ranking at precisely the time that China was
going to help the World Bank increase its capital, a clear
conflict of interest. Despite legitimate issues and concerns,
the Biden administration continues to support Dr. Georgieva to
continue to lead the IMF.
So Deputy Secretary, what steps is Treasury taking to
ensure that the World Bank and the IMF are safeguarded against
corruption by the Chinese Communist Party?
Mr. Adeyemo. Senator, when we reviewed the Wilmer report we
saw issues that were of serious concern, and that is why the
Secretary demanded that the IMF look into this closely by
speaking to the lawyers from WilmerHale and speaking with the
managing director. Based on the evidence that we reviewed, we
did not find that it was appropriate at this point to remove
the managing director, but we did make very clear, during those
meetings and directly to the managing director, that changes
needed to be made to ensure that whistleblowers' rights are
protected, that the integrity of the institutions are
protected, which is our overarching goal, and that we will be
holding her and the other leaders of the international
financial institutions accountable for making these changes.
Senator Hagerty. Well, I think the WilmerHale report
highlighted clear concerns about conflict of interest, and I
hope that you will continue to work with us to ensure
transparency as you hold the IMF and the World Bank and
agencies like this accountable to prevent them from being
influenced by malign actors like the Chinese Communist Party.
Mr. Adeyemo. We are committed to working with you on that,
Senator.
Senator Hagerty. Thank you very much.
Chairman Brown. Thank you, Senator Hagerty. Senator Cortez
Masto from Nevada is recognized from her office.
Senator Cortez Masto. Thank you, Mr. Chairman. Deputy
Secretary, thanks for joining us today.
Let me talk a little bit about ransomware, which we know
the attacks have doubled from 2019 to 2020, and there is no
doubt they are a criminal menace and a national security
threat. And I also know that in Nevada companies have been
attacked by ransomware by criminals.
So two questions for you. One, what does the U.S.
Government recommend firms in the private sector do to address
this, and then two, how should local governments and businesses
be looking to address this, and is there some support at the
Federal level that they can seek to help really prevent or
prepare and what to do if they are somehow attacked through
ransomware?
Mr. Adeyemo. Senator, thank you for that important
question, and I think the important thing for us all to
recognize is that ransomware is a symptom of a larger
challenge, which is that of cybersecurity. The most important
thing that companies, our Government, individuals can do is
make sure that they are focused on improving their
cybersecurity in order to prevent criminal actors from being
able to get into their system and potentially use them to
ransom them in order to turn those systems back on.
If a company or Government is attacked, the first thing we
recommend that they do is get in contact with the FBI and to
notify them immediately of these attacks. Our goal, ultimately,
is to make sure that payments do not flow into the hands of
criminal actors and that especially those payments do not flow
into the hands of those people who have been sanctioned by the
United States. So oftentimes those who have been attacked need
to also contact the Federal Government and the Office of Asset
Control in order to make sure that we are in a position to best
help them resolve the situation and hold those accountable who
are taking criminal actions against these enterprises.
Ultimately, the President is committed to a whole-of-
Government effort, which involves not only the FBI and the
Treasury Department but all agencies of our Government to hold
people accountable. And as I discussed with Senator Brown
earlier, it is going to be critical that we not only do this in
the United States but that we have a global effort, because
many of these cybercriminals are domiciled outside of our
country.
So we look forward to working with Members of Congress to
address these issues and to making sure that we work with our
allies and partners to do so as well.
Senator Cortez Masto. Thank you, because listen, count me
in. We need to address this and work together.
Let me ask you this. Do you think sanctioning
cryptoexchanges makes it riskier for firms to pay ransoms?
Mr. Adeyemo. Senator, I do think that paying a ransom is
something that a firm should--that is risky. Ultimately, our
goal is to make sure that we stop these criminal enterprises
from using ransomware as a tool to gain economic resources. So
our goal is to make sure that when a company is attacked they
notify us immediately. Treasury is committed to using all the
tools in our arsenal to go after those who are committing these
ransomware attacks.
As you know, we recently sanctioned a cryptoexchange that
predominantly facilitated ransomware attacks. We are also
looking at other exchanges and other mixers that are doing the
same, in order to hold them accountable, and working with our
international counterparts to do so as well.
Senator Cortez Masto. Thank you. Let me jump to something
else. In 2018, I joined Senator Flake to request a report from
the GAO on remittances to fragile Nations, and fragile Nations,
as you know, have a weak financial system, high levels of
poverty, and active criminal or terrorist activities. Can you
expand on the sanctions review recommendations for careful
calibration to limit the impact of sanctions on the flow of
legitimate humanitarian aid to those in need, and how will you
carefully calibrate sanctions to limit humanitarian suffering?
Mr. Adeyemo. Senator, this is a critical issue. When we use
our sanctions regime, our goal is to go after actors who
violate our national security but to permit for humanitarian
assistance to continue to flow. What we have learned over the
last 20 years is that oftentimes when we do not permit
humanitarian assistance as we are announcing a new authority it
creates a gap between, and some uncertainty for those who are
acting in this space.
So part of our goals is to ensure that as we go forward we
find ways to create exceptions, where possible, early on, so
that humanitarian assistance can continue to flow, and to make
sure that we are clearly communicating with the financial
institutions that are facilitating humanitarian assistance
going forward about what our policy intent is, and making clear
what legitimate humanitarian assistance is permittable in order
to make sure that as we hold people accountable for their
violations of international laws and our national security we
continue to allow people to receive the humanitarian assistance
they need, going forward.
Senator Cortez Masto. Thank you. Thank you again, Deputy
Secretary.
Chairman Brown. Thank you. Senator Moran from Kansas is
recognized for 5 minutes.
Senator Moran. Chair, thank you very much. Mr. Secretary,
good morning. I want to echo, before I ask a couple of
questions, I want to echo the concerns that I have heard a
number of my colleagues raise in regard to sanction
enforcement, and in that regard think about North Korea and
Nord Stream 2, Iran. My point I would make to you is it seems
like we have seen no change or modification in behavior in a
positive way by any of those entities, those countries, while
we are seemingly paused on our enforcement of sanctions.
Let me now ask a couple of--and I hope the Administration,
maybe there is an explanation for that, but I hope that we are
forceful in our efforts to change behavior in all those
instances.
Let me start with this one in case I run out of time. I am
trying to prioritize. Since 2014, the central banks of China,
Russia, Iran, and Venezuela have all explored the creation of a
central bank digital currency. As of now, China is well on its
way to issuing its first CBDC. There is no question our
adversaries will use Government-issued digital currency to
evade U.S. sanctions, fund authoritarian regimes, and surveil
civilian populations.
How do central bank digital currencies allow for bad actors
to accomplish their goals without detection, what steps are
being taken to promote stability of our dollar based on the
international financial system, and how does the Treasury plan
to mitigate the blatant attempts by these countries to
circumvent our sanctions?
Mr. Adeyemo. Senator, thank you so much for that question,
and I think from my perspective the best way to maintain the
dollar's rule in the world is by making the needed investments
here at home. Ultimately, the reason that the dollar is the
world's reserve currency is because of the underlying strength
of our economy, so by investing in that strength, by continuing
to maintain a stable, rules-based system in the United States,
we will continue attract capital.
But you are right that other countries are developing
things like the digital central bank currencies that will have
an impact. Fundamentally, many of these countries seek to do
this for a number of internal reasons, frankly, in order to
better monitor their people and to make sure that they have
greater control. But it will have an impact on the
international financial system, but ultimately in order for any
currency to have staying power it needs to be permitted to be
used outside of that country, going forward.
And what we are going to do, in terms of as we think about
our sanctions regime, is to ensure that we are thinking through
how we design sanctions in a way where, if a country attempts
to subvert the U.S. financial system it will be harder for them
to do that if we are taking sanctions actions with our partners
and allies. While it is hard to get around the dollar-based
financial system, it is nearly impossible to get around the
dollar, the euro, the pound, and the yen. So when we are able
to take actions together it puts us in a better position to
hold our adversaries accountable.
Senator Moran. Thank you. In fiscal year 2019, the NDAA
provided for waivers under CAATSA, specifically, I think, with
India in mind. Given India's importance as a partner in the
Indo-Pacific, observers across the political spectrum note
sanctions would do significant harm to our relationship.
Does India meet the waiver requirements Congress passed 3
years ago, and why is it taking a very long time to reach a
decision?
Mr. Adeyemo. Senator, that is a question that is driven by
a foreign policy decision that I am not in a position to make.
But what I can tell you is that we are committed to following
the mandatory laws that Congress has passed and to using the
authorities you provided appropriately, going forward.
Senator Moran. You are sending me to the State Department?
Mr. Adeyemo. I am saying that this is definitely a question
that the Secretary of State is well positioned to answer, in
consultation with others in the Administration.
Senator Moran. You know, a similar circumstance arose in
regard to Turkey, and it highlights, for me, that countries are
making decisions that, regardless of our sanctions, they are
continuing the behavior that the sanctions are designed to
prevent or deter. Turkey is an example of that. India now
presents, apparently, a similar kind of outcome. And it then
highlights again--I would raise in the 16 seconds I have left,
that there was a 2019 GAO report that found that officials at
Treasury, State, and Commerce, quote, ``stated they do not
conduct agency assessments on the effectiveness of sanctions in
achieving broader policy goals.'' I would hope that this
Treasury Department and others are responding to that GAO
report to help us determine which sanctions work and in what
circumstances, so that we can better mold our sanction policy.
Mr. Adeyemo. And Senator, I appreciate the work of this
Committee to lay out a set of principles that I think help us
in doing that work. I think you are right that one of the most
important things we can do is evaluate how these tools work,
going forward. But in addition to new sanctions, a key is how
do we enforce the sanctions that are on the books. That is not
always done by making new announcements but rather in our
engagement with our partners and allies to cutoff funding to
countries that are malign actors, going forward. There are also
interdictions at sea that are done in collaboration and
coordination with our colleagues at the Defense Department. And
we know that ultimately these things are in service of a
foreign policy that is driven by decisions made by Congress and
the President.
So we appreciate the close working relationship with this
Committee and the Foreign Relations Committee on making sure
that we are enforcing Sanctions in a way that is in keeping
with our national security.
Senator Moran. Mr. Secretary, thank you.
Chairman Brown. Thank you, Senator Moran. The Senator from
Rhode Island, Senator Reed, the most senior Member in
attendance on this Committee today, is recognized.
Senator Reed. Thank you very much, Mr. Chairman. Mr.
Secretary, welcome.
We are facing a very challenging, very daunting, and very
complex situation in Afghanistan. We have sanctions in place
upon the Taliban and are unlikely to lift them. In fact,
Secretary Blinken has said that if behavior is not acceptable
further we could increase those sanctions. But at the same time
there is a humanitarian crisis in the country, caused by many
factors--the violence, the climate effects, et cetera.
How do we manage this difficult balance between providing,
or at least not interfering with the humanitarian assistance,
and still maintaining sanctions effective sanctions against the
Taliban?
Mr. Adeyemo. Senator, thank you for your question, and you
are correct that the situation in Afghanistan for the Afghan
people is quite challenging, and those challenges are being
brought on both by environmental circumstances, a number of
circumstances that are unique to Afghanistan, but also by the
lack of management of the Afghan economy by the Taliban.
Fundamentally, our goal is to make sure that we are
implementing our sanctions regime against the Taliban and the
Haqqani Network but at the same time allowing for the
permissible flow of humanitarian assistance into the country.
To that end, we have met on a regular basis with
humanitarian groups that are doing business in Afghanistan as
well as our international partners, including the U.N. We have
issued a series of general licenses that allow for the
permissible flow of that humanitarian assistance going forward,
and we are also consulting with these groups on specific issues
that they continue to have.
We believe that ultimately in order for humanitarian
assistance to flow the Taliban has to allow that to happen
within the country, but we are in a position where we are
taking every step we can, within our sanctions regime, to make
clear to humanitarian groups that we want to facilitate the
flow of legitimate humanitarian assistance to the Afghan
people.
