[Senate Hearing 117-]
[From the U.S. Government Publishing Office]
FINANCIAL SERVICES AND GENERAL GOVERNMENT APPROPRIATIONS
FOR FISCAL YEAR 2023
----------
TUESDAY, JUNE 14, 2022
U.S. Senate,
Subcommittee of the Committee on Appropriations,
Washington, DC.
The subcommittee met at 2:37 p.m., in room SD-138, Dirksen
Senate Office Building, Hon. Chris Van Hollen (Chairman)
presiding.
Present: Senators Van Hollen, Coons, Manchin, Hyde-Smith,
and Boozman.
U.S. DEPARTMENT OF TREASURY
opening statement of senator chris van hollen
Senator Van Hollen. All right. Good afternoon. The hearing
will come to order. And I want to start by saying I am pleased
to be joined by my Ranking Member, Senator Hyde-Smith, also
just joined by Senator Manchin, and Senator Coons, I think will
be returning soon. I want to welcome our witness, Deputy
Secretary of the Treasury, Wally Adeyemo.
And Mr. Deputy Secretary, thank you so much for being here
today and for your work at the Department of Treasury. This
subcommittee oversees the annual budget for the Department of
Treasury, including funding for the IRS.
Just a few months ago, our subcommittee provided the IRS
with its largest funding increase in 20 years in order to cut
down on the tax return processing backlog, which continues to
need to be addressed and to improve service for working
families. It was a big step forward.
We know that we need to continue that effort this year. For
today's hearing, we are going to zero in on the budgets of two
specific agencies within the Department of Treasury to help
keep money out of the hands of terrorists, criminals, and other
bad actors, and help to keep Americans safe.
The first is the Office of Terrorism and Financial
Intelligence, also known as TFI. The second is the Financial
Crimes Enforcement Network, also known as FinCEN. At the
outset, I would like to cover the special importance of these
two agencies to America's safety and security, and to the
safety and security around the world.
The Office of Terrorism and Financial Intelligence has been
cracking down on terrorist funding and financing for over a
decade. The mission of TFI is simple, identify, disrupt, and
disable criminals, terrorists, and other National Security
threats to the United States and protect the U.S. financial
systems from abuse by illicit actors. That work has taken
center stage in the wake of Vladimir Putin's brutal invasion of
Ukraine.
The men and women of TFI have been leading America's effort
to implement our sweeping sanctions against Russia in concert
with our allies. Because of the work of TFI and your colleagues
at the Department of Commerce and State, we have made
significant strides in cutting Russia off from the world
financial system.
Hundreds of international companies have left Russia and
the IMF projects that Russia's economy will shrink by more than
8 percent in the year 2022. But Mr. Deputy Secretary, we know
you know that Vladimir Putin and his cronies will do everything
in their power to evade the sanctions and to hold on to their
ill-gotten gains, no matter the risk. Which is why the work of
the second agency we are here to focus on, FinCEN, is more
important than ever.
Since its creation in 1990, FinCEN has been dedicated to
combating money laundering and safeguarding our financial
system from abuse. That mission has gained fresh urgency as
Russian entities and oligarchs attempt to evade America
sanctions by laundering money and hiding their assets across
the world. FinCEN is one of the main tools we have to stop that
from happening.
So we can see how both TFI and FinCEN are working hand-in-
hand to hold Russia to account. I am pleased and proud of the
actions that Congress has taken to supply these agencies with
additional resources that they need to do that job. The omnibus
bill from fiscal year 2022 included $44 million in emergency
supplemental funding to help TFI and FinCEN respond to the
situation in Ukraine.
And the Ukraine supplemental bill passed this April
provided an additional $23 million for FinCEN. That is on top
of the $20 million increase the subcommittee secured for the
annual TFI budget and the $48 million increase the subcommittee
secured for the annual FinCEN budget. With those funds,
Congress increased the budgets of TFI and FinCEN over fiscal
year 2021 by 26 percent and 76 percent, respectively.
Today, I hope to hear more about how those monies are being
put to use. I am proud of the work that the Department is doing
and that you are doing, Mr. Deputy Secretary, to push back
against Putin's brutal war, and I want to thank you for your
leadership. You know as well as anybody that the fight is far
from over.
And today, I look forward to discussing how we can
strengthen sanctions against Russia, avoid leakage in our
current sanctions, and ensure other countries and foreign
companies are not taking advantage of the strong sanctions for
their own financial gain and windfall. Unfortunately, we
continue to see new reports every day of countries and
companies that are not just maintaining but actually increasing
their trade or economic relations with Russia, including
increased imports of Russian oil.
We cannot stand by while these countries and foreign
corporations engage in war profiteering that further lines
Putin's pockets at the expense of everybody else. I think we
need to be doing more in this area.
And as you know, Mr. Deputy Secretary, we are in the
process of drafting legislation focused on secondary sanctions
to provide additional muscle and ammunition to this effort. And
we look forward to any input that you and your team have, not
just today, but in the coming days.
These are important topics, and I know Russian sanctions
have been front page news recently, but it is also a fact that
TFI and FinCEN's work goes beyond Russia, it is worldwide, and
I want to thank the men and women at these agencies for the
work they are doing.
Just 2 years ago, Congress passed the Anti-Money Laundering
Act of 2020, which requires FinCEN to establish uniform
beneficial owner reporting requirements for corporations,
limited liability companies, and other similar entities, and to
develop a database so that information can be easily reported
and shared with law enforcement.
The basic goal of that effort is to ensure who the real
owners are often behind anonymous shell companies and prevent
criminals and others from abusing U.S. corporations to launder
their money and hide their ill-gotten gains. It is a major new
undertaking, and the subcommittee provided FinCEN with an
increase of $34 million to your annual budget in the omnibus
bill for fiscal year 2022 to address these responsibilities.
It was the right thing to do, but we all know our work is
not over. We must continue to support funding for these
agencies. And I and the Ranking Member have indicated to both
TFI and FinCEN that they should let us know when they need
additional resources.
And that is true as well for you, Mr. Deputy Secretary, and
the Department. We have got a lot of work to do. Look forward
to the discussion in this hearing. And let me now turn it over
to the Ranking Member, Senator Hyde-Smith, for her opening
statement.
opening statement of senator cindy hyde-smith
Senator Hyde-Smith. Thank you, Mr. Chairman. And we are
glad to have you back. Also welcome the Treasury Deputy
Secretary to our hearing today, and I certainly enjoyed our
conversation we had on the telephone. We look forward to your
testimony this afternoon. And today, we will review the fiscal
year 2023 budget request for the Treasury Department's Office
of Terrorism and Financial Intelligence and the Financial
Crimes Enforcement Network, two very critical areas that are
very important.
Both offices play a crucial role in collecting and
analyzing financial intelligence, as well as implementing U.S.
sanctions. Treasury is requesting significant increases for
these offices in fiscal year 2023 compared to the fiscal year
2022 enacted levels.
This additional funding would be on top of funding received
from both of the Ukraine supplemental packages and I hope we
hear more today about how these funds are being spent,
particularly those that are used to counter Russian aggression.
And you have publicly stated that the overarching goal of the
Administration's foreign policy strategy is to end the invasion
in Ukraine, but right now it appears to be no end in sight,
even after imposing hundreds of sanctions.
Several months after invading Ukraine, Vladimir Putin has
not reversed course and even appears to have doubled down. It
has become clear that the previously enacted sanctions have
failed to make Putin feel the pain and that more must be done.
I would like to reiterate my and the Committee's commitment to
helping Ukraine and our NATO allies, and I look forward to
hearing from you today about the proposed budgets and how we
may actually stop Russian aggression that we all thought would
only last a few days.
I cannot end without acknowledging record high inflation
hardworking Americans are facing and the Treasury Department's
repeated denial of the state of the economy. I hope today we
can discuss the current economic outlook and the inflationary
impacts of this Administration's spending and energy policies.
Thank you, Mr. Chairman.
Senator Van Hollen. Thank you, Senator. And as you can see,
we don't have a court reporter in the room, but it is been a
live stream. And I understand the court reporter is doing their
job from offsite. With that, Mr. Deputy Secretary, welcome
again and the floor is yours.
STATEMENT OF HON. WALLY ADEYEMO, DEPUTY SECRETARY,
DEPARTMENT OF THE TREASURY
Mr. Adeyemo. Well, let me start out by saying thank you,
Mr. Chairman, and also to Senator Hyde-Smith for the time you
took to speak with me yesterday, but also for your leadership
of the subcommittee.
I recognize that the issues that you deal with in the
subcommittee are important. They are both about the domestic
economy, but also about our National Security. And I want to
thank you and the Members of this Subcommittee for not only
your leadership, but your support of the Treasury Department
and for the funding that you provided both in the omnibus bill,
but also in the supplemental legislation that has been passed
over the course of this year.
And as you well know, we meet today at a moment of historic
significance, facing the largest land war in Europe since World
War II, as well as making progress in our fight against the
public health and economic consequences of the most significant
pandemic in more than 100 years.
