[Senate Hearing 118-550]
[From the U.S. Government Publishing Office]
S. Hrg. 118-550
AN UPDATE FROM THE TREASURY DEPARTMENT:
COUNTERING ILLICIT FINANCE, TERRORISM AND SANCTIONS EVASION
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING COUNTERING ILLICIT FINANCE, TERRORISM AND SANCTIONS EVASION
__________
APRIL 9, 2024
__________
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
58-408 PDF WASHINGTON : 2025
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
RAPHAEL G. WARNOCK, Georgia KATIE BOYD BRITT, Alabama
JOHN FETTERMAN, Pennsylvania KEVIN CRAMER, North Dakota
LAPHONZA R. BUTLER, California STEVE DAINES, Montana
Laura Swanson, Staff Director
Elisha Tuku, Chief Counsel
Catherine Fuchs, Republican Policy Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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TUESDAY, APRIL 9, 2024
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 29
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 30
WITNESS
Adewale O. Adeyemo, Deputy Secretary, Department of the Treasury. 5
Prepared statement........................................... 31
Responses to written questions of:
Senator Scott............................................ 33
Senator Cortez Masto..................................... 47
Senator Warnock.......................................... 48
Senator Fetterman........................................ 49
Senator Butler........................................... 50
Senator Kennedy.......................................... 53
Senator Cramer........................................... 56
Senator Daines........................................... 57
(iii)
AN UPDATE FROM THE TREASURY DEPARTMENT:
COUNTERING ILLICIT FINANCE, TERRORISM AND SANCTIONS EVASION
----------
TUESDAY, APRIL 9, 2024
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:06 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Sherrod Brown, Chair of the
Committee, presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. The Senate Banking, Housing, and Urban Affairs
Committee will come to order. I will make two sorts of personal
statements. One is I was cheering on the University of South
Carolina Gamecocks in that game, even though they were down 13
to 2 at the beginning. And----
Senator Scott. Indeed.
Chair Brown. ----Senator Scott's team won. And more
interesting, no offense to them was--or to Senator Scott. But
yesterday I missed--I rarely miss a vote. I missed a vote
because my wife and I sat on our back porch and saw the total
eclipse in Cleveland.
It went over Cleveland, center of the world during--and it
actually passed over NASA, one of the 10 NASA facilities.
Senator Scott. It certainly----
Chair Brown. It was just extraordinary.
Senator Scott. It was on Sunday, the center of the
basketball world.
Chair Brown. And the game----
Senator Scott. So, this is true.
Chair Brown. The final four women's were in Cleveland.
Senator Scott. Indeed, for a good reason. The Gamecocks
play well in South Carolina, Ohio, California. They just play
well everywhere, but----
Chair Brown. Your time has expired, Senator Scott.
Senator Scott. I can't wait to be the Chairman.
Chair Brown. How much time you got, man? It's a long, long
wait.
Senator Scott. We'll see.
Chair Brown. Do I have to call it to order again? I did
that, right? Thank you. Nice to see you Mr. Wally, we'll
introduce you in a moment. We face threats to American national
security and global stability every day. Autocrats, terrorists,
drug traffickers work to undermine our economy, our values, our
way of life.
Sophisticated international cartels traffic fentanyl into
our communities. China supplies precursor chemicals to Mexican
cartels, feeding our deadly fentanyl epidemic. Russia's brutal
invasion of Ukraine continues. Putin looks for new ways to fund
his war machine.
Iran finances terrorist proxies that wreak havoc all over
the Middle East from Hamas' brutal October 7th attack on Israel
to the Houthi attacks on shipping in the Red Sea and
Hezbollah's menacing activity.
All these bad actors need one thing, money. Terrorists,
fentanyl traffickers, the Russian military, they all need to
spend. And to move money, they all use the financial system in
a variety of ways to do that.
That's why we must use all available economic tools to
defend American interests and American values. Means denying
bad actors access to the global financial system and broadening
our coalition of partners to prevent terrorism in the flow of
illicit finance that supports drug traffickers and money
launderers.
Terrorists, criminals, rogue Nations will never stop in
their efforts to evade our sanctions regime, we must be equally
vigilant. Vigilance requires international security leaders
have the authorities and the resources they need to stay ahead
of these bad actors.
Today we'll hear from Deputy Treasury Secretary, Adeyemo
and discuss our strategy for combating illicit finance.
Treasury leads the work to stop illicit actors from exploiting
the international financial systems to fund their crimes and
terror activity.
Deputy Secretary Adeyemo should provide an assessment of
the effectiveness of our recent sanctions enforcement efforts.
We'll hear about what statutory gaps stand in the way of our
ability to root out and stop illicit finance. Congress must
respond.
Last year, this Committee worked together in a bipartisan
way to design a new sanctions program, the FEND Off Fentanyl
Act, that can help reduce the flow of fentanyl into our
communities. FEND Off Fentanyl has 67 cosponsors. It passed out
of this Committee unanimously. I thank Senator Scott and the
other Members of this Committee. It passed in the Senate twice.
Americans can't wait any longer. This needs to get to the
President's desk and be signed into law. As FEND makes clear,
our Committee plays a critical role in protecting communities
and protecting our national security. This Committee works to
strengthen tools we have to go after anyone who threatens us.
It conducts oversight over how the Administration uses
these tools, including their use of waivers or exceptions. And
when bad actors turn to new routes to raise and move money like
crypto, this Committee must respond. Our adversaries are going
to innovate. We must make sure our illicit finance tools keep
up.
Last November, the Justice Department in an effort led by
the U.S. Attorney in the Northern District of Ohio, where I
live, and the DEA charged 11 people in a drug ring. They
allegedly trafficked fentanyl, synthetic opioids, and other
drugs across Ohio, Pennsylvania, Kentucky, Tennessee. And they
paid their suppliers in Bitcoin.
Just last week, the Wall Street Journal reported how
Russian smugglers use the stable coin Tether to evade sanctions
on Russia's war machine. Tethers a ``key step in the chain'' of
illicit transactions, one smuggler said. North Korea's hacked,
stolen, laundered hundreds of millions of dollars in crypto, a
strategy to avoid sanctions.
And these--all these bad actors, North Korea, Russia
terrorist groups like Hamas, are turning to crypto because
they've seen the ads and bought the hype. They're using it
because they know it's a workaround. They know it's easier to
move money in the shadows without safeguards, like know your
customer rules or suspicious transaction reporting.
These commonsense protections help identify illicit money
and keep it out of our financial system. We must make sure that
crypto platforms play by the same rules as other financial
institutions. We need to make sure we have the tools to crack
down illicit finance with digital assets, just as we would with
any other asset.
Many, including the deputy secretary, have pointed out
possible gaps in illicit finance authorities over digital
assets. It's time we work together to close these loopholes and
protect our national security.
We need to think not just about how terror groups and drug
traffickers use crypto, but also about how they could exploit
it tomorrow. If we leave loopholes in the books, this problem
will get worse, and we simply can't take that risk. Given the
range of threats we face. It's clear the Administration needs
to do more to use its illicit finance tools to stop terrorism,
to push back on Iran and Russia and China, to stop the funding
streams of the traffickers supplying illicit fentanyl to our
children in our communities. I look forward to hearing from the
Deputy Secretary this morning.
Senator Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you, Mr. Chairman, and Secretary,
thank you for being here with us this morning.
Today is an important opportunity to discuss American
leadership, especially on the global stage. I've often said
that we, the United States, must leverage our international
toolkit to stop bad actors, curb illicit activity, and protect
American families.
Thankfully, agencies like the Treasury Department, already
have robust toolkits available, as well as in instances where
additional directions needed. I have not shied away from
providing more resources and direction like those in my FEND
Off Fentanyl legislation and my Revoke Iranian funding act as
well.
So, I appreciate having you here with us this morning.
South Carolina is a proud home to many of our U.S.
servicemembers, their families, and our veterans. I'm proud of
this fact and my important duty to serve their interests. Which
is why it was particularly profound and deeply troubling when
three U.S. servicemembers were killed in January's Iranian
backed terror attack.
I'll keep saying this because it's true. Every dollar this
Administration gives to Iran is another dollar that will be
used against our sons and daughters and puts them in harm's way
in the military. Thankfully, the Treasury Department has the
ability to stop the dollars moving around our global economy
that bolsters the Iranian regime.
However, this White House has reduced those barriers
through so-called electricity waivers with expanded currency
access to Euro's licenses and further billion-dollar payouts.
Going even so far as to give a lifeline to Nicolas Maduro's
corrupt regime in Venezuela. A known ally of Iran, China,
Russia, and Cuba.
An axis of terror through broad oil and gas sanctions
relief, of which we have seen no benefit to U.S. national
security or to the Venezuelan people who suffer under Maduro.
This is beyond troubling, especially when our servicemembers
are killed in terror attacks by Iranian proxies. And our
families here at home are struggling to put food on the table.
When we look at--when we look here at home, there's not a
single neighborhood, whether that's Charleston, South Carolina,
or Cleveland, Ohio, that has escaped the death grip of
fentanyl. I'm very proud of this Committee's work to address
this crisis and for the support of all the Members of this
Committee working together to stop this deadly drug.
Because what Fentanyl--produced in traffic by Mexican
cartels and supported through Chinese precursors--has done to
our communities is a national security crisis. I remain
committed to seeing this legislation passed into law and to
stop the flow of illicit money and drugs across our border.
Every family in America deserves to be free from the
scourge of this deadly drug. I started with these two issues
because I believe they should be top of mind for this
Administration and for this Committee.
And yet just last week, secretary Yellen was in China to
discuss how cheap Chinese exports of green energy technology
are harming electric vehicles and solar energy here in the
United States.
This is a clear climate goal of this Administration, but
far from the top goal. We should be pushing back China on, a
perspective that's frankly hard to stomach when Hamas is
enabled by support from Iran to carry out horrific attacks
against our ally Israel. All while China continues to be the
top purchaser of Iranian oil and top financier to international
web of illicit financing used by the Mexican cartels to kill
people using fentanyl.
This needs to stop, saving lives cannot play second fiddle
to progressive climate goals. We need to see real efforts by
China to stop these activities that undermine U.S. national
security interest. America must be a strong leader. Fentanyl
and terrorism are leading threats and should be treated as
such.
American families deserve to know that their Government is
protecting them from these threats and punishing those who
trouble us. Thank you. Thank you for holding this hearing and I
look forward to the opportunity to question.
Chair Brown. Thank you, Senator Scott. I'll introduce
today's witness, the Honorable Adewale Adeyemo, is Deputy
Secretary of Treasury, held a range of senior economic and
national security positions. He briefed this Committee on the
immediate aftermath of the tragedy of the October 7th attacks.
Welcome back. Please proceed. Thank you.
STATEMENT OF ADEWALE O. ADEYEMO, DEPUTY SECRETARY, DEPARTMENT
OF THE TREASURY
Mr. Adeyemo. Mr. Chairman, Ranking Member Scott, and
Members of the Committee, thank you for inviting me here today.
I want to thank you and the Members of the Committee for your
willingness to work with us to address the threats to our
national security.
I'm here today because we need additional tools to protect
the American people. And I appreciate the fact that this
Committee has not shied away from providing us with tools in
the past. And I look forward to working with you to make sure
that we have the tools that are necessary going forward.
As we take steps to cut terrorist groups and other malign
actors off from the traditional financial system, we are
increasingly concerned about the ways these actors are using
cryptocurrencies to circumvent our sanctions.
For example, years ago, al-Qaeda and affiliated terrorist
groups, largely based out of Syria, operated a Bitcoin money
laundering network using social media platforms to solicit
cryptocurrency donations.
After receiving virtual currency, they laundered the
proceeds through various online gift card exchanges to be able
to purchase what they needed to advance their violent agenda.
Most recently, over the past year, we have seen the Islamic
Revolutionary Guard Corps--Quds Force--transfer cryptocurrency
to Hamas and the Palestinian Islamic Jihad in Gaza. In
addition, we have seen Hamas use virtual currencies to solicit
small dollar donations, and we've been able to take actions
against these networks.
Our problem is that actors are increasingly finding ways to
hide their identities and move resources using virtual
currency. What has always been true is the terrorists and other
malign actors seek new ways to move their resources in light of
the actions we are taking to cut them off from accessing the
traditional financial system.
For the most part, these methods have been slower and
harder to use than traditional financial system. That is no
longer true. Today, because of the authorities Congress has
provided us, we have a long track record of taking actions to
make it harder for these groups to use the traditional
financial system to move money.
We continue to use these authorities aggressively to cutoff
the illicit financial networks to enable illicit actors
worldwide, including Hamas and other Iran bank proxies, Russian
oligarchs, ISIS, just to name a few.
But the more effective our targeting is, the more reason
there is for these terrorist groups and others to look to
virtual assets. And to be clear, it's not just terrorist
groups, but State actors like the DPRK and Russia as well. The
DPRK, which through numerous complex State-sponsored cyber
heists, is able to acquire, launder, and store illicit revenue.
It relies on anonymity-enhancing technologies like mixers
to hide the sources of these funds. And it leverages over the
counter digital assets traders to acquire fiat currency. In
addition, we've seen Russia increasingly turn to alternative
payment mechanisms, including the stable coin Tether to try to
circumvent our sanctions and continue to finance its war
machine.
Mr. Chairman, Mr. Ranking Member, you both mentioned
fentanyl, which is killing too many Americans around this
country. What we know to be true is that these drug cartels are
increasingly looking for ways to move money that are outside
the traditional financial system.
Just a few weeks ago, I was in Phoenix, where together with
law enforcement, we sanctioned 21 actors who were trying to
move financial resources back to Mexico. As we take steps to
shut these actors out of our financial system, we should know
that they are going to increasingly look to use
cryptocurrencies and virtual assets to move things, given our
lack of ability to stop them, given the lack of tools.
While we're doing everything we can, we'll continue to use
the tools you have given us. The reason that I sent the term
sheet in November was because of what we saw. Which was that
today, while Treasury has tools that Congress has given us that
we're using to go after terrorist actors and other illicit
actors, we need new tools.
The term sheet calls for three things. First is the
introduction of a secondary sanction tool targeted at foreign
digital asset providers that facilitate illicit finance. The
second is a reform centered on modernizing and closing gaps in
existing authorities by expanding their reach to explicitly
cover the key players and core activities of the digital asset
ecosystem.
Finally, a third reform addresses jurisdictional risk from
offshore cryptocurrency platforms, which is a key challenge
that we face today.
There is clear overlap between the proposals that we have
made and the bipartisan bills coming out of this Committee. We
agree that the use of these emerging technologies by illicit
actors can have impacts on our national security, foreign
policy and the economy of the United States.
That's why the United States has a strong interest in
ensuring that we have the necessary tools and authorities
available and ready to mitigate the risks in this quickly
evolving ecosystem, including the dollar-based digital assets
in particular.
While we continue to assess that terrorists prefer the use
of financial products and services, we fear that without
congressional action to provide us with necessary tools, the
use of virtual assets by these actors will only grow.
That is why I look forward to our conversation today and
working with this Committee to develop the tools we need to
protect our national security, protect our economy, and protect
the United States of America.
Thank you, Mr. Chairman, for having me. I look forward to
your questions.
Chair Brown. Deputy Secretary, many of us have raised the
alarm about digital assets and illicit finance, particularly
after Hamas' horrific October 7th attack. You wrote to this
Committee last November. You've referred to that warning about
gaps in our illicit finance framework around digital assets.
Briefly tell us about those potential gaps. What are the
risks if Congress fails to act, to prevent terrorists and drug
trafficking, drug traffickers from exploiting crypto.
Mr. Adeyemo. Senator, I appreciate the ways in which the
Committee has met with us and worked with us here. The greatest
risk we have today is that as we take actions. Like the 55
sanctions we've placed on Hamas since October 7th, and we
monitor the activities in the formal financial system, they're
clearly going to try and move to get money through the informal
system, which includes cryptocurrency.
While traditionally, what groups like this have done is
move money by hand and by courier, which is slower and harder
to do, cryptocurrency gives them a route that is easier to do
and in lots of ways allows them to get faster access to these
currencies.
That's why we think it's essential that we get the tools
that we have called for in this proposal and that many Senators
in this Committee have sponsored legislation to give us.
Chair Brown. And obviously we want to work, continue to
work with you on that. November last year, president Biden met
with Chinese President Xi to talk about efforts to count
counter the fentanyl trade. Secretary Yellen just concluded a
trip to China, and Presidents Biden and Xi spoke last week.
We also know, as we've seen many times Chinese promises
don't mean much. What is the Administration doing to hold China
to any commitments and to take action if they fail to follow
through and crack down on fentanyl precursor suppliers?
Mr. Adeyemo. This is an issue that is top of mind for us
and top of mind for the Secretary in her conversations with our
Chinese counterparts. We've made very clear to the Chinese that
it's not in their interest for precursor drugs to be sold in
the United States. But if they don't act, we will.
And we are prepared to take actions against those precursor
companies. Fundamentally, our goal here is to make sure that
those precursors don't end up in places like Mexico and then
turn into the drugs that are sold on our streets.
Disrupting that network is top of mind during the
conversations we're having with the Chinese, but we're also
looking very closely at intelligence to see if they're taking
the actions that they've promised to take if they are not----
Chair Brown. So, how do you show it's not in China's
interest to do that?
Mr. Adeyemo. Fundamentally, the Chinese also are not--the
Chinese also want to control the illegal drug trade in China.
They fundamentally don't want to be in a position where they
are exposed to U.S. sanctions in light of the impact that
potentially has on their economy.
We've made very clear that as we look at the intelligence
and information, if we find that those precursor chemicals are
still coming to the United States, we're going to have to use
our sanctions authorities to go after those companies and to
disrupt that activity.
We're continuing to monitor that information. And I want to
be very clear that our goal here is to make sure that we stop
those precursors because stopping them is the best way to make
sure that those drugs aren't produced then end up on our
streets.
Chair Brown. And presumably the threat of FEND Off Fentanyl
Act, Senator Scott, and I, and our staffs wrote, will the
threat of that encourages China to do the right thing here?
Mr. Adeyemo. It's quite helpful to have congressional
action that you are thinking through that could be done here in
light of the fact that it not only impacts foreign countries,
but it impacts these criminal businesses because ultimately
what they are, are businesses.