Senator Reed. Now I presume that the State Department--
well, I cannot presume that, because we have very little
presence on the ground. Who is actually monitoring the
distribution of these humanitarian support systems to ensure
that they are not being abused, and, in fact, it is getting to
the people who need it?
Mr. Adeyemo. In many cases we are working directly with the
State Department and USAID on these sets of issues, but a lot
of the humanitarian assistance that flows around the world,
including in Afghanistan, goes through the United Nations. As
you know well, the U.N. themselves has a sanctions regime when
it comes to certain actors within the Taliban. A number of
these groups that are doing this work are familiar with doing
work and providing humanitarian assistance in conflict zones,
where they are forced to do so where there are sanctions in
use, and they have done this for a long time. By consulting
actively with us and working closely with our international
partners we feel confident that we can allow the flow of
assistance to get to the Afghan people without having to
provide undue benefit to the Taliban.
Senator Reed. Thank you. And I appreciate this, and this
is, again, as I said initially, complex and challenging, and it
is almost on a day-to-day basis, I presume, that you and your
colleagues in the State Department are looking at this issue
and making judgments about the effectiveness of the program.
And that is, I think, a fair statement.
Mr. Adeyemo. It is, sir.
Senator Reed. Thank you very much, Mr. Secretary.
Chairman Brown. Thank you, Senator Reed.
Mr. Secretary, thank you for joining us today. It has been
a comprehensive, useful survey of the policy issues surfaced in
the course of your months-long sanctions policy review, and we
are so glad you did that review. I thank you for sharing your
insights and findings and recommendations for this Committee.
This will be but the first in a series of ongoing
conversations, a good beginning.
Senators who wish to submit questions for the record, those
questions are due 1 week from today, Tuesday, October 26. Mr.
Deputy Secretary, you will have 45 days to respond to any
questions.
Thank you again for your public service. It is a pleasure
always to work with you.
[Whereupon, at 11:45 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
Today we welcome Deputy Secretary Adeyemo to the Committee for an
update on international policy issues.
Sanctions policy is an area where we have done important,
bipartisan work on this Committee, across Administrations of both
parties.
Working with then-Chair Crapo, we were able to make important
progress in holding countries like Russia and North Korea accountable.
Senator Toomey and I worked together to pass tough new fentanyl
sanctions, to help stem the flow of illegal opioids from China and
Mexico that have taken such a toll on both of our States.
I'm confident that we'll be able to build on that progress this
year and into the future, in conjunction with President Biden and
Deputy Secretary Adeyemo.
Two weeks ago in the Committee, we explored the economic and
humanitarian crisis in Afghanistan, the role of sanctions, and how we
can get more aid to the Afghan people, without resources falling into
the hands of the Taliban.
Last week, a broad coalition of countries, led by the United States
and Europe, agreed to substantially increase aid to Afghanistan. And we
continue to work with our allies to ensure that aid can be delivered
effectively to the people there, despite sanctions against the Taliban.
Today, we'll focus primarily on the findings and recommendations of
the months-long sanctions policy review that Secretary Yellen directed
the Treasury Department to undertake.
The department consulted with agencies across the Government--
State, Commerce, the intelligence community, and others--as well as an
array of private sector actors, including banks, businesses,
nonprofits, international NGOs, and sanctions experts.
That comprehensive review examined important questions of our
current sanctions policy: Does the U.S. Government have the right
sanctions tools? Are we using them effectively with our allies?
Are we reassessing their application and adapting them as we go?
Are we targeting the right people, entities, or countries, in the right
way, with the right sanctions?
And--ultimately--are we actually changing the behavior of targeted
countries, entities, or people, where that's our goal?
I know that Treasury has recommendations on these and other
questions, and I look forward to hearing from Deputy Secretary Adeyemo
today.
There are some guiding, bipartisan principles that this Committee
has recognized for years regarding sanctions policy:
First, we should impose sanctions on a multilateral basis whenever
possible. They're more effective, and garner broader political and
diplomatic support if we impose them in coordination with our allies.
Second, preserving and strengthening humanitarian exceptions and
licensing are important, to ensure that people do not suffer from
shortages of food, medicine, and other necessities because of
sanctions.
Third, for sanctions to be effective, they must have clear targets,
goals, and objectives. If we're trying to change countries' and other
actors' behavior, they need to understand how they can free themselves
from sanctions.
Fourth, the U.S. must do a better job of regularly assessing the
effectiveness of sanctions. And we need to communicate those findings
better to banks and other entities that effectively implement sanctions
policy.
Finally, the Executive branch must continue to support and empower
the dedicated public servants across the Government charged with
sanctions implementation and enforcement. As with any job, workers are
our greatest asset--whether at Treasury, at State, in the intelligence
community or elsewhere in our Government.
They must have the funding, the analytical tools, the technical
expertise--including in cryptocurrencies, which need a much closer
look--and they need the technology and the time to do their jobs--
particularly as we have increased the use of sanctions all around the
world.
Today's hearing will also give Members a chance to survey other
international policy issues within our jurisdiction, and pose any
questions to the Deputy Secretary that they may want him to address.
I thank Deputy Secretary Adeyemo for your work on these issues, and
look forward to your testimony.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman Deputy Secretary Adeyemo, welcome. Under
President Biden, Treasury has advanced a number of troubling
international policies, some of which are clearly intended to
circumvent the will of Congress.
Take sanctions. The Administration has offered sanctions relief to
our adversaries in the unrealistic hope that they will make concessions
inimical to their own interests and nature.
Consider Iran. To entice Iran to reenter the flawed JCPOA, the
Administration appears willing to lift sanctions on Iran. Then, the
Administration hopes Iran will commit to cease supporting terrorism and
curb its ballistic missile program.
Let's be clear: Once sanctions are lifted, Iran will never limit
its malign behavior. The Administration clearly intends to repeat the
mistakes of the Obama administration and reenter a treaty with Iran
despite bipartisan opposition and without Senate approval.
In addition, the Administration has repeatedly failed to comply
with mandatory sanctions laws. Since President Biden was elected,
according to the International Energy Agency, Iran has doubled the
amount of crude oil it's selling to China to 600,000 barrels each day
this year. Even though these sales are illegal under sanctions laws,
the Administration has refused to impose congressionally required
sanctions on them.
The Administration has also chosen to ignore a law requiring
sanctions for Russia's Nord Stream II pipeline. The pipeline's project
manager has been using sanctioned Russian entities to construct and
finance Nord Stream II--meaning the manager's integral role in the
pipeline is predicated on a massive sanctions evasion campaign.
Congress passed the Countering America's Adversaries Through
Sanctions Act, or CAATSA, to punish, among other things, this exact
type of conduct: sanctions evasion. Congress did this because sanctions
evasion harms U.S. national security interests, and in this instance,
it is increasing Putin's malign influence over Europe. But the
Administration continues to violate that law in order to give Putin a
pass.
As if all that were not enough, the Administration is trying to
enact an international tax treaty that will harm U.S. competiveness,
and to do it without obtaining the necessary two-thirds approval of the
Senate. This tax increase consists of two pillars.
Pillar One is an unprecedented change that would allow foreign
countries to tax American companies based on their sales overseas. It's
a tax revenue transfer from us to them. Unsurprisingly, this is the
priority for other countries, who have long sought this tax transfer.
Pillar Two is a 15 percent global minimum tax on multinationals'
foreign income. This is the Administration's attempt to justify
burdensome tax increases on U.S. companies. Unsurprisingly, this is the
Administration's priority since it's integral to their efforts to
dismantle the successful 2017 tax reforms.
By imploring other countries to implement a global minimum tax that
will harm their own workers and businesses, the Administration has
implicitly acknowledged that their proposed multinational tax increases
will make U.S. workers and businesses less competitive, if other
countries either don't implement a global minimum tax of their own, or
implement a significantly lower rate than what the Administration is
proposing.
But there is a real possibility that other countries will not
implement a global minimum tax. They have only reluctantly agreed to
Pillar Two in return for Pillar One, which is the transfer of U.S. tax
revenue to them. But implementing Pillar One in the U.S. requires the
approval of two-thirds of the Senate through the treaty process. And
that's not going to happen.
Therefore, the Administration is either going to impose its global
minimum tax increase on American companies without the countries we
compete with enacting a corresponding tax increase, or violate the
Constitution by modifying our existing tax treaties without obtaining
the two-thirds consent of the Senate.
The latest troubling international policy proposal from the
Administration will soon come in a report from FSOC. That report is
likely to claim that global warming poses a systemic risk to the
financial system.
I acknowledge that global warming is real. However, it does not
follow from this that there is a new systemic risk to the financial
system. We have had severe weather events since the dawn of time.
As the economist John Cochrane has explained to this Committee,
major weather events ``have never come close to causing systemic
financial crises'' and there's no scientifically validated possibility
to change this in the future. Democrats should acknowledge this reality
and offer their proposals on climate change through the legislative
process, which they are doing--including calling for a ``carbon'' tax
in their reckless tax-and-spend measure that will make energy prices
higher.
But that's not enough for them. They also want to use unaccountable
financial regulators to abuse their power and essentially cut off the
supply of capital to fossil fuel companies.
All across America, we are already seeing what happens when the
regulatory environment discourages the development of necessary energy
sources: Energy prices spike. This dynamic will only get much worse if
financial regulators are pressured to starve the energy sector of the
capital it needs to provide Americans the energy they need.
Deputy Secretary Adeyemo, I look forward to discussing these issues
with you today.
______
PREPARED STATEMENT OF WALLY ADEYEMO
Deputy Secretary, Department of the Treasury
October 19, 2021
Chairman Brown, Ranking Member Toomey, and Members of the
Committee, thank you for giving me the opportunity to speak to you
today about the National Advisory Council on International Monetary and
Financial Policies (NAC) report to Congress, the Treasury Department's
priorities, and our outlook for the global financial system.
The NAC report focuses on U.S. involvement with international
financial institutions (IFIs) that represent part of our Nation's
legacy of leadership in international economic affairs. The Bretton
Woods Institutions--the International Monetary Fund (IMF) and World
Bank--were founded in the aftermath of World War II to help rebuild and
stabilize the global economy. Working through these institutions, the
United States helped establish an international economic system that
supported historic growth during the second half of the 20th century.
From 1950 to 2000, for example, the volume of world trade increased to
more than 21 times its size in 1950, delivering prosperity to millions
of people around the world.
Today, the IFIs advance American interests by fighting poverty,
supporting robust and inclusive global growth, combating climate
change, and promoting stable and transparent markets around the world.
They also play a critical role in marshalling global economic resources
in times of crisis. This past year, as COVID-19 ravaged economies
around the world, numerous international financial institutions took up
the mantle of fighting the pandemic. In 2020, the IMF approved more
than $100 billion in emergency lending, concessional financing, debt
service relief, and precautionary support to fund pandemic response and
economic recovery efforts, while the World Bank Group offered more than
$42 billion in financing to fight the virus. In addition, this year the
IMF approved a historic $650 billion allocation of Special Drawing
Rights to support global liquidity and spur recovery from the pandemic.
We know that COVID-19 does not respect borders or boundaries. We must
continue to fight this virus globally, with all of our policy tools and
the resources of the international financial institutions.
The IMF and World Bank form the core of an international financial
architecture that is consistent with our economic interest. It is no
accident that the U.S. economy is the largest in the world, that our
financial markets are the deepest and the most liquid, and that the
dollar is the world's reserve currency. Our economic success is the
result of the policy choices we made coming out of World War II,
alongside the hard work and determination of the American people.
The IFIs have played a key role in reinforcing these choices and
strengthening the global economy by supporting market development,
promoting strong institutions and good governance, and encouraging
efforts to protect vulnerable populations around the world, including
minority groups like the LGBTQI+ community. Maintaining our leading
economic position will require us to make a number of critical policy
choices to adapt this architecture to the needs of the 21st century
economy.