The hardworking men and women of the Treasury Department
play a central role in addressing these challenges. I want to
thank these dedicated public servants for what they do every
day to advance our mission of creating strong economic growth
and strengthening our National Security across Administrations.
Over the past 6 months, Treasury has taken swift and bold
action to hold Russia accountable for its brutal war of choice.
We view sanctions in service of two objectives. First, denying
the Kremlin access to the resources needed to prop up Russia's
economy or invest in its military.
And second, degrading Russia's ability to project power.
Sanctions fundamentally are a tool. They are a part of a larger
foreign policy strategy. And as a tool, these sanctions have
had an effect on Russia's economy. You need only listen to
President Putin, or their central bank governor talk about how
degraded their economy is and the fact that they are going to
need to transform it in response to the sanctions that we have
levied today.
But there isn't--but what we have made very clear is that
as long as Russia's aggression continues in Ukraine, we are
going to continue to take sanctions actions to further degrade
their ability to fight the war in Ukraine, but also to project
power into the future, and also trying to take steps that will
deny them access to revenues that they can use to prop up their
economy going forward or to continue to build out their
military industrial complex.
This work is done primarily by individuals at the Treasury
Department, both in our TFI unit, which is led by Brian Nelson,
but also by the dedicated men of our Office of Foreign Assets
Control, as well as FinCEN. In addition to the work that we do
at Treasury, we have worked internationally to build up
coalitions that have done things to not only implement our
sanctions, but also go after sanctions evasion.
Efforts like the multilateral Russian elite's proxies and
oligarchs task force have enabled us to identify and seize the
assets of those supporting Putin and his war, even where those
assets are hidden using novel and complex structures. These new
actions and initiatives require substantial resources, from the
personnel to conduct the analysis needed to target the right
entities, to the technology and systems needed to mount a
global response.
It is critical that the Treasury as a whole be properly
resourced to carry out these responsibilities, and we are
grateful for the funding that you have provided us over the
course of the last year. But in order to continue this work
into the future, the President's fiscal year 2023 budget
request includes a $49 million increase in funding for FinCEN
to add personnel required to implement the Anti-Money
Laundering Act and to continue to build the systems we need to
track beneficial ownership and leverage that information to
pursue critical National Security objectives.
Second, the fiscal year 2023 budget request includes an
increase of $50 million for the Treasury Department offices,
and $135 million for a system wide investment in cybersecurity.
The budget also includes an increase of $17 million for the
Office of Terrorism and Financial Intelligence, which oversees
our National Security priorities, as well as sanctions.
These funds will be used to add critical staff and make key
investments in our classified information systems and other
tools we use to execute U.S. sanctions policy. But of course,
we know that fiscal resources are finite, and we do not ask for
these funds lightly. As the Federal agency tasked with managing
our national--Nation's finances, we at Treasury are acutely
aware of the need to raise the revenues needed to fund our
Government.
That is why we are asking Congress to properly fund the IRS
and provide it with the resources needed to enforce our
Nation's tax laws, especially against those who use tax
shelters, loopholes, and accounting tricks to starve our
country of the fiscal resources needed to pay for our domestic
and National Security priorities.
Today, economists estimate that more than $160 billion is
lost every year from taxes the wealthiest 1 percent of
Americans choose not to pay. In total, we will lose
approximately $7 trillion in tax revenues over the next decade
due to unpaid taxes. Unfortunately, it is easy to see how the
situation developed.
The IRS budget has decreased by more than 15 percent in
real terms over the last decade, and its workforce is roughly
the same size as it was in 1974, even though the U.S.
population has grown by 60 percent and the complexity of our
economy has increased exponentially. Moreover, the IRS's
technology is decades out of date, written in a programming
language no longer taught, and incredibly expensive to
maintain.
The master file that under-grids the tax system dates back
to the 1960s, when there was no Internet, no cell phones, and
no spreadsheets or automatic payments. To begin to remedy this
mismatch between the IRS responsibilities and its resources,
the President's fiscal year 2023 budget request an increase in
the IRS budget of 12 percent from total fiscal year 2022
enacted levels.
We want to thank this Committee for the increase that
occurred last year, which was the largest increase in more than
20 years. But we recognize that more needs to be done to bring
the IRS into the 21st century going forward.
And we know that working with you, Members of this
Committee, we can do that in order to make sure that the money
that we collect at the IRS can be used to fund the priorities
we have, including our military, our infrastructure, and
providing for our children.
I look forward to the conversation and the opportunity to
answer your questions and work together to make sure that we
address the Treasury Department's needs and our country's needs
at large. Thank you.
Senator Van Hollen. Well, thank you, Mr. Deputy Secretary.
We are now going to start questions. We will start with 5
minute rounds. We may go to longer rounds later. And we are
going to start with Senator Manchin. Senator Manchin.
Senator Manchin. Thank you for the consideration, Chairman.
I thank you very much. I have to run to another committee
meeting, but I would like to ask a question, a couple. The
Financial Crimes Enforcement Network or FinCEN was first
established by the Bank Secrecy Act in 1970.
Since that time, it has found a careful balance in
successfully monitoring, prosecuting, money laundering and
other major financial crimes while also maintaining the privacy
that we need to feel safe entrusting our money to the American
financial system.
Last year, I reintroduced my See Something, Say Something
Act with Senator John Cornyn, which requires social media
companies to report suspicious activity to law enforcement,
similar to the way that the banks are required to report
suspicious transactions over $10,000 or others that might
signal criminal activity.
It also creates an Office in the Department--DOJ, to act as
a clearinghouse for these reports of major crimes, which is
similar to FinCEN. So, given that my bill adopts the same
approach as FinCEN for Internet crime, what are some of the
lessons that you have learned in information sharing that we
could apply for sharing information about drug trafficking and
other major crimes online?
Mr. Adeyemo. Well Senator, let me start out by saying that
we support the goal that you have outlined there. And I think
some of the most important lessons that we have learned in
terms of FinCEN is one around the idea of, as you put it,
maintaining privacy, but also making sure that the information
is available to law enforcement widely.
So the FinCEN database is available to more than 400 law
enforcement entities throughout the country in order to help
them connect the dots. Because ultimately the goal for FinCEN--
--
Senator Manchin. With that, what--sorry to interrupt you.
With that, what are you all seeing in regards to terrorist
financing through the social media and the dark web? Since you
are sharing that information, what are you receiving back?
Mr. Adeyemo. So, Senator, the place where we have the best
insight is probably when it comes to the dark web. And I think
that what we are seeing is that both criminals and those who--
and terrorists and those who want to use illicit finance are
trying to use every means to get around the formal financial
system.
So the more that we can shine a light on these activities,
the better we are able to protect our citizens against the
activities that they are taking there.
Senator Manchin. That leads me right into the next one on
cryptocurrency. So there is regulations for virtual currency.
Many financial regulations can still be evaded if money is
converted to crypto, as you know.
So my question would be, in addition to the aforementioned
reporting, what is the Treasury doing to help account for the
practice and be able to apply current financial regulations on
cryptocurrency? And what would be your recommendations on
putting guardrails on crypto?
Mr. Adeyemo. Senator I think this is one of the places
where I am increasingly focusing my attention, and I think
there are some places where we are going to need to work with
you in terms of legislation when it comes to crypto.
When it comes to illicit financing, I do think we have some
rulemaking authority around things like, how do we make sure
that some un-hosted wallets are regulated, and we make sure
that we extend a know your customer regime that currently
exists for traditional banking sector to cryptocurrency.
In light of what they do, I think it is going to be
important for us to think through this carefully, but we are
going to need to do it in order--
Senator Manchin. But Treasury has always been pretty good
at people, you know, find people illegally laundering money. We
have had a pretty good network and be able to check that back.
FBI has been pretty successful that.
Crypto has an awful lot of illicit applications, if you
will, and there are people that have learned to use it very
effectively. I am sure you all have been watching that to give
us some recommendations on what you would suggest would be just
adequate guardrails that would protect the citizen but also
bring it into mainstream currency. Do you believe there is
going to be a mainstream currency?
Mr. Adeyemo. Senator, I have my doubts that it will ever be
a mainstream currency, but I do think that it is going to be
used by all kinds of actors, including some people who want to
illicitly move money. And I think one of the things that we
have done so far is that we have sanctioned some of these
crypto exchanges.
But I think going beyond sanctions, we do need to make sure
that our regulatory rules expand in order to cover them. And
where we find that we can expand our rules, we are going to
want to work with you to design legislation that gives us more
authority.
Senator Manchin. Thank you, Mr. Chairman. Appreciate it.
Senator Van Hollen. Senator--Senator Hyde-Smith.
Senator Hyde-Smith. Thank you, Mr. Chairman. And Mr.
Adeyemo, as we have discussed, I remain really concerned about
the number of employees on telework status, and it is the
utmost importance that we bring these employees back to the
office, as we discussed on the phone.