The problem is they're engaged in an illegal business, and
the more that they see that Congress is interested in giving us
additional tools to go after them, it helps us better dissuade
people from entering into this business and allows us to stop
them where they stand and to make sure they don't have access
to their money, which is their ultimate goal.
Chair Brown. One last question. Our unprecedented sanctions
on Russia have resolved in the equivalent of hundreds of
millions of dollars in Russia's central bank reserves being
frozen. Despite that, Russia continues to find ways to access
things it needs to continue its brutal attack on the Ukrainian
people, whether that's revenue generated by oil sales to China,
India, drones, missiles from Iran, North Korea goods try and
ship through third parties.
All of this made worse from cited by interesting comments
that a congressman from Ohio, Mike Turner, a friend of mine,
said that over the weekend, how do you plan to strengthen our
sanctions and sanctions enforcement to counter that?
Mr. Adeyemo. One of the things that we have been the most
successful at is building international coalition to hold
Russia accountable. We have to do more with that coalition to
go after both Russia's revenues, but also their ability to
build weapons.
Fundamentally, the thing that Russia is doing with the
money they have is building the weapons they want. In order to
build those weapons. They need to purchase certain goods from
the outside world.
Going after those goods, going after their supply chain has
to be a key part of our strategy. We've put sanctions on that
supply chain, and our goal is to make sure that as Russia
adjusts to those sanctions, we do even more, to make sure we're
putting sand in the gears of Russia's military industrialized
complex. But the thing that we know, Senator, is that we have
the capacity to slow Russia down.
One of the things that we are grateful for is the Senate's
passage of the President's supplemental request, because that's
going to allow us to give Ukraine access to the weapons they
need to speed up in defending themselves.
But we're going to continue to do what we can to make sure
that we reduce Russia's revenues and reduce their ability to
build weapons using our sanctions. It's key that we do this in
a multilateral way because what Russia's become adept at doing
is trying to find ways to evade our sanctions by not using the
U.S. dollar, but using the international system.
And the more countries that are part of our coalition, the
better as we go after Russia, both in terms of revenues and
their supply chain.
Chair Brown. Thank you. I've run out of time. I was going
to ask you a question about terrorists and the use of dollar
stable coins. But well, we'll do that in a written question.
Senator Scott.
Senator Scott. Thank you, Mr. Chairman. Listening to you
today, deputy Secretary it feels like digital assets has become
the scapegoat of this Administration because, with all that's
going on in the world, the only legislative request you have
sent to this Committee are new authorities related to
cryptocurrency.
And, and I'll say that if China buys about 90 percent of
the Iranian oil and we make it easier to sell the Iranian oil.
Last August we saw a $6 billion transfer to the Iranians, for,
my opinion, hostage relief. $10 billion allowing electricity
waivers.
None of that's happening in digital assets. They're
literally using our cash. We're making it easier for them to
use Euros. The bottom line is this, that if $35 billion
represents the export of oil from Iran, none of which is
purchased using digital assets, having a conversation simply
and exclusively about digital assets misses the elephant in the
room.
That every single time we make it easier for the Iranian
regime to receive resources from the United States in cash,
pallets of cash or through electricity waivers, use euros or
license. We put more and more Americans and our allies in
harm's way, and that includes Israel.
And so, for us to have a conversation that sounds like a
digital asset conversation as opposed to a conversation about
illicit financing, that is far larger than digital assets to
me, makes it into a scapegoat.
I'd love to hear why the Treasury Department made it a
determination to change the recent electricity waivers to allow
for the use of euros. Was that a request from the Iranians?
Mr. Adeyemo. So, Senator, just for the record, that is an
authority that the State Department has. But I think the most
important thing to point out here is that on both the
electricity waiver, but also the $6 billion, both of those are
monies that are tied up in financial institutions.
None of that money will ever see its way to Iran. At most,
that money can be used to purchase things outside of Iran. The
challenge here is that while we can stop that money from
financial institutions moving to Iran, I don't have the
authorities to stop cryptocurrencies from moving into Iran.
That's why I've asked for those authorities. But fundamentally,
what I can say is that the $6 billion you mentioned----
Senator Scott. There that--let's have a conversation about
this for just a second. You are a highly educated, brilliant
man, to sit here and to suggest that you don't understand us
giving Iran $6 billion that they will be able to use at some
point. And then the Administration said they can't use it for
this purpose, but they can use it for that purpose. Money's
fungible. I mean, you don't have to be as educated as you are
to know that money's fungible.
So, the bottom line is simply this, anytime we allow the
Iranians to have more access to cash, euros, balance sheets, we
are making it easier for their proxies to use their resources
to target Americans, as has been done for the last several
months.
In addition to that, our allies. Anytime we relax the
regime that makes it harder for them to sell oil, making it
easier for them to do so with China happily purchasing those
resources. We don't have to be that smart to realize that all
of this makes it harder on our allies and deadly for our
servicemembers.
So, I just find it preposterous that we would pose it a
position that suggests that those resources have no impact on
what Iran is doing. And frankly, if that were the case, we
would not have released them at all.
Mr. Adeyemo. Senator, can I make a point?
Senator Scott. Please. Yes, sir.
Mr. Adeyemo. So, Senator, you're right that in a democracy,
money is fungible. But what we've seen time and time from the
Iranian regime is they fail to feed their people and they put
the IRGC first. Any dollar they have will go toward their
violent activity before they deal with their people.
That's partially why almost none of the humanitarian money
has been used for humanitarian purposes: they don't care about
getting drugs and food for their people. But the difference is
that the United States of America has made as a values
proposition that we are always going to provide humanitarian
relief for people.
And that's what we've said is the only purpose for this
money. So, while in our country money is fungible, in Iran,
they've proven that any dollar they get that, they have direct
access to in the country will be used for the IRGC before it's
ever used for their people.
Senator Scott. Secretary, because I'm not the chairman of
this Committee, and he is, he's going to cut me off as soon as
I say something he doesn't like. So let me just suggest this.
You and I actually agree on that point. That the Iranian regime
does not care about the Iranian people.
Therefore, any relaxation that allows their economy to
thrive or survive is for one purpose. For them to carry out
their primary objective, which is spreading terrorism
throughout the Middle East and eliminating the little Satan and
then the big Satan. That would be Israel and America.
Chair Brown. Senator Menendez of New Jersey recognized.
Senator Menendez. Thank you. I'd like to follow up where
Senator Scott just left off. Reports show that in spite of U.S.
sanctions, many of which I've written. Iran's exports of crude
oil grew by roughly 50 percent in 2023 to a 5-year high of
almost 1.3 million barrels a day with the vast majority of that
oil going to China.
And according to the Congressional Research Service, many
of these experts are going to small- and mid-sized refiners
with little exposure to the U.S. financial system.
So if Iran can consistently find willing buyers for its oil
in China, what does that do to the effectiveness of our
sanctions? What are you doing to put pressure on Chinese
entities that import Iranian oil despite U.S. sanctions?
Mr. Adeyemo. Senator, thank you for the question. I think
what we've been focused on is taking actions to disrupt the
ability of Iran to sell its oil anywhere by going after
middlemen. So, over the course of the last several years, we've
put more than 300 sanctions on Iran related to its
petrochemical industry.
But in addition to doing that, one of the things we're also
focused on is making sure that even if Iran is able to sell its
oil to actors, it's hard to impossible for Iran to get that
money and return it back to its country using the traditional
financial system. So monitoring the flows of that money is
another place where we've been very focused as, so----
Senator Menendez. So, I'm going to join in Senator Scott
and admire how intellectually gifted you are. But it doesn't
take a rocket scientist to understand that you can convert
those dollars into cryptocurrency and other forms in order to
ultimately have access to them.
So, if we say that all of our sanctions are a success when
their oil exports grew by roughly 50 percent, 50 percent, I
just don't see how we can make that case. And I think part of
the problem here is that we are reticent to actually sanction
China and Chinese actors as we try this new detente with them.
Mr. Adeyemo. So, Senator, I think you made one of the
points that I came to make, which is that we need more
authorities to go after cryptocurrency. I think that we are
willing to, and we have sanctioned middlemen that are in Hong
Kong and other places. We'll continue to do that.
But the challenge set that we have now is that while you've
given us authorities to go after the traditional financial
sector, we could use additional authorities to allow us to go
after cryptocurrencies----
Senator Menendez. Well, I look forward to working with
others to try to make that happen, but when it happens, then I
hope we actually see it used. Because I'm concerned that many
of the existing authorities we have are not being fully used.
Let me turn to something else.
I'm concerned about the exploitation of our litigation
finance industry by foreign actors. According to Bloomberg Law,
Russian billionaires with ties to Putin have spent millions
funding bankruptcy lawsuits in New York, even after these
individuals were sanctioned following the invasion of Ukraine.
Do you believe that lack of transparency in the litigation
and finance industry can create a gap in our sanctions
enforcement?
Mr. Adeyemo. Completely agree with you that this is an
issue that we have to both work on and try and address. One of
the challenges we have, of course, is that these Russian
oligarchs have become quite expert in trying to avoid our
sanctions. And what from what I've seen, this is one of the
several ways in which they're trying to do that.
Senator Menendez. Well, this is not only the concern with
the current state of affairs. GAO found in a 2022 analysis that
sovereign wealth funds may be investing in the United States
third party legal financing market to further foreign policy
and military goals.
And foreign companies via wealth funds can use this type of
investing to fund lawsuits against their U.S. competitors,
which is something we're increasingly seeing in patent
litigation. What can we do to shore up regulation of litigation
financing to ensure it isn't a pathway for bad actors to
exploit the legal system?
Mr. Adeyemo. I think one of the most important things we
can do, Senator, which I know you've called for, is additional
transparency, better understanding who's funding what will help
us better be able to both use our tools, but also to make sure
the American people are aware of who's funding these lawsuits.
Senator Menendez. Well, do you think you need legislation
for that or do you think you have executive authorities to do
that?
Mr. Adeyemo. I'd like to work with you and go back to my
team and talk to them about what we have. But if we need
legislation, we will quickly come to you to ask for that.
Senator Menendez. Fair enough. I think we can all agree
that more work needs to be done, update and clarify our digital
asset regulatory regime. However, that does not and should not
exempt service providers from complying with existing laws.
According to the most recent national money laundering risk
assessment ``some virtual asset service providers currently do
not adequately implement AML/CFT controls or other processes to
identify customers. And in some cases, such VASPS may claim not
to be subject to U.S. jurisdiction despite doing business
wholly or substantially part of the United States.''
While Congress works on an updated digital asset framework,
what is Treasury doing to step up enforcement of existing law?
Are there any additional resources you require?
Mr. Adeyemo. We appreciate what you and Members of this
Committee are doing to help update both the BSA but also IEEPA
in order to give--make sure that we're clear to members of the
digital asset ecosystem that they are subject to both of those
regimes.
While Congress does that, we're also using the tools you've
already given us. For example, the 311, which we used recently
to go after a class of digital assets called mixers. Which are
used frankly to try and help people disguise their identity
using cryptocurrencies.
We've also taken a number of actions to go after the ways
in which Hamas has used cryptocurrencies as part of the 57
actions we've taken against Hamas. So, we're committed to
continue to take on this problem set, including with the action
we've taken against Binance. But we appreciate the fact that
Congress is working to give us additional authorities and tools
to allow us to do this.
Senator Menendez. I look forward to working with you on
several of these issues. Thank you.
Mr. Adeyemo. Thank you.
Chair Brown. Senator Kennedy from Louisiana is recognized.
Senator Kennedy. Thank you, Mr. Chairman. Mr. Secretary the
Biden administration has operated as Iran's best friend, hasn't
it?
Mr. Adeyemo. No, I disagree completely, Senator.
Senator Kennedy. Well, Iran sold Iraq, 10 billion--not
million--$10 billion worth of electricity. But Iraq couldn't
pay them because of our sanctions against Iran. Biden
administration waived those sanctions, didn't it?
Mr. Adeyemo. Senator, that----
Senator Kennedy. So that Iran could get $10 billion. Isn't
that a fact?
Mr. Adeyemo. No, Senator, those waivers started under the
Trump administration. That money is still in Iraq. That money
has never been to Tehran. It will never go to Tehran.
Senator Kennedy. The first waiver was on July, 2023, wasn't
it?
Mr. Adeyemo. Senator, I believe those waivers started in
2018.
Senator Kennedy. The first waiver that the Biden
administration did was July of 2023, wasn't it?
Mr. Adeyemo. So, Senator, again, I believe the waiver
program started in----
Senator Kennedy. You didn't issue a waiver on July of 2023?
Mr. Adeyemo. Senator, the waivers were continued into 2023.
Senator Kennedy. And you issued another waiver to get the
money to Iran in November of 2023, didn't you?
Mr. Adeyemo. Senator, as I said, that money has never been,
will never go to Iran. The money is still in Iraq. The money
may be used for humanitarian purposes, but not a dollar of that
money has been used----
Senator Kennedy. And you issued another waiver on March of
2024, not too long ago. That was 6 weeks after Iran killed
three American soldiers. You gave Iraq permission to give Iran
$10 billion, didn't you?
Mr. Adeyemo. No. Senator. As I mentioned, this was
something that started in 2018 under the Trump administration.
It allowed Iraq to purchase electricity and to store that money
in Iraq. None of that money to date will ever go to Iran. The
money is being held for humanitarian purpose.
Senator Kennedy. You're not telling the truth, Mr.
Secretary. No disrespect, but that's just not true. Senator
Menendez and Senator Scott made the point. We all know--unless
you peaked in high school, you know that money is fungible. You
also--the Biden administration--also paid Iran $6 billion to
release five of our prisoners, didn't it?
Mr. Adeyemo. Senator, again, that money is in Qatar. None
of that money has been used. It hasn't been moved. And as I
said earlier, while money is fungible in the United States
because we care about our people, it's not fungible for Iran.
Senator Kennedy. So, the money's in Qatar, in a bank in
Qatar?
Mr. Adeyemo. Yes.
Senator Kennedy. Now what do you think--who controls that
bank in Qatar?
Mr. Adeyemo. Those banks are controlled by those
individuals who run that financial institution.
Senator Kennedy. So, if President Biden says Qatar Bank,
don't give this money to Iran, and the Qatar Government says,
give the money to Iran. Who you think the Qatar bank's going to
listen to Mr. Secretary?
Mr. Adeyemo. So, Senator, those banks in Qatar value
greatly their ability to have a relationship with the United
States, because that's how they make money.
Senator Kennedy. Right. You believe in the tooth fairy?
Mr. Adeyemo. Ultimately, if we cutoff those banks, they
will no longer be able to make money.
Senator Kennedy. You believe in the Easter Bunny?
Mr. Adeyemo. So, Senator, while I understand your point,
fundamentally, none of that money has gone to Iran and that
money is not going to go directly to Iran.
Senator Kennedy. Now you did the same thing with Maduro.
You meaning the Biden administration. You guys did the same
thing with Maduro in Venezuela. You removed all the sanctions
on oil and mining, including gold with Maduro, the dictator of
Venezuela, didn't you?
Mr. Adeyemo. So, GL44 and 43 were put in place in
Venezuela. 43 has a----
Senator Kennedy. Is that a Yes?
Mr. Adeyemo. GL 43 has been removed.
Senator Kennedy. So, you said, OK, Maduro, we're going to
remove you, remove Maduro, best friends with Iran and Cuba and
China and Russia. The Biden administration removed the
sanctions on oil and mining in Venezuela----
Mr. Adeyemo. Senator----
Senator Kennedy. ----and, Maduro said, I promise you that
I'll hold a free and fair election. And then he put all his
opponents in jail and the Biden administration has done
nothing, hasn't it? Except stand there sucking on its teeth.
Mr. Adeyemo. Senator, I want to say again, we provided
general licenses. We did not remove the sanctions. The reason
we did that was because we did not trust. So, what we can do
with this----
Senator Kennedy. The sanctions on Maduro's oil are not
there, are they?
Mr. Adeyemo. General license 44, which gives permission for
the sale of oil expires on April 17th, which will then put
those sanctions back in place. We did not remove the sanctions.
We provided general license----
Senator Kennedy. The problem you folks have is that you
want to quote Socrates in the middle of a bar fight. Iran is
not our friend. Venezuela is not our friend. President Biden
keeps giving them money to buy weapons to try to kill us.
Mr. Adeyemo. Senator, we've put 500----
Senator Kennedy. Do you not understand that?
Mr. Adeyemo. ----sanctions on the Iranian regime. We have
not allowed a dollar from Qatar or from the Iraqi electricity
fund to flow to Iran.
Senator Kennedy. That's just not true. Senator Menendez
explained that to you.
Mr. Adeyemo. The money----
Senator Kennedy. How can you be that obtuse?
Mr. Adeyemo. Senator, as I've said, our goal is to make
sure that we take every action to prevent Iran's destabilizing
activity in the region. We're going to continue to go after
Iran's sale of oil and try and limit their ability as best we
can using the tools that you've given us. I'm here, before the
Senate asking for additional tools that will allow us to
continue to do that.
Chair Brown. OK. Senator Kennedy you've made your point.
Senator Warner from Virginia is recognized.
Senator Warner. Thank you Mr. Chairman. Deputy Secretary
I've enjoyed working with you for a long time. I'm a little
unclear. I just want to make sure, and you know, for the
record, what are the circumstance in Qatar or Iraq? Iraq, I
know for example, being able to purchase additional
electricity. Any of those dollars go to Iran?
Mr. Adeyemo. No, none of those dollars have gone to Iran.
None of those dollars will go to Iran.
Senator Warner. No ands, ifs, buts, no secret passageways,
no other kind of things that may have been alluded to. Are any
of those U.S. dollars going to Iran?
Mr. Adeyemo. No, those are not U.S. dollars. Those
dollars----
Senator Warner. Those are dollars that were----
Mr. Adeyemo. ----that money will not be----
Senator Warner. ----they were dollar denominated that were
owned by these other Nation States.
Mr. Adeyemo. Yeah.
Senator Warner. But even those assets owned by these other
Nation States that happen to be denominated in dollars through
any of your--the Trump administration's actions--are any of
those dollars ending up?
Mr. Adeyemo. No. And they will never flow to Iran. They
will never go to directly to Iran.