Our work to reform the international tax system represents an
important step in that process. Today, the global minimum tax rate on
multinational corporations is zero. Too often, countries compete over
who can offer the lowest tax rate rather than who has the most
innovative ideas, the strongest workforce, or the best infrastructure.
This dynamic has led companies to move production and jobs offshore to
take advantage of tax loopholes, increasing their profits at the
expense of American workers. We are on the precipice of changing that.
In response to Secretary Yellen's leadership, more than 135 countries
have signed onto a reform framework that would set a global minimum tax
of at least 15 percent and put in place rules to minimize tax avoidance
and ensure corporations pay their fair share.
America's interest in a strong, stable, and rules-based global
economy is also deeply entwined with our foreign policy and national
security interests. Our economic objectives cannot succeed if the
international financial system facilitates the illicit flow of funds to
oppressive regimes, terrorist groups, cybercriminals, and other malign
actors. Bearing this in mind, Secretary Yellen requested a review of
Treasury's use of sanctions since the terrorist attacks of September
11, 2001. An important finding of this review is that, in light of the
growing interconnectedness of global finance, trade, and supply chains,
it is critical that Treasury use a rigorous framework to guide its
recommendations on imposition of economic and financial sanctions. The
review also recommended a number of strategic, operational, and
procedural actions to help preserve and enhance this tool.
First, whenever possible, we as an Administration must use
sanctions in coordination and collaboration with our allies, taking
advantage of the greater impact that comes from acting together. While
we can inflict significant economic costs unilaterally, multilateral
action brings advantages that cannot be achieved without cooperation:
broad condemnation and a clear signal that other economies will not
offer targets the opportunity to evade our sanctions.
Second, Treasury must modernize its sanctions infrastructure,
technology, and workforce to adapt to evolving threats from
cybercriminals, ransomware, and others. Third, we must take further
steps to minimize the collateral costs of sanctions. This includes
costs on domestic groups, like small businesses and community banks, as
well as international ones, such as populations in sanctioned
jurisdictions struggling to access legitimate humanitarian aid.
Intelligence and facts on the ground must be placed at the center of
our decision making, informing our pursuit of these objectives.
This commitment to multilateralism and the restoration of U.S.
international leadership lies at the foundation of President Biden's
foreign policy. International challenges like combating climate change,
defeating COVID-19, securing critical supply chains, and countering
China's unfair practices must be addressed cooperatively, working
closely with the Department of State and alongside our international
partners and allies, including through the international financial
institutions and international organizations such as the U.N., where
possible.
Our efforts to reform international taxation, enhance Treasury
sanctions policy, and support the IFIs reflect President Biden's
fundamental goal to build a foreign policy for the middle class.
Collectively, they embody our belief that the international economy
must be governed by fair rules of the road that protect American
workers and businesses and promote market competition that rewards hard
work and innovation. Where corrupt and malign actors seek to undermine
these rules and our values, we will continue to use sanctions and other
tools at our disposal to safeguard the security and integrity of the
international financial system. And we will continue to work through
the IFIs to facilitate global coordination, enable information sharing,
and promote a commitment to democratic values and a rules-based
international economic system.
Thank you for your time. I look forward to working with you to
continue to advance U.S. international economic leadership abroad and
create opportunities for Americans at home. I am happy to take your
questions.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM WALLY ADEYEMO
Q.1. Bolstering the Sanctions Workforce Across the Government--
During the hearing, I noted that strengthening the sanctions
workforce across Government is one of the Treasury Department's
key recommendations. What new resources or authorities, if any,
do you expect to need to address these U.S. Government
``sanctions infrastructure'' issues identified in the review?
Do you expect there will need to be any structural changes to
the sanctions workforce, either within Treasury's Office of
Terrorism and Financial Intelligence, or more broadly, to
ensure consistency and effectiveness of sanctions policies and
procedures? Will the expanded hiring authority provided to
Treasury in AMLA help in this regard?
A.1. We are conducting an ongoing evaluation of how to best
implement the recommendations from the Sanctions Review,
including ensuring the Department has the right expertise,
technology, and staff to support a robust and effective
sanctions policymaking, implementation, and enforcement
process. This includes assessing TFI's sanctions workforce and
operational capabilities, with an emphasis on current staffing
for key TFI components, including OFAC. We are also continuing
to evaluate our internal and external information technology
systems that support our sanctions workforce. As we conclude
this evaluation, we look forward to briefing you and other
Members of the Committee on any structural changes we are
contemplating in order to ensure the consistency and
effectiveness of sanctions policies and procedures.
We appreciate and continue to use the direct hire authority
provided by the AMLA to enhance our TFI workforce, as we seek
to hire additional staff with technical expertise in data
analysis and digital assets, as well as individuals with
relevant financial services industry experience.
Q.2. Measuring Sanctions Effectiveness--It's often difficult to
define the precise impact of sanctions, and to measure their
effectiveness in meeting their policy purpose--whether it is to
change the behavior of a targeted Nation, like Russia, and its
election interference, or to cut off funds going to non-State
terrorist actors like Hezbollah, ISIS or al Qaeda. What new
analytical tools or methods do you recommend using to measure
the overall effectiveness of our sanctions policies? How will
those tools be used in your work with this Committee, and other
appropriate committees of Congress like Senate Foreign
Relations and House Foreign Affairs?
A.2. Let me acknowledge there are several ways to measure the
effectiveness of sanctions. The Sanctions Review recommends
institutionalizing an assessment of sanctions programs using a
structured policy framework built around the key policy
considerations outlined in the report published on October 18.
This will help ensure sanctions continue to support evolving
policy priorities. Congress is a critical partner on sanctions,
and we look forward to working with Members and staff on key
aspects of sanctions.
Q.3. Consistency Across Sanctions Programs--The Taliban's
designation as a Specially Designated Global Terrorist group
combined with its takeover of Afghanistan has created serious
challenges for NGOs on the ground working to support and
protect the people of Afghanistan focusing on increasing human
rights during a particularly turbulent and challenging time.
The general licenses issued for Afghanistan are limited to
humanitarian activities, while recent sanctions imposed on
Ethiopia were issued alongside a broader set of general
licenses that appropriately included exceptions for conflict
mitigation and development work in addition to humanitarian
activities. Did Treasury's review focus on the need to ensure
consistency across sanctions programs, including with respect
to licensing? Is Treasury planning to issue additional general
licenses for Afghanistan to protect legitimate peacebuilding,
human rights, and development work in Afghanistan?
A.3. The Treasury review did focus on the need for consistency
across sanctions programs with respect to licensing. As the
situation in Afghanistan continues to evolve, Treasury is
prepared to provide additional guidance in support of
humanitarian assistance. As you know, Treasury has also
provided guidance directly to NGOs and the private sector about
a wide range of matters, including evacuation efforts, the
provision of humanitarian assistance, and the export of
agricultural goods and medicine. Furthermore, on September 24,
2021, consistent with the U.S. Government's long-standing
practice across Administrations of authorizing humanitarian-
related transactions and activities that support basic human
needs in territories affected by sanctions, OFAC issued two
General Licenses (GLs), which explicitly authorize: (1) the
U.S. Government, NGOs, and certain IOs and other entities
(including the U.N. and World Bank) to provide humanitarian
assistance to Afghanistan or other activities that support
basic human needs in Afghanistan; and (2) the exportation or
reexportation of agricultural commodities, medicine, medical
devices, replacement parts, components for medical devices, or
software updates for medical devices to Afghanistan. For
transactions not otherwise authorized by OFAC GLs, OFAC
considers specific license requests on a case-by-case basis and
prioritizes license applications, compliance questions, and
other requests related to humanitarian support.
Q.4. Assessment of Compliance Supervision Within the Sanctions
Review--Banks are the front line for U.S. sanctions
implementation and sometimes raise concerns about a seeming
lack of coordination between Treasury and the banking agencies
that examine them for compliance. Did the Treasury sanctions
review include this issue? If so, did you develop any
recommendations on how best to ensure improved coordination and
consistency on sanctions-related policies?
A.4. During the Sanctions Review, we engaged with a number of
financial institutions on issues of sanctions compliance and
some of the challenges they have faced. The Review recognized
the important role that engagement and information-sharing with
the private sector play in facilitating the assessment of
customer risk and application of the risk-based approach to
sanctions compliance. Going forward, Treasury seeks to build
upon and expand existing OFAC outreach to key sectors and
regulators affected by or involved in implementing complex
sanctions actions and assessing sanctions compliance.
Q.5. Sanctions Technical Assistance to Congress--Congress works
most effectively with the Executive branch when it cooperates
on a bipartisan basis to develop effective, durable sanctions
programs. That requires technical assistance to be provided by
sanctions experts at Treasury and State consistently, starting
early on in the legislative process. Have you considered
creating a ``strike team'' of Treasury sanctions experts whose
job it would be to consult with sanctions oversight committees
and respond to technical assistance requests quickly, drawing
on Treasury-wide expertise to ensure greater coordination on
these issues?
A.5. The Sanctions Review did consider a number of options for
strengthening our ability to provide Congress with technical
assistance, including by expanding the number of staff members
tasked with working directly with Congress. We are happy to
discuss with you in more detail the creation of a ``strike
team'' and other ways we can improve our coordination.
Q.6. Easing the Delivery of Humanitarian Aid in Sanctioned
Jurisdictions--The Sanctions Review notes that ``Treasury must
address more systematically the challenges associated with
conducting humanitarian activities through legitimate channels
in heavily sanctioned jurisdictions. Where possible and
appropriate, Treasury should expand sanctions exceptions to
support the flow of legitimate humanitarian goods and
assistance.'' As you implement the review recommendations, what
form or forms does Treasury envision these expanded sanctions
exceptions or exemptions will take? Would they be in the form
of general licenses, a temporary global general license,
humanitarian exemptions written into Executive orders, or some
other form? Is Treasury considering broadening its licensing
activities to include other areas in which international non-
Governmental organizations work--including, for example, long-
term development projects related to infrastructure, schools
and education-related services, and other projects that are
often equally inhibited by sanctions?
A.6. Though the review was not designed to offer a detailed
roadmap for specific changes in law and policy on humanitarian
exceptions to sanctions, it makes clear that facilitating flows
of legitimate humanitarian aid through transparent channels
while continuing to deny support to malign actors is a priority
for Treasury. This is an area into which Treasury plans to look
more closely, alongside U.S. Government partners such as the
State Department and USAID, including examining the most
effective ways to operationalize this recommendation. The
review also underscored the need to enhance existing engagement
with civil society and humanitarian groups, as well as to
continue to provide clear guidance on the impact of sanctions
on the flow of humanitarian assistance early in the sanctions
process.
Q.7. Bank Access for NGOs in World Hotspots--Questions of bank
derisking in the delivery of aid were partially addressed at
the hearing. What specific strategies has Treasury found to
have worked best over the years to improve bank access for
international NGOs working in humanitarian crises, and how
specifically is the Department continuing to work to improve
such access in hotspots like Afghanistan, Yemen, Ethiopia, and
elsewhere?
A.7. We have found that direct engagement with financial
institutions and NGOs is critical to addressing these issues.
It is the U.S. Government's long-standing practice across
Administrations to authorize humanitarian-related transactions
and activities that support basic human needs in territories
affected by sanctions. OFAC's Sanctions Compliance and
Evaluation Division maintains a hotline and feedback email
through which financial institutions, NGOs, and others can
request guidance on specific sanctions compliance questions.
OFAC prioritizes humanitarian-related compliance questions in
hotspots like Afghanistan, Yemen, Ethiopia, and elsewhere. Over
the years, Treasury has found that this prioritization has been
effective in addressing the derisking issues that you raise. As
noted above, Treasury also works closely with our interagency
partners, including the State Department and USAID, to ensure
that our licenses align with the U.S. Government's policy
objectives. In addition, Treasury regularly engages with U.S.
and international NGOs working in areas affected by
humanitarian crises to receive recommendations and feedback to
address the derisking issues that you raise.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM WALLY ADEYEMO
Q.1. Climate--I remain concerned that the Financial Stability
Oversight Council (FSOC) is seeking to pressure financial
regulators to enact backdoor environmental policy, not based on
actual risks but as part of a political effort. Last week, the
FSOC issued a report arguing that climate-related financial
risks are an ``emerging threat to the financial stability of
the United States.'' \1\ The FSOC reached this conclusion
despite acknowledging ``significant challenges to assessments
of risks to financial stability from climate change,''
including data and methodological challenges.