And it really leads from another incident that happened
with another agency this week when I realized there are so many
people at home and I have constituents tell me that no one is
answering the phone in these other agencies. But what
percentage of Treasury employees are currently teleworking?
Does that include the IRS?
Mr. Adeyemo. So, Senator, in terms of Treasury employees,
at the moment, we have every employee has a plan--every
employee at the Departmental offices is required to have a plan
in terms of how often they will be in the Treasury Department.
Senator Hyde-Smith. So how many are teleworking?
Mr. Adeyemo. So Senator, I can't tell you today how many
employees are in the office versus which ones are teleworking.
But what I can tell you is that any employee that needs to be
in the Department, anyone who works on National Security or
anyone who needs to be in the office, is in the office.
What I can say is that before even the pandemic, a number
of employees of the Treasury Department either had telework
plans or work from alternative locations. For example, if you
worked on IT, you didn't necessarily work in the Treasury
Department building. Sometimes you worked in an offsite
location.
But for example, anyone who is working on any of the
National Security issues that we are discussing today, those
individuals have to be in the office because you can't do that
work from home. So they are there on a regular basis. Even
before I came back to the Treasury Department last year,
Treasury employees were coming back into the office.
For example, at the IRS, individuals who opened the mail,
they came back to work, back to the office in July of 2020,
long before we had a vaccine, and since then, they have been
ramping up the number of people who have been in IRS offices
throughout the country. In addition to those employees, we have
employees who have been back since the summer of the pandemic
helping to do things like print currency.
And today, our goal is to make sure that we are having
every employee who needs to be in the office, in the office,
and that we are making sure that we are monitoring
productivity. My goal is to try and optimize what we are
getting out of our employees so that the employees we need in
the office are in the office--
Senator Hyde-Smith. Okay, my time is running a little short
here, if you don't mind me interrupting you. And what was the
pre-pandemic percentage of Treasury employees that teleworked?
Before COVID and anybody had the need to do that, what was the
percentage of your employees or the employees at the Department
that were working from home before the pandemic? Not the
ability to, but the ones that were doing it.
Mr. Adeyemo. So Senator, I can get you that data, but I
think that my understanding is less than 20 percent of
employees were working from home before the pandemic. And
today, I think that you probably find that we are in the same
neighborhood in terms of people who full time work from home is
probably still less than 20 percent of time.
We do have a number of employees who have hybrid schedules,
who come into the office maybe 3 to 4 days a week and work from
home maybe 1 day a week. But the thing that we have now that is
better than before the pandemic is we have better technology
that allows us to both make sure that they are fully engaged in
their work, but also allows us to make sure that we don't need
to request additional space.
Because one of the challenges we have at Treasury is that
we have limited space. So by being able to have a bit of
flexibility, we are also able to manage our space better so
that we don't have to rent additional space.
Senator Hyde-Smith. Do you intend for the Department to go
full time, no one working from home unless it is absolutely
necessary? Or do you continue to plan to have about 20 percent
at home?
Mr. Adeyemo. So, Senator, I don't have a target in terms of
the percentage. My goal is to make sure that anyone we need in
the office to do their job is in the office full time, and then
for other employees to make sure that they are in the office as
needed, partially because I think that from my standpoint, that
gives us the flexibility to both optimize space, but also to
optimize retention.
What we found was in some of the positions when we required
them to be full time, for example, in some of the HR
operational functions, we were losing some of those employees
to places where they would have flexibility in their
employment.
So if we had the ability to give flexibility because we
don't need the person to be in the office, they are working in
HR, they are working in IT and things where they don't need to
interact with other employees, we may give them flexibility
going forward. But my goal and the thing that I appreciate is
making sure that when we need people in the office, we have
them in the office full time.
Senator Hyde-Smith. Well, I just feel the FT, when they
fill out that application means full time and in the office for
any Federal Government employee unless it is absolutely
necessary that they are not there.
Because we just had a lot of issues with constituents in my
office dealing with people who are not at work. And I just hope
you have got the controls in place to ensure that they are
working when they are teleworking. And how do you monitor that?
Mr. Adeyemo. So one of the things that we have had to do is
do training with managers to make sure that they are monitoring
employees who are working from home to ensure that they are
working.
But in addition, one of the things that we did when we came
into this Administration was we made investments in
technologies like Zoom so that instead of just doing conference
calls, we would be able to see people to make sure that when we
are in meetings, we can see them in order to make sure that
they are engaging.
If, Senator, there are issues that your constituents have
with regard to Treasury employees, please feel free to bring
them to me. But I think one of the things that we have been
very focused on is making sure that we are training our
managers to supervise employees who may be in the office 1 day,
may not be in the office the next day in order to make sure
that we are able to do things in a hybrid fashion.
I think that you are right that this is one of the
challenges we face, but it is frankly a challenge that
private--when I talk to CEOs, all of them are dealing with this
as well in terms of how do I have a hybrid workforce, because
that is the only way we are going to be able to recruit the
talent that we need.
But I want to reassure you that for positions where people
need to be in the office, we are requiring them to be in the
office full time.
Senator Hyde-Smith. But does that give the managers extra
duty that they are having to spend extra time on it to go to
this training and to spend the time to ensure they are working
from home? Doesn't that make the manager have more
responsibilities throughout the day?
Mr. Adeyemo. My sense as a manager myself in the
institution is that, no, I don't think it increases your
duties. What it does is, for example, how do you run a hybrid
meeting? And it is something that we have had to do regardless.
You are going to have to learn how to do regardless,
because frankly, we never--at Treasury, all of the same people
don't work in the same building. So if you are a manager, you
may be managing people who work in main Treasury, but they may
also have employees who work in West Virginia or work out of
State or work in a foreign country if you are working
international sections.
So you have had to do this work already in terms of having
to deal with some employees who are sitting in front of you,
and some employees were sitting in different offices. Now,
instead of sitting in a different office, they may be sitting
in their home. But ultimately, the type of responsibilities are
the same. We have increased the training because now we have
new technology that is helping to make that easier to do.
For example, you are not just talking to them on the phone
anymore. Now you are able to talk to them on Zoom or use other
products. But ultimately, these are the type of
responsibilities that if you are a manager in a global business
or in a global--in a global Federal agency like the Treasury
Department, you are going to need in order to advance.
Senator Hyde-Smith. Okay. One last thing. So you are
telling me that about 20 percent were working from home before
the pandemic and you have got about 20 percent that are
currently working from home now, is that correct?
Mr. Adeyemo. So, Senator, I want to get you the precise
number. Please give me time to come back to you. That is what I
believe--that is where I would estimate it to be. But I want to
make sure that I give you precision on that. And I am committed
to coming back to you with that after this hearing.
Senator Hyde-Smith. Thank you.
Senator Van Hollen. Thank you, Senator. And the Ranking
Member anticipated the fact I was going to go to 8 minute
rounds next. And so we will do that back and forth just so that
we can get into some in-depth questioning, which I think is
helpful. Mr. Deputy Secretary, as you know, in order to ensure
that Putin's invasion of Ukraine is seen as a strategic failure
by history, we are going to require a sustained effort.
And that means making sure that Ukrainians have the
military support they need, and it also means making sure we
have an effective sanctions regime. So I want to cover a couple
areas where I am very worried about leakage in sanctions. Some
of the--we don't have secondary sanctions in place right now
for the most part, but it seems to me we want to explore that
option going forward.
So I want to start with military, supporting countries or
entities around the world that may be supporting the Russian
military. You, at the Department of Treasury, have already
applied a list of sanctions. As we gather here today, do you
know of any countries or companies, foreign companies that are
violating our sanctions regime with respect to support of the
Russian military?
Mr. Adeyemo. Senator, as I sit here in front of you today,
I can't speak to any companies that I know of that are
wittingly assisting Russia in violating our sanctions regime.
But what I do know is that Russia is attempting to find ways
around our sanctions regime by setting up trusts and proxy
companies that would allow them to purchase the things that
they are not allowed to purchase legitimately.
Senator Van Hollen. So as of today, you don't know, for
example, whether any Chinese entities are supplying Russia with
weapons systems or components that are sanctioned by the United
States?
Mr. Adeyemo. No, I don't.
Senator Van Hollen. And I understand that we need to, you
know, track the efforts by the Russian military to set up, you
know, front groups and other entities to disguise their
efforts. The Department of Commerce, of course, also has a list
of components that we are preventing the export to Russia of,
and that has a sort of long arm impact.
And I saw in June that they would put together an expanded
entities list of companies, countries that would be barred from
export of certain U.S. origin items. Does the Department of
Commerce have any authorities, or do you have any role in
implementing the Department of Commerce's sanctions, or is that
done strictly through the Department of Commerce and DOJ?