Senator Warner. OK. No magic doors. Thank you. One of the--
I do want to talk about what you've are up here on, because I
do think we need some additional tools. And one of the things I
say to my colleagues, you know, we--back in 2016--we put in
place legislation to go in term to secondary sanctions on--I'm
sorry, Hezbollah.
Since that time we've seen new ways to move assets around,
crypto being one, banking systems finding ways around
sanctions. That's why I put together legislation with Senate
Reed and Senate Round, Senator Romney called The Special
Measures to Flight Modern Threats Act.
Subsequently, I introduced the CANSEE Act to help to deal
with the efforts to evade sanctions using DeFi. The truth of
the matter is, you--for all of the angst and anger and concern,
there's something we could do in a bipartisan way that would be
really simple. And I still can't completely understand and I've
talked on to my Republican colleagues who I think are in
agreement with me, that say the same kind of legislation we put
in place to go after Hezbollah. Shouldn't we put that kind of
legislation with those additional tools in place to go after
Hamas?
Mr. Adeyemo. Completely agree with you, Senator, and I
think we've been happy to work with you and the bipartisan
Members who are interested in working on this legislation.
Senator Warner. And our bill expands coverage to foreign
financial entities that facilitate transactions for any
terrorist group. Again, that whole notion of secondary
sanctions, so that we can clear up and make sure that no matter
what talking points you're talking to. You can answer a
question straightly that, we are going to go after Hamas and
any of their secondary funders, no matter what form of currency
or fiat they use. And I know you've been trying to do this with
Executive order, but I think as you've repeatedly said, you
need additional tools.
Mr. Adeyemo. We do. And we appreciate the work that you're
doing on this tool because we think it'd be useful for us and
something where we'd be prepared----
Senator Warner. If we were to have those additional tools.
Describe specifically what would be--what you could do in terms
of limiting Hamas' access to fund regardless of their source
around the world?
Mr. Adeyemo. Fundamentally, one of the problems today is
that while we take actions to make it harder and harder for
Hamas to move money through the traditional financial system.
What they're attempting to do is to use everything from
individuals to carry cash to cryptocurrency, to move money into
Gaza.
It's hard to move money by people given what's happened--
what's going on with the border. But cryptocurrency is far
easier. Having a secondary sanctions tool will mean that when
we take an action, it will pause other actors from touching the
nodes in the cryptocurrency ecosystem that are potentially
helping Hamas to move their financial resources and will make
it harder for them to move them and potentially even stop their
movement in the place where they exist at the moment.
Senator Warner. Well, one of the things that I was proud to
work with the Chairman on and the former Ranking Member,
Senator Crapo, where we tried to significantly advance AML/KYC,
kind of the how we figure out who people are doing business
with and where the bad guys are.
I personally believe that if we--looking at the Office of
Terrorism Financial and Independence, or OFAC or FinCEN, these
entities--even looking back years ago--are under enormous
strain as we try to track down bad guys sources of funds,
particularly in an increasingly complex financial world.
Do these entities, we all agree we do want to go after the
bad guys, but do these entities need additional resources if
we're going to give you these additional tools?
Mr. Adeyemo. They do, Senator. Ultimately what we know is
that these actors are well-funded and looking to move their
money as quickly as possible. Making sure that the talented men
and women who work on these issues have the resources they need
to go after this problem set is critically important.
Especially given that from Russia to Hamas, the thing that
they are looking for as access to money. We need the money to
hire talented men and women and to pay for the technology
that's necessary to track their funds and shut them down.
Senator Warner. Again, I thank you and Mr. Chairman, I
again appreciate the witness' willingness to restate again for
the record that these dollars or these resources that were
owned by other Nation States that happened to be delineated in
dollars, that whatever sanctions relief that was granted did
not end up with those resources flowing into Tehran, regardless
of how much some of my colleagues may say otherwise. Thank you
Chair Brown. Senator Tillis of North Carolina.
Senator Tillis. Thank you, Mr. Chairman. Thank you for
being here. Actually, I want to start just by saying I think
some of the frustration you're going to hear, we could go back
and forth on whether or not licensing is in fact allowing flow
of resources. There's an underlying frustration with the
actually, I think with the Obama administration, and the Biden
administration on money that has indisputably gone to Iran and
in connection with the JCPOA.
We're very frustrated by that because we see them as a
malign actor that's making the world less safe and certainly
destabilizing Middle East. So, I admire your poise, although I
may disagree with a few of your answers. I'm not going to go
down that path.
I want to talk more broadly, in the classified briefing I
mentioned that we wanted to get a punch list of things that we
could work on around illicit finance, and particularly using
digital assets to move money around. You provided a document to
us, and at least a couple of provisions have been instructed in
a discussion draft that we put out this week called the Enforce
Act, that I'd like to get with the department and see if we can
address any concerns that you have.
For my colleagues, what we're trying to do is provide
something that I believe that can be implemented that is also
instructed by the reality of a distributed ledger. I believe
some of the know your customer, the BSA-AML reporting
provisions that even the department are considering do not work
in a distributed ledger environment.
And so, what we're trying to do is propose something that
we believe is a good tool and that will not regulate us out of
being a viable player in the digital asset or crypto space.
The thing that we have to recognize here, I hear it all the
time with some of my friends on the other side of the aisle,
they want more regulations for traditional bankers. At some
point, we make the United States less attractive for certain
enterprises to be based. And, crypto is probably--and digital
assets generally are likely one of the most mobile enterprises
that can simply go somewhere else, if our reporting
requirements become too burdensome.
So, we need a light, lean regimen, I think, to make this
work. Now to the crypto folks some of them in the Enforce act,
and I would like to get your read on it. I think that it's a
good first step. And hopefully we will be able to get Senator
Hagerty, co-introduce the discussion draft with me this week.
We can at least have that as a first step. The one thing I
would tell people in the crypto or digital asset space, that's
saying, nothing to see here, everything's fine. They're wrong.
There needs to be some light regulatory regimen put into place,
otherwise, there are risks. Think FTX, think a lot of other
issues out there that we want to adjust for.
We want to create the most hospitable environment for
digital assets to thrive. We don't want to overreach and lose
the opportunity to be that jurisdiction. And so, do you, again,
do you acknowledge the inherent problems with trying to imply
the old sort of banking construct BSA-AML and know your
customer to a distributed ledger of digital assets?
Mr. Adeyemo. So, Senator, I do think that to your point, we
have to take a differentiated approach depending on the type of
tool, and that's why we would use this even under our proposal
in a risk-based manner. And to your point of trying to make the
America--the United States a jurisdiction that is able to win
even in this space, I think one of the proposals we have--in
our proposal--is giving us the ability to----
Senator Tillis. How do you calculate the risk base--so
that's a way of saying, I'm going to put my foot on the
accelerator or not, based on someone in Treasury's assessment
of the risk a given entity represents. Is that what you're
suggesting?
How does that give me any certainty you know, if I'm in
this space? Because it seems like to me that could differ from
an Administration that listens to Thom Tillis on financial
regulations, first Administration that listens to Elizabeth
Warren on financial regulations.
She's a friend and colleague of mine. We have differences
in terms of the role Government should play or just how far
down they should go. So, it sounds like to me, that could ebb
and flow and not necessarily provide certainty that provides
the sort of fertile ground for us being able to define the gold
standard of digital assets and crypto regulations?
Mr. Adeyemo. So, Senator, the one thing that I think we've
all seen is that as the crypto ecosystem evolves and it evolves
quickly, we're going to need to think about the regulatory
approach as that evolution takes place.
The goal here is to use the regulatory process to do this.
And part of the--one of the things that the regulatory process
provides to these companies is a bit of certainty because
there's a notice and comment piece of this where those
companies have the ability to provide feedback, and that once
those rules are in place, what we found----
Senator Tillis. What kind of timeframe? My time is up. I
don't want to go too far over. I did have a closing comment for
you--Mr. Chair, if I may--But what kind of timeframe are we
talking about, through notice and comment before you'd
promulgate a rule?
Mr. Adeyemo. So, Senator, it all depends on how complicated
it is----
Senator Tillis. Roughly.
Mr. Adeyemo. ----but it could be as quickly as a year
before you have a full, you go through a----
Senator Tillis. So, I guess the question that I have that--
we've got an election coming up--there may be a change of
Administration. If there is a change of Administration, there
will be a vastly different view about how you go and regulate
in this space.
And so, I for one, would like to look at the possibility of
working with your office to address some of the things in your
punch list that we agree with, so that we may be able to get
regulations on the books in this Congress. That will certainly
not go as far as some of my colleagues on the other side of the
aisle want to go, but far short of the wild, wild west that we
find ourselves in now.
Mr. Adeyemo. I look forward to working with you on that
Senator.
Senator Tillis. And Mr. Chair, the only other thing I was
going to suggest, I know that we're talking about maybe this
being illicit finance and terrorism. But Senator Warren and I
have talked about the broader issue. Cartels, now--it's passe
to launder the old way--cartels use digital and crypto
platforms to launder at scale.
And by scale, I mean in the billions. I think it'd be very
helpful--I got a briefing about a year and a half ago from DEA,
I mentioned this to Senator Warren before--I think it'd be very
helpful to have a joint classified briefing to have Treasury
and DEA in the room and see how we can, if we get right here
and we implement a good regulatory regimen. We're going to put
cartels, transnational criminal organizations and terrorist
organizations in a much more difficult position to move cash
around. Because now they're doing it really without any
obstacles whatsoever.
Chair Brown. Thank you. Senator Warren of Massachusetts is
recognized.
Senator Warren. Thank you very much, Mr. Chairman. It's
good to see you, Deputy Adeyemo and thank you Senator Tillis. I
just want to follow up in the same area, and if I can, I want
to lay a little background here. In November, after reports
that Hamas had received millions of dollars in crypto funding
in the months before its terrorist attack on Israel, Treasury
wrote a letter requesting Congress' help in closing the gaps in
our anti-money laundering rule.
Deputy Adeyemo, can you explain why you sent us this
letter? What were you seeing that caused you to send us this
letter asking for us to change the law?
Mr. Adeyemo. Senator, as I spoke to my team about
increasingly targeting Hamas' financial network, what I was
seeing was the fact that as we went after their traditional
financial resources in banks, that they were going to turn to
other means of financing that could frankly even be faster and
harder for us to track in cryptocurrency.
And yesterday I had an opportunity to sit down with the
families of Americans who are being held hostage by Hamas
today. And they asked me, what, if anything, can we do to
cutoff their finances? And I explained to them the actions
we're taking in the traditional financial sector.
But I told them frankly, that one of the places where we
need additional tools is to be able to make sure that we don't
allow Hamas to buildup assets in the digital ecosystem using
virtual currencies that are hard for us to track. Because that
is money that they will use to continue to come after, not only
Israel, but also to destabilize the region.
Senator Warren. So how is it right now that Hamas has
access to money or some form thereof of financing for
themselves?
Mr. Adeyemo. They are increasingly in my view, turning to
alternative means of financing, given what we've done in terms
of their ability to do the traditional financial system.
Senator Warren. So, what does that mean, alternative means
of financing?
Mr. Adeyemo. One of those is cryptocurrency. And
cryptocurrency is a means that while we're using every tool we
have, we need additional tools to go after.
Senator Warren. OK. And it's not just Hamas and terrorists
that are using crypto financing. North Korea, ransomware gangs,
drug traffickers, distributors of child sexual abuse
materials--name your bad guy--and crypto is the way that they
can move money around.
Now, your letter that you sent to Congress follows a basic
principle. Activities with similar functions and similar risks
should follow similar rules. So, I want to look at an example
of that. I want to look at one of the middlemen examples,
validators.
So, validators are the middlemen between the payer and the
receiver, and they help process crypto transactions. In the
traditional banking world, if a bank transacts with somebody
who's laundering money, then they are breaking the law. But
validators in the crypto world don't have that same set of
rules.
Are there crypto validators right now that are processing
transactions for North Korea and pocketing a fee for each of
those transactions? Same for Hamas, same for drug lords and
child traffickers.
Mr. Adeyemo. There's reporting that I am familiar with
that's public about the fact that those threat actors that
you've mentioned are conducting that type of activity.
Senator Warren. OK. So bad guys can use crypto right now
because we don't have the right rules to keep them out. But I
think it's worse than that. We know, for example, that Iran,
one of Hamas' biggest funders, makes millions of dollars
validating transactions for others that have no connection to
Hamas or Iran.
So, if I wanted to send a thousand dollars worth of crypto
to you, Mr. Secretary. Is it possible that when I just send it,
just to send this, that Iran could be our validator and would
be collecting a fee processing our crypto. All of that without
either one of us knowing it?
Mr. Adeyemo. Senator, a transaction like that is certainly
possible.
Senator Warren. OK. So, Iran, which is subject to all kinds
of sanctions, is moving money through crypto and actually
making millions of dollars validating crypto transactions for
Americans and for everyone else. All because we don't have the
right any money laundering rules in place.
One more quick question. If the crypto market grows and the
number of crypto transactions increases, does that mean more
money would likely end up in Iran's pockets?
Mr. Adeyemo. Everything that we've seen says that when
markets grow, threat actors use them more. And we should expect
that that is what would happen here as well.
Senator Warren. OK. And more activity, more money. You
know, currently the house is working on a bill to create a
regulatory framework for stable coins. Stable coins make it
easier to convert dollars into crypto and crypto into dollars.
So, they are an on-ramp into the crypto world. If we're
going to create new on-ramps increasing traffic, which is
exactly what the house bill does, then we need a regulatory
framework that will put the rules for any money laundering in
place.
So that we do not have more opportunities for Iran and
terrorists and drug lords and human traffickers to make more
money. We've got to get those AML rules in place. Thank you,
Mr. Secretary.
Chair Brown. Senator Vance from Ohio is recognized.
Senator Vance. Thank you Mr. Chair. Thanks to Deputy
Secretary for being here. I would ask just a couple of
questions about our sanctions regime and potentially, you know,
efforts within this body to really ramp up that sanctions
regime.
So, you and I, I believe discussed last year, excuse me you
know, how the sanctions on Russia after Putin's invasion of
Ukraine. What effect they were having on the Russian economy,
what effects actually matched our expectations and what effects
didn't match our expectations.
You know, we're a little further down the road here it's
April of 2024. Do we have a good sense of how the Russian
economy did in 2023, and how effective the sanctions were or
were not at inhibiting Russian growth?
Mr. Adeyemo. We have a better sense now than we did earlier
this year. And to answer your question, Senator, I think what
we have found is that the Russian economy has largely
transitioned to a war economy.
Where all the tools of production have went from building
out a diversified economy that was styled for long term growth
to one that is driven by a short term need to build as many
weapons as possible to further their war aims in Ukraine.
Senator Vance. And what did their GDP grow last year do you
know?
Mr. Adeyemo. Their GDP I believe grew somewhere in the
neighborhood of one to 2 percent.
Senator Vance. OK. Which is, you know, frankly at or above
some of our European allies. And I really do worry here and I
agree with you that they've transitioned their economy to a war
footing. That has its own internal momentum.
And one of the things I worry--I know this isn't your area
of focus. One of the things I worry some of my colleagues under
appreciate, is that that war footing has a certain momentum to
it.
And we should be trying to arrest that war footing as much
as possible. Not leaning into it and prolonging this thing.
Because I worry that once Russia becomes an economy that only
works in a time of war, that actually makes it more likely
and--that they're going to show aggression now and in the
future.
I want to sort of transition, and Mr. Secretary how aware
are you of sort of the REPO Act, R-E-P-O, that's sort of moving
through this chamber? Are you sort of aware broadly with its
outline?
Mr. Adeyemo. Yes, I am.
Senator Vance. OK. So, one of the things that that does,
and correct me if I'm wrong here because I'm trying to sort of
think through my own view on it. But one of the really worrying
provisions is that as I understand it, it would actually freeze
the current sanctions regime that we have on Russia in place
legally as an Act of Congress.
And so, if a future President or a second Biden term wanted
to change that sanctions regime, they would need an Act of
Congress to do so. Is that correct?
Mr. Adeyemo. I'm not certain of that provision. My
understanding is that it gives the President certain
authorities, I don't know that it freezes the current regime.
Senator Vance. OK. That's my understanding at least. But I
think worth having a follow-up conversation, and certainly my
staff will follow up as well on that particular topic. Here's
the thing that I worry about. I imagine that we have different
preferences for who wins the next Presidential election, Mr.
Secretary.
But whether it's President Biden or President Trump, I
think it's really important for the next Administration to have
diplomatic flexibilities to negotiate what will certainly, I
think, be an end to the Russia-Ukraine War. Whatever end that
ultimately takes. I hope to God that it doesn't last another 5
years.
And what I worry about with the REPO Act is that we
actually--if we are freezing the sanctions regime, we prevent
the President from having an important tool at his disposal and
actually negotiating a peaceful settlement to that conflict.
Let me ask just one final question on the REPO Act. As I
understand it, it would give--it would effectively force asset
seizure of all Russian assets. And I'm wondering, you know,
have we done that in a time of peace with a country that we're
not directly at war with? Have we ever done something like what
the REPO Act envisions?
Mr. Adeyemo. So, Senator, the one thing I am clear of is
that my understanding at least is the Senate version of the
REPO Act gives the President the ability to, doesn't require
him to do so.
And I think part of the reason for that is because we know
that the vast majority of those assets are in Europe, and we'd
only want to act alongside our European allies if we did
something like that.
In terms of seizing the assets against a country that we're
not engaged in hostility against, I don't know that we have
done something like that at this juncture.
Senator Vance. I appreciate that, Mr. Secretary. and with
that, I yield the remainder of my time. Thanks for being here,
and thanks for answering my questions. Thanks.
Mr. Adeyemo. Thank you.
Chair Brown. Senator Warnock of Georgia is recognized.
Senator Warnock. Thank you, Chair Brown. The United States
has become increasingly reliant on sanctions as a foreign
policy tool over the past 20 years. I remain concerned that
untargeted sanctions may only harm the poorest of the poor
throughout the world.
Oftentimes, economic sanctions as well-intentioned as they
may be, are not felt by the governing class, the people who are
actually making the decisions. Instead, they're felt by the
poor and the meek. Those with little say over the activities of
those in power, there literally caught in the crossfire.
There's an old African statement that when the elephants fight
the grass suffers.