---------------------------------------------------------------------------
\1\ https://home.treasury.gov/system/files/261/FSOC-Climate-
Report.pdf
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Do you believe that climate change poses a threat to U.S.
financial stability and, if so, on what basis do you reach that
conclusion given the data and modeling challenges associated
with measuring potential climate-related financial risks?
A.1. In its Report on Climate-Related Financial Risk, the
Council identified climate-related financial risks as an
emerging threat to the financial stability of the United
States. One of the purposes of the Council under the Dodd-Frank
Act is to respond to emerging threats to the stability of the
U.S. financial system, and its assessment of climate-related
financial risks is consistent with that mandate. Over the past
decade, there has been growing attention from financial
regulators, business leaders, investors, and policymakers
around the world to the threat climate change poses to
financial systems and economies at global, national, and local
scales.
The Council's assessment of climate-related financial
risks, which is described in detail in its report, is also
informed by ongoing economic research, the analysis of its
members, and the extensive work of international counterparts,
including the Financial Stability Board and the Basel Committee
on Banking Supervision.
Though the report acknowledges data and modeling
challenges, Council members recognize that the need for better
data and tools cannot justify inaction, as climate-related
financial risks will become more acute if not addressed
promptly. The report makes several recommendations for how its
members can improve data and tools to help the Council expand
its understanding of climate-related impacts on individual
institutions and markets and related spillover effects.
Concerns about the threat posed by climate change are also
shared by the private sector. Notably, S&P Global, an
independent credit-rating agency, estimated that, ``Almost 60
percent of companies in the [S&P 500] (market capitalization of
$18.0 trillion) and more than 40 percent of companies in the
S&P Global 1200 (market capitalization $27.3 trillion) hold
assets at high risk of physical climate change impacts.
Wildfires, water stress, heatwaves, and hurricane (or typhoons)
linked to increasing global average temperatures represent the
greatest drivers of physical risk.''
Q.2. Do you believe there are risks from disfavoring
traditional energy sources before alternative sources are
capable of meeting customer demand?
A.2. As the Council's report outlined, there are both climate-
related physical risks, such as risks from increased severe
weather events and forest fires, and climate-related transition
risks, including a disorderly or delayed transition to a low-
carbon economy. The transition to a net-zero emission economy
will require significant investments in clean energy generation
and technologies, and I support the President's proposals to
begin making those investments.
Q.3. Digital Currencies--Does the Treasury believe that
privately issued stablecoins should be allowed to coexist with
any Government-backed digital currency?
A.3. If well-designed and appropriately regulated, stablecoins
could support faster, more efficient, and more inclusive
payments options. But, in the absence of appropriate regulatory
safeguards, stablecoins could also pose risks to investors,
consumers, and the financial system, and raise concerns about
illicit finance issues.
The central recommendation in the PWG report is for
Congress to enact legislation to ensure that stablecoins used
for payment purposes are subject to a Federal prudential
framework on a consistent and comprehensive basis. The
relationship between stablecoins and a central bank digital
currency would depend largely on the design features of any
potential central bank digital currency, which is the subject
of ongoing analysis by the Federal Reserve Board.
Q.4. When recently appearing before this Committee, SEC
Chairman Gensler appeared to be unwilling to say that some
stablecoins are not securities. Does Treasury view all
stablecoins as securities?
A.4. Depending on the facts and circumstances, a stablecoin may
constitute a security, commodity, and/or derivative,
implicating the jurisdiction of the SEC, and be subject to U.S.
Federal securities laws, or implicating the jurisdiction of the
CFTC, and be subject to the Commodity Exchange Act. Treasury
supports efforts by the SEC and the CFTC to ensure compliance
with the laws they are charged with enforcing.
Q.5. As you know, Treasury and the President's Working Group on
Financial Markets (PWG) intends to release a report on
stablecoins in the near future. Many U.S. companies have
developed stablecoins and related services, so domestic
regulations that stifle the industry could have international
implications to our competitiveness and leadership in emerging
technologies.
Does Treasury intend to highlight the benefits stablecoins
could have in this report?
A.5. The PWG recently released a report on stablecoins, which
outlines potential benefits and risks associated with
stablecoins. If well-designed and appropriately regulated,
stablecoins could support fast, efficient, and inclusive
payments options. But if not appropriately regulated, there are
risks of stablecoin runs, payment system disruptions, and
concentration of economic power. The PWG recommended that
Congress address these risks by promptly enacting legislation
to ensure that stablecoins are subject to appropriate Federal
prudential oversight on a consistent and comprehensive basis.
While today stablecoins are primarily used in the United
States to facilitate trading, lending, or borrowing of other
digital assets, stablecoins could become widely used in the
future by households and businesses as a means of payment. If
well-designed and appropriately regulated, stablecoins could
support fast, efficient, and inclusive payments options.
Regulatory clarity will support beneficial innovation, while
also protecting stablecoin users and the broader financial
system against potential risks.
Q.6. Has Treasury considered discussing the international
market changes that could result with additional domestic
regulation of stablecoins?
A.6. The PWG report considers and builds on the work of
international forums, including work that has led to
recommendations, standards, principles, and guidance that may
apply to stablecoin arrangements. The Financial Stability Board
in October 2020 set out ten high-level recommendations that
seek to promote coordinated and effective regulation,
supervision, and oversight of global stablecoin arrangements.
Treasury and the U.S. financial regulators are committed to
continuing engagement at the FSB and international standard-
setting bodies to help ensure comprehensive oversight of
stablecoin arrangements, further common regulatory outcomes
across jurisdictions, and reduce opportunities for regulatory
arbitrage.
Q.7. The entities known as money service businesses (MSB) that
FinCEN regulates in the context of cryptocurrencies are the
equivalent of what the Financial Action Task Force (FATF)
refers to as a virtual asset service provider (VASP). In June
2019, FinCEN issued guidance for what constitutes a MSB
involved in the use of convertible virtual currencies (i.e.,
cryptocurrencies). On October 28, 2021, the FATF is expected to
issue guidance for VASPs that aligns with FinCEN's June 2019
guidance. Do you agree that no new guidance will be needed from
FinCEN in the wake of FATF's recent publication on virtual
asset service providers as it relates to the regulation of
MSBs?
A.7. The United States has been a global leader in setting
anti- money laundering and countering the financing of
terrorism (AML/CFT) standards. In 2013, FinCEN issued guidance
that set out the regulatory obligations for virtual currency
users, administrators, and exchangers. FinCEN issued additional
regulatory guidance in May 2019 that covered a wide spectrum of
activity involving convertible virtual currency.
We will continue to regularly engage with industry, law
enforcement, and other regulators to monitor the virtual asset
industry and determine if additional guidance is needed in the
future.
Q.8. The FATF guidance mentioned above also advocates for
broader adoption by VASPs of know your customer (KYC) and anti-
money laundering (AML) policies that the U.S. has adopted. What
other efforts is Treasury making to encourage more countries to
adopt these policies?
A.8. In June 2019 the Financial Action Task Force (FATF)
amended its standards, recommending all countries regulate and
supervise virtual asset service providers (VASPs), including
exchanges, and work to mitigate illicit financing risks when
engaging in virtual asset transactions. Among other things,
countries are expected to impose customer due diligence (CDD)
requirements and suspicious transaction reporting obligations
across VASPs, which can help inhibit cybercriminals'
exploitation of virtual assets while supporting investigations
into these illicit finance activities.
Treasury supported this update and has contributed to
several resources, including the Updated Guidance for a Risk-
Based Approach to Virtual Assets and VASPs. This guidance was
published to help jurisdictions implement the existing FATF
standards for VASPs. Guidance does not alter the existing FATF
standards. The United States is committed to continued work at
the FATF and with other countries and multilateral forums to
implement the FATF standards, and we welcome the FATF's ongoing
work on this issue. We are also engaging bilaterally with
countries to encourage implementation of the FATF standards.
Q.9. Treasury and its Office of Foreign Assets Control recently
took actions to warn cryptocurrency exchanges, including over-
the-counter (OTC) trading providers, of their responsibility to
take measures to avoid facilitating ransomware payments.
Treasury also took steps to separate clear criminal behavior
from the underlying technology and the positive aspects of
cryptocurrency networks. What potential benefits does Treasury
see regarding cryptocurrency and domestic investments in
related technologies?
A.9. Cryptocurrency service providers represent a diverse set
of business models, and each cryptocurrency's specific design
determines its features and potential benefits.
At a broad level, digital assets, including
cryptocurrencies, are a form of financial innovation with the
potential to be transformative. America's ability to promote
and harness innovation has been a key ingredient in our ability
to seed new industries, generate new jobs and opportunities,
and maintain our global economic leadership and
competitiveness. We don't know how digital assets technologies
will evolve, but we know that like other innovations, they
offer the potential to unlock new opportunities. Experience has
also shown that digital assets create certain risks, including
issues of consumer and investor protection; issues of financial
stability; and national security concerns related to money
laundering, terrorist financing, proliferation financing, and
ransomware.
The President's Working Group (PWG), joined by the FDIC and
the OCC, recently issued a report pertaining to a specific
subset of digital assets, stablecoins.
The PWG report outlines potential benefits and risks
associated with stablecoins. If well-designed and appropriately
regulated, stablecoins could support faster, more efficient,
and more inclusive payments options. But if not appropriately
regulated, there are risks of stablecoin runs, payment system
disruptions, and concentration of economic power. The PWG
recommended that Congress address these risks by promptly
enacting legislation to ensure that stablecoins are subject to
appropriate Federal prudential oversight on a consistent and
comprehensive basis.
Q.10. Special Drawing Rights (SDR)--I opposed the 2021
International Monetary Fund (IMF) general allocation of SDRs,
as it was both untargeted and an inappropriate use of this
tool. Among other things, I was concerned that these funds
would be used contrary to American interests, such as repaying
China's predatory belt-and-road loans. As we have seen over the
past month, these worries appear to have been well founded.
Several countries have announced how they plan to use their new
SDRs. These plans include repaying Chinese loans \2\ and
bailing out a State-owned oil company. \3\
---------------------------------------------------------------------------
\2\ https://www.businessdailyafrica.com/bd/economy/kenya-seeks-
imf-aid-repay-chinese-loans-3557198
\3\ https://www.bloomberg.com/news/articles/2021-09-06/mexico-is-
refinancing-pemex-debt-after-receiving-imf-reserves
---------------------------------------------------------------------------
What has Treasury done, and what does it plan to do, to
prevent abuses of SDRs?
A.10. The Treasury Department is closely monitoring the use and
economic benefits of the SDR allocation and is working with the
Department of State to jointly engage to promote SDR best
practices, including transparency and accountability, by
Governments who wish to use their SDRs. Treasury has also been
working with the State Department to encourage allies and
partners to refrain from exchanging SDRs with countries with
whom we have significant policy concerns.
At Treasury's urging, the IMF published a detailed guidance
note as part of the SDR allocation to help authorities
implement best practices with regard to SDR usage and
transparency. In addition to its regular monthly topline
reporting, the IMF also agreed to release enhanced quarterly
reports showing country-level changes in SDR transactions and
to publish an annual report on SDR trading operations.
Q.11. Will Treasury provide dollars via the IMF SDR program to
fund repayments of China's belt-and-road initiative?
A.11. Treasury has the ability to decline any request from the
IMF to exchange SDRs for dollars. Treasury closely scrutinizes
each of the requests we receive.