Mr. Adeyemo. So, Senator, that is done by the Department of
Commerce, and I believe with assistance from DOJ. But in lots
of circumstances, what we have done is work together with
Commerce to figure out where export controls can play a role
and where sanctions can play a complementary role. So if they
put something on the export list, we may also go out and
sanction companies that produce that thing in order to make
sure that we help best address evasion.
Senator Van Hollen. All right. Let me turn now to the
energy sector, because, as you know, energy exports represent a
large part of the Russian economy. Do you have a ballpark
figure of what portion of the Russian economy is reflected in
those exports, coal, gas, oil?
Mr. Adeyemo. So in terms of Russian exports, the vast
majority of them come from commodities, Senator.
Senator Van Hollen. So we, of course, in the United States
have now, you know, borrowed our--we are not importing Russian
oil. We know that the EU is working diligently, I believe,
toward trying to phase out their dependence on Russian oil. We
need to move on the gas front as well.
But there are countries that are not only continuing to
maintain imports of Russian oil at the levels they were before
the war but are increasing their overall imports of Russian
oil. Can you talk about some of the countries that are at the
top of that list?
Mr. Adeyemo. So, Senator, it is--one of the challenges we
have is that we don't have direct data in terms of what this
looks like because a great deal of the oil is sent in means
that don't allow us to produce it. But we know that the data we
have seen is that countries that have traditionally imported a
great deal of Russian oil include Europe, but also China,
India, Japan, and South Korea, and Turkey.
Senator Van Hollen. Right. But I am looking specifically at
countries that have increased their volume of oil imports from
Russia. And as I look at the list, China is on the list, India
is on the list. Maybe a few other countries are on the list. Do
you know of any other countries that have increased their
volume of imports of Russian oil since the war began?
Mr. Adeyemo. No, I don't. Senator.
Senator Van Hollen. Okay. And would you agree that those
countries that have increased their volume of imports of
Russian oil are, in a sense, engaging in war profiteering? That
they are benefiting from the fact that countries like our EU
partners have reduced their imports of Russian oil.
Mr. Adeyemo. So, Senator, I think part of what we--so, I
think that what I would say is that right now we are in a place
where what our goal has got to be is to find ways to limit the
amount of revenue that Russia is making off the sale of its
oil, partially because one of the challenges with oil is that
you don't always know where it is coming from.
So there may be--some of these countries may be aware that
the oil that they are getting is directly from Russia. But what
we have seen in the context of other sanctions programs is that
countries do, once sanctions extend to energy, they try and
disguise where the energy is coming from.
So the thing that I am increasingly focused on is what can
we do not only to stop Russian oil from flowing to our country
and to other countries that are in our alliance, but as it
continues to flow, how do we reduce the revenue that Russia is
making?
What we know today is that Russia is selling less oil in
terms of per barrel than they were before the invasion. But
because of the increase in price, they may be making more
profit. So the goal for us is really to reduce that revenue
level even as countries may purchase Russian oil going forward.
Senator Van Hollen. So how do you do that, right. I mean,
can you talk about your plan? Because, you know, right now we
have a situation, whereas I indicated, and there is plenty of
public reporting on countries that have increased their imports
of Russian oil since the war began, and they are buying it at a
discount, right.
So, you know, consumers in that country are benefiting from
the discounted oil prices, while consumers in other countries
that are not importing as much Russian oil compared to their
pre-war levels are seeing higher prices.
How can we make sure that some consumers around the world
aren't benefiting getting a windfall from reduced prices of
Russian oil while others are paying more? How do we do that?
Mr. Adeyemo. Yes, I think, Senator, the challenge, of
course, is that while they are paying a discount, the truth is
that they are paying more today from Russian oil than Russia is
making off of their oil before the invasion because the price
of oil in general has went up. So one of the things that we
need to do is increase production, which is something we have
been focused on.
But I think that there are a number of options in terms of
reducing Russia's revenue. There are things like introducing a
price cap, which has been talked about in the academic
literature in terms of a price cap, in terms of how much can be
paid for Russian oil. There is also the idea of over time
limiting the amount of Russian oil that can be sold.
But all of this from our standpoint, the chief objectives
that we have are, one, celebrating the fact that Europe has
taken this important step in their six package to limit their
dependance on Russian oil. Number two is, what can we do to
limit the amount of revenue that Russia is making?
And our final goal is making sure that we don't spike the
price of oil overall in order to make sure that our consumers
don't bear the cost of what we are doing here. And I think
there are ways for us to do that in terms of looking at things
like potential capping the price of Russian oil going forward,
or over a period of time, reducing the amount of Russian oil
that is able to be sold.
But we want to make sure we do that in a manner that is
consistent with our allies and partners. I think the fact that
Europe is taking this important step over the next several
months is going to put us in a position to make sure that
Russia can't use oil as a strategic weapon against Europe going
forward.
Senator Van Hollen. Thank you. Senator Boozman.
Senator Boozman. Thank you, Mr. Chairman. Thank you,
Ranking Member--I got to get situated--Hyde-Smith, for having
this hearing. Thank you, Mr. Secretary, for being here. I would
like to start by asking you a few questions about beneficial
ownership and FinCEN rulemaking. As I am sure you would agree,
complex definitions of beneficial ownership will be hard for
small businesses to implement. Is this something FinCEN is
considering in its rulemaking?
Mr. Adeyemo. Senator, yes, it is top of mind for us in the
rulemaking is making sure that we in term--we think about the
regulatory burden on small businesses all over the country.
Senator Boozman. Very good. Will FinCEN work to more
closely align the beneficial ownership definitions with those
that currently exist and that businesses already have
experience providing information on?
Mr. Adeyemo. Yes. Yes, Senator. And I know that we, as you
know, we put out a proposed rule. And as part of that, we
received comments from small businesses and their associations.
And we are currently considering those because we want to make
sure that the final rule addresses some of these comments that
we have received.
Senator Boozman. Very good. Also, will you work to minimize
the reporting burdens on small businesses by allowing financial
institutions to rely on the registry for their beneficial owner
collection and verification requirement?
Mr. Adeyemo. So, Senator, we share that--we share your goal
in terms of reducing the burden. I think that there is one
rulemaking that we have already done. The second one is around
CCD--CDD.
And I think we want to make sure that we align those as
closely as possible, but we are still going through the
rulemaking process. But I can tell you that we share the goal
in terms of making sure that people don't have to report
numerous times the same information or slightly different
information going forward.
Senator Boozman. Good. Thank you. Let's talk a little bit
about the Treasury market. As you know, the Treasury market has
been described as the biggest, deepest, and most essential bond
market on the planet.
Historically, investors view treasuries as risk free or
near cash assets and safe havens during market crisis. However,
the resiliency of the Treasury markets has been called into
question by recent disruption events in which market price
volatility increased and the amount of available liquidity
decreased.
As a result, some market observers have called for
structural and regulatory changes to enhance the capacity and
resiliency in the market. While the Treasury Department
continues to study possible reforms, it is important to ensure
that reforms do not harm the market and do not cause unintended
ancillary effects.
I believe that any proposals or recommendations on any
structural regulatory changes should be vetted and supported by
investors. In that light, where is the Department in its review
of Treasury market structure? Do you expect to put out reforms
or recommendations? And if so, how far are you in the process?
Mr. Adeyemo. Senator, to your point, I agree that we want
to make sure that we consult with stakeholders as we think
through these reforms. That is why we announced recently that
we are going to put out a request for information which will
give the private sector and other stakeholders an opportunity
to provide us with advice as we think through our reform agenda
going forward.
Late last year, we put out a framework in terms of the
areas that we are looking to focus on with regard to reform,
with the idea being that you are right, that the Treasury
markets are the deepest, most liquid in the world.
The United States takes a great deal of benefit from this.
And what we want to do is make sure that the reforms we make
will only strengthen those markets. And in order to do that, we
want to make sure that we rely on information from market
participants as we go forward.
Senator Boozman. Do you have any ideas how you will
actually get the views of the investors?
Mr. Adeyemo. Yes, Senator. I think one of the things we are
going to do is that we are going to put out a request for
information where they can formally provide us with detailed
feedback in terms of how they think we should think about
reform through an open process that they can formally use.
But in addition to doing that, we are, of course, speaking
to market participants on a regular basis to hear from them in
terms of the reform agenda as well, and working closely with
the regulators as well.
Senator Boozman. Very good. I also wanted to touch on anti-
money laundering, AML. As you know, FinCEN recently issued an
RFI reviewing AML regulations and guidance under Section 6216
of the Anti-Money Laundering Act.
What are your intended steps, and can you preview some of
the proposals you will be making in your Congressional report
to eliminate outdated, redundant, or non-risk based AML
expectations?
Mr. Adeyemo. So, Senator, I think part of our goal here is
to implement what U.S. Congress passed as part of the in terms
of the anti-money laundering and beneficial ownership laws. But
as we do that, to also step back and to think through now that
we are building out this regime, which is going to allow us to
be comprehensive, what does it allow us to do in terms of
eliminating some of the things that we have done previously as
stopgaps?