Deputy Secretary Adeyemo, shortly after you took office in
2021, you led a broad review of the sanctions administered and
enforced by the Treasury Department. What were the reviews
findings regarding how we can best ensure that our sanctions
have the intended effect and deter bad behavior?
Mr. Adeyemo. So, Senator, I appreciate you asking this
question because I think it is an issue that we don't speak
enough about, which is that we need to make sure that our
sanctions are targeted toward the threat actors, and that we do
as much as possible to reduce the harm against innocent
individuals.
That's why one of the findings of the sanctions review was
the need to have very clear humanitarian carve outs for the
vast majority of our sanctions programs. But in addition to
that, we needed to make sure that these sanctions are tied to a
clear foreign policy objective.
And that two, they're narrowly targeted in order to make
sure that we have an impact on the threat actor, but not on the
overall population. I think the findings of that sanctions
review has influenced what we've done with regard to Russia and
continues to influence the way we think about using sanctions
going forward.
Senator Warnock. Thank you so much. It's, so important that
the sanctions do what they're actually intended to do, and that
we don't create needless harm on suffering in innocent people
who are already marginalized.
Speaking of humanitarian aid, and you talked about this
humanitarian carve outs as part of your response given the
findings of the study. As you know, Gaza is experiencing right
now a humanitarian crisis of unspeakable--at unspeakable
levels. The trickle of aid entering Gaza is not nearly enough,
not even close, to meet the needs of the Palestinian people.
And the majority of Palestinians in Gaza are at severe risk of
famine.
We must ensure that U.S. policy is not standing in the way
of providing urgent humanitarian assistance to Palestinian
civilians, particularly the children. And at the same time,
there's a real risk of terrorist groups like Hamas diverting
aid for its own benefit.
That's why I was glad to see Treasury issue guidance on
providing humanitarian assistance to the Palestinian people
without inadvertently financing Hamas very shortly after
October 7th.
Deputy Secretary Adeyemo can you update us on the
implementation of this guidance regarding issuance of general
licenses and regarding oversight?
Mr. Adeyemo. So, Senator, one of the things--the early
things we did after Hamas' brutal attack on Israel was take
actions to go after Hamas' finances. But we also sat down with
financial institutions and humanitarian groups to make sure
that they had the ability to continue to provide legitimate aid
and financial assistance in Gaza.
One of the things that we learned at that point was the
challenge wasn't U.S. sanctions given our humanitarian carve
out, but was the sanctions put in place by some of our allies.
Soon after I traveled to Europe and with our European
allies, worked with them to put in place a similar humanitarian
carve out in their program in order to put us all in the same
position where we could both target actions to go after Hamas,
but to ensure that legitimate humanitarian assistance can flow
through.
My goal and my team's goal is to continue to meet with
financial institutions, but also with aid groups to ensure that
our sanctions are in no way prohibiting the legitimate flow of
financial resources and other resources into Gaza.
Because to your point, I agree that not enough is being
done, not enough is getting through. And we have to do
everything in our power to make sure that we change that
dynamic.
Senator Warnock. So, what needs to happen for the delivery
of aid to be more effective?
Mr. Adeyemo. So, Senator, this is not primarily in my
domain. The issues that are in my domain though are making sure
that financial resources are able to flow. And the goal there
has to be the continued engagement, not only of the United
States Government, but of the U.K. Government and the EU
Government.
The countries that are primarily putting sanctions in place
with our financial institutions and with our humanitarian
groups to ensure that they are not in any way being blocked in
the delivery of legitimate humanitarian assistance.
What I've heard from those groups to date is that the
challenge they face is a fiscal one in terms of being able to
get aid in not a financial one. And, but what I've also told
them is the moment they feel as if in some way they have a
financial block, I want them to call me immediately.
Because our goal is to make sure that our sanctions are
targeted toward Hamas, not toward impacting the innocent
Palestinian people.
Senator Warnock. I couldn't agree more. Thank you so very
much. We have to work to ensure that there's rigorous oversight
of aid to Palestinians working also with our European and other
allies to both ensure that it actually provides assistance to
those in need.
And we want to certainly make sure that Hamas does not
divert any sort of aid for its own purposes. Thank you so very
much, Mr. Secretary.
Mr. Adeyemo. Thank you.
Chair Brown. Thanks, Senator Warnock. Senator Britt of
Alabama is recognized.
Senator Britt. Thank you, Mr. Chairman. I will get right to
it. Thank you so much for being here. I appreciate the
opportunity to have the conversation. Is there any doubt in
your mind that the Iranian regime is the largest State sponsor
of terrorism against the United States and our allies across
the globe?
Mr. Adeyemo. None, Senator.
Senator Britt. None. So, when we look at this, you know, I
take a step back and kind of--it's frustrating for me because I
see this Administration take a posture of appeasement. When I'm
looking at it, you look from the decline of the strategy of
maximum pressure under the previous Administration to kind of
where we are now.
And I'm thinking if we all agree that Iran is the largest
State sponsor of terrorism, why wouldn't we be using, you know,
every tool in our toolbox to make sure that we prevent them
from benefiting financially?
And so, we've seen Iran's oil profits soar since January,
2021, reaching over 80 billion and counting. And its steel
exports have actually increased twofold. So, I guess my
question is, has the Biden administration's enforcement
authorities--have your sanctions enforcement authorities been
limited at all since you've gotten to Treasury?
Mr. Adeyemo. No, Senator. We've put in place 571 sanctions
against the Iranian regime. And I know that we've spoken
personally about what's happening with steel, where we've
sanctioned the top steel producers in Iran. And the steel
they're selling today is illicit and illegal. We have to do
more and must do more to cutoff that illicit transaction. But
those companies have been sanctioned by us.
Senator Britt. So, let's talk about the steel specifically.
What more do you think we could be doing? What tools do you
need or could we use at a greater level in order to crack down
on that?
Mr. Adeyemo. So, Senator, one of the things we have to do
and that we are doing is working closely with the intelligence
community to find out how they're illicitly selling what is
illegal steel at this point. To go after those nodes that are
helping them to do that. So, what you should expect is we're
going to continue to take actions there.
One of the reasons I'm here though is that you mentioned
oil and while Iran is selling oil, one of the challenges
they're having is getting the money back to Iran. Given what
we're doing in the financial sector.
The thing that I am worried about is that Iran will
increasingly turn from using the formal financial sector to
move their assets and increasingly use cryptocurrency because
we don't have tools there.
Senator Britt. Well, if you just look at where you are
right here on--so if you look at, you know, we hit Iran's oil,
you mentioned the oil exports receipt. They reached a 5-year
high last year of 42 billion compared to, if you look at the
2020 numbers, 7.9 billion. What do you attribute to that
difference?
Mr. Adeyemo. One of the things that the Iranians are
increasingly doing is, they're consistently looking for ways to
do everything from ship-to-ship transfers, using the gray
fleet, using intermediaries to try and sell their oil.
While we've put in place more than 500 sanctions against
Iran, what we're finding is that the Iranian regime, given
their desperate need for cash, is doing things to try and get
around our sanctions.
So, we're going to continue to use our sanctions
authorities, but ultimately that is going to continue to make
it more costly for Iran to try and get around them, but they're
going to continue to try.
Senator Britt. Are there any kind of--given the data points
of this past year and it being a high versus where we were in
2020. Are there any tools in your toolbox that you're not using
to the fullest extent possible?
Mr. Adeyemo. So, Senator, I think the thing that I've asked
my team to do is to come back to me and talk about what else we
can do. And I think the key for us is not only what the United
States can do, but how do we build an international coalition,
frankly. Because one of the things that we benefited from in
the past was that it wasn't just the United States acting, but
we were acting alongside our allies and partners.
And while today we've been able to get in other countries
to come alongside actions we've taken against UAVs when it
comes to Iran and some of their military components, we've been
less successful in terms of going after their petrochemical
industry.
So, I think part of this is a diplomatic effort to get
other countries to join us and taking those actions because
what Iran is doing is that they're moving their petrochemical
industry into the shadows and they have--and they're doing
things that have fewer touch points with the U.S. dollar, which
is the thing that I can use. So, we need to get other----
Senator Britt. Are there loopholes specifically that
they're using with regards to Russia and China that where we
need to close those?
Mr. Adeyemo. So, in terms of the petrochemical industry,
they're actually a competitor to Russia because fundamentally
they're selling the same thing on the market. So, I think they
are not working together in this space.
I think from my standpoint, we're using the tools that
you've given us to try and impact them using our dollar-based
tools. But they're often trying to transact in ways using
everything from front companies to other currencies that
require us to build a broader coalition.
Senator Britt. So last thing, I only have a few seconds
left. When you look at the switching gears at the Corporate
Transparency Act for small businesses, what are you doing to
ensure small businesses are aware of those new reporting
requirements?
Mr. Adeyemo. One of the things I'm personally doing is
speaking to small business interest groups and talking to them
about what we can do to try and make sure that the small
businesses they represent know about the Act.
And I think one of the things that we would appreciate is
working with your offices so that we can go back to your
district offices and do presentations about how small
businesses can sign up. Fundamentally, what we know is that the
vast majority of small businesses throughout our country want
to do the right thing, will want to sign up.
And by doing that, it allows us to find those illegitimate
small businesses that are often creating threats. So I'm happy
to work with your office to set up webinars in your district to
send people down to your States to help make sure your small
businesses are aware.
But we're launching an all-out campaign to make sure that
small businesses throughout the country are aware of the need
to register.
Senator Britt. Excellent. I just want to make sure that
they have that outreach. So look forward to working with you on
that. Thank you, Mr. Chairman.
Mr. Adeyemo. Thank you.
Chair Brown. Senator Cortez Masto of Nevada.
Senator Cortez Masto. Thank you Mr. Chairman. Deputy
Secretary, it's good to see you.
Mr. Adeyemo. Good to see you as well.
Senator Cortez Masto. Thank you for being here. Last year,
Treasury's Office of Foreign Asset Control brought sanction
against several individuals and companies involved in the
manufacturing and distribution of fentanyl among other illicit
drugs.
In addition to sanctioning these individuals, OFAC
identified several cryptocurrency addresses associated with
these known traffickers. And OFAC investigation shows a
pervasive and deep interconnectedness of illicit drug
trafficking and crypto.
The addresses identified by OFAC collectively received just
under $3.8 million worth of cryptocurrency. So, my question to
you is, do you think Treasury has the adequate tools and
expertise to effectively combat the use of crypto in financing
drug trafficking rings? And if you don't, what do you need?
Mr. Adeyemo. Senator, several months ago, Secretary Yellen
set up a strike force to go after fentanyl because she sees the
threat that it presents, not only to American lives, but to our
national security as well. And what we know is that these
actors, these drug kingpins who are often just criminal
business executives, are increasingly moving to using crypto,
as you mentioned.
And the reason I'm here is because we need additional tools
from you and the Senate to go after them. Those tools include
the ability for us to, for example, go after cryptocurrencies
or other parts of the crypto ecosystem that claim to be dollar
backed, but to be trying to escape U.S. jurisdiction. Which
makes it harder for us to go after them.
We also need to update the definitions in our rules. So,
they include the crypto ecosystem, so the Bank Secrecy Act, and
also IEEPA. And finally, we would like to have a secondary
sanctions regime that allows us to also make clear to
traditional financial institutions that you should not engage
with parts of the crypto ecosystem that are doing illicit
transactions.
Senator Cortez Masto. Thank you. And would the FEND Off
Fentanyl Act support your enforcement actions?
Mr. Adeyemo. Taking actions like that and taking actions
that would provide us with additional authorities to go after
fentanyl would be quite helpful. I think the challenge we have
is that taking those actions in the traditional financial
system will mean that more of these actors will likely turn to
things like virtual currencies to try and escape us, unless we
update and reform some of the rules that we have today for
going after those actors.
Senator Cortez Masto. I'm interested also in learning
about--and this is a new term because of crypto. But learning
about cryptocurrency mixers, and you talked a little bit about
that, that help facilitate illicit financing.
My understanding is that mixers are crypto platforms that
enable users to exchange cryptocurrency anonymously, by
blending the cryptocurrencies of many users to obfuscate the
origins and owners of the funds. And in 2022, almost 10 percent
of all crypto addresses tied to illicit activity were laundered
through mixers.
So, Deputy Secretary, can you explain a little bit about
these mixers and the acute risk of bad actors using them to
engage in illicit finance?
Mr. Adeyemo. Senator, I think you made it very clear what
they are. They are ways for people and for entities to hide
their identity and to move money illicitly through the crypto
ecosystem with the hope that they can turn that into hard
currency at some other point, and be able to get access to
their ill-gotten gains.
We've taken some actions against mixers, including using a
311 action to go after them. But my concern is that without the
tools that we have requested from the Senate, we don't have the
ability to go after these parts of the virtual currency
ecosystem that that are being used by threat actors, but may
not be based or have U.S. jurisdiction.
That's why we think it's essential that we get these tools
because as we take steps to go after the traditional financial
system, where we have a great deal of visibility where these
threat actors exist, they're naturally going to turn to new
tools like mixers to hide their identity.
Senator Cortez Masto. Absolutely. And that's why I
appreciate the need for the expanded tools of enforcement for
areas like this and support it.
Mr. Adeyemo. Thank you.
Senator Cortez Masto. I do think it is so important we
address the use of cryptocurrency for money laundering and to
engage in illicit activities for so many reasons. So, thank you
for being here again. Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Cortez Masto. OK. Mr.
Secretary, thank you for joining us, for being here and
providing testimony. Senators who wish to submit questions for
the record, those questions are due 1 week from today, Tuesday,
April 16th. The witness will have 45 days to respond to those.
Thank you, again.
The meeting's adjourned.
[Whereupon, at 11:59 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF CHAIR SHERROD BROWN
We face threats to American national security and global stability
every day.
Autocrats and terrorists and drug traffickers work to undermine our
economy, our values, and our way of life.
Sophisticated international cartels traffic fentanyl into our
communities. China supplies precursor chemicals to Mexican cartels,
feeding our deadly fentanyl epidemic.
Russia's brutal invasion of Ukraine continues, and Putin looks for
new ways to fund his war machine.
Iran is financing terrorist proxies that wreak havoc all over the
Middle East, from Hamas' brutal October 7th attack on Israel, to the
Houthi attacks on shipping in the Red Sea and Hezbollah's menacing
activity.
All of these bad actors need one thing: money.
Terrorists, fentanyl traffickers, the Russian military--they all
need to spend and move money, and they all use the financial system, in
a variety of ways, to do it.
That's why we must use all available economic tools to defend
American interests and American values.
That means denying bad actors access to the global financial system
and broadening our coalition of partners to prevent terrorism and the
flow of illicit finance that supports drug traffickers and money
launderers.
Terrorists, criminals, and rogue Nations will never stop in their
efforts to evade our sanctions regime. We must be equally vigilant.
Vigilance requires that our national security leaders have the
authorities and the resources they need to stay ahead of these bad
actors.
Today, we will hear from Deputy Treasury Secretary Adeyemo and
discuss our strategy for combatting illicit finance.
Treasury leads the work to stop illicit actors from exploiting the
international financial systems to fund their crimes and terror
activity.
Deputy Secretary Adeyemo should provide an assessment of the
effectiveness of our recent sanctions enforcement efforts. And we will
hear about what statutory gaps stand in the way of our ability to root
out and stop illicit finance.
Congress must respond.
Last year, this Committee worked together in a bipartisan way to
design a new sanctions program--the FEND Off Fentanyl Act--that can
help reduce the flow of fentanyl into our communities.
FEND Off Fentanyl has 67 cosponsors. It passed out of our Committee
unanimously. It passed in the Senate--twice.
Americans can't wait any longer. This needs to get to the
President's desk and be signed into law.
As FEND makes clear, our Committee plays a critical role in
protecting our communities and protecting our national security. This
Committee works to strengthen tools we have to go after anyone who
threatens us, and it conducts oversight over how the Administration
uses those tools, including their use of waivers or exceptions.
And when bad actors turn to new routes to raise and move money--
like crypto--this Committee must respond. Our adversaries are going to
innovate, and we must make sure our illicit finance tools keep up.
Last November, the Justice Department, in an effort led by the U.S.
Attorney for the Northern District of Ohio and the DEA, charged eleven
people in a drug ring. They allegedly trafficked fentanyl, synthetic
opioids, and other drugs across Ohio, Pennsylvania, Kentucky, and
Tennessee.
And they paid their suppliers in Bitcoin.
Just last week, the Wall Street Journal reported how Russian
smugglers use the stablecoin Tether to evade sanctions on Russia's war
machine. Tether is a ``key step in the chain'' of illicit transactions,
one smuggler said.
North Korea has hacked, stolen, and laundered hundreds of millions
of dollars in crypto--a strategy to avoid sanctions.
All these bad actors--from North Korea to Russia to terrorist
groups like Hamas--aren't turning to crypto because they've seen the
ads and bought the hype.
They're using it because they know it's a workaround. They know
that it's easier to move money in the shadows without safeguards, like
know-your-customer rules or suspicious transaction reporting.
These commonsense protections help identify illicit money and keep
it out of the financial system.
We must make sure that crypto platforms play by the same rules as
other financial institutions. And we need to make sure that we have the
tools to crack down on illicit finance with digital assets, just as we
would with any other asset.
Many, including the Deputy Secretary, have pointed out possible
gaps in illicit finance authorities over digital assets. It's time we
worked together to close any loopholes and protect our national
security.
We need to think not just about how terror groups and drug
traffickers use crypto today, but also about how they could exploit it
tomorrow.
If we leave loopholes on the books, this problem will only get
worse. We can't take that risk.
Given the range of threats we face, it is clear that the
Administration needs to do more to use its illicit finance tools to
stop terrorism; to push back on Iran, Russia, and China; and to stop
the funding streams to the traffickers supplying illicit fentanyl to
our children and our communities.
I look forward to hearing from the Deputy Secretary this morning.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
Thank you, Mr. Chairman, and the Secretary, thank you for being
here with us this morning.
Today is an important opportunity to discuss American leadership,
especially on the global stage.
I've often said that we, the United States, must leverage our
international toolkit to stop bad actors, curb illicit activity, and
protect American families.
Thankfully, agencies like the Treasury Department already have
robust toolkits available, as well as in instances where additional
direction is needed, I have not shied away from providing more
resources and direction like those in my FEND Off Fentanyl legislation
and my Revoke Iranian Funding Act, as well.
So I appreciate having you here with us this morning.
South Carolina is the proud home to many of our U.S.
servicemembers, their families, and our veterans.
I'm proud of this fact and my important duty to serve their
interests.
Which is why it was particularly profound and deeply troubling when
three U.S. servicemembers were killed in January's Iranian-backed
terror attack.
I will keep saying this, because it's true, every dollar this
Administration gives to Iran is another dollar that will be used
against our sons and daughters and puts them in harm's way in the
military.
Thankfully, the Treasury Department has the ability to stop the
dollars moving around our global economy that bolsters the Iranian
regime.
However, this White House has reduced those barriers through so-
called electricity waivers with expanded currency access to euros,
licenses, and further billion-dollar payouts.
Going even so far as to give a lifeline to Nicholas Maduro's
corrupt regime in Venezuela, a known ally of Iran, China, Russia, and
Cuba--an axis of terror--through broad oil and gas sanctions relief.
Of which we have seen no benefit to U.S. national security or to
the Venezuelan people who suffer under Maduro.
This is beyond troubling.
Especially when our servicemembers are killed in terror attacks by
Iranian proxies and our families here at home are struggling to put
food on the table.
When we look here at home, there's not a single neighborhood,
whether that's Charleston, South Carolina, or Cleveland, Ohio, that has
escaped the death grip of fentanyl.
And I'm very proud of this Committee's work to address this crisis,
and for the support of all the Members of this Committee working
together to stop this deadly drug.
Because what fentanyl, produced and trafficked by the Mexican
cartels and supported through Chinese precursors, has done to our
communities is a national security crisis.
I remain committed to seeing this legislation pass into law and to
stopping the flow of illicit money and drugs across our border.
Every family in America deserves to be free from the scourge of
this deadly drug.
I started with these two issues because I believe they should be
top of mind for this Administration and this Committee.
And yet, just last week, Secretary Yellen was in China to discuss
how cheap Chinese exports of green energy technology are harming
electric vehicles and solar energy here in the United States.
This is a clear climate goal of this Administration, but far from
the top goal we should be pushing back China on.
A perspective that's frankly hard to stomach when Hamas is enabled
by support from Iran to carry out horrific attacks against our ally
Israel.
All while China continues to be the top purchaser of Iranian oil
and top financier to international web of illicit financing used by the
Mexican cartels to kill people using fentanyl.
This needs to stop. Saving lives cannot play second fiddle to
progressive climate goals.
We need to see real efforts by China to stop these activities that
undermine U.S. national security interests.
America must be a strong leader.
Fentanyl and terrorism are leading threats and should be treated as
such.
American families deserve to know that their Government is
protecting them of these threats and punishing those who trouble us.
Thank you, and thank you for holding this hearing, and I look
forward for the opportunity to question the witness.
______
PREPARED STATEMENT OF ADEWALE O. ADEYEMO
Deputy Secretary, Department of the Treasury
April 9, 2024
Chairman Brown, Ranking Member Scott, and Members of the Committee,
thank you for the invitation to join you here today.
As you all know, the Department of Treasury--alongside our
colleagues across the U.S. Government--have committed to using our
tools to protect our national security. Today, I'm grateful for the
opportunity to talk with you about the ways we can continue driving
this work forward.
As we take steps to cut terrorist groups and other malign actors
off from the traditional financial system, they look for innovative
ways to move resources. Over the past several years, we have seen
terrorist groups trying to take advantage of innovations in
cryptocurrencies. For example, 5 years ago, al-Qaeda and affiliated
terrorist groups, largely based out of Syria, operated a bitcoin money
laundering network using social media platforms to solicit
cryptocurrency donations. After receiving virtual currency, they
laundered the proceeds through various online gift card exchanges to be
able to purchase what they needed to advance their violent agenda.
More recently, over the past year, we have seen the Islamic
Revolutionary Guard Corps-Qods Force (IRGC-QF) transfer cryptocurrency
to Hamas and the Palestinian Islamic Jihad (PIJ) in Gaza. In addition,
we have seen Hamas use virtual currencies to solicit small-dollar
donations, and we have been able to take action against these networks.
Our problem is that actors are increasingly finding ways to hide
their identities and move resources using virtual currency. What has
always been true is that terrorists and other malign actors seek new
ways to move their resources in light of the actions we are taking to
cut them off from accessing the traditional financial system.
Today, because of the authorities Congress has provided us, we have
a long track record of taking action to make it harder for these groups
to use the traditional financial system to move money. We continue to
use our authorities aggressively to cut off the illicit finance
networks that enable illicit actors worldwide, including Hamas and
other Iran-backed proxies, Russian oligarchs, and ISIS, to name a few.
The more effective our targeting has been, the more reason there is
for these terrorist groups to look into virtual assets. And, to be
clear, it's not only terrorist groups, but State actors like the DPRK
and Russia as well.
The DPRK, which through numerous complex State-sponsored cyber
heists, is able to acquire, launder, and store illicit revenue. It
relies on anonymity-enhancing technologies like mixers to hide the
sources of its funds. And it leverages over-the-counter digital assets
traders to acquire
fiat currency. In addition, we've seen Russia increasingly turning
to alternative payment mechanisms--including the stablecoin tether--to
try to circumvent our sanctions and continue to finance its war
machine.
While we have had some success in rooting out illicit finance in
the digital asset ecosystem, we need to build an enforcement regime
that is capable of preventing this activity as more terrorists,
transnational criminals, and rogue States turn to digital assets.
That's why we sent the Committee proposals to strengthen counter-
terrorist financing authorities, and we look forward to working with
the Committee on your ideas and proposals.
The options I sent over to the Committee in November focused
broadly on three reforms. The first is the introduction of a secondary
sanctions tool targeted at foreign digital asset providers that
facilitate illicit finance. Today, Treasury has authorities that enable
us--in many cases--to prohibit U.S. correspondent accounts and
transaction processing for foreign financial institutions that have
operated with a designated person. These authorities have enabled us to
disrupt high-priority illicit finance streams in Russia, Iran, and
North Korea. But, unlike banks, foreign cryptocurrency exchanges and
some money services businesses do not have or depend on correspondent
accounts for all of their transactions. A new secondary sanctions tool
would help Treasury to evolve its targeting capabilities and would
account for the technological changes that have rendered highly
effective tools in traditional payments contexts less effective against
virtual currencies.
The second reform centered on modernizing and closing gaps in
existing authorities by expanding their reach to explicitly cover the
key players and core activities of the digital assets ecosystem.
Entities such as virtual asset service providers (VASPs) and
cryptocurrency exchanges didn't exist when the BSA and IEEPA were
enacted, but we know that today, they play a major role in how currency
moves digitally and should be regulated as such.
Finally, a third reform addresses jurisdictional risk from offshore
cryptocurrency platforms, which is a key challenge. By reforming
existing authorities, we can clarify that our authorities can reach
extraterritorially when digital asset entities harm our national
security while taking advantage of our financial system. This will also
promote a level playing field for U.S.-based VASPs.
There is clear overlap between these proposals and the bills coming
out of this Committee. We agree that the use of these emerging
technologies by illicit actors can have impacts on the national
security, foreign policy, and economy of the United States. That's why
the United States has a strong interest in ensuring that our tools and
authorities are available and ready to mitigate the risks in this
quickly evolving ecosystem, including for dollar-based digital assets
in particular.
As you know, my team has been actively involved in providing
technical assistance on these topics and we are working to find
solutions that balance the threat, our current capabilities, and where
we may require additional authorities. The Treasury Department is eager
to continue working together through the details of this Committee's
proposals. We all share the common aim of ensuring that in the pursuit
of technological innovation we do not disregard the safeguards that
instill trust and reliability in the U.S. financial sector.
While we continue to assess that terrorists prefer to use
traditional financial products and services, we fear that without
Congressional action to provide us with the necessary tools, the use of
virtual assets by these actors will only grow. We are grateful for the
partnership of Congress and this Committee in helping Treasury root out
illicit finance from the U.S. financial system and to hold illicit
actors accountable. I look forward to today's discussion on how we can
continue this work.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM ADEWALE O. ADEYEMO
Q.1. I remain extremely concerned by this Administration's
pattern of sanctions relief to Iran. Any dollar to Iran can be
used to facilitate its terrorist activities and nuclear
developments. In light of this could you provide an accounting
of all Iranian assets over $1 million that are currently
blocked by U.S. sanctions?
A.1. Yes. To the extent that the relevant blocks were reported
to OFAC in accordance with its Reporting, Procedures and
Penalties Regulations (31 CFR Part 501), OFAC can provide an
estimate of Iranian assets valued over $1 million that are
currently blocked pursuant to OFAC regulations.
As of May 2, 2024, OFAC estimates that there is
approximately $241 million in blocked Iranian assets that were
reported to OFAC as valued over $1 million.
Q.2. Regarding the previously mentioned blocked assets, what
steps is the Treasury Department taking to ensure that these
funds remain blocked and inaccessible to Iran?
A.2. Iranian assets blocked pursuant to OFAC sanctions may not
be transferred or otherwise dealt in without prior
authorization from OFAC. Blocked assets of the Government of
Iran held in the United States are often attached by terrorism
victims seeking to satisfy judgments against Iran, and other
blocked Iranian assets may be subject to seizure and,
ultimately, forfeiture, by the U.S. Department of Justice
pursuant to civil and criminal authorities. OFAC generally does
not authorize Iran to have access to blocked funds and would
only authorize the transfer of blocked Iranian assets in
exceptional circumstances.
Q.3. What steps is the Treasury Department taking to ensure
that Iran does not leverage these funds as collateral for
loans?
A.3. Iranian assets blocked in U.S. jurisdiction pursuant to
OFAC sanctions may not be used as collateral for loans. \1\ In
addition, Treasury continues to monitor information regarding
Iran's attempts to gain access to loans and other financial
resources from third countries. Such transactions could be
subject to a range of sanctions, including, sanctions impacting
the correspondent and payable through accounts of foreign
financial institutions that engage in significant transactions
with Iranian persons on OFAC's List of Specially Designated
Nationals and Blocked Persons (SDN List). Foreign financial
institutions risk being sanctioned by the United States for
facilitating such transactions.
---------------------------------------------------------------------------
\1\ eCFR 31 CFR 560.213--Holding of funds in interest-bearing
accounts; investment and reinvestment.
Q.4. Have there been any documented instances of Iran or the
Iranian Revolutionary Guard Corps abusing so-called
---------------------------------------------------------------------------
humanitarian transactions?
A.4. Restricting IRGC funding is a top Treasury priority.
Treasury continues to use all available authorities to degrade
IRGC revenue streams. In the last several months, we have taken
multiple actions targeting IRGC-QF commercial activities,
designating front companies in jurisdictions including the PRC
involved in the sale of hundreds of millions of dollars' worth
of Iranian commodities, including oil, for the benefit of IRGC-
QF.
Additionally, humanitarian funds are being closely
monitored in relevant jurisdictions, and the U.S. Government
remains in close communication with those Governments and
financial institutions holding restricted Iranian funds in
order to prevent diversion.
Q.5. Iranian oil shipments have greatly expanded under your
watch leading to upwards of tens of billions in yearly extra
revenue for the Iranian regime. The attached chart shows the
decrease in oil production that occurred during the Trump
administration, which went from roughly 1.8 million barrels of
oil per day at the start of the Administration to roughly
400,000 barrels of oil per day by the end of the
Administration. Now, Iran is exporting over 1 million barrels
of oil per day, a daily increase of 600,000 barrels under the
Biden administration. This extra revenue is deeply concerning.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Why have Iran's oil exports increased under the Biden
administration?
A.5. Under this Administration, Treasury has sanctioned more
than 200 entities and individuals involved in the production,
sale, and transfer of Iranian petroleum and petrochemical
products abroad. We attribute the rise in Iranian oil sales, at
least in part, to the recovering demand in global oil markets
coming out of the pandemic. As economies recover and demand
grows, we have seen an increase in entities willing to purchase
or facilitate the sale of sanctioned oil, despite the risk of
U.S. sanctions.
Q.6. What specific steps are you personally and the Treasury
Department more broadly taking to stop, or at least slow down,
Chinese refineries that currently buy 90 percent of Iran's
sanctioned oil?
A.6. Treasury continues to leverage multiple Iran,
counterterrorism, and counterproliferation authorities to
target Iran's export of oil and other energy sector
commodities.
Under this Administration, Treasury has sanctioned more
than 200 entities and individuals involved in the production,
sale, and transfer of Iranian petroleum and petrochemical
products abroad. Since January 2024, Treasury has sanctioned
over 20 Iranian petroleum brokers and 22 ghost fleet tankers
involved in shipping of Iranian oil. In early February, we
sanctioned Hong Kong-based IRGC-QF front company China Oil and
Petroleum Company Limited, which has arranged contracts and
sold hundreds of millions of dollars' worth of Iranian
commodities for the benefit of IRGC-QF. Since December, OFAC
has issued six rounds of sanctions targeting the network of
IRGC-QF and Houthi financial facilitator Sa'id al-Jamal, to
include a range of shipping facilitators and vessels in
multiple jurisdictions helping the network illicitly ship
Iranian commodities to the People's Republic of China (PRC). In
late November 2023, Treasury sanctioned over 20 persons for
their involvement in the sale of the equivalent of billions of
dollars' worth of oil and other commodities, the proceeds from
which benefited Iran's Ministry of Defense and Armed Forces
Logistics (MODAFL) and the Islamic Revolutionary Guard Corps--
Qods Force (IRGC-QF). In late January we sanctioned three
entities and one individual in Lebanon and Turkiye that have
generated hundreds of millions of dollars' worth of revenue for
the IRGC-QF and Hizballah from selling Iranian commodities,
including to the Syrian Government. Additionally, in late
April, we designated MODAFL's main front company involved in
the sale of the equivalent of billions of dollars' worth of
Iranian commodities, Sahara Thunder, and a dozen shipping
facilitators.
Q.7. Does the Treasury Department need additional authorities
to combat Iranian oil exports?
A.7. Treasury leverages multiple authorities, as appropriate,
to combat Iranian oil exports, including both counterterrorism
and counterproliferation authorities, as well as Iran-specific
authorities that allow us to target specific Iranian economic
activities.
Q.8. I have several concerns regarding the Administration's
shift in its usage of waivers that have allowed Iraq to
purchase electricity from Iran. In House Testimony, Assistant
Secretary Rosenberg identified that at least two transactions
have occurred. We cannot make it easier for Iran to access
funding abroad. As you mentioned in your verbal testimony, the
Iranian Revolutionary Guard Corps will abuse any form of
funding to fuel violence.
Since Assistant Secretary Rosenberg's testimony, have any
more transactions from the Iraq electric waiver accounts
occurred?
A.8. Regarding restricted Iranian funds held in Oman referenced
in Assistant Secretary Rosenberg's testimony, due to changing
circumstances in the region, we requested, and the Omani
Government agreed, that financial institutions suspend all
transactions through the channel. There have been no further
transactions.
Q.9. The proceeds of Iranian electricity sales to Iraq held in
restricted accounts at the Trade Bank of Iraq (TBI) are
permitted to be used exclusively for the purchase of
humanitarian goods by Iran, as well as for a limited number of
other nonsanctioned purposes subject to separate approval by
Treasury. Across U.S. administrations, TBI has processed these
types of transactions from restricted Iranian funds, mostly for
agricultural commodities and medicine. TBI maintains a contract
with a major, independent financial consulting firm to review
each transaction for money laundering and terrorist financing
risks. Treasury receives all reports from this independent
monitor, including all trade documents. There are a limited
number of international companies permitted to receive funds
for these sales of humanitarian goods to Iran. Was anything
suspicious identified from the transactions and has Treasury
stopped any of the transactions?
A.9. There have been no subsequent transactions out of the
humanitarian channel in Oman. The Oman channel's operation and
stringent reporting requirements made possible an investigation
into one transaction that raised potential trade-based money
laundering concerns. Reports produced on a regular basis made
Treasury aware of a potential problem, and we took immediate
remedial steps to address our concerns. We continue to engage
with our Omani partners to better understand this transaction.
Q.10. Why did your Administration change the Iraq electric
waivers to allow Iraqi Dinars to be converted to euros? Why
were Oman, France, and Italy added to the waiver?
A.10. The State Department waiver applies to payments by Iraq
into restricted accounts at the Trade Bank of Iraq (TBI) in
dinars as well as in euros. In general, foreign financial
institutions, including TBI, manage their foreign exchange
consistent with their own reserve management policies. The
funds that moved from restricted accounts in Iraq to restricted
accounts in Oman were in euros and remain in euros. No currency
conversions were affected as part of the transfer to Oman, and
the transfer from the TBI to Oman was executed completely
outside the U.S. financial system.
For specific questions related to the waiver, Treasury
defers to the State Department. We understand, from the State
Department, that these jurisdictions are not seeking oil
imports, but are jurisdictions that may have correspondent
banking relationships or recipient banks in connection with the
funds transfers covered by this waiver.
Q.11. Are Oman, France, and Italy purchasing oil subject to
U.S. sanctions from Iran?
A.11. We understand, from the State Department, that these
jurisdictions are not seeking oil imports, but are
jurisdictions that may have correspondent banking relationships
or recipient banks in connection with the funds transfers
covered by this waiver.
Q.12. What are the exact amount of funds that have been
transferred from Iraq to Oman under the Waiver?
A.12. Under Secretary Nelson testified to the House Financial
Services Committee on February 14, 2024, that about $500
million EUR have been transferred from restricted accounts in
Iraq to restricted accounts in Oman under the Iraq electricity
waiver.
Q.13. I am concerned that under your watch, the U.N.'s
ballistic missile sanctions on Iran ended. We must do all that
we can to deny Iran the resources to build ballistic missiles
that threaten U.S. servicemembers and our allies in Israel and
Europe. Iran's direct attack on Israel on April 13 makes a
clear case for why Iran's ballistic missile program must be
denied. Given this:
What efforts did the Treasury Department take, under your
watch, to ensure that the U.N. ballistic missile sanctions were
kept in place and did not expire?
A.13. In the lead up to the October 18, 2023, expiration the
UN's restrictions on Iran's missile-related activities under
U.N. Security Council Resolution 2231 (UNSCR 2231), Treasury
worked with European counterparts to enable its action to
retain the nuclear, conventional arms, and missile-related
restrictions on Iran that were set to expire under its
nonproliferation sanctions regime. Treasury, along with the
State Department, met with key European counterparts involved
in developing sanctions to (1) discuss the U.S. Government's
position that these sanctions should not be lifted given Iran's
ongoing activity related to its nuclear and ballistic missile
programs; and (2) determine ways in which Treasury could
support the EU's efforts to maintain sanctions on missile-
related entities and individuals.
As a result of the ongoing discussions with EU
counterparts, Treasury gathered information to support
designations under the EU's nonproliferation sanctions of any
entities or individuals on which restrictions would lift
pursuant to UNSCR 2231 on October 18, 2023. Treasury passed to
key EU partners information on 25 entities and 17 individuals
on which restrictions would lift pursuant to UNSCR 2231 in
support of the EU's planned designations under domestic
authorities. On October 18, 2023, the Council of the European
Union acted to maintain the restrictive measures under the EU
nonproliferation sanctions regime on Iran by adopting legal
acts to maintain the designations that had initially been
imposed by the United Nations for individuals and entities
involved in nuclear or ballistic missiles activities or
affiliated to the Islamic Revolutionary Guard Corps (IRGC). The
Council of the European Union also agreed to maintain sectoral
and individual measures, existing under the EU's sanctions
regime, notably those related to Iran nuclear proliferation, as
well as arms and missile embargoes.
In coordinated actions, the United Kingdom transferred 78
designations from U.N. sanctions to the U.K.'s autonomous
sanctions under the Iran Nuclear sanctions regime, and Treasury
sanctioned 11 individuals, eight entities, and one vessel based
in Iran, Hong Kong, the People's Republic of China (PRC), and
Venezuela for enabling Iran's destabilizing ballistic missile
and unmanned aerial vehicle (UAV) programs.
Q.14. How many meetings did you have with your European
counterparts on the expiration of these U.N. sanctions?
A.14. Treasury, along with the State Department, was frequently
in contact with EU counterparts in the lead up to October 18,
2023, regarding the expiration of these U.N. sanctions.
Q.15. How many times did you discuss the U.N. ballistic missile
sanctions sunsetting with U.K. or French counterparts?
A.15. Treasury met with French counterparts frequently as part
of its engagements with EU counterparts in the lead up to
October 18, 2023, regarding the expiration of these U.N.
sanctions. Treasury was in contact with the U.K. in the lead-up
to October 18, 2023, regarding the expiration of these U.N.
sanctions and aware of its intention to maintain sanctions on
relevant individuals and entities.
Q.16. How many interagency meetings or calls did you have with
other Executive Branch agencies on the expiration of these
sanctions?
A.16. Treasury was frequently in contact with interagency
partners, primarily the State Department and National Security
Council staff, in the lead up to October 18, 2023, regarding
the expiration of these U.N. sanctions.
Q.17. How many interagency meetings or calls did the Treasury
Department participate in with other Executive Branch agencies
on the expiration of these sanctions?
A.17. Treasury was frequently in contact with interagency
partners, primarily the State Department and National Security
Council, in the lead up to October 18, 2023, regarding the
expiration of these U.N. sanctions.
Q.18. Will you commit to working to reinstate the U.N. missile
sanctions on Iran?
A.18. Treasury maintains sanctions on all possible individuals
and entities that were subject to UNSCR 2231 under its existing
sanctions programs. Treasury defers to the State Department and
USUN on working to re-establish U.N. missile sanctions on Iran.
Q.19. Do you support snapping back the U.N. ballistic missile
sanctions on Iran?
A.19. Treasury defers to the State Department and USUN on
snapping back relevant U.N. sanctions on Iran.
Q.20. I am extremely alarmed at your Administration's decision
to provide sanctions relief to Venezuelan Dictator Nicolas
Maduro. Maduro's brutal and murderous regime is the exact
opposite of everything that America stands for. Maduro and his
cronies steal from the citizens of Venezuela and threaten U.S.
national security due to its cooperation with Iran, Russia,
China, and Cuba. Additionally, his actions have further
perpetuated the migration crisis that we are experiencing on
our Southern Border. It is unclear to me why the Biden
administration engaged in such a rushed deal with a dictator
who could not be trusted. Further, I am concerned that the
sanctions relief for Venezuela could then be used by Maduro to
repay debts to China, Russia, and Iran, and that the relief did
not sufficiently address the wrongfully detained Americans in
Venezuela. In light of this:
Given Maduro's nonadherence to the terms of the provided
sanctions relief, why have you not snapped back sanctions and
revoked the general licenses associated with this sanctions
relief?
A.20. The U.S. Government has not renewed General License (GL)
44, which authorized certain activity in the Venezuelan oil and
gas sector. On April 17, 2024, OFAC issued GL 44A, which
authorizes a limited wind-down period for those activities that
were authorized under GL 44.
Q.21. Moving forward, will you seek to expand sanctions
pressure on the Maduro regime?
A.21. OFAC does not preview sanctions nor comment on future
OFAC actions.
Q.22. What steps are you taking to ensure that our sanctions
relief does not go to pay Venezuelan debts to Iran, Russia, and
China?
A.22. U.S. persons were not authorized to engage with Russian
entities pursuant to GL 44 and these restrictions remained in
place during the wind down period authorized under GL 44A. In
addition, GL 41, ``Authorizing Certain Transactions Related to
Chevron Corporation's Joint Ventures in Venezuela'', does not
authorize U.S. persons to engage in any transaction involving
an entity located in Venezuela that is owned or controlled by
an entity located in the Russian Federation. Regarding Iran--a
general license under the Venezuela program would not authorize
U.S. persons to engage in transactions prohibited by any of
OFAC's other sanctions programs, including those related to
Iran.
Q.23. Can you assure to me that Iran, Russia, and China will
not be repayed with Venezuelan revenues stemming from the
General Licenses that your department provided?
A.23. GL 44 did not authorize U.S. persons to engage with
Russian entities nor did it authorize any transactions
prohibited by OFAC's Iran sanctions authorities, and these
restrictions remained in place during the limited wind down
period authorized under GL 44A. Similarly, GL 41 does not
authorize U.S. persons to engage with Russian entities or
transactions prohibited by OFAC's Iran authorities. Regarding
Iran-a general license issued under the Venezuela program would
not authorize U.S. persons to engage in transactions prohibited
by any of OFAC's other sanctions programs, including those that
prohibit transactions related to Iran.
Q.24. What are you doing to combat the growing cooperation
between Venezuela, Iran, Russia, and China?
A.24. Treasury will continue to use its range of tools and
authorities to deter and disrupt threats to the U.S. financial
system and will take appropriate action as necessary to address
threats from malign actors.
Q.25. Recent reports allege that the African National Congress
(ANC), South Africa's ruling party since 1994, has accepted
party donations from entities linked to Russia and Iran. I am
concerned that Moscow and Tehran are seeking to buy influence
in South Africa. I'm specifically concerned about donations
from the Chancellor House Trust, a Kremlin-linked, institution,
and United Manganese of Kalahari Ltd, which is linked to the
sanctioned Russian oligarch Viktor Vekselberg.
Were any of these allegations discussed in your recent
visit to Pretoria? If so, with whom were these discussions had,
and what was the response?
A.25. No, these allegations were not discussed during my trip
to South Africa.
Q.26. Is the Department investigating donations of Chancellor
House Trust and United Manganese of Kalahari Ltd to the ANC?
A.26. Thank you for raising these concerns. However, Treasury
is unable to comment on any potential investigations at this
time.
Q.27. Can you shed light on any reforms being made by the South
African Government to remediate issues identified by the
Financial Action Task Force?
A.27. Since February 2023, South Africa has taken steps towards
enhancing its anti-money laundering/countering the financing of
terrorism (AML/CFT) regime including by addressing technical
deficiencies in its targeted financial sanctions regime related
to terrorist financing and proliferation financing, increasing
the use of financial intelligence to support money laundering
and terrorist financing investigations, bolstering resources of
AML/CFT supervisors, improving its criminalization of terrorist
financing, and developing national AML/CFT policies to address
higher risks. Through active participation in the Financial
Action Task Force, the United States continues to work with
South Africa to encourage and support AML/CFT reforms.
Q.28. China has a leading role in facilitating fentanyl
trafficking, both from a money laundering perspective and from
their sales of precursor chemicals. In January, U.S. and
Chinese officials announced a counter-narcotics working group.
The announcement was an attempt to restart a working
relationship with China to thwart the flow of fentanyl into
U.S. towns and communities.
Has China shared any information with the United States
about the financial networks supporting the money laundering
activities tied to fentanyl?
A.28. Treasury participated in the inaugural meeting of the
U.S.-PRC Counter Narcotics Working Group (CNWG) in Beijing in
January 2024 to engage the PRC directly on the misuse of
precursor chemicals and equipment to manufacture illicit drugs.
At the CNWG, Treasury pressed our PRC counterparts to
investigate a group of PRC entities and individuals recently
designated by Treasury for illicit fentanyl precursor
production and sale, highlighting their use of virtual currency
which may also contravene the PRC's own domestic laws. The
People's Bank of China (PBOC) has shared back limited
information and told us that Chinese authorities are evaluating
the information and will report back to us on their findings,
and Secretary Yellen reiterated this request while in China
last month.
In addition to the CNWG, Secretary Yellen established a new
joint Treasury-People's Bank of China (PBOC) Cooperation and
Exchange on Anti-Money Laundering (AML) on her trip in April
2024 to enable us to better share best practices and
information to address illicit financial activity in our
respective financial systems.
Q.29. Are there any specific results you can point to that have
come from the discussions of the Counter-narcotics Working
Group with China?
A.29. The PRC has reported taking action on certain chemical
companies. We continue to press the People's Bank of China
(PBOC) to take action on the group of PRC entities and
individuals recently designated by Treasury for illicit
fentanyl precursor production and sale. While we continue to
engage the PRC, we will not hesitate to take the necessary
actions to counter the export of precursor chemicals from
China.
Q.30. Your department's 2024 Money Laundering Risk Assessment
identified the role of Chinese Money Laundering Organizations
as the preferred third-party professional money laundering
service provider to drug traffickers. What is the Treasury
Department doing to combat the growing threat to the U.S. posed
by Chinese Money Laundering Organizations?
A.30. Treasury is focusing on several key lines of effort to
identify, combat, and disrupt Chinese Money Laundering
Organization (CMLO) activity taking place through the U.S.
financial system through its analysis of Bank Secrecy Act (BSA)
data. The Financial Crimes Enforcement Network (FinCEN), in
coordination with other interagency partners, provides direct
support to U.S. law enforcement agencies investigating CMLOs
and their affiliates, and strategic reporting to highlight CMLO
tactics, techniques, and procedures, as well as potential
points for law enforcement interdiction. FinCEN currently has
analysts assigned to the Drug Enforcement Administration-
Special Operations Division (SOD) to support these
investigations. FinCEN also works with the Federal Bureau of
Investigation-led Joint Criminal Opioid Darknet Enforcement (J-
CODE) team, which, among other investigative activities,
targets illegal opioid distribution on the Darknet.
Utilizing multiple sources of information, FinCEN is also
working to identify the illicit financial networks and related
financial activity directly linked to Mexican cartel money
laundering. This illicit financial activity includes money
laundering conducted through networks of money brokers, as well
as the outsourcing of money laundering activity to professional
or third-party money laundering organizations, such as CMLOs.
Treasury also leverages its unique expertise and
capabilities to interdict and disrupt the illicit financial
networks upon which these drug trafficking networks rely.
Treasury does this by targeting the financial supply chain
facilitating the trafficking of illicit fentanyl, other deadly
drugs, and their precursors with sanctions authorities through
Treasury's Office of Foreign Assets Control (OFAC). These
actions cut off illicit actors from the U.S. financial system
and shed light on their activity.
Q.31. Why has FinCEN not updated its fentanyl guidance since
2019?
A.31. On June 20th, FinCEN issued an advisory to alert U.S.
financial institutions to new trends in the illicit fentanyl
supple chain and urge vigilance in identifying and reporting
suspicious activity associated with Mexico-based transnational
criminal organizations and their illicit procurement of
fentanyl precursor chemicals and manufacturing equipment from
based suppliers based in the People's Republic of China (PRC).
FinCEN also engages with the private sector on fentanyl
trafficking and related money laundering activities through its
FinCEN Exchange programs. FinCEN has launched a series of
fentanyl-focused regional FinCEN Exchanges called ``Promoting
Regional Outreach to Educate Communities on the Threat of
Fentanyl'' or PROTECT. This series of FinCEN Exchanges have
thus far been held in Boston, Massachusetts and Tucson, Arizona
and will continue to be held in U.S. cities around the country
that are among the most impacted by the opioid epidemic and
opioid-related financial flows. FinCEN is undertaking these
events in coordination with the Internal Revenue Service--
Criminal Investigation and other U.S. law enforcement agencies
as part of the Counter-Fentanyl Strike Force. Even before the
PROTECT series of FinCEN Exchanges, FinCEN brought together
Federal and local law enforcement and financial institutions to
discuss fentanyl-related financial flows in regionally focused
FinCEN Exchanges hosted in San Antonio, Texas; Los Angeles,
California; Phoenix, Arizona; and Cincinnati, Ohio.
Q.32. FinCEN is now in the process of the rollout of the
beneficial ownership registry and I am closely following the
rollout of the registry. This rollout must balance national
security with compliance and burden realities for our small
businesses, which are the lifeblood of our county. That is why
I introduced the Protect Small Businesses and Prevent Illicit
Financial Activity Act to extend the timeline for small
businesses to comply with the beneficial ownership
requirements.
How many businesses are currently registered with the
FinCEN beneficial ownership database?
A.32. FinCEN had received more than 2.4 million filings as of
June 20, 2024.
Q.33. How many businesses are required to file with the FinCEN
beneficial ownership database?
A.33. In the regulatory impact analysis for the beneficial
ownership information reporting final rule, FinCEN estimated
that approximately 32.6 million reporting companies will be
required to report in the first year and 5 million new
reporting companies will be required to report in each of the
subsequent nine years. To estimate the number of reporting
companies, FinCEN first estimated the total number of entities
that could be reporting companies and then subtracted the
number of entities FinCEN estimates will be exempt from the
reporting company definition.
As noted in that analysis, FinCEN does not have definitive
counts of reporting companies. Although FinCEN has identified
information that is relevant to the estimate, that information
cannot be used in the analysis to estimate the number of
reporting companies without caveats.
For instance, only certain types of domestic entities are
reporting companies (i.e., a corporation, limited liability
company, or other entity that is created by the filing of a
document with a Secretary of State or any similar office under
the law of a State or Indian Tribe, with certain exemptions).
To determine the number of domestic reporting companies in the
final rule's analysis, FinCEN first estimated the total number
of domestic entities, regardless of type, that would be in
existence at the rule's effective date and then created yearly
thereafter. FinCEN, however, was not able to limit its estimate
of domestic entities to specific entity types that fall under
the rule's requirements. FinCEN could not do so because not all
entity types are specified in the underlying data and State-by-
State filing practices vary. Thus, while FinCEN's methodology
simplified the analysis, it may have overestimated the number
of affected entities and total burden and costs.
Q.34. What is your end-of-year projection for the number of
small businesses to be registered with FinCEN?
A.34. As noted above, FinCEN estimates that 32.6 million
existing companies will be required to report in the first
year.
Q.35. What will happen when criminal penalties go live and
there are a large number of small businesses which are
noncompliant?
A.35. The ultimate goal of the Corporate Transparency Act (CTA)
is to protect U.S. economic and national security, and not
burden America's small businesses with excessive fines,
penalties, or burdens. Furthermore, the statute penalizes only
willful noncompliance.
FinCEN continues to prioritize outreach efforts to small
businesses to spread awareness about the CTA's requirements and
encourage compliance. [We have created a range of tools to help
promote compliance--including Frequently Asked Questions, a
Small Entity Compliance Guide (available in multiple
languages), and a Beneficial Ownership Contact Center--that can
be found on our website at www.fincen.gov/boi.]
Q.36. How will FinCEN handle enforcement in this scenario? Are
we setting ourselves up for a case of selective enforcement?
A.36. The civil and criminal penalties in the Corporate
Transparency Act (CTA) apply to willful violations, which the
CTA defines as a voluntary, intentional violation of a known
legal duty. Should a person willfully fail to report complete
or updated beneficial ownership information to FinCEN in
accordance with the regulations, FinCEN will consider the
appropriate enforcement response in light of relevant facts and
circumstances.
Q.37. What steps are you taking and what commitments can you
make that the beneficial ownership registry won't be used to
target politically unsavory businesses?
A.37. FinCEN is working closely with authorized recipients of
beneficial ownership information to ensure that they understand
their roles and responsibilities with respect to access and use
of that information. This includes ensuring that authorized
users are aware of the limitations on the use the reported
information, as well as the protocols for handling beneficial
ownership information in a way that protects its
confidentiality.
Q.38. I am extremely concerned by the growing influence of
China on our educational institutions--from our elementary
schools to our college campuses. Education is a cornerstone of
our country and the path to innovation, the lifeblood of our
economy. It's no secret that China has long targeted our
educational institutions for their research and innovations.
Which is why I passed a bill in last year's NDAA that required
your department to review Chinese gifts and grants to U.S.
institutions of higher learning. I look forward to the findings
from the report which are due by June 19th of this year.
Mr. Deputy Secretary, as part of my reporting requirements,
has Treasury considered expanding the use of the non-SDN
Chinese Military Industrial Complex list to limit CCP influence
over our education system?
A.38. Treasury is using all the tools available to it to
counter PRC malign activities. We have multiple sanctions
authorities, in addition to E.O. 13959 pursuant to which we
have taken action in response to PRC malign behavior and
influence. We would be interested in hearing about the specific
PRC activity or behavior of concern in the education sector and
ascertaining whether a sanctions response is the appropriate
tool.
Q.39. Tutor.com, one of the largest tutoring companies that
services K-12, libraries, and the U.S. military, was recently
purchased by a Chinese private equity firm. It was my
understanding that this went through CFIUS review, and a
binding legal commitment with the U.S. Government was reached.
As you well know, China's national security law means that the
acquiring Chinese firm could be compelled to share information
with the Chinese Government. Therefore, it is a very real
possibility that information on American children, our most
precious resource, would be shared directly with the Chinese
Communist Party.
Did the Treasury Department review this case?
If so, what mitigation procedures were put in place?
What assurances can you provide to Congress that the CCP
will not be able to access data or influence content on a
platform that serves the U.S. educational system and our
military?
What are you doing to combat CCP-influence in our education
system?
A.39. The Department of the Treasury is fully committed to
keeping Congress informed about the activities of CFIUS. CFIUS
is subject to strict statutory confidentiality provisions and,
consistent with law and practice, does not comment publicly on
whether a particular transaction has been reviewed or is
undergoing review. After consideration of a transaction is
complete and consistent with its authorizing statute, CFIUS
provides Members of Congress specified in its authorizing
statute with a summary of the transaction, and upon request,
classified briefings. As required by law, CFIUS also provides
Members of Congress specified in its authorizing statute with a
classified annual report detailing information about
transactions and related information.
Q.40. Your testimony focused on how effective Treasury has been
in combating illicit finance with digital assets through the
use of its existing tools.
What specific actions have you not been able to take with
the current tools that Treasury has at its disposal?
A.40. Our 2024 National Risk Assessments identified that a
variety of threat actors, including ransomware actors, drug
traffickers, North Korean cyber actors, and terrorists, often
use foreign-based virtual asset service providers, or VASPs,
operating in jurisdictions without effective AML/CFT
obligations to launder or move their funds. Treasury is using
our authorities when available to address these risks. In
November, FinCEN and OFAC, along with the Department of Justice
and the Commodity Futures Trading Commission, took
unprecedented enforcement actions with a total settlement
amount over $4 billion against Binance. These actions were the
largest in the history of Treasury and for FinCEN and OFAC.
However, to fully address illicit finance risk associated
with digital assets, Treasury should be equipped with
additional tools and resources. Treasury has been working with
Congress on a number of proposals, including several that would
enhance Treasury's ability to control risk associated with
foreign actors, including VASPs. Several of the proposals would
extend our sanctions authorities to address risks presented by
foreign VASPs, including some stablecoin issuers. For example,
one proposal is designed to ensure that OFAC sanctions apply to
issuers of U.S. dollar-backed stablecoins. This would be a
critical tool as evidenced by recent press articles indicating
that such stablecoins have been used to make payments involving
OFAC-designated persons. Treasury also proposed that
legislation clarify that Bank Secrecy Act (BSA) jurisdiction
extends to entities abroad with U.S. touchpoints.
Additionally, Treasury is seeking creation of a new
financial institution type in the BSA for digital asset
entities, which could clarify coverage of entities in the
digital asset ecosystem. This could be particularly helpful for
instances in which digital asset entities have claimed that
they do not meet the definition of financial institutions for
the BSA because they may lack a centralized operator or
organization, or may not take custody of funds. Our proposal
ensures that the BSA comprehensively covers digital asset
actors and that the relevant entities in the digital asset
ecosystem have the necessary obligations to mitigate illicit
finance risks under the BSA.
Q.41. Deputy Secretary Adeyemo, recent reporting has indicated
that Russian oligarchs are using Third Party Litigation
Financing (TPLF) through the U.S. court system as a method of
sidestepping U.S. sanctions, detailing how Russian billionaires
with ties to President Vladimir Putin are funneling money into
active litigation in exchange for a portion of any settlement
or award from a lawsuit.
Has Treasury analyzed how foreign entities could use TPLF
as a way to get around U.S. sanctions?
A.41. Treasury continues to analyze and take steps to counter
sanctions evasion in many forms. Financial institutions and
other market participants should exercise risk-based compliance
and due diligence in scrutinizing transactions linked to TPLF
as they do for other types of financial transactions.
Q.42. If so, has Treasury taken any steps to prevent these
attempts to sidestep U.S. sanctions?
A.42. Treasury engages in robust outreach to financial
institutions and other stakeholders to promote sanctions
compliance in all types of financial transactions and
structures, including TPLF, and to investigate and enforce
against potential violations.
Q.43. Will Treasury take steps to work with Congress in order
to increase transparency regarding foreign TPLF within the U.S.
court system?
A.43. Treasury will come back to Congress quickly if we
conclude that additional authorities are necessary to address
this issue.
Q.44. What additional threats to U.S. national security are
posed by foreign adversaries engaged in TPLF?
A.44. Undisclosed financing by foreign adversaries can pose a
national security threat. Additional transparency can be very
important to mitigating this risk. A better understanding of
when activities are financed by foreign adversaries generally
will help Treasury better use our tools and ensure that the
American people are aware of who is financing what.
Q.45. I am closely monitoring the effectiveness of our
sanctions on Russia and their ability to deny Russia resources
for its war in Ukraine.
In your opinion, has the Russian oil price cap been
effective?
A.45. Under the price cap, the United States, along with
members of the G7 and Australia and New Zealand, have worked
together to restrict Russia's oil revenues, while supporting
global energy market stability. Russia has responded by selling
its oil at a significant discount. The discount on Russia's
Urals grade, Russia's main crude grade, averaged over $23 per
barrel in 2023--in oil markets where discounts of a dollar or
two normally cause arbitrageurs to swoop in. Kremlin oil tax
revenue was approximately 30 percent lower in 2023 as compared
to 2022. Over the past year, Russia has been forced to invest
resources to try and evade our restrictions and, in response,
we have increasingly tightened enforcement of the price cap.
Our data shows that Coalition sanctions enforcement is forcing
Russia to sell oil at a steeper discount--a reassuring
endorsement of our multilateral approach.
Q.46. What steps are you taking to curb long-term Western
reliance on Russia's State-owned nuclear energy provider,
Rosatom?
A.46. The United States is working together with partners to
reduce our coalition's remaining dependence on Russian nuclear
fuel and other civil nuclear services. We are working to create
shared supply chains for nuclear fuel and we are ramping up
production of enriched uranium from non-Russian sources. Our
efforts to reduce Russian revenues are enhanced by the cohesion
of our coalition, and so we remain mindful of the need to work
closely with our partners to mitigate the potential collateral
effects of our actions.
Q.47. The Biden administration's February 1, 2024, Executive
order and sanctions on Israeli settler violence, of which three
of the four sanctioned individuals were already undergoing
prosecution by Israel, a close U.S. ally. This E.O. and the use
of the Specially Designated Nationals and Blocked Persons list,
which is overseen by your department, occurred on the same day
that President Biden made a political visit to Michigan. While
violence should never be condoned, I am concerned that this
exercise could have political issues.
How do sanctions on individuals in allied Nations who are
already facing criminal prosecution strengthen our national
security?
A.47. These sanctions, like all sanctions, strengthen our
national security by cutting off the SDNs' ability to access
and profit from the U.S. financial system. Violent West Bank
extremist settlers, including those sanctioned, rely on
financial support from across the world to pursue their illegal
and destabilizing activities. These sanctions also demonstrate
to the Government of Israel (GoI) how concerning the worsening
violence in the West Bank is and that greater steps need to be
taken to protect the safety and security of both Israelis and
Palestinians. Absent urgent GoI action, Treasury will continue
to assure that the U.S. financial system is not involved in
facilitating the activities of destabilizing extremists.
Q.48. In your meetings in advance of the Executive order, was
the President's visit to Michigan mentioned?
A.48. No. The President's travel to Michigan was not mentioned
to me in connection with the release of the Executive order.
Q.49. Could you provide me an update on the status of OFAC's
creation of a sanction's violation whistle-blowing program?
What steps are you taking to ensure that the program
protects national security and is not abused by bad actors and
criminal organizations?
A.49. The AML Act of 2020 (AML Act) enabled the creation of the
Office of the Whistleblower (OWB) within FinCEN and provided
for the payment of awards for certain violations of the Bank
Secrecy Act and certain sanctions authorities. In December
2022, Congress enacted the AML Whistleblower Improvement Act
(the Act), which expanded the scope of violations to include
most U.S. economic sanctions. Since February 2023, OFAC has
been actively reviewing and investigating whistleblower tips
received and processed by FinCEN's OWB. Pursuant to the
statute, OFAC will not create its own whistle-blower program,
but will use FinCEN's.
To help ensure that the program protects national security
and is not abused by bad actors and criminal organizations,
OFAC coordinates closely with FinCEN's OWB.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM ADEWALE O. ADEYEMO
Q.1. Last year, the Federal Reserve Bank of Kansas City
published research \1\ that alleged many Bitcoin ATM operators
``do little or nothing to comply with existing regulations.''
Bitcoin ATMs are money services businesses and therefor are
subject to State and Federal rules related to the Bank Secrecy
Act and anti-money laundering (AML) rules.
---------------------------------------------------------------------------
\1\ Noll, Franklin, ``The Controversial Business of Cash-to-Crypto
Bitcoin ATMs'', Federal Reserve Bank of Kansas City, August 30, 2023.
https://www.kansascityfed.org/research/payments-system-research-
briefings/the-controversial-business-of-cash-to-crypto-bitcoin-atms/
---------------------------------------------------------------------------
Do Federal and State regulators both have authority to
regulate and oversee Bitcoin ATM and other cryptocurrency ATM
operators?
Does the Department of the Treasury coordinate with State
regulators to ensure Bitcoin ATM and other cryptocurrency ATM
operators are complying with BSA and AML regulations?
Are all cryptocurrency ATMs considered money services
businesses? Is there any regulatory arbitrage that operators
can take advantage of to skirt Federal and State regulation?
Is Treasury, or other Federal or State regulators, aware of
the level of money laundering and scams facilitated through
cryptocurrency ATMs?
A.1. As articulated in FinCEN's 2019 guidance on the treatment
of business models involving convertible virtual currencies
under the Bank Secrecy Act (BSA), FinCEN views virtual asset
kiosk owners and operators, often called cryptocurrency ATMs,
to be money services businesses (MSBs) under the BSA. \2\ As
such, virtual asset kiosk owners and operators must register
with FinCEN, establish and implement an effective AML program
and comply with applicable recordkeeping and reporting
requirements, including suspicious activity report (SAR) filing
obligations.
---------------------------------------------------------------------------
\2\ Financial Crimes Enforcement Network, ``Application of
FinCEN's Regulations to Certain Business Models Involving Convertible
Virtual Currencies (FIN-2019-G001)'', (May 9, 2019) at p. 17.
---------------------------------------------------------------------------
Like other MSBs, virtual asset kiosk owners and operators
are subject to routine compliance examinations to determine
their compliance with anti-money laundering/countering the
financing of terrorism (AML/CFT) requirements by FinCEN's
delegated examiners for MSBs, the IRS Small Business/Self-
Employed Division. The IRS refers matters to FinCEN when its
examinations of MSBs find significant violations of the BSA.
FinCEN may then take enforcement action against such MSBs.
Like other financial institutions, virtual asset kiosk
owners and operators may be exploited to facilitate illicit
finance when appropriate controls are not in place. Treasury is
aware of risks associated with such kiosks and has undertaken
efforts to highlights risks to industry, law enforcement, and
other regulators. As noted in Treasury's 2024 National Money
Laundering Risk Assessment, for example, some perpetrators of
scams or fraud may direct victims to use virtual asset kiosks
to purchase virtual assets with fiat currency and send virtual
assets to the perpetrator. In April 2024, FinCEN's Financial
Trend Analysis on Elder Financial Exploitation noted that kiosk
operators filed over 4,000 SARs in a 1-year period related to
suspected elder financial exploitation. \3\ In February of this
year, FinCEN's Financial Trend Analysis on Use of Convertible
Virtual Currency for Suspected Online Child Sexual Exploitation
and Human Trafficking, identified 17 BSA reports involving
virtual asset kiosks and suspected human trafficking activity.
\4\
---------------------------------------------------------------------------
\3\ Financial Crimes Enforcement Network, ``Threat Pattern & Trend
Information, June 2022 to June 2023'', (Apr. 2024).
\4\ Financial Crimes Enforcement Network, ``Financial Trend
Analysis: Use of Convertible Virtual Currency for Suspected Online
Child Sexual Exploitation and Human Trafficking: Threat Pattern & Trend
Information, January 2020 to December 2021'', (Feb. 2024).
---------------------------------------------------------------------------
Treasury recognizes that MSBs that fail to meet their
obligations under the BSA present risks and is looking closely
at the illicit finance risks that virtual asset kiosks present.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM ADEWALE O. ADEYEMO
Q.1. It has widely been reported that the payment stablecoin
tether, or USDT, is the most used stablecoin for criminal
activity in cryptocurrency. \1\ Additionally, in your written
testimony, you specifically cite, ``[W]e've seen Russia
increasingly turning to alternative payment mechanisms--
including the stablecoin tether--to try to circumvent our
sanctions and continue to finance its war machine. \2\
Currently, Congress is considering legislation to regulate
payment stablecoins, \3\ with the House of Representatives
having marked up legislation that would create a regulatory
framework for payment stablecoins. \4\
---------------------------------------------------------------------------
\1\ See Ben Foldy, ``From Hamas to North Korean Nukes,
Cryptocurrency Tether Keeps Showing Up'', Wall Street Journal (October
27, 2023), https://www.wsj.com/finance/currencies/most-popular-
cryptocurrency-keeps-showing-up-in-illicit-finance-71d32e5e; Suvashree
Ghosh, ``Tether Is the Most Used Stablecoin in Illicit Crypto Flows,
TRM Says'', Bloomberg (March 27, 2024), https://www.bloomberg.com/news/
articles/2024-03-27/tether-usdt-is-most-used-stablecoin-in-illicit-
crypto-flows-trm-says.
\2\ An Update from the Treasury Department: ``Countering Illicit
Finance, Terrorism and Sanctions Evasion Before the U.S. Senate
Committee on Senate Banking, Housing, and Urban Affairs'', 118th Cong.
(April 9, 2024) (statement of Mr. Wally Adeyemo, United States Deputy
Secretary of the Treasury), https://www.banking.senate.gov/imo/media/
doc/adeyemo-testimony-4-9-243.pdf.
\3\ Clarity for Payment Stablecoins Act of 2023, H.R. 4766, 118th
Cong. (2023).
\4\ Markup of H.R. 4766, H.R. 4841, H.R. 4790, H.R. 4767, H.R.
4823, H.R. 4655, H.J. Res. 66, 118th Cong. (July 27, 2023), https://
financialservices.house.gov/calendar/eventsingle.aspx?EventID=408925.
---------------------------------------------------------------------------
Will this legislation be sufficient in halting the use of
tether to finance illicit activities by Russia, Hamas, Iran,
North Korea, China, and other American adversaries?
If not, what additional tools does the Administration
require from Congress to crack down on tether being used to
evade sanctions and fund adversaries through illicit means?
A.1. Treasury is looking closely at how illicit actors are
misusing virtual assets and taking steps to mitigate these
risks, and we assess that the legislation to create an improved
regulatory framework for payment stablecoins would be a
positive step forward in addressing these risks. While we note
that stablecoin administrators, which are entities engaged as a
business in issuing or putting a virtual currency into
circulation, currently have AML/CFT obligations as money
services businesses under the Bank Secrecy Act, Treasury
supports the imposition of bank-like prudential and AML/CFT
obligations under the BSA on stablecoin issuers, with the
Federal Reserve (or another banking agency) being responsible
for supervision and examination. These changes would strengthen
the U.S. Government's ability to mitigate illicit finance risks
within the stablecoin ecosystem.
In addition to this legislation, Treasury has proposed
other commonsense reforms specific to our AML/CFT and sanctions
frameworks that update our tools and authorities to match the
evolving challenges in the virtual asset ecosystem. These
proposals include a proposal related to ensuring that OFAC
regulations apply to issuers of U.S. dollar-backed stablecoins,
and a proposal clarifying that the BSA applies
extraterritorially.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR FETTERMAN FROM ADEWALE O. ADEYEMO
Q.1. Hezbollah financier Nazem Ahmad was indicted by the
Federal Government for using works of art to evade sanctions.
Russian Oligarch Roman Abramovich used his billion-dollar art
collection to evade sanctions. The art market is largest asset
class not yet covered by compliance with the Bank Secrecy Act.
Do you agree that players in the art market should have to
abide by the same level of counter terror-financing and anti-
money laundering compliance as banks, jewelers, and pawn shops?
A.1. As discussed in the 2022 Treasury study on illicit finance
in the art market, while there is little risk of terrorist
financing in the art market, the art market has several
characteristics that make it susceptible to money laundering.
However, there are also several mitigating factors unique to
the art market that alleviate some of this money laundering
risk. For example, art market participants such as auction
houses and galleries also have other business incentives to
identify and evaluate the ultimate seller and purchaser of
works, such as reputation concerns and credit risk.
The use of shell companies is pervasive in the art market,
often for legitimate reasons such as privacy and protection of
high-value assets. Illicit actors (including in both
highlighted cases) abuse this standard practice to facilitate
their crimes. Implementation of the Corporate Transparency Act,
which requires certain companies doing business in the United
States to report their beneficial ownership information to
FinCEN, will help to alleviate this transparency problem.
Further, the scale and structure of the art market make it
comparatively less risky than banking or the precious metals,
stones, and jewels (PMSJ) sectors. The art market is an
estimated $27 billion in the United States, while the jewelry
market alone is estimated to be more than twice that size, the
U.S. banking sector holds over $20 trillion, and investment
advisers, which are not subject to comprehensive AML/CFT
requirements, manage over $120 trillion in assets.
Any regulatory regime focused on the art market would also
require commensurate supervisory and enforcement resources so
that the regime could be implemented effectively. At the
moment, Treasury is focused on work to close outstanding gaps
in the U.S. AML/CFT regime related to real estate, and
investment advisers.
Q.2. In 2020 congress overhauled protections for whistleblowers
calling out money laundering. However, the bill specifically
excluded bank and credit union employees from anti-retaliation
protections, under 31 U.S.C. 5323(g)(6). Do you agree that bank
employees should get robust protections when they blow the
whistle on money laundering?
A.2. Regardless of which statutory framework applies, eligible
whistleblowers participating in FinCEN's whistleblower program
should be afforded robust anti-retaliation protections. The
anti-retaliation protections that are afforded under 31 U.S.C.
5323 are administered by the Department of Labor's Occupational
Safety and Health Administration (OSHA).
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BUTLER
FROM ADEWALE O. ADEYEMO
Q.1. Emerging Threats to Younger Investors--Deputy Secretary
Adeyemo, thank you for appearing before this Committee today
and for your service to our country. You have taken substantial
efforts at Treasury to crackdown on the illicit financing of
terrorism, especially the involvement of cryptocurrencies.
Fraud and crime focused on cryptocurrency is also a growing
problem as you know. According to the FBI's Internet Crime
Complaint Center's annual report, crypto related fraud
complaints have expanded substantially over the last few years,
with $907 million record in 2021 to $2.57 billion only one year
later. I am concerned about younger generations who have become
the largest group of cryptocurrency holders; Pew Research has
published that 28 percent of U.S. adults between 18 to 29 have
invested traded, or used a cryptocurrency. Data also showed
that Gen Z Americans were three times more likely to get caught
up in an online scam than boomers and the cost of falling
victim to online scams has risen.
Deputy Secretary, while reading the 2024 anti-money
laundering report which discussed pig butchering scams, virtual
asset investment schemes, among other methods to defraud
Americans, I am specifically concerned for younger generations
who comprise the largest cryptocurrency customer base and seem
to be vulnerable to the risks associated with emerging
cryptocurrencies and their lack of regulation. Could you
elaborate on the emerging fraud tactics that target entry-
level, younger investors in the crypto space?
A.1. Treasury shares your concern about virtual asset
investment schemes (VAIS), which include a variety of
traditional fraud fact patterns based on misrepresentations
concerning potential investment opportunities in virtual
assets. As you note, VAIS often target a younger demographic,
with victims having a median age of between 30 and 49. While
many of the methods used by these scammers are similar to those
used by traditional fraudsters, they often take advantage of
the publicity around virtual assets to victimize investors.
With regards to emerging fraud tactics, U.S. law
enforcement is seeing fraudsters use a wide variety of
platforms to initiate ``pig butchering'' scams, including
contacting victims on social media, dating platforms, or text
messages purportedly sent to the wrong number. Scammers often
build rapport and gain trust with the victim before luring
victims into investing virtual assets using fake websites or
applications. The deception becomes apparent when victims
attempt to cash out their investments, or when the fraudster
terminates communication with the victim. Treasury has taken
steps to mitigate risks associated with these types of schemes,
including by publishing a FinCEN alert on ``pig butchering''
scams to help financial institutions detect, prevent, and
report potential suspicious activity related to these scams.
These red flags include behavioral, financial, and technical
indicators that may be indicative of a pig butchering scam.
Q.2. Crypto ATMs--One growing area of concern is crypto
automated teller machines (ATMs) that allow users to buy and
sell cryptocurrency for cash. After discussion with
California's Department of Financial Protection and Innovation,
I am concerned about these ATMs, which may charge up to 20
percent in exchange fees. In addition, the FBI noted an
increase in illicit actors that direct victims to use these
ATMs under false pretenses. Furthermore, these ATMs are not
insured by the FDIC, which prevent protections against theft or
loss of funds. Nationwide, there are over 31,000 of these ATMs
with over 10 percent (3,163) in California alone, with one of
these ATM operators generating over $700 million dollars in
revenue.
Deputy Secretary, while the 2024 anti-money laundering
report briefly mentioned how scammers may direct victims to use
virtual asset kiosks to purchase virtual assets with cash, I
believe the scale of revenue warrants greater investigation and
regulatory oversight. Can you elaborate on the shortfalls in
implementing AML/CFT (anti-money laundering and combating the
financing of terrorism) compliance at these crypto ATMs?
A.2. As articulated in FinCEN's 2019 guidance on the treatment
of business models involving convertible virtual currencies
under the BSA, FinCEN views virtual asset kiosk owners and
operators, often called crypto ATMs, to be money services
businesses (MSBs) for purposes of the Bank Secrecy Act (BSA).
As such, kiosk owners and operators have AML/CFT obligations,
including requirements to register with FinCEN, establish and
implement an effective AML Program, and recordkeeping and
reporting requirements, including suspicious activity report
(SAR) filing obligations. Like other MSBs, virtual asset kiosks
owners and operators are subject to routine compliance
examinations to determine their compliance with the AML/CFT
requirements by FinCEN's delegated examiners for MSBs, the IRS
Small Business/Self-Employed Division. MSBs that are found to
have significant violations of the Bank Secrecy Act are
referred to FinCEN for possible enforcement. Treasury
recognizes that MSBs that fail to meet their obligations under
the BSA present significant risks and is looking closely at the
illicit finance risks that virtual asset kiosks present.
Q.3. New Legislative Authority From Congress--I want to discuss
your efforts to expand Treasury's authority to go after illicit
actors in the digital asset space and to expand investor
protections and safeguards. I commend you on your efforts to
increase transparency of cryptocurrency to prevent future
exploitation of bad actors. With your efforts to expand
regulation of self-custody crypto wallets, I am interested in
hearing how expanding this regulation will prevent exploitation
of bad actors.
Deputy Secretary, could you elaborate on how the
implementation of self-custody crypto wallets would increase
consumer and investor protections, and if it would improve
consumer safety for crypto ATMs?
A.3. Treasury is concerned by the increasing disintermediation
of financial services in the digital assets sector, which
complicates efforts to identify and prevent abuses, such as
consumer fraud. We are carefully examining the use of self-
custody wallets, also referred to as unhosted wallets, that may
not involve a traditional financial services provider subject
to AML/CFT obligations.
As part of Treasury's efforts to ensure comprehensive
coverage of digital asset actors under the BSA, it is
supporting legislative efforts to provide for a new category as
a ``financial institution'' under the BSA that would more fully
cover actors in the digital asset space. This new category
could include, but is not limited to, virtual asset service
providers (VASPs), virtual asset wallet providers, and so-
called decentralized finance (DeFi) services. While many
virtual asset entities are currently considered financial
institutions under the BSA and its implementing regulations,
some have claimed that they are not subject to BSA requirements
at all.
The creation of a new financial institution would present
the opportunity to clarify the application of the BSA. It would
also help ensure that relevant entities in the digital asset
ecosystem have AML/CFT obligations to mitigate illicit finance
risks and that FinCEN promulgate appropriate obligations under
the BSA for particular types of activity based on the risk that
activity represents.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
FROM ADEWALE O. ADEYEMO
Q.1. Cryptocurrency--What does the U.S. Government do to limit
the misuse of cash that Stablecoin issuers are not doing?
A.1. In contrast to real currency (including cash), stablecoins
and other virtual assets are considered a medium of exchange
that operate like a currency in some environments, but they do
not have all the attributes of real currency. For instance,
virtual currency generally does not have legal tender status in
any jurisdiction. In this respect, virtual currency either has
an equivalent value of real currency, or acts as a substitute
for real currency. Additionally, stablecoins and other virtual
assets are not subject to the physical limitations of paper
money. Visibility into the movement of the asset also differs
between cash and stablecoins. There is limited ability to track
cash transactions outside financial institutions, but
blockchain technology typically provides some visibility into
virtual currency transactions, including stablecoin
transactions.
Currently, stablecoin administrators operating in the
United States are considered money services businesses under
the Bank Secrecy Act (BSA) and are required to register with
FinCEN, establish and implement an effective AML program, and
comply with applicable recordkeeping and reporting
requirements, including suspicious activity report (SAR) filing
obligations. All U.S. persons, wherever located--as well as
foreign companies engaging in transactions with a U.S. nexus--
are likewise required to comply with Office of Foreign Assets
Control (OFAC) sanctions. Failure to comply with these
requirements may result in criminal or civil penalties.
Under the BSA, financial institutions must report
suspicious activity conducted by, at, or through the
institution, whether that activity is cash or a virtual asset.
Additionally, physical currency transactions also have
additional reporting requirements when conducted in person. For
example, a financial institution is required to file a Currency
Transaction Report for one or more transactions in physical
currency with a customer that aggregate over $10,000 in a
business day. Separately, for transactions in physical currency
over $10,000 (in a single or related transactions) conducted by
a nonfinancial trade or business, relevant persons are required
to file an IRS/FinCEN Report of Cash Payments Over $10,000 in a
Trade or Business (referred to as the ``Form 8300''). These
reports are not currently required to be filed for transactions
that are not conducted in physical currency, including
stablecoins or other virtual assets.
Q.2. What kind of harms occur if illicit activity is conducted
using a digital asset rather than cash? Is the harm greater or
lesser?
A.2. Illicit actors use a variety of means to generate and
launder illicit funds, including through the use of cash or
virtual assets. In Treasury's National Risk Assessments on
Money Laundering, Terrorist Financing, and Proliferation
Financing, we consider the various threats to the U.S.
financial system and the vulnerabilities that they often
exploit to generate, launder, or otherwise move funds. Illicit
actors attempt to identify and exploit vulnerabilities in
specific financial sectors or products or weaknesses in
regulation, supervision, or enforcement.
The National Money Laundering Risk Assessment (NMLRA)
identified that cash presented vulnerabilities, including bulk
cash smuggling, cash consolidation cities, funnel accounts, and
cash-intensive businesses and front companies. The NMLRA also
identified several vulnerabilities associated with virtual
assets, including jurisdictional arbitrage, noncompliance by
virtual assets service providers (VASP) with BSA or sanctions
obligations, and the use of anonymity-enhancing technologies.
Overall, the risk assessments also noted that money laundering
and terrorist financing predominantly occur via traditional
methods, like cash, that do not involve virtual assets.
Q.3. Considering that the global financial system processes
trillions of dollars daily, can you provide concrete data that
clearly delineates the scale of cryptocurrency's use in illicit
finance compared to traditional financial systems? How do you
justify the disproportionate focus on cryptocurrencies given
their relatively minor role in global illicit transactions?
A.3. Treasury's 2024 National Risk Assessments reaffirm
findings from our 2022 risk assessments that money laundering,
proliferation financing, and terrorist financing most commonly
occurs using fiat currency or other traditional assets as
opposed to virtual assets. While this is important to keep in
mind, our assessments illustrate how illicit actors, including
ransomware actors, North Korean cybercriminals, and scammers
use virtual assets to generate and launder their illicit funds.
We have also seen the use of virtual assets by other illicit
actors grow as virtual assets become more widely used-for
example, drug traffickers are increasingly using virtual assets
in the procurement of fentanyl precursor chemicals. As such,
the United States is compelled to consider and take steps to
address these illicit finance risks associated with virtual
assets as we do with risks associated with fiat currency and
traditional money laundering methods.
Q.4. What empirical evidence can Treasury provide to support
the notion that cryptocurrencies significantly contribute to
terrorism financing compared to traditional financial systems?
How do these findings justify the current regulatory approach?
A.4. Through consultations with the interagency and a review of
law enforcement cases, Treasury identified in the 2024 National
Terrorist Financing Risk Assessment (NTFRA) that both
international terrorist and domestic violent extremist groups
have continued using virtual assets to generate and transfer
funds. Since the 2022 NTFRA, certain terrorist groups, such as
ISIS-Khorasan and Hamas, have increased their understanding of
and are experimenting with different types of virtual assets.
We identified that terrorist groups using virtual assets mostly
do so for fundraising online, and the NTFRA includes a case
example in which DOJ filed a complaint charging four defendants
with conspiring to provide material support to ISIS.
The U.S. Government assesses that terrorists still prefer
traditional financial products and services, although we
recognize that terrorists, like other illicit actors, are drawn
to where liquidity meets gaps in our AML/CFT framework. As
such, we continue to assess illicit finance risks associated
with virtual assets and take steps to mitigate those risks in
the same way as we do with other parts of the U.S. financial
system.
Q.5. Given the evidence that cryptocurrency-related illicit
activities represent a minimal fraction of overall
transactions, can you justify Treasury's disproportionate focus
on digital currencies? Is this focus truly about combatting
illicit finance, or is there an underlying agenda to expand
regulatory control over the burgeoning cryptocurrency market?
A.5. As stated above, while we assess that money laundering,
proliferation financing, and terrorist financing most commonly
occurs using fiat currency or other traditional assets as
opposed to virtual assets, we are compelled to consider and
take steps to address these illicit finance risks associated
with virtual assets as we do with risks associated with fiat
currency and traditional methods.
Q.6. Given the blockchain's inherent transparency and the
advanced capabilities of traceability tools, can you explain
how Treasury is leveraging this technology to enhance law
enforcement efforts?
A.6. Importantly, not all blockchains have the same attributes
and, as such, some provide more transparency into transactions
than others. With that said, public ledgers can generally
support investigations by competent authorities in tracing the
movement of illicit proceeds. While the ledgers do not contain
names or traditional account identifiers associated with any
particular address, regulators and law enforcement can in some
cases take viewable pseudonymous user and transaction
information and pair it with other pieces of information to
identify transaction participants. Regulatory agencies and law
enforcement may use multiple complementary third-party tools to
identify, trace, and attribute many virtual asset transactions
on most virtual asset blockchains. Additionally, records from
the blockchain have been admitted as evidence in court cases,
and blockchain analysis was determined to be a reliable
foundation for probable cause for a search warrant application.
Q.7. Sanctions and Third Party Litigation Funding--A recent
article in Bloomberg Law found that an investment firm founded
by Russian billionaires with ties to Vladimir Putin has
financed lawsuits around the world, in some cases working with
the company's directors, clients, and Russian banks in an
effort to evade international sanctions. The article goes on to
highlight that: ``While banks and financial firms are easy
targets for Western Governments, the opaque world of litigation
finance is more elusive. With no reporting requirements and few
regulations, deep-pocketed investors can pour millions of
dollars into a case without ever appearing on a court docket.
That's opened a new kind of cross-border cash spigot used to
skirt international law and the spirit of why sanctions were
imposed in the first place.''
Are you familiar with foreign investment in third-party
litigation financing? What role do you think that the Treasury
Department should play to protect against sanctions evasions
and other national security issues?
A.7. While I cannot comment on the specific reporting from
Bloomberg Law, I am aware of reports that foreign adversaries
are using third-party litigation financing (TPLF) to evade U.S.
and other sanctions. Treasury staff have met with stakeholders
on this issue, and we continue to learn more about the issue.
Treasury continues to analyze and take steps to counter
sanctions evasion in any form. Financial institutions and other
market participants should exercise the same risk-based
diligence in scrutinizing transactions linked to TPLF as they
do for other types of financial transactions.
Q.8. Would you agree that Treasury should know when and how
foreign-sourced money is being invested in U.S. litigation
against American businesses in exchange for a cut of the
settlement or awards through third-party litigation finance?
A.8. Increasing transparency is one of the most important steps
to prevent abuse of the U.S. financial system.
Q.9. Should we limit the ability of foreign Governments to
negatively impact various U.S. industries by accessing
sensitive information and tying up critical industries in
anonymous third-party litigation?
A.9. We agree that it is important for U.S. industries to
protect sensitive information. Treasury will come back to
Congress quickly if we conclude that additional authorities are
necessary.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAMER
FROM ADEWALE O. ADEYEMO
Q.1. Proposed legislation from the State of New York to
restructure sovereign debt contracts is estimated to affect
over $850 billion in outstanding debt from emerging markets
(Campos). While the bill sponsors seek to address the economic
impact of holdout creditors on the poorest of these sovereign
issuers, they ignore the negative impact that the bill's
retroactive application will have on all sovereign bonds
governed by N.Y. law. The $850 billion in bonds are held by
N.Y. investors, either directly or indirectly through mutual
funds, retirement plans, and other pension vehicles.
Additionally, some of this $850 billion is also held by other
State and city retirement systems; therefore, extending the
potential negative ramifications well beyond New York
constituents.
Does the Treasury Department plan to conduct an impact
analysis to determine the potential effect the bill may have on
the assets on New York retirement and pension plans, as well as
the potential impact on pension plans throughout our country?
A.1. Treasury has not commented on the proposed New York
legislation. The scoring and effects of proposed legislation in
New York would be handled by the appropriate New York State
office or agency.
Q.2. The Sovereign Debt Stability Act ``seeks to encourage
constructive resolution and ensure that access to N.Y. courts
is not abused by holdout creditor''. However, it is important
to note that ``collective action clauses have been included in
[over 90 percent] of the new issuances from 2014 to 2020,''
(Republic of Argentina v. NML Capital, Ltd., 2012) and the
International Monetary Fund (IMF), in referencing Collective
Action Clauses, has stated that ``these clauses appear to be
the best protection for sovereigns against so called `holdout'
litigation'' (International Monetary Fund).
Why is legislation needed if the IMF has noted existing
collective action clauses are the best protection?
Could the Treasury Department provide insights on the
necessity of legislation given the IMF's assertion that
existing collective action clauses offer the best protection?
In light of the IMF's view, is there consideration in limiting
the applicability of the proposed bill to sovereign bonds that
do not have an existing collective action clause. \1\
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\1\ References: Campos, R. (2024, March 11). ``Explainer: New York
Lawmakers Tackle Sovereign Debt Reworks Again''. Retrieved from
Reuters: https://www.reuters.com/business/finance/new-york-lawmakers-
tackle-sovereign-debt-reworks-again-2024-03-11/; International Monetary
Fund (2020). ``The International Architecture for Resolving Sovereign
Debt Involving Private-Sector Creditors--Recent Developments,
Challenges, and Reform Options''. International Monetary Fund. NML
Capital, Ltd. v. Republic of Argentina. (2012, October 26). Retrieved
from Casetext: https://casetext.com/case/nml-capital-ltd-v-republic-of-
argentina.
A.2. Treasury has not commented on the proposed New York
legislation and cannot speak for members of the New York State
legislature regarding their consideration of any limitations to
the proposed bill. In general, Treasury has long supported
voluntary and consensual sovereign debt restructuring processes
consistent with the principle of comparability of treatment and
enforceability of contractual rights, and views collective
actions clauses as an important enhancement to the sovereign
debt restructuring framework.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
FROM ADEWALE O. ADEYEMO
Q.1. Deputy Secretary, there is common agreement that there are
roughly $300 billion in frozen Russian Government assets around
the world. Can you confirm that this number is relatively
accurate, and what is the Treasury's estimate of how much of
that is frozen within the United States?
A.1. It is our understanding that the sum of immobilized
Russian sovereign assets held around the world totals nearly
$300 billion. We would point you to press reporting indicating
that approximately $5 billion worth of these immobilized
Russian sovereign assets are within U.S. jurisdiction.