[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
FOLLOWING THE MONEY: TOOLS AND
TECHNIQUES TO COMBAT FRAUD
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL SECURITY, ILLICIT
FINANCE, AND
INTERNATIONAL FINANCIAL INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
APRIL 1, 2025
__________
Serial No. 119-12
Printed for the use of the Committee on Financial Services
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
59-941 PDF WASHINGTON : 2025
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HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
------
SUBCOMMITTEE ON NATIONAL SECURITY, ILLICIT FINANCE, AND INTERNATIONAL
FINANCIAL INSTITUTIONS
WARREN DAVIDSON, Ohio, Chairman
ZACHARY NUNN, Iowa, Vice Chairman JOYCE BEATTY, Ohio, Ranking Member
FRANK D. LUCAS, Oklahoma JOSH GOTTHEIMER, New Jersey
PETE SESSIONS, Texas JUAN VARGAS, California
ANDY BARR, Kentucky BILL FOSTER, Illinois
ROGER WILLIAMS, Texas VICENTE GONZALEZ, Texas
YOUNG KIM, California RITCHIE TORRES, New York
ANDREW OGLES, Tennessee SEAN CASTEN, Illinois
LISA McCLAIN, Michigan SAM LICCARDO, California
MARIA SALAZAR, Florida
C O N T E N T S
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Tuesday, April 1, 2025
OPENING STATEMENTS
Page
Hon. Warren Davidson, Chairman of the Subcommittee on National
Security, Illicit Finance and International Financial
Institutions, a U.S. Representative from Ohio.................. 1
Hon. Joyce Beatty, Ranking Member of the Subcommittee on National
Security, Illicit Finance and International Financial
Institutions, a U.S. Representative from Ohio.................. 3
STATEMENTS
Hon. Maxine Waters, Ranking Member of the Financial Services
Committee, a U.S. Representative from California............... 4
WITNESSES
Mr. Darrin McLaughlin, Executive Vice President and Chief BSA/AML
& Sanctions Officer, Flagstar Bank, on behalf of the American
Bankers Association (ABA)...................................... 5
Prepared statement........................................... 7
Ms. Jacqueline Burns Koven, Head of Cyber Threat Intelligence,
Chainalysis.................................................... 17
Prepared statement........................................... 19
Mr. Jeff Brabant, Vice President, Federal Government Relations,
National Federation of Independent Business (NFIB)............. 30
Prepared statement........................................... 32
Ms. Kathy Stokes, Director, Fraud Prevention Programs, on behalf
of the American Association of Retired Persons (AARP).......... 38
Prepared statement........................................... 40
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Maxine Waters:
Financial Accountability and Corporate Transparency (Fact)
Coalition.................................................. 76
CFP Submissions:
CFP Board Letter............................................. 79
How to Protect Yourself Against Scams........................ 81
Protecting Your Elderly Parent form Financial Fraud.......... 85
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
Maxine Waters
Ms. Jacqueline Burns Koven................................... 88
Ms. Kathy Stokes............................................. 90
LEGISLATION
H.R. 1799, the Financial Reporting Threshold Modernization Act... 93
H.R. 425, the Repealing Big Brother Overreach Act................ 96
H.R. ------, the Repealing Big Brother Overreach Act............. 99
H.R. ------, the Guarding Unprotected Aging Retirees from
Deception (GUARD) Act.......................................... 101
H.R. ------, the Stop Foreign Scammers Act of 2025............... 112
H.R. ------, the Accountability through Confirmation Act......... 115
H.R. ------, the Bringing Real Accountability Via Enforcement
(BRAVE) in Burma Act........................................... 117
H.R. ------, the Financial Access Improvements Act............... 124
H.R. ------, the Foreign Affiliates Sharing Pilot Program
Extension Act.................................................. 128
H.R. ------, the Kleptocracy Asset Recovery Rewards Program Act.. 130
FOLLOWING THE MONEY: TOOLS AND
TECHNIQUES TO COMBAT FRAUD
----------
Tuesday, April 1, 2025
U.S. House of Representatives,
Subcommittee on National Security,
Illicit Finance, and
International Financial Institutions,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Warren Davidson
[chairman of the subcommittee] presiding.
Present: Representatives Davidson, Lucas, Sessions,
Williams of Texas, Kim, Ogles, McClain, Salazar, Beatty,
Vargas, Foster, Gonzalez, Casten, Liccardo, and Waters.
Chairman Davidson. The Subcommittee on National Security,
Illicit Finance, and International Financial Institutions will
come to order.
Without objection, the chairman is authorized to declare a
recess of the committee at any time.
The hearing is titled ``Following the Money: Tools and
Techniques to Combat Fraud.''
Without objection, all members will have 5 legislative days
within which to submit extraneous materials to the chairman for
inclusion in the record.
I now recognize myself for 5 minutes for an opening
statement.
OPENING STATEMENT OF HON. WARREN DAVIDSON, CHAIRMAN OF THE
SUBCOMMITTEE ON NATIONAL SECURITY, ILLICIT FINANCE AND
INTERNATIONAL FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM OHIO
I want to welcome our witnesses. Thank you for
participating in our hearing today. It is devoted to analyzing
investment fraud in the United States and reassessing the
effectiveness of tools used to combat fraud in our financial
system.
Earlier this month, the Federal Trade Commission reported
that U.S. consumers lost $5.7 billion to investment scams in
2024. Criminals are increasingly finding ways to bypass U.S.
financial regulations in order to scam Americans into draining
their life savings for the sake of the criminal's illicit gain.
This type of organized fraud transcends both State lines
and political divides. These scammers prey on everyday
Americans, often our most vulnerable senior citizens.
The United States is supposed to have the world's most
capable financial intelligence capabilities. We are focused in
this committee, on national security issues, but we also need
to use these resources and capabilities we have more
effectively to protect our own citizens.
Safety and soundness are essential to preserving our own
financial well-being. Beyond our own population, America's
capital markets are home to more than half of the world's
invested capital. The U.S. dollar is the world's reserve
currency.
Since its enactment in 1970, the Bank Secrecy Act has
served as the cornerstone for U.S. anti-money laundering,
counterterrorism, financing, and Know Your Customer compliance
measures for U.S. financial institutions. The Bank Secrecy
Act's regulatory framework is intended to defend and secure our
financial system from crime.
However, considering the ever-changing landscape of
technology and financial crime, we must continually assess the
effectiveness of the tools and techniques traditionally used to
secure the financial system.
Today we will take time to learn more about investment
fraud and how financial institutions, including blockchain
analytics firms, contribute to combatting this pervasive issue.
Investment fraud, as these losses grow in the United
States, it is important to consider changes that can be made to
enhance the effectiveness of our reporting.
Suspicious activity reports, or SARs, and currency
transaction reports, CTRs, are tools used by financial
institutions to flag transactions over a certain monetary value
that could be related to illicit activities. These reports are
filed by financial institutions and maintained by FinCEN, the
Financial Crimes Enforcement Network, and used by law
enforcement agencies over the course of their investigations.
The SAR is filed when a financial institution has a
transaction over $5,000, and a CTR is filed on cash
transactions involving more than $10,000.
Based on consumer price index (CPI) inflation, $10,000 in
1970 would be more than $81,000 today. These numbers in the
reporting requirements have never been adjusted for inflation,
so the reporting burden keeps growing with no obvious
improvement on the effectiveness of the reports.
FinCEN estimated that an average total of 12,600 SARs and
57,000 CTRs were filed each day. This is 2023 data.
According to a December 2024 Government Accountability
Officer (GAO) report, law enforcement agencies accessed only
5.4 percent of those CTRs filed between 2014 and 2013--or 2023.
You have a 10-year period there with data and only 5.4 percent.
That is not very efficient.
It is long overdue for Congress to consider these clearly
outdated thresholds and frameworks so that we can protect our
people and our financial institutions.
Even as we update old laws, it is important to consider
other updates. Thankfully, the Trump Administration has mooted
the disastrous and unconstitutional Corporate Transparency Act
requiring businesses to report the beneficial ownership to
FinCEN.
Presumably, by the law's framework, operating a business or
even a homeowners association means you are engaged in illicit
finance, but our Constitution says that, when the government
wants to know private information, they need probable cause, at
least reasonable suspicion, to get a warrant or subpoena.
Surely, we can minimize the financial harm suffered by
Americans exploited by scammers without infringing on their
civil liberties or adding ways to make ordinary citizens
criminals.
As we consider legislative solutions to maximize the
effectiveness of our financial intelligence architecture, I am
hopeful that we will increase and improve nationwide education
on investment scams. I am also hopeful that we will equip law
enforcement agencies with better tools to go after criminals
that are continually operating unseen.
I look forward to the insights gained on this issue from
today's hearing.
I yield back.
The chairman now recognizes the ranking member of the
committee, Ms. Beatty, for 4 minutes for an opening statement.
OPENING STATEMENT OF HON. JOYCE BEATTY, RANKING MEMBER OF THE
SUBCOMMITTEE ON NATIONAL SECURITY, ILLICIT FINANCE AND
INTERNATIONAL FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM OHIO
Mrs. Beatty. Thank you, Mr. Chairman