Moreover, Treasury, the IMF, and the rest of the
international community are exploring ways for major economies
to lend some of their SDRs through the IMF to countries in
need. These loans will be used to help enable strong economic
recoveries and build climate and health resilience, not to fund
repayments to China. Channeling SDRs through the IMF in this
way will greatly magnify the benefits of the SDR allocation by
providing additional, targeted support to help countries
continue to respond to and recover from the pandemic. As this
SDR lending will occur through the IMF, it will be subject to
IMF lending safeguards, including strong governance and
transparency requirements on borrowers, and it will be overseen
and approved by the IMF's Executive Board.
Q.12. Sanctions--According to leading ship tracking websites
and the International Energy Agency (IEA), China has boosted
purchases of Iranian oil to 600,000 barrels a day, five times
more than in the first 9 months of 2020. \4\ Purchases of
Iranian oil by Chinese companies are keeping Iran's economy
afloat despite U.S. sanctions, \5\ such as the Iran Freedom and
Counter-Proliferation Act (IFCA), that are designed to choke
off such sales. According to Reuters, U.S. officials have
acknowledged that they are watching these breaches of U.S. law
and Deputy Secretary of State Wendy Sherman raised the issue
with her Chinese counterpart in July 2021. \6\ Nonetheless, the
Biden administration has not sanctioned a single Chinese
transgressor.
---------------------------------------------------------------------------
\4\ https://www.wsj.com/articles/iran-boosts-oil-exports-amid-
nuclear-deal-talks-11618497634
\5\ See the Iran Freedom and Counter-Proliferation Act of 2012
(P.L. 112-239) and Section 1245 of the Fiscal Year 2012 National
Defense Authorization Act (P.L. 112-81).
\6\ https://www.reuters.com/business/exclusive-us-has-reached-out-
china-about-cutting-oil-imports-iran-officials-say-2021-09-28/
---------------------------------------------------------------------------
Do you believe that China's ongoing violation of the U.S.
sanctions regime is a problem? Please answer ``yes'' or ``no.''
If your answer is ``no,'' please explain.
A.12. Treasury has sanctioned Chinese entities for the purchase
of Iranian oil, and we continue to rigorously enforce our
sanctions authorities. In addition to sanctions, diplomacy
plays a critical role in reducing sanctions evasion. We can
offer you more information in a classified setting.
Q.13. Why have Chinese violators of Iran oil sanctions not been
sanctioned?
A.13. OFAC continues to enforce our sanctions, and U.S.
sanctions on Iranian oil and petrochemicals remain fully in
place. We can offer you more information in a classified
setting.
Q.14. What specific steps are you taking to uphold the law and
properly enforce U.S. sanctions on Chinese importers of Iranian
oil?
A.14. OFAC continues to enforce our sanctions, and U.S.
sanctions on Iranian oil and petrochemicals remain fully in
place. We can offer you more information in a classified
setting.
Q.15. Do you agree that if U.S. adversaries perceive the United
States to be unwilling or unable to enforce U.S. sanctions,
then they will be more likely to violate sanctions?
A.15. We will continue to enforce our sanctions until and
unless Iran chooses a path of diplomacy and a path to a mutual
return to compliance with the JCPOA.
Q.16. Do you agree that the blatant nonenforcement of sanctions
on Chinese purchasers of illicit Iranian oil undermines the
effectiveness and legitimacy of the U.S. sanctions regime?
A.16. OFAC continues to enforce our sanctions, and U.S.
sanctions on Iranian oil and petrochemicals remain fully in
place. We can offer you more information in a classified
setting.
Q.17. China has taken an increasingly authoritarian and
belligerent tone towards its neighbors, including Taiwan. One
of the most potent national security weapons we have in our
arsenal is sanctions.
Has Treasury considered what steps it would have to take in
the wake of a scenario in which China took severe aggressive
action, such as an invasion, against Taiwan?
A.17. The Administration opposes any unilateral change in the
status quo with respect to Taiwan. We work closely with our
interagency partners to prepare for a variety of national
security contingencies.
Q.18. Do you commit to working with Congress to consider
legislation that will impose significant costs on China if it
continues to engage in--or escalate--its aggressive activity
towards Taiwan?
A.18. We are always available to provide Congress with input
regarding legislation on this issue and others.
Q.19. Enacted in July 2020 with unanimous support, the Hong
Kong Autonomy Act (HKAA) (P.L. 116-49) is an essential tool in
holding individuals and foreign banks accountable when they
assist Beijing in violating China's obligations to Hong Kong
under the Joint Declaration and Basic Law. HKAA requires
sanctions on entities that materially contribute to the erosion
of Hong Kong's autonomy, and foreign banks conducting
significant transactions with those entities. On March 16,
2021, the Biden administration identified 24 previously
sanctioned officials undermining Hong Kong's freedoms pursuant
to Section 5(a) of the HKAA, yet it failed to identify any
foreign financial institutions (FFIs) doing business with
persons identified under Section 5(a).
Why has Treasury not yet identified any foreign financial
institution (FFI) that knowingly conducts a significant
transaction with a foreign person sanctioned under Section 5(a)
of the HKAA?
A.19. The Treasury Department continues to administer and
enforce all our sanctions authorities, including under the
HKAA. While Treasury cannot comment on possible or pending
sanctions investigations, Treasury has not found any
information on significant transactions with the identified
foreign persons but continues to actively monitor for
information as to whether any FFI may have knowingly conducted
a significant transaction with any of the foreign persons
identified in either of the State Department's reports
submitted in the Section 5(a) Report or the Update following
the dates of the reports' submissions (October 14, 2020, and
March 16, 2021). Treasury has also conducted outreach to
foreign Governments to help ensure they understand the
reporting requirements and sanctions risks under the HKAA.
Treasury will also continue to engage foreign Governments and
FFIs to help ensure they understand the requirements and
sanctions risks under the HKAA and other authorities, as well
as any relevant public guidance OFAC has issued.
Q.20. On June 24, Senator Chris Van Hollen (D-MD) and I sent a
letter to President Biden urging his Administration to use the
HKAA to identify and sanction entities materially contributing
to the Chinese Communist Party's assault on Apple Daily, the
last prodemocracy newspaper in Hong Kong, and its founder Jimmy
Lai. \7\ In June, Reuters reported that Hong Kong Security
Secretary John Lee ordered HSBC and Citibank's respective Hong
Kong branches to freeze Jimmy Lai's accounts. It appears both
banks complied. \8\ After 500 policemen raided Apple Daily's
offices in June, \9\ Hong Kong's Security Bureau ordered banks
to freeze the newspaper's assets, leading to its closure. \10\
Section 5 of the HKAA requires the Administration to identify
foreign entities that are ``materially contributing'' to the
``inability of the people of Hong Kong to enjoy the freedom of
assembly, speech, press, or independent rule of law.'' It seems
very likely that the breathtaking crackdown on Jimmy Lai and
Apple Daily involved numerous foreign persons to whom Section 5
of the HKAA applies.
---------------------------------------------------------------------------
\7\ https://www.banking.senate.gov/imo/media/doc/toomey-van-
hollen-letter-to-pres.biden.pdf
\8\ https://cn.reuters.com/article/exclusive-hk-0527-thur-
idCNKCS2D80P8
\9\ www.reuters.com/world/asia-pacific/hong-kongs-apple-daily-
newspaper-says-police-arrest-five-directors-2021-06-16/
\10\ https://hongkongfp.com/2021/06/21/breaking-hong-kongs-apple-
daily-may-haltpublication-this-sat-pending-fri-board-meeting/
---------------------------------------------------------------------------
Has Treasury investigated any entities involved in the
suppression of Apple Daily and Jimmy Lai to whom Section 5 of
the HKAA may apply, including the Hong Kong branches of HSBC
and Citibank?
A.20. Treasury shares your deep concern about the crackdown on
Apple Daily and Jimmy Lai. While we cannot comment on possible
or pending sanctions investigations, we will continue to use
available tools, including sanctions.
Q.21. What steps has Treasury taken to hold those responsible
for the suppression of Apple Daily accountable?
A.21. While we cannot comment on possible or pending sanctions
investigations, we will continue to use available tools,
including sanctions. Additionally, Treasury worked with the
Department of State, Department of Commerce, and the Department
of Homeland Security to issue the first Hong Kong Business
Advisory to warn U.S. persons of risks arising from the actions
that the Chinese and Hong Kong authorities are taking to
undermine the legal and regulatory environment in Hong Kong.
Q.22. Enacted in 2019, the Otto Warmbier Banking Restrictions
Involving North Korea (BRINK) Act fills key gaps in the U.S.
sanctions regime by imposing mandatory sanctions on the foreign
banks and companies that facilitate illicit financial
transactions for the Democratic People's Republic of Korea
(DPRK). Treasury has not directly sanctioned any entities
pursuant to the BRINK Act, despite reports by the United
Nations \11\ and NGOs identifying \12\ relevant unpunished
businesses.
---------------------------------------------------------------------------
\11\ https://www.undocs.org/S/2019/171
\12\ https://rusi.org/explore-our-research/publications/special-
resources/project-sandstone-report-7-billion-dollar-border-town-north-
koreas-trade-networks-dandong-part-1
---------------------------------------------------------------------------
Has Treasury investigated the financial institutions
identified in the aforementioned reports?
A.22. While we cannot comment on possible or pending sanctions
investigations, the Treasury Department continues to administer
and enforce sanctions authorities with respect to the DPRK. We
are committed to the implementation of sanctions mandated by
Congress to maintain sanctions pressure on the DPRK.
Q.23. What obstacles are facing Treasury that prevent the
sanctioning of financial institutions under the BRINK Act?
A.23. The Treasury Department continues to pursue a range of
options to address the threat the DPRK poses to U.S. national
security, including diplomacy and targeted pressure measures,
and will not hesitate to use Treasury authorities where
appropriate or mandated by law. The DRPK continues to develop
ways to hide their transactions and disguise them from tracking
efforts. The Department of the Treasury continues to coordinate
closely with its interagency partners to address these
challenges and appreciates our close cooperation with Congress
on DPRK-related sanctions authorities, including the Otto
Warmbier North Korea Nuclear Sanctions Act and North Korea
Sanctions and Policy Enhancement Act, as amended by the BRINK
Act.
Q.24. The Danish Energy Agency issued a press release on
October 4, 2021, announcing that ``Nord Stream 2 AG has
fulfilled relevant conditions including conditions concerning
certification.'' \13\ Nord Stream 2 AG's construction permit
requires a ``Certificate of Compliance'' issued by a
``verifying third party,'' and it was reported earlier this
month that Gazprom PJSC received the Danish approval for one of
the lines to start, \14\ but that it needs approval from German
and EU regulators before the gas can flow to Europe.
---------------------------------------------------------------------------
\13\ https://ens.dk/en/press/nord-stream-2-pipeline-b-can-be-put-
operation
\14\ https://www.bloomberg.com/news/articles/2021-10-06/why-nord-
stream-2-may-not-be-ready-in-time-for-europe-s-winter
---------------------------------------------------------------------------
What is the name of the third party that was responsible
for verifying Nord Stream 2 AG's compliance in order to obtain
this Danish approval?
A.24. We would refer you to the State Department on this
matter, as PEESA delegates the relevant authorities to the
Department of State.
Q.25. Doesn't that third party meet the criteria for sanctions
designation under Protecting Europe's Energy Security Act
(PEESA) (P.L. 116-92) or Countering America's Adversaries
Through Sanctions Act (CAATSA) (P.L. 115-44)?
A.25. We would refer you to the Department of State for
questions regarding activities that may be sanctionable under
PEESA or CAATSA Section 232, as these authorities have been
delegated to the Department of State.
Q.26. The Biden administration has said it would remove
sanctions that are ``inconsistent'' with the JCPOA, which
grants relief for so-called nuclear-related restrictions, but
does not include ``terrorism'' and human rights sanctions. \15\
---------------------------------------------------------------------------
\15\ https://www.reuters.com/article/us-iran-nuclear-usa-
sanctions/u-s-prepared-to-lift-sanctions-inconsistent-with-iran-
nuclear-deal-idUSKBN2BU39F
---------------------------------------------------------------------------
Can you please clarify specifically what ``inconsistent''
with the JCPOA means?
A.26. As the President has made clear, the United States is
prepared to lift sanctions that are inconsistent with the JCPOA
if Iran returns to full implementation of its commitments under
the deal.
Q.27. Specifically, what sanctions designations and authorities
have you defined as ``inconsistent?'' Please provide a list of
all such sanctions you have identified.
A.27. Together with our State Department colleagues, we would
be able to discuss our sanctions posture related to ongoing
negotiations with you in a classified setting.
Q.28. On October 19, 2021, before this Committee, in responding
to a question from Senator Daines (R-MT) on whether you foresee
a situation in which the Taliban could be granted access to
over $9 billion of funds that belong to Afghanistan's central
bank (Da Afghanistan Bank, DAB), you replied: ``I see under no
situation in which we would allow the Taliban to have access to
the reserves that belong to the Afghan people.'' \16\
---------------------------------------------------------------------------
\16\ https://twitter.com/BankingGOP/status/
1450907532302733320?s=20
---------------------------------------------------------------------------
Can you confirm that under no circumstance will DAB funds
blocked by the United States be provided to an Afghan
Government controlled, directly or indirectly, by the Taliban?
A.28. Treasury sanctions continue to deny assets to the Taliban
and other sanctioned persons in Afghanistan, such as the
Haqqani Network, in order to deter and prevent actions that
threaten U.S. national security, while also facilitating the
flow of humanitarian assistance to the Afghan people via
legitimate and transparent channels. Treasury's OFAC continues
to maintain and enforce sanctions against the Taliban and the
Haqqani network. Accordingly, all property or interests in
property of the Taliban that are in the United States, that
hereafter come within the United States, or that are or
hereafter come within the possession or control of any United
States person are blocked and may not be transferred, paid,
exported, withdrawn, or otherwise dealt in.
Furthermore, E.O. 13224 authorizes Treasury to impose
sanctions against persons who materially assist, sponsor, or
provide financial, material, or technological support for, or
goods or services to or in support of, the Taliban, as well as
foreign financial institutions that knowingly conduct or
facilitate significant transactions on behalf of the Taliban.
Q.29. The Taliban, a Specially Designated Global Terrorist
group intertwined with Al Qaida, poses new money laundering
threats to both Afghanistan and the region. Section 311 of the
USA PATRIOT Act (P.L. 107-56) gives the Secretary of the
Treasury the authority to identify a foreign jurisdiction to be
``a primary money laundering concern.'' Once identified,
Treasury can require U.S. financial institutions to take
appropriate countermeasures.
Is Treasury currently assessing if the now-Taliban ruled
Afghanistan has become a foreign jurisdiction of primary money
laundering concern per Section 311? If not, why?
A.29. We are unable to discuss specific entities or
jurisdictions that may be the subject of investigation. The
Department of the Treasury continues to pursue its critical
mission to safeguard the United States' financial system and
enhance national security by identifying money laundering and
terrorist financing typologies and actors, using all tools at
its disposal--including information collection and regulatory
actions--to deter and disrupt money laundering and terrorist
financing activities.
Q.30. Treasury added 59 company names to a new Non-SDN Chinese
Military-Industrial Complex Companies List (NS-CMIC List)
supplanting the now deleted Non-SDN Communist Chinese Military
Companies List (NS-CCMC List). These designations impose a ban
prohibiting U.S. persons from investing in publicly traded
securities of the listed companies.
Is Treasury currently investigating other companies that
may warrant designation under the NS-CMIC List?
A.30. Treasury cannot comment on possible or pending sanctions
investigations. Treasury will continue to enforce its
sanctions-related authorities, including with respect to
entities that warrant identification on the NS-CMIC List.
Q.31. When can this Committee expect a new tranche of
designations?
A.31. Treasury cannot preview any forthcoming sanctions
actions.
Q.32. In January 2021, the Defense Department identified China
National Aviation Holding (CNAH), the State-owned parent
company of Air China, as a ``Communist Chinese military
company'' operating directly or indirectly in the United
States. \17\
---------------------------------------------------------------------------
\17\ https://www.defense.gov/News/Releases/Release/Article/
2472464/dod-releases-list-of-additional-companies-in-accordance-with-
section-1237-of-fy/
---------------------------------------------------------------------------
Why is CNAH not included in Treasury's Chinese Military-
Industrial Complex Companies List (NS-CMIC List)?
A.32. We appreciated the opportunity to brief Senate Banking
staff in a classified setting in July 2021. OFAC continues to
investigate a range of targets to be added to the NS-CMIC List
but does not comment on possible or pending sanctions
investigations.
Q.33. Is Treasury investigating if CNAH merits being added to
the NS-CMIC List? If not, why?
A.33. Treasury cannot comment on possible or pending sanctions
investigations. Treasury will continue to enforce its
sanctions-related authorities, and Treasury continues to
investigate potential targets to determine if they are entities
that warrant identification on the NS-CMIC List.
Q.34. On September 3, 2021, Treasury designated four Iranian
intelligence operatives who plotted to kidnap a U.S. journalist
and human rights activist critical of the Iranian regime, a
failed plot that led to the indictment of members of the
network in late July. \18\ Masih Alinejad has very publicly
revealed that she was the target of this plot. Why has the
Treasury omitted her name in the press release about this plot?
---------------------------------------------------------------------------
\18\ https://home.treasury.gov/news/press-releases/jy0343
A.34. Treasury can provide information regarding this matter in
the appropriate setting.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM WALLY ADEYEMO
Q.1. Given the uncertainty surrounding the negotiations on a
return to the JCPOA in Vienna, it is incumbent upon Congress
and the Administration to think through what happens if the
talks are not successful. Clearly in that instance, increased
pressure will be needed on Iran. China, with its purchases of
Iranian oil and other trade with Tehran, clearly has the most
economic leverage with Iran. In spite of the fact that Chinese
imports of Iranian oil and other petroleum products continue,
few Chinese entities have been sanctioned by the United States.
What options do we have to press China to reduce and
ultimately cutoff the economic lifeline it provides to the
Iranian regime?
A.1. The Administration is committed to using diplomatic
efforts as well as our sanctions authorities to respond to
Iranian sanctions evasion, including to address those doing
business with China, and we will continue to do so if
necessary. U.S. sanctions on Iranian oil and petrochemicals
remain fully in place. We will continue to enforce them until
and unless Iran chooses a path of diplomacy and a path to a
mutual return to compliance with the JCPOA.
Q.2. What changes does Treasury see in deciding how to
implement sanctions that could be reversed if a country or
person stops the criminal or terrorist action?
A.2. The power and integrity of U.S. sanctions derive not only
from their imposition, but also from their removal in response
to changes in behavior. The primary goal of sanctions is not to
punish, but to bring about a positive change in behavior. In
the case of reconsidering targeted sanctions on entities or
individuals, such as those involved in criminal or terrorist
acts, each removal is based on a review by OFAC of relevant
information, in consultation with our interagency partners,
including close coordination with the State Department.
Maintaining the integrity of U.S. sanctions is a high priority
for OFAC and is the driving principle behind its rigorous
review process for individually evaluating every request for
removal on its merits and applying consistent standards to all
of them.
Q.3. The Office of Foreign Asset Controls just took sanctions
actions against a cryptocurrency exchange where as much as 40
percent of transactions were criminal.
What role can legitimate exchanges play in ensuring
sanctions are not violated, and law enforcement can
appropriately intercept malicious activities?
A.3. Virtual currencies are beginning to play an increasingly
prominent role in the global economy. The growing prevalence of
virtual currency as a payment method likewise brings greater
exposure to sanctions risks-like the risk that a sanctioned
person or a person in a jurisdiction subject to sanctions might
be involved in a virtual currency transaction. Accordingly, the
virtual currency industry--including technology companies,
exchangers, mixers, administrators, miners, and wallet
providers--plays an increasingly critical role in preventing
sanctioned persons from exploiting virtual currencies to evade
sanctions and undermine U.S. foreign policy and national
security interests.
As a general matter, U.S. persons, including members of the
virtual currency industry, are responsible for ensuring they do
not engage in unauthorized transactions or dealings with
sanctioned persons or jurisdictions. OFAC strongly encourages a
risk-based approach to sanctions compliance because there is no
single compliance program or solution suitable to every
circumstance or business. An adequate compliance solution for
members of the virtual currency industry will depend on a
variety of factors, including the type of business involved,
its size and sophistication, the products and services offered,
its customers and counterparties, and the geographic locations
served.
Q.4. Is there a potential for using blockchain technology to
trace sanctions-evading actions and map out illicit finance
systems and networks more effectively?
A.4. Treasury uses a variety of tools in furtherance of
investigations, compliance, enforcement, and regulatory
actions. Blockchain technology is one of the tools used to
support these efforts.
Q.5. How would economic turmoil, specifically rising inflation
which could result in a rapid increase in food prices, affect
Afghanistan's women in Kabul as well as the poorest, most rural
parts of the country?
What strategy or combination of the strategies would work
best to mitigate hardship and decrease the ability of the
Taliban to access aid and development funds?
A.5. The United States remains deeply concerned by the
deteriorating humanitarian situation in Afghanistan. After
years of war, Afghanistan's economy was impaired by enormous
structural challenges, leaving the Afghan people to depend on
international aid and remittances. International aid funded
nearly 75 percent of Afghan public expenditures and represented
about 40 percent of its GDP in the past few years.
The United States is proud to be a longstanding supporter
to the Afghan people, including as the largest single provider
of humanitarian assistance, and we are looking at additional
ways to support the needs of the Afghan people.
Following the events of August 15, 2021, OFAC provided
rapid guidance related to the provision of humanitarian
assistance and the export of agricultural goods and medicine.
This included providing verbal guidance regarding a
nonenforcement posture with respect to activities and
transactions that support evacuation efforts, humanitarian
activities, and activities supporting critical infrastructure
in Afghanistan, as well as personal remittances. OFAC also
issued a specific license on August 25, 2021, to authorize the
U.S. Government to facilitate humanitarian-related activity,
the provision of humanitarian assistance, and other critical
civilian assistance within Afghanistan. Subsequently, on
September 24, 2021, consistent with the U.S. Government's long-
standing practice across Administrations of authorizing
humanitarian-related transactions and activities that support
basic human needs in territories affected by sanctions, OFAC
issued two General Licenses (GLs), which explicitly authorize:
(1) the United States Government, NGOs, and certain IOs and
other entities (including the U.N. and World Bank) to provide
humanitarian assistance to Afghanistan or other activities that
support basic human needs in Afghanistan; and (2) the
exportation or reexportation of agricultural commodities,
medicine, medical devices, replacement parts, components for
medical devices, or software updates for medical devices to
Afghanistan.
In addition, on December 10, 2021, OFAC issued a GL
authorizing U.S. persons to engage in transactions that are
ordinarily incident and necessary to the transfer of
noncommercial, personal remittances to Afghanistan, including
through Afghan depository institutions, that may involve the
Taliban or the Haqqani Network, or any entity in which the
Taliban or the Haqqani Network owns, directly or indirectly,
individually or in the aggregate, a 50 percent or greater
interest. Prior to the issuance of this GL, OFAC provided
guidance to financial institutions to make sure that
remittances could continue to flow to Afghanistan.
For transactions not otherwise authorized by OFAC GLs, OFAC
considers specific license requests on a case-by-case basis and
prioritizes license applications, compliance questions, and
other requests related to humanitarian support.
Q.6. How will the Treasury Department ensure that U.S. taxpayer
dollars will not fall into the hands of the Taliban or other
actors while providing aid to the Afghan civilian population?
A.6. OFAC continues to maintain and enforce expansive sanctions
against the Taliban, and the State Department and USAID have
risk mitigation strategies in place. Treasury is also taking
action to deny assets to the Taliban and other sanctioned
persons in Afghanistan, such as the Haqqani Network. Notably,
the Taliban and Haqqani Network continue to be sanctioned as a
Specially Designated Global Terrorists (SDGTs) pursuant to
Executive Order 13224, as amended (E.O. 13224). Accordingly,
all property or interests in property of the Taliban that are
in the United States, that hereafter come within the United
States, or that are or hereafter come within the possession or
control of any United States person are blocked and may not be
transferred, paid, exported, withdrawn, or otherwise dealt in.
U.S. persons who violate these prohibitions may face civil or
criminal liability.
Furthermore, E.O. 13224 authorizes Treasury to impose
sanctions against persons who materially assist, sponsor, or
provide financial, material, or technological support for, or
goods or services to or in support of, the Taliban, as well as
foreign financial institutions that knowingly conduct or
facilitate significant transactions on behalf of the Taliban.
In addition, the general licenses (GLs) provided on September
24, 2021, for humanitarian assistance and provision of basic
human needs to Afghanistan include conditions designed to
ensure that funds are not transferred directed to the Taliban
or the Haqqani network as describe in the GLs.
Q.7. During the previous Administration, the U.S. developed a
strained relationship with our closest allies and partners.
How has this erosion of trust impacted our ability to
conduct multilateral sanctions?
A.7. President Biden has made clear that our alliances and
partnerships are among our strongest assets. This is why we
have worked hard to rebuild these relationships over the course
of this year. The United States is committed to multilateral
diplomacy and strengthening coordination with allies and
partners on sanctions. As outlined in the Sanctions Review,
sanctions actions should be coordinated with our allies and
partners abroad where possible. Our concerted effort to engage
allies and partners in matters of sanctions coordination has
been very well received, as evidenced by the increasing
regularity with which they join our sanctions actions.
Additionally, the Administration continues to engage closely
with allies and partners to minimize any unintended effects of
our sanctions actions on their economic interests.
Q.8. What remain some of our largest obstacles in conducting
effective multilateral sanctions?
A.8. The Treasury and State Departments are working to expand
existing multilateral coordination mechanisms to strengthen
sanctions policy and implementation coherence, including with
respect to information sharing and harmonizing sanctions
authorities where possible, because these are two of the
biggest obstacles to conducting effective multilateral
sanctions. Australia's recent adoption of a Magnitsky-like
sanctions program is an example of such harmonization. Both
Treasury and State engaged significantly with Australian
officials to help establish this program.
Q.9. In 2018, interpretive guidance was issued on cybersecurity
disclosures. In June, the SEC took an enforcement action
finding that 6 months was too long for a company to disclose a
cyberattack.
Do you feel that Treasury is well equipped to ensure that
financial institutions and other market actors are not at risk
of retaliatory ransomware attacks by sanctioned actors in
places like Russia and Iran?
A.9. The Treasury Department works closely with regulatory
agencies, financial institutions, and other market participants
through bodies such as the Financial Banking and Information
Infrastructure Committee and the Financial Services Sector
Coordinating Council. We need better incident reporting in
order to better protect the financial system and the entire
economy, and we look forward to working with you and others in
Congress on how we can enhance information sharing.
On November 18, 2021, the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System,
and the Federal Deposit Insurance Corporation issued a final
rule that requires any financial institution subject to their
respective jurisdictions to notify its primary Federal
regulator of any ``computer security incident'' that rises to
the level of a ``notification incident,'' as those terms are
defined in the Final Rule, as soon as possible and no later
than 36 hours after the institution determines that a
notification incident has occurred.
As the Sector Risk Management Agency for the financial
services sector, Treasury seeks to improve baseline protections
throughout the sector, facilitate information sharing, support
incident management, and identify, assess, and prioritize
risks, among other activities. Treasury supports incident
reporting legislation that would require financial-sector
entities to report ransomware attacks and other cybersecurity
incidents to the Department of Homeland Security and Treasury
within 24 hours, as well as processes to streamline and
harmonize reporting for entities that face multiple reporting
requirements. Such reporting would enable Treasury to increase
the sector's situational awareness of retaliatory and other
cyberattacks and would help inform other U.S. Government
agencies' actions to deter and disrupt such attacks.
Q.10. What can we do to ensure the Treasury Department is
appropriately equipped to ensure proper protections for our
economy from malicious cyberactors?
A.10. The Treasury Department supports modernization of its
technology and innovations for its cyberworkforce to protect
its operations and tools and to improve the financial sector's
resilience. Treasury faces growing workforce challenges,
primarily in the area of compensation, given resource and pay
limitation constraints.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM WALLY ADEYEMO
Q.1. Money laundering and terrorist financing remains a threat
to Arizona's safety and security. Sanctions are sometimes used
to deter foreign Governments from funding organizations that
carry out criminal or terrorist activities that threaten our
national security. How do you assess the effectiveness of the
current sanctions process in preventing financing of illicit
organizations? What proposed changes to the current sanctions
process will make its use more effective in deterring illicit
financing?
A.1. We have had some notable success disrupting the financial
networks supporting a range of illicit and malign actors. For
example, in coordination with U.S. and foreign law enforcement
action, Treasury froze and seized billions of dollars in assets
from front companies used by the Cali Cartel (at one point the
world's largest drug trafficking organization), culminating in
the 2014 dismantling of the cartel and the arrest and
imprisonment of its leaders. U.S. sanctions so significantly
impaired Hizballah funding streams that in 2019 the
organization had to reduce salaries for its military arm and
media efforts and publicly solicit donations.
To enhance our sanctions and ensure they remain a critical
tool of U.S. foreign policy, the Sanctions Review identified
the following key recommendations:
Adopt a structured policy framework;
Renew our commitment to multilateralism;
Calibrate sanctions to mitigate unintended impact;
Ensure sanctions are easily understood,
enforceable, and adaptable; and
Invest in modernizing our sanctions technology,
workforce, and infrastructure.
Q.2. While sanctions issued by Treasury are meant to change the
behavior of a foreign Nation or of an organization, these
sanctions can also have unintended consequences for Arizona-
based and other U.S.-based businesses. In reviewing the
sanctions process, did Treasury examine the effects of
sanctions on small businesses that depend on imports from
sanctioned Nations or on exports to these Nations? What changes
can be made to the sanctions process to minimize unintended
consequences for Arizona businesses?
A.2. During the review, Treasury heard from some private sector
stakeholders about the compliance costs that can be imposed on
small businesses, which may lack the resources to bear these
costs while competing with large companies at home and abroad.
A first step is to make compliance simpler for businesses and
people who can't afford armies of lawyers and accountants. That
means communicating and providing guidance in simple, plain
language. It also means updating our website and technology to
ensure these communications are accessible to businesses of all
sizes.
Treasury can also expand engagement with small- and medium-
sized businesses, particularly exporters. Additionally,
applying a strategic and targeted approach to sanctions,
including a thorough analysis of market impacts and sufficient
time to develop mitigation measures, will help avoid
unnecessarily cutting off U.S. businesses from key export
markets or suppliers.
Q.3. The SWIFT system is the most widely used interbank
messaging network globally. The SWIFT system offers certain
financial crime compliance services to assist financial
institutions in complying with national and international
regulations, including sanctions. In 2015, China's Government
launched the Cross-Border Interbank Payment System (CIPS) as an
alternative to SWIFT to settle international claims in yuan.
How does the development of alternatives to SWIFT impact the
implementation of Treasury sanctions?
A.3. As noted in the Sanctions Review report, technological and
structural changes in the global financial system could have a
profound impact on the efficacy of American sanctions. This
includes the development of new financial and payments systems
that may have the effect of, among other things, evading
sanctions and diminishing the dollar's global role. Over the
long term, these could reduce the economic leverage and
benefits afforded by the prominent role of the U.S. dollar and
U.S. financial institutions in global funds transfers and a
wide range of economic and financial activity.
This is one of several reasons to take a thoughtful and
judicious approach to the use of sanctions, including by
applying a consistent policy framework, analyzing potential
unintended consequences, multilateralizing sanctions actions
where possible, modernizing our operational capabilities, and
making commensurate investments in our workforce to drive the
effective and tailored use of sanctions now and in the future.
Q.4. Over the last decade, we have witnessed the rise of
innovative decentralized finance (DeFi) products such as
cryptocurrencies and nonfungible tokens, the majority of which
utilize blockchain technology to complete and record
transactions. How does the growing popularity of DeFi products,
including by illicit organizations and other bad actors, affect
the implementation and effectiveness of sanctions? Do the
transaction records provided by blockchain technology aid in
tracking and deterring activity affected by Treasury sanctions?
A.4. Depending on how it is implemented, blockchain technology
can increase the overall transparency of transactions in some
cases, including by creating a permanent virtual paper trail,
and can improve regulatory reporting, record keeping, and
monitoring. This is also true for decentralized finance (DeFi)
products that use public blockchains, as opposed to those that
use private blockchains where certain elements of transactions
may be hidden.
In the context of illicit finance, blockchain technology
can be viewed as an obstacle for criminals who want to remain
anonymous and disguise the original source of funds. We have
already seen numerous instances where law enforcement and
regulators successfully conducted blockchain analytics to
``follow the money'' and either stop or impose costs on illicit
actors, as well as recover significant amounts of illicit
proceeds. For instance, the IRS recently announced that it
recovered billions of dollars in cryptocurrency this past year.
OFAC has also listed digital currency wallets as identifiers
associated with designated persons on the specially designated
nationals list to help financial institutions and block
transactions associated with designated persons; transactions
associated with these wallets can often be traced using
blockchain analytics platforms, leading to more regulatory
reporting and law enforcement action. Like any other asset,
digital assets can be used for illicit purposes, including
sanctions evasion, but the unique characteristics of
blockchains may allow for better after-the-fact investigations
into illicit activity, including sanctions evasion.
However, the use of public blockchains alone will not
prevent fraud, money laundering, or the financing of terrorism,
especially given the pseudonymity and sometimes anonymity-
enhanced features programmed into many existing blockchains.
Both FinCEN and OFAC have issued guidance to help financial
institutions, and in particular virtual asset service providers
(VASPs), which may include persons and entities involved in
DeFi arrangements, navigate, and comply with their AML/CFT
obligations, including those related to OFAC sanctions.
Blockchain technology has upsides and downsides, and Treasury
seeks to maximize blockchain technology's benefits and mitigate
its risks.
Q.5. This review of the sanctions process resulted in several
recommendations for reforms. How will Treasury implement these
recommendations to further the goal of integrated deterrence?
Will Treasury move to collaborate further with other
departments and agencies, as well as international Governments
and organizations, to strengthen the effectiveness of the
sanctions process?
A.5. As noted in the report, some of these recommendations can
be implemented in the near-term by internal policy or
procedural changes, while others will require further
deliberation and analysis. We look forward to coordinating
closely with key interagency partners, such as the National
Security Council, the Office of Management and Budget, the
Department of State, U.S. Agency for International Development,
Department of Justice, and others, as well as Congress, in
making needed changes and investments in future sanctions
capabilities.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM WALLY ADEYEMO
Q.1. Mr. Adeyemo, it has been claimed the cost burden of the
Administration's proposed IRS tax reporting requirement would
fall squarely on financial institutions, not taxpayers. I
cannot see how that is possibly the case. This proposed
reporting requirement would significantly expand Form 1099
reporting to include millions of accounts not currently subject
to reporting. Each Form 1099 contains highly personal
information, including the account holder's name, address, and
taxpayer identification number. Given that this new information
will be used specifically for audit detection, combined with
the fact that the low-income taxpayers are among the groups
most likely to get audited, it is highly likely that new tax
preparation procedures will be needed, resulting in additional
costs to both average taxpayers, as well as small business
owners who often conduct both personal and business
transactions within the same account.
As such, with the above in mind, how can the Administration
claim that there will be no additional burden for taxpayers?
Further, are you confident in the ability of the IRS to
securely handle this massive additional influx of confidential
data?
A.1. The bank reporting proposal was designed to minimize any
costs for financial institutions associated with providing this
information to the IRS. Our ambition is that financial
institutions will be our partners in ensuring America's tax
system is equitable, efficient, and effective--one in which
everyone follows the law and pays their fair share--and that
their customers are not disadvantaged by others who skirt tax
laws.
Under the proposal, compliant taxpayers would report their
taxes as usual, and they would face lower audit probabilities
if the IRS had access to information that allowed them to
better target audits toward those evading tax.
Indeed, rather than be burdened by a new reporting regime,
compliant taxpayers would benefit from it: When the IRS
determines who to audit today, it is essentially shooting in
the dark, since it has no lens into opaque income streams that
allow it to ascertain which taxpayers may be skirting their tax
liabilities and which taxpayers are likely fully compliant.
Honest small business owners--who are the vast majority--would
benefit from the IRS's ability to better target enforcement
actions against those who are evading their tax obligations.
Q.2. Mr. Adeyemo, the Treasury Greenbook explicitly states that
it would look to obtain certain transaction-level data through
an information return. Yet, the Secretary, as recent as last
week, stated emphatically they are not looking for transaction-
level information. Can you confirm for us if the Administration
is no longer supporting the financial account reporting
proposal as described in the Green Book?
A.2. We support the proposals that Congress has considered in
this space, and all financial reporting proposals considered by
Congress do not mandate that individual transactions of any
amount be reported to the IRS. Instead, the proposals direct
banks to report basic, high-level information on aggregate
account inflows and outflows.
Q.3. The United States holds 16.5 percent of the vote at the
IMF, and will need significant support from other countries to
keep billions in loans out of the Taliban's hands. Does the
Administration support keeping international funding from the
Taliban, and if so, how can the United States work
diplomatically to build the global support it would need to
keep international funding away from the Taliban?
A.3. The IMF has paused its interactions with Afghan
authorities due to the lack of clarity among IMF members
regarding the governance of Afghanistan. As a consequence,
Afghanistan's access to IMF resources, including its SDRs, is
on hold. In situations such as this, the IMF staff consults
with IMF membership to determine whether a majority of the
voting interest of the members recognize or deal with a regime.
The United States will continue to engage closely with the IMF
management and staff throughout this process to help safeguard
Afghanistan's resources for its people.
Q.4. Some people believe that the Taliban is moderating its
behavior, and that it is doing so to be recognized as the
legitimate Government of Afghanistan. What I see is an
organization that has changed little since the late 1990s. It
has already shown its commitment to oppress and marginalize
women and ethnic minorities, and to work closely with al Qaeda.
That isn't speculation. A recent report commissioned by the
U.N. Security Council found that al Qaeda was currently active
in nearly half of Afghanistan's provinces. Another U.N. report
found that the Taliban regularly consulted with al Qaeda during
negotiations leading to the Doha Agreement with the Trump
administration. At that time, the Taliban guaranteed to al
Qaeda that they would honor their historical ties.
Do you believe that if the United States offers the Taliban
recognition as the legitimate Government of Afghanistan, and
offers economic sanctions relief, that the Taliban will cut its
ties with al Qaeda and moderate its positions on women and
ethnic minorities?
A.4. For questions on any engagement or dealings with the
Taliban, we refer you to the Department of State.
Q.5. Do you believe that sanctions relief for the Taliban makes
the Afghan and American people safer, or less safe?
A.5. Treasury shares your concerns about the activities of the
Taliban in Afghanistan. As noted above, the Taliban continue to
be sanctioned as an SDGT pursuant to E.O. 13224. For questions
on any changes to the status of the Taliban under E.O. 13224,
we refer you to the Department of State. Treasury continues to
maintain and enforce expansive sanctions against the Taliban.
These expansive sanctions include the prohibition on U.S.
persons with regard to all property or interests in property of
the Taliban that are in the United States, that hereafter come
within the United States, or that are or hereafter come within
the possession or control of any United States person, which
are blocked and may not be transferred, paid, exported,
withdrawn, or otherwise dealt in. U.S. persons who violate
these prohibitions may face civil or criminal liability.
These expansive sanctions also include secondary sanctions
against persons who materially assist, sponsor, or provide
financial, material, or technological support for, or goods or
services to or in support of, the Taliban, as well as foreign
financial institutions that knowingly conduct or facilitate
significant transactions on behalf of the Taliban.
Additionally, OFAC has designated 19 Afghanistan-related
drug traffickers and entities linked to the Taliban under our
counter narcotics trafficking sanctions.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
FROM WALLY ADEYEMO
Q.1. The Treasury 2021 Sanctions Review report notes:
In addition, technological innovations such as digital
currencies, alternative payment platforms, and new ways
of hiding cross-border transactions all potentially
reduce the efficacy of American sanctions. These
technologies offer malign actors opportunities to hold
and transfer funds outside the traditional dollar-based
financial system. They also empower our adversaries
seeking to build new financial and payments systems
intended to diminish the dollar's global role. We are
mindful of the risk that, if left unchecked, these
digital assets and payments systems could harm the
efficacy of our sanctions.
Your report appropriately characterizes the risk that our
adversaries are deploying technologies to ``work around'' U.S.
sanctions. Can you elaborate on the specific concerns as
pertains to digital assets and payments systems?
A.1. Virtual assets can be used for illicit activity through
peer-to-peer exchangers, anonymity enhancement technologies,
and noncompliant exchanges. Some evaders may seek to transact
in virtual assets to avoid the sanctions enforcement that comes
with the international banking system, especially the use of
the U.S. dollar. This includes the facilitation of sanctions
evasion, ransomware schemes, and other cybercrimes.
Sanctions work best when compliance works. Those in the
virtual asset industry play a critical role in implementing
appropriate AML/CFT and sanctions controls to prevent
sanctioned persons and other illicit actors from exploiting
virtual currencies to undermine U.S foreign policy and national
security interests. Additionally, under the U.S. Presidency,
the Financial Action Task Force (FATF) in June 2019 amended its
standards to recommend that all countries regulate and
supervise virtual asset service providers (VASPs) and mitigate
against such risks when engaging in virtual asset transactions.
The United States is committed to continued work at the
FATF and with other countries to implement the FATF standards,
and we welcome the FATF's ongoing work on this issue.
Q.2. One of the important international initiatives advanced by
Treasury in the previous Administration was promoting data
connectivity in financial services. As you know, data flows are
critical to secure and efficient operations in this sector, and
support innovation and choice in financial services for small
businesses and workers. Will you commit to maintaining
Treasury's global push for data connectivity in financial
services, including through bilateral dialogues and in any new
agreements negotiated by USTR?
A.2. Treasury continues to support policies that further the
growth of the global digital economy, including promoting
cross-border data connectivity in financial services. My team
and I engage regularly with a wide range of jurisdictions in
regulatory and trade dialogues on the importance of cross-
border data flows in financial services to economic growth,
financial innovation, fraud prevention, financial stability,
AML/CFT compliance, and operational resilience.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM WALLY ADEYEMO
Q.1. The recent reports about the Chinese Communist Party's
(CCP's) hypersonic military capabilities, if true, are very
concerning. Will the Biden administration consider restricting
financial access to entities that are funding to the CCP's
development of weapons that pose existential threats to the
United States?
A.1. We cannot comment on possible or pending sanctions
actions.
Q.2. North Korea continues to produce nuclear weapons and
conduct provocative missile tests. It is critical for the
United States to build on the maximum pressure campaign that
began under the Trump administration. Should the Treasury
Department continue to apply pressure by designating entities
and individuals that violate U.S. law?
A.2. The Department of the Treasury shares your concern
regarding North Korea's recent missile tests. With interagency
partners, the Treasury Department continues to pursue a range
of options to address the threat DPRK poses to U.S. national
security, including diplomacy and targeted pressure measures.
We will continue to administer and enforce all our sanctions
authorities with respect to North Korea.
Q.3. Will the Biden administration continue to put financial
pressure on China, including pursuing enforcement against it if
it is found to be violating sanctions imposed on Iran?
A.3. Treasury has used our sanctions authorities to respond to
Iranian sanctions evasion, including those doing business with
China, and will continue to do so wherever appropriate. U.S.
sanctions on Iranian oil and petrochemicals remain fully in
place. We will continue to enforce them together with our
allies and partners around the world until and unless Iran
chooses a path of diplomacy and a path to a mutual return to
compliance with the JCPOA.
Q.4. I continue to be very concerned about the Biden
administration's actions toward Russia and in particular not
sanctioning entities involved in Nord Stream 2. What risks do
you assess the pipeline poses to the energy security of Ukraine
and Eastern Europe?
A.4. Treasury remains committed to implementing sanctions
imposed under PEESA, including most recently in November 2021.
However, sanctions are just one element to counter Russia's
attempts in this space. It is essential to work with our allies
and partners to reduce vulnerabilities that Russia has long
exploited for energy coercion, as well as reforms that would
improve the viability and efficiency of Ukraine's energy sector
and reduce Russia's ability to manipulate energy infrastructure
for political gain. Such efforts are underway by the Treasury
and State Departments.
Q.5. The Biden administration's Treasury has been advocating
for a global minimum corporate tax rate and tax increases here
at home. Realistically, when do you think the OECD will fully
implement their Pillar II minimum corporate tax rate? Why
should the United States unilaterally disarm by raising taxes
on American job creators--thereby reducing job creation,
opportunity, and wages for American workers--before other
countries we compete with firmly do? Aren't we standing way out
on a wobbly limb hoping the branch doesn't break, while
everyone else sits in the middle of the tree?
A.5. We expect other Nations to move quickly to implement the
model rules of Pillar Two, which are in their final draft. The
agreement commits countries to do this in 2022, with the rules
coming into force in 2023, just like the House draft
legislation brings the GILTI changes into effect in 2023.
Q.6. During her testimony on September 28, 2021, Secretary
Yellen and I discussed how my constituents are very concerned
about the ability of the IRS to keep their tax information
confidential. As you know, the Biden administration is
proposing to expand reporting of private citizens' bank
transactions to the IRS--which places an increased burden on
our community lenders and will cause a lot of Americans to
remove their money from them. Can you update the Committee on
the additional steps you have taken to safeguard Americans'
private tax information from politicized and criminal leaks?
Can you assure the Committee that Treasury is doing everything
it can to find the criminal perpetrators of the leaked
information to ProPublica? Can you update the Committee on the
additional steps you have taken to safeguard Americans' private
tax information from politicized leaks by the IRS?
A.6. Both Secretary Yellen and I are deeply troubled by any
unauthorized disclosure of taxpayer information, which is a
crime. The Secretary has referred the matter to the appropriate
authorities. We still do not know what occurred, but work is
being done to get to the bottom of this criminal activity. As
we learn more, we will update Congress as appropriate.
Q.7. The Office of the Comptroller of the Currency (OCC) is an
independent bureau within the Treasury Department. It regulates
and supervises over 1,100 banks and savings associations that
hold more than two-thirds of all U.S. commercial banking
assets. President Biden recently nominated Dr. Saule Omarova to
lead the OCC. Forget about a $600 or a $10,000 threshold for
reporting bank accounts and transactions to the IRS. Dr.
Omarova has argued that an effect option to expand the Federal
Reserve's role in the economy would be to transition each and
every single private bank deposit to the Federal Reserve. Do
you agree with her position to effectively end private banking?
A.7. Dr. Omarova testified before the Senate Committee on
Banking, Housing, and Urban Affairs on November 18, 2021, and
stated that she does not want to end ``banking as we know it,''
in response to a question posed by Chairman Brown. Furthermore,
on December 7, 2021, President Biden accepted Dr. Omarova's
request to withdraw her name from nomination to be Comptroller
of the Currency.
Additional Material Supplied for the Record
U.S. DEPARTMENT OF THE TREASURY SANCTIONS REVIEW RELEASE
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THE TREASURY 2021 SANCTIONS REVIEW
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