And what we are hoping to do is that as we build--we have
at the moment two more--we are going to put out a final rule
with regard to the beneficial ownership rule we were talking
about earlier. And we are also going to put out information in
terms of how we are going to build out the database. And I hope
that at that point it will put us in a position where we can
look back and say, based on this, how do we think through our
regulatory approach going forward?
We look forward to working with you and the Committee on
this and providing greater information to industry and to
stakeholders in terms of what this will look like going forward
once we have completed the rule makings regarding beneficial
ownership.
Senator Boozman. Very good. I am also concerned about
potential rule makings around artificial intelligence in the
insurance industry. As I am sure you know, is used in insurance
to price risk, manage operations more efficiently, and detect
and predict fraud.
All of these are aimed at inclusivity in the market and
work in tandem with the use of actuarial risk based pricing,
and ensures all policyholders are paying the lowest possible
premium. Further, since AI affects a consumer's insurance
coverage, insurers are already highly regulated and are
obligated to explain and justify decisions to customers.
Significantly, the EU is currently in the process of
finding finalizing a regulation designed to harmonize rules on
AI. According to the EU, the purpose of the regulation is to
improve the functioning of the internal market by laying down a
uniform legal framework for the development, marketing, and use
of AI in conformity with EU values.
My concern is that creating new regulations for AI used by
insurers who are already subject to regulatory frameworks which
address the concerns would lead to regulatory duplication that
ultimately hurts policyholders. I guess the question is, does
Treasury have any plans to engage with the EU on this topic?
Mr. Adeyemo. So Senator, this is a topic that I am not
familiar with, but now that you have raised it, I am committed
to going back to my staff and talking about it and finding out
where we are with regard to the EU, and then we will follow up
with you.
Senator Boozman. Well, based on your answers to the other
questions and the good job you have been doing, I am surprised
that we caught you in one that you didn't have any knowledge
of.
Mr. Adeyemo. Well, I appreciate you bringing it up to me,
because it does sound like an important issue and one that I
will pay attention to and come back to you shortly on.
Senator Boozman. No, we appreciate that. Thank you, Mr.
Chairman.
Senator Van Hollen. Thank you, Senator. And thank you, Mr.
Deputy Secretary. I want to push you a little bit more where we
left off in our question with respect to Russian oil revenues.
I am looking at a piece that was in The New York Times
yesterday titled, Russia's Oil Revenue Soars Despite Sanctions
Study Finds.
And they cite a study from the Center for Research on
Energy and Clean Air out of Helsinki, Finland, that points out
that while the EU reduced its imports of Russian crude by 18
percent in May, that dip was made up by India and the United
Arab Emirates, leading to no net change in Russia's oil export
volumes.
And they point out that China continues to be the largest
importer of Russian fossil fuels overall over the 100 day
period they looked at. And as you know, Secretary Yellen has
been talking about this idea that you referenced today about
essentially, you know, countries forming a bloc that would
negotiate, demand a price reduction in Russian oil, because
right now we have the totally unfair situation where some
countries are getting bargain prices by increasing their
volumes and helping offset the pressure on Russia that the EU
and others have put in place.
So could you just talk a little bit more about how this
design would work? Because we need to figure this out pretty
quickly. And if not, we are going to have to be applying
secondary sanctions and maybe having to apply secondary
sanctions as part of getting more countries on board. Can you
just spell out in a little more detail what you are thinking of
at the Department?
Mr. Adeyemo. Yes, I am happy to do that, Senator. I think
part of this I will reserve for maybe a classified setting, but
I am happy to talk to you about this in detail. But I think
part of the goal here is that fundamentally at the moment, as
you know, energy prices are far higher post-invasion than
before invasion.
And even if you are buying Russian crude at a discount, the
price you are paying for Russian crude today is higher than you
paid pre-invasion. So even there, if there is a discount, the
truth is that Russia is making more today off of crude than
they were pre-invasion.
And our analysis at least tells us this is slightly
different than what you have seen in The New York Times, that
Russia is probably not producing as much crude as they were
pre-invasion, but they are potentially making more resources--
more revenues because they are selling at a higher price.
So the goal is to make sure that you reduce the price that
they are able to gain from selling their crude going forward by
working with other countries to agree to a certain level that
you will pay for Russian crude going forward.
It really is trying to make sure that you are in a place
where Russia is not benefiting from the fact that because of
their invasion of Ukraine, prices of not only Russian crude,
but crude in general have gone up.
This is something that we are talking about with our allies
and partners. And I think I am happy to brief you in more
detail about in terms of where those conversations stand in a
classified setting.
Senator Van Hollen. Okay. Let me turn to the sanctions that
we have imposed on Russian oligarchs who have been complicit
with Putin and other corrupt actors. And as you know, this is
also an area where sanctions are only as effective as our
ability to stop those oligarchs from being able to hide their
assets in other places. Sometimes they do it surreptitiously.
Sometimes they do it in countries that are willing to look
the other way. Can you talk a little bit more about that
effort? To my knowledge, we have not imposed any secondary
sanctions on any other countries or entities. I know we have
given some warnings, but I continue to read about
circumvention.
In fact, you were yourself quoted in the May 13 New York
Times piece saying that you have seen a number of Russian
yachts move from ports in countries that have extended
sanctions to countries that haven't.
And that same article mentioned the UAE, especially Dubai,
as one of these destination points. What are we doing to make
sure that we are having an effective sanctions regime on
oligarchs who can, you know, take their yacht from port to
port?
Mr. Adeyemo. And Senator, what I will do is I will make
sure we send this to you. But a few weeks ago, we actually put
sanctions on a yacht servicing company. So this was us using
the material support provision of our sanctions to go after a
company that we found that was providing material support to
the yachts of those who had already been sanctioned.
So we have actually went after companies in third countries
where we have seen them providing material support to those who
have been sanctioned, using our--using the sanctions authority
that has been given to us by Congress and by the President.
I think what we have been trying to do, in addition to
using our material support provision, is building a coalition
with other countries that will not only be in a position to
freeze some of these assets, but actually to seize them going
forward. And we have seen the seizure of a number of property
tied to many of these Russian elites, not only here in the
United States, but around the world, which is different in kind
than what we have seen in other sanctions programs.
And our goal here is to make sure that we strengthen this
coalition so that it is not just our traditional allies, but we
also have partners that are joining us in this effort so that
these Russian elites know that there is not a place where they
can hide their assets outside of the realm of the sanctions
that we and 29 other countries have implemented.
So we have already started to take action in third
countries. We are planning to take more. Part of our goal is to
have conversations with not only financial institutions,
because I think what we have found is that financial
institutions understand the scope of our sanctions. We haven't
largely seen financial institutions that have been willing to
do business with individuals or entities that have been
sanctioned.
But when it comes to other companies in an economy, be it
companies that help service yachts or planes or deal in real
estate that aren't as familiar with our sanctions regime, that
is the place where we have had to act, and we have had to spend
time with authorities and also with those companies to explain
to them that ultimately the providing material support to an
individual or an entity that has been sanctioned could make you
subject to sanction.
And we have used that authority already in third countries,
and we think that doing that has sent a clear message to these
companies that ultimately, if you provide material support, no
matter where you are, we are going to be willing to use our
sanctions authority to go after you.
Senator Van Hollen. All right. I look forward to following
up with you and your team. I am about to turn to another
category of questions, so why don't I--Senator Hyde-Smith, I
don't--let me turn it over to you. I don't know if you have
another round of----
Senator Hyde-Smith. I do.
Senator Van Hollen. Absolutely.
Senator Hyde-Smith. Thank you very much. Let's talk about
the Bank Enterprise Program. It is pretty popular in
Mississippi, and it is well received by local banks and credit
unions because it allows them to leverage their own assets to
invest in the small businesses and the startups, which gives
them the ability to support job creation and retention in areas
that really need it in a lot of States.
But I was really disappointed to see that the budget cuts
from the Bank Enterprise Program by $11 million from the fiscal
year 2022 enacted level. What were the reasons for these cuts?
Mr. Adeyemo. Senator, let me start out by sharing your
commitment to these communities where the Bank Enterprise
Program has been effective in helping. And I think what we are
trying to do is figure out where we can most effectively put
the limited dollars that we have available to have the impact
that we both care about.
As you know well, in many of these communities, you have
CDFIs and MDIs that are also doing business there. And what we
have done, based on the funding that Congress provided us, is
provide a great deal of capital to these institutions. So more
than 9--about $9 billion of capital through the Emergency
Capital Investment Program went to CDFIs over the course of
this year that we have placed in them.
In order to make sure that that money is invested well, we
have asked for additional money for the CDFI program to help
monitor but also provide resources to those institutions. I
think I am happy to talk to you about how we are thinking about
this, but I think our goal largely is to make sure that we are
building up an ecosystem there that is based on providing
resources to those lenders, then also ensuring that we have
provided support to them.
So it wasn't--our goal is not to step away from these
communities, but rather to try to most effectively to provide
funding to them going forward.
Senator Hyde-Smith. So I think he just answered the program
is oversubscribed compared to other programs because it is so
popular. But how do you intend to support investments in
economically distressed areas with reduced funding? I mean, you
are saying you are going in another direction and how do you
expect that to compensate?
Mr. Adeyemo. Well, Senator, I think our goal is to make
sure that on top of the public money that Congress has provided
to these communities, that we attract private money as well. So
the--our goal, similar to what we are doing with the Small
Business Credit Initiative, is to make sure that we attract
private investment into these communities, because we know that
that is the sustain--is a sustainable way to make sure that
they have the access, the resources they need.
We think that we have a real opportunity to do that,
working closely through our CDFI office with the money that you
have already provided. And that is what we would want to do
here, is to ensure that in areas where there is a need for
additional capital because all these programs are
oversubscribed, that we would work to attract private capital.
Senator Hyde-Smith. And what is the status of the 2022
grants right now?
Mr. Adeyemo. Senator, I would have to get the team to
provide you with an update on where we are in the grant making
process at the moment, but we haven't completed it. But I am
happy to get you--to provide you with an update after this
hearing.
Senator Hyde-Smith. Has it been implemented well, or I
mean, do you have any idea if it has been beneficial or----?
Mr. Adeyemo. So my view is that, as you know well, this is
a program that has been very popular and has been implemented
well by staff across Administrations, and that continues to be
the case. I think my overarching goal is to make sure that
across the suite of programs that Congress has authorized, we
take your resources, and we try and find creative and
interesting ways to try and pull the private sector in as well
to crowd in private capital.
Because ultimately, what we know about these communities
where we have these programs right now is that they have
unfortunately been starved of the type of private capital that
is needed to building housing, to starting small businesses, to
making sure that those small businesses can thrive.
So a big push from my standpoint, from Secretary Yellen's
standpoint, is what can we do to take the resources you have
provided and use them in a way that attracts private capital to
join them in a way that is sustainable over time?
Senator Hyde-Smith. And the--one other thing I wanted to
talk about was the, in February, Treasury received the $61
million in the supplemental funding to address the war in
Ukraine and the Russian invasion. About a month ago, an
additional $52 million was provided to the Treasury in the
second Ukraine supplemental appropriations package. So how much
of these funds right now have been obligated?
Mr. Adeyemo. So, Senator, I don't have the precise number
in terms of the obligated amount today, but I am happy to get
that to you. But I can tell you that money has been used. We
have done really two things with that funding. One, is invest
in additional personnel, and two, is invest in technology.
On the personnel front, one of the things that we have
needed is additional people to help, not just in the
traditional areas where we have dealt with sanctions in the
past but given the complexity of Russia's economy and how
interconnected it is with the global economy, we need
additional staff in places like economic policy to help us do
economic analysis on how we can better target Russia's economy
while mitigating the impact on our economy.
Given how interconnected Russia is to the financial system,
we have needed additional resources in domestic finance so we
can understand the interconnections between Russia's financial
system and our own financial system.
When it comes to technology, a big deal--a great deal of
what we have had to do is invest in technology in places like
FinCEN, because one of the things we want to make sure is that
the information that we are collecting on Russia and on the
illicit behavior that they are conducting is analyzed and
provided to law enforcement in our country, but also to our
partners around the world.
So we have made huge investments both in personnel and in
technology, in order to put us in a position to better address
what is happening in Russia, Ukraine, and also in prosecuting
some of the criminal enterprises that we are seeing develop
around this.
As I mentioned earlier, one of the things that Russians
have perfected in terms of evading our sanctions is setting up
proxies and trust companies that allow them to get around our
sanctions, and that is around the world. So we are doing
everything we can to go after those as well.
Senator Hyde-Smith. So you have done a lot. So would you
think that over 50 percent have been allocated--obligated so
far?
Mr. Adeyemo. So, Senator, I think--I want to make sure that
I come back to you with a precise number in terms of how much
has been obligated. But I do know that one of the things that
we have been focused on is both getting the technology in place
as fast as possible and hiring people as quickly as possible.
In terms of when that has gone from being in the budget to
actually being obligated, I want to get you precise numbers.
Senator Hyde-Smith. Thank you.
Senator Van Hollen. Thank you, Senator. Mr. Deputy
Secretary, we have talked a little bit in this hearing about
the updated Corporate Transparency Act, as well as the broader
Anti-Money Laundering Act, which I think are important
authorities and tighten the regime that we have to prevent
people from anonymous ownership of different companies in the
United States.
But I am concerned about what I see as a loophole in that
overall architecture with respect to private investment
companies like hedge funds who are exempt from reporting
information on the identity of their clients, as we require for
banks, mutual funds, and other parts, other segments of the
financial sector.
As I understand it in any way, under current law, a hedge
fund manager can manage large sums of money without knowing the
real identity of their investors, which would allow corrupt
actors to evade sanctions.
My understanding is the Department of Treasury has
authority to require these private entities to report on the
identity of their clients. Let me first ask if that is your
understanding. Do you have that authority?
Mr. Adeyemo. So Senator, my understanding is that in the
legislation, Congress did provide an exception for certain
businesses. I think the scope of that exemption is something
that we are still working through in terms of the rule writing
process.
My goal, of course, is to try and cover as much of the
world as possible with regard to the beneficial ownership rule,
because the last thing we want is to create avenues for illicit
money to flow. But I don't want to get ahead of the rulemaking
process. What I can commit to you is that we are going to be as
expansive as we are legally permitted to do.
And if we find that ultimately we can't get at some of the
companies that exist in our ecosystem, and we think that there
is--that that is a place where illicit money might flow, we
will come back to Congress and request that you take additional
action.
Senator Van Hollen. Well, let me ask you, how do we know?
Do we have any idea what the magnitude of this loophole might
be?
Mr. Adeyemo. So, I think the real question, Senator, is how
broadly can we define--how broadly are we legally permitted to
define this? And then the question becomes, how big is the
ecosystem that exists outside? It is going to be hard to know
how much illegal money is flowing into that part of the
economy. And the thing that we also know is that, if there are
things that aren't covered by the beneficial ownership rule
making, it is more likely that illicit finance will flow in
that direction.
So we are going to be in a place where, no matter what, I
think we are going to need to come back to you as we see this
develop to talk to you about whether we are going to have to
further change the rule. And if we don't have the ability to
change the law because we lack the legal authority, what
additional legal authority that we need.
But what I can say is that because of the legislation that
you have passed, we are in a better position to make sure that
we root out illicit finance within our country. But we also
know based on other countries that have put in place beneficial
ownership systems, is that at the edges where the rulemaking
doesn't allow you to go is where illicit finance will start to
flow. So we are going to need to think about this in multiple
approaches.
One is finalizing the rule based on the authority that
Congress has already given us, and then seeing if we have the
ability to use other rulemaking authorities to get at places
where we see potentially illicit finance flowing. And if we
don't, coming back to you and the members in terms of getting
additional authorities.
Senator Van Hollen. No, I appreciate that, right. Because
you can shut one door and just opens the other door. And as you
point out, if you are an illicit actor, you are going to look
for the other open door and push on that.
Can you give us an idea, your timeline here in terms of the
rule and your determination of the extent of your authorities
under existing law and what other authorities, if any, you may
need? Your timeline there.
Mr. Adeyemo. As you would expect, our notice of proposed
rulemaking, we got a lot of comments from industry and our goal
is to make sure that we carefully consider each one of those as
we finish up the rulemaking.
I have asked the staff to complete the rulemaking as soon
as possible, with my hope being that before the end of this
year that we will finalize the rule. But we also, as you know,
have a number of other rule makings tied to setting up the
beneficial ownership system. They are also looking to complete
as quickly as possible as well.
Senator Van Hollen. Thank you. In December, Secretary
Yellen also, as she was discussing the updated CDA--CTA said,
and I quote, ``we are also ensuring a similar principle applies
to real estate because many corrupt actors can hide their money
in Miami or Central Park's skyscrapers the same way they do in
shell companies.''
What actions are you taking? Is that part of the rulemaking
or is that a separate effort with respect to making sure that
real estate companies are not used as conduits for any illicit
financing?
Mr. Adeyemo. So it is both related but also separate in
terms of the way we are thinking about this. And I think that
our view is that we need to make sure that, and this speaks to
the conversation we are just having, that people can't find
other avenues for illicitly storing resources.
And we know that real estate is a place where a number of
people have bought in the past. And we want to make sure that
both in terms of as we are thinking about beneficial ownership
at large, we are doing everything we can in terms of rulemaking
to prevent that from being a place where illicit finance can
live in this country.
Senator Van Hollen. So in this category of questions, there
is just one final question, which is that, is there a feedback
mechanism between FinCEN and law enforcement that lets you and
the folks at FinCEN know the extent to which the information
they are providing is being useful and actionable.
Because obviously we are, you know, providing additional
resources, as Senator Hyde-Smith mentioned, to--for the
reporting mechanism. It would be, I think, important to have
some back and forth so that we can be assured that the
information that is being gathered is actually being put to
effective use.
Mr. Adeyemo. And I think, Senator, my--the best example of
this, I think, is the repo task force, which I mentioned
earlier. The repo task force, as you know, was established both
by Secretary Yellen and the Attorney General.
And we work very closely with the Department of Justice
with regard to the repo task force and share the data and
information that is coming in from FinCEN and from Treasury
closely with DOJ. And it has helped in terms of helping take
some of the actions that we have already taken, but also in
terms of building cases.
So I think the best example of the impact of the funding
that you have already provided is some of the law enforcement
cases that have already taken place, but also some of the law
enforcement cases that are being developed today. Ultimately,
the goal for us is to make sure that we have this information
in order to both help our National Security agencies, but also
our law enforcement agencies going forward.
And I think if you speak to them, they have found the
information that FinCEN has provided, as well as OFAC, has
provided quite useful in terms of thinking about how we can use
our criminal authorities going forward. And the final thing
that I mention is that one of the things that we have been able
to do through the repo task force is improve information
sharing among some of our closest allies.
It had existed long before Russia's invasion of Ukraine,
but I think that the attention that Congress has put on this,
as well as the importance of this issue, has allowed us to
strengthen those information exchanges so that we are in a
place where the information we have here in the United States
is being shared with our allies and partners.
But in addition to that, we are getting and requesting more
information from them in order to get a holistic picture as to
how Russian elites and oligarchs are attempting to hide their
wealth, not just here in the United States, but around the
world.
Senator Van Hollen. Thank you. Senator Hyde-Smith.
Senator Hyde-Smith. Continuing somewhat on that, can
cryptocurrencies like Bitcoin, can that be used to evade
Russian sanctions?
Mr. Adeyemo. So, Senator, I think that what we found is
that those who are looking to use any means can find a way to
use cash, can use cryptocurrencies to try and evade Russian
sanctions. What I can say is to date we haven't seen this to be
a main route of evasion.
But what we do know is that Russia itself is a--has been a
host to a number of cyber criminals who have been using
cryptocurrencies as a means to further their criminal
enterprises.
That is why we have used sanctions authorities to go after
exchanges that exist in Russia. And we are committed to
continuing to do so where we see illicit finance, where people
are attempting to use crypto to evade our sanctions.
Senator Hyde-Smith. Have you seized any crypto assets?
Mr. Adeyemo. Oh, we have not--we have frozen exchanges and
we have went--we have used our sanction authority against
exchanges. But in terms of seizure at the Treasury Department,
we, of course, have the right to freeze things, Senator, but we
don't have the right at Treasury to seize things.
Senator Hyde-Smith. And are you worried about the overuse
of sanctions?
Mr. Adeyemo. I am, Senator. And I think one of the things
that I did before the Russia, Ukraine--Russia invaded Ukraine
was Secretary Yellen asked me to do a review of the use of
sanctions, and I conducted a review of the sanctions use from
after 911 to this year. And I am happy to provide that
information to you.
But one of the things--many of the findings of that review
have influenced the way that we have used sanctions with regard
to Russia, Ukraine. And in the United States alone, we have
placed a thousand sanctions on Russian entities and individuals
over the course of Russia's invasion.
I think one of the most important things we learned from
the review was that sanctions were best placed when we did them
in a multilateral fashion for a number of reasons, one being
they had much more of an economic effect, and that is what we
are seeing in Russia today. But it also meant that by doing it
that way, you also had a bigger political effect, and you
protected the U.S. economy from taking on--taking this on its
own.
So one of the things we have done at the President's
direction is make sure that we do everything as much as
possible in a multilateral way. The second point was that we
wanted to make sure that we did serious analysis before we put
sanctions in place, so we understand the economic consequences
on the target, but also the economic downsides on the United
States.
And I want to thank you and the Members of this Committee
for the money you provided in the supplemental, because that
has helped us greatly to get the type of people into Treasury
that have helped us through from economic policy to
international affairs to domestic finance, to do a more robust
economic analysis as we have put sanctions in place against
Russia.
In addition to doing that, there is a number of other steps
that we are taking based on that sanctions review to ensure
that we don't, to your point--or we use sanctions in a way that
is the most effective without overusing them.
Senator Hyde-Smith. And can you specifically tell us how
Russia's economy, how it has affected it or how it has changed
since Treasury's sanctions were imposed? What is the condition
of their economy right now because of this?
Mr. Adeyemo. To put it simply, Senator, the economy is
smaller today than when they started the invasion of Ukraine
because of our sanctions. And it is getting smaller every day.
And it is also becoming harder for Russia to produce the things
that it needs for its military, but also for its economy.
Today, Russia--two of Russia's top tank producers, are not
operating because of our sanctions and export controls. We know
that it is harder for them to produce the missiles that they
need to continue the war in Ukraine, but also to project power
into the future.
The Kremlin has been forced to introduce economic stimulus
to help both their pensioners, but also others in the economy
who are suffering.
But the thing that we want to make clear to the Kremlin is
that as long as the invasion of Ukraine continues, we are going
to continue to use sanctions and export controls to constrain
their ability to prop up their economy and to invest in their
military going forward. And we continue to have a number of
ways to do that in partnership with our allies and partners.
Senator Hyde-Smith. And as horrible as this invasion has
been and as many people that have lost lives there, why has the
Treasury and the Administration not imposed a full trade
embargo yet to force Putin's hand?
Mr. Adeyemo. So, Senator, there is actually very little
trade between the United States and Russia. We are not a major
trading partner of the Russian Federation. The biggest trading
partner for Russia is Europe. China is also a major trading
partner. So what we have done is that we have taken significant
actions here in the United States.
For example, the President announced a ban on Russian
energy coming into the United States. Europe is taking the
steps to do that as well as they work towards energy
independence.
And our goal ultimately is to try and find additional ways
to constrain Russia's economy going forward by going after the
key inputs to their economy and the things that they need to
prop up the economy and also to continue to build out their
military industrial complex. And the best way to do that is to
do that in collaboration, in coalition with our partners and
allies, especially in Europe.
Senator Hyde-Smith. So you don't think a trade embargo
would increase that? That it is not needed?
Mr. Adeyemo. So I think my--the thing that we are trying to
do, Senator, is make sure that any action we take, we take it
in concert with our allies and partners in Europe. The biggest
economic impacts on Russia are felt by actions that are taken
in this way, because Russia's biggest trading partner is
Europe.
The United States has very little trade with Russia. And we
have taken a number of steps to limit that even further. For
example, blocking the import of Russian energy into the United
States and preventing many goods and services from coming from
Russia to the United States, which leaves us in a place where
we can continue to use our sanctions authorities and our export
controls, but I do think that a full trade embargo from the
United States would have a marginal impact on Russia's economy
at best.
Senator Hyde-Smith. And how do you analyze or how do you
measure the effectiveness of that? Is it just truly a dollar
amount or another reduction that you see in something? How do
you analyze?
Mr. Adeyemo. The way I think about it, Senator, is what
will it do to economic growth, inflation, and Russia's economic
future. Those are the things that I look to in terms of the
impact.
So the things we have tried to do is take actions that have
reduced the amount of revenue that Russia is taking in in order
to make sure that we are forcing them to have harder and harder
choices to make, choices between whether you invest in propping
up your economy or whether you invest in your military
industrial complex.
Every day, because of the sanctions we have already put in
place, those choices are harder for the Kremlin, and they know
they are going to get harder over time because they don't have
key inputs to their economy. When you think about our export
controls regime, for example, what we did was we built a regime
where we prevented Russia from being able to get access to key
technologies that they need to continue to build out their
economy.
And these are technologies that China doesn't have, so
China can't give it to them. The only people who have these
technologies are ourselves and our allies in Europe and our
allies in Asia. So ultimately, the thing we are looking to is,
how do we further constrain their economy and make their
choices harder in terms of where they make investments.
Senator Hyde-Smith. And my time is up. Thank you.
Senator Van Hollen. Thank you, Senator. So, Mr. Deputy
Secretary, just to follow up on that point a little bit. As you
said at the outset, sanctions are just one tool among many. And
I agree with you entirely. They are more effective when they
are put in place multilaterally. Of course, the Iran sanctions
was an example where secondary sanctions ended up having a
multilateral effect because other countries did comply.
Obviously, Iran is not Russia. But I do think that is an
example of where secondary sanctions proved effective in
achieving the goal of bringing Iran to the table to negotiate
back in the day. And as you have pointed out, we have been
working with our European partners. We have gotten--well, they
also undertook the effort to reduce their reliance on Russian
energy, especially oil, and looking for other sources of gas
going forward.
But when other countries increase their overall imports of
Russian oil above what they were pre-Ukraine war, that is a
pressure reliever on Russia. So I--true, that Russia is still
selling that oil at a higher price than before, but it is still
a discount to those countries and Russia is able to sell more.
So I look forward to continuing that conversation. I just
have about 5 minutes for questions. I want to turn to North
Korea. And thank you. You and I got together months and months
ago to discuss the sanctions on North Korea. You know, another
example, whether they are an imperfect tool, but one of the
things that we have available to increase pressure on North
Korea.
Thank you for taking a look at the leakage in that
sanctions regime and the measures you took with respect to the
two Russian banks under the authority of the Otto Warmbier on
North Korea Nuclear Sanctions Act of 2019 that was coauthored
by myself and Senator Toomey.
So I appreciate your attention to that. As we discussed,
the UN panel of experts issues an annual report, I believe,
they issued one in March of this year, that documented a number
of other entities and categories of entities that contribute to
leakage in the North Korea sanctions regime. They pointed
specifically to China based entities in shipbuilding and
shipping. And so I would encourage you to use that as a guide.
I recognize that in order for us to impose sanctions, that
we have to do a lot of due diligence and make sure we dot our
I's and cross our T's. But can you assure me that you are
continuing to look at that UN report with an eye toward seeing
whether they qualify for U.S. sanctions?
Mr. Adeyemo. Let me say a word of thanks to you, Senator,
for providing that authority. That is a mandatory authority.
And I can commit to you that our staff is looking very closely
at that report, as well as any information we have to see what
we can do in terms of imposing additional sanctions on North
Korea in light of their destabilizing activity. As you
mentioned recently, we did place sanctions on a number of
entities that we had discussed previously and the team that
continues to do research and work to identify additional
targets.
Senator Van Hollen. I appreciate that. I would just ask you
to look at the China based entities only because they are front
and center and they--in terms of being identified by the UN
panel of experts. So my last question relates to something that
we have covered a little bit, but in a different form, which is
ransomware.
I know you have been very focused on this issue. Can you
talk a little bit about what the Department of Treasury is
doing specifically? Obviously, we have lots of Federal agencies
that are interested in cybersecurity.
But what the Treasury Department is doing, what you are
doing to recover funds that have been paid to some of the
ransomware attackers, what we are doing to prevent future
attacks, and the role of cyber currency in this effort.
Mr. Adeyemo. So, Senator, I think this is an issue of grave
importance to our entire economy, and it is a global issue. And
one of the things and something that I have been focused on, I
think what we are trying to do is increase the cost to cyber
criminals in terms of their criminal activity by taking apart
the ecosystem that allows them to operate.
In some of those cases, that ecosystem does flow through
cryptocurrency exchanges. We have taken action against some of
those exchanges in particular, some of them that exist in
Russia by sanctioning them, but also by thinking through what
we can do to better make sure that companies that are subject
to these cyber criminals are reporting the information to us,
so we better understand the typologies of the attacks that are
taking place and that we are in a position to best inform
others in industry of what is happening.
So a big piece of this for us is both working with the DOJ
and with the other agencies in the Federal Government to make
sure that we are taking actions with our relevant authorities,
which includes sanctions at Treasury, but also in terms of
providing guidance both from OFAC and FinCEN and collecting
information.
So at FinCEN, as we have talked about previously, they are
doing a great deal in order to collect information from
industries that have been targeted by cyber criminals,
especially those using ransomware, in order to put us in a
position to go after those criminals, but also to go after the
networks and ecosystems that allow them to conduct these crimes
going forward.
I think this is a challenge that we feel as if the goal
will be--the goal has to be working in partnership with the
private sector. And the thing that we need to get the private
sector to do is to work with us in order to improve the
cybersecurity of their systems.
As you know, Treasury is tasked with being the agency that
works closely with the financial services sector. And this is
not just our biggest institutions, but it is small institutions
all over the country as well.
And I am spending a great deal of time with these
institutions, making sure that they are taking the steps to
protect themselves from ransomware attacks, but also to make
sure that we are sharing information, because ultimately the
goal has got to be to better understand where these criminals
are coming from so that we can go after them.
So it is a holistic strategy at Treasury that we have
developed that includes enforcement, information sharing,
working closely with not only our partners here in the United
States Government, but also with our allies abroad in order to
make sure that we are protecting the system.
Senator Van Hollen. I appreciate, and I agree that we have
to have partnerships with the private sector as well as others
overseas. Thank you. Senator Hyde-Smith.
Senator Hyde-Smith. I want to talk about the FinCEN's
beneficial ownership database. We have gotten a few calls about
this because the new regulation means that the banks, credit
unions, and all the financial institutions, they have to gather
this information and verify this information about the
individuals who run a business before a new account can be
opened, any new account.
You know, even if it is a new account for a current
customer. So there is a lot of concern out there about this.
But Treasury estimates the proposed rules to implement this
Act, the Corporate Transparency Act, will require more than 25
million existing small businesses to spend an aggregate amount
of more than $4 billion to submit their reports on the
beneficial owners to the Financial Crimes Enforcement Network.
Is this an accurate estimate of the cost of the compliance
for small businesses? And being that small businesses are the
backbone of the economy, is it really wise to place more
mandates on them at a time when we are just on the verge of a
major recession? So do you think that is accurate?
Mr. Adeyemo. So Senator, my understanding is that the costs
to the average small business will be quite modest. You are
right that those numbers in terms of total small businesses in
our country is quite large, which I think is something that we
want to grow at the Treasury Department.
We want to create room for more small businesses in the
country rather than less. And what we are going to do is make
sure that we set up this regulatory regime in a way that is as
scaled to the challenge as possible, so that small businesses
reporting requirements are as modest as possible in light of
the requirements that Congress has provided us with.
Our goal is not to create a regime that will ask for more
information than is needed, but rather to be in a position
where we are able to protect the National Security for those
small business--all the small businesses in this country as
well.
So we are happy to--we are going to continue to work with
small businesses who submitted a great deal of comments to make
sure that we set up a regime that is best suited to the
challenges that they face going forward. And we are not looking
to set up something that is overly robust.
Senator Hyde-Smith. When do you think that they will have
to start complying with this rule?
Mr. Adeyemo. So Senator, I think we are going to continue
to work through that. I don't want to--I don't have a sense at
the moment as to when compliance will be required. But our goal
is to try and put out the final rule as soon as possible and to
build a database that is useful, frankly, to law enforcement
going forward.
Ultimately, I know that the thing that small businesses
that I have talked to about this rulemaking but about
regulation in general that they view is, they want to make sure
that they can do what they can to help protect our country as
well. But they want to make sure that the information they
provide is actually going to be useful to helping to protect
people in their community and around the country.
So in addition to putting out the rule, we want to make
sure that we create a database that is going to be useful to
law enforcement in their communities, but around the country,
and also to our National Security community. So we want to make
sure that whatever we are collecting is going to be used and it
is going to be used effectively going forward.
Senator Hyde-Smith. Can you talk about any exceptions?
Mr. Adeyemo. Exceptions to the rule----
Senator Hyde-Smith. That they would not have to comply? Is
there any exceptions that a business would not have to comply?
Mr. Adeyemo. So, Senator, I think the goal for us is to
make sure that we build a database that is inclusive of as many
companies as possible in order to protect the National
Security. To the conversation I was having with Senator Van
Hollen, the challenge we have is that when we create
exceptions, what then happens is that those who want to
illicitly move money than simply create companies that fit
within that exception.
So our goal really is to try and find a way to make
something that is comprehensive, but in which the reporting
requirements are as modest as possible in order to make it as
easy as possible for companies to comply and for us to have a
holistic database in this country.
Senator Hyde-Smith. A lot of people really see this just as
an extra mandate and as extra work. So I hope that it does
prove to be a very beneficial tool in addressing this issue
because it will be extremely burdensome for a lot of people.
Thank you.
Mr. Adeyemo. So Senator, our goal is to take your feedback
and the feedback of countless people to mind in terms of how we
design this to make sure that we reduce the burden as much as
possible.
Because we know that ultimately the reason a bipartisan
majority of Congress passed this legislation was because they
cared deeply about our National Security. But they also want to
make sure that we don't overly burden our small businesses. And
we have kept those two things in mind as we think about the
design of this regulation.
additional committee questions
Senator Van Hollen. Well, thank you, Senator. Thank you,
Deputy Secretary Adeyemo. Thank you for your service. Thank you
for being here today, for this hearing. Our Members, the
Members of this Subcommittee will have one week to submit
questions for the record. They are due June 21.
Mr. Deputy Secretary, appreciate it if your office could
respond to those questions once they are submitted as soon as
possible. Again, thank you for being here.
[The following questions were not asked at the hearing, but
were submitted to the Department for response subsequent to the
hearing:]
No questions were submitted.
Senator Van Hollen. Thanks for your service and the
subcommittee meeting is adjourned.
subcommitee recess
[Whereupon, at 4:06 p.m., Tuesday, June 14, the
subcommittee was recessed, to reconvene subject to the call of
the Chair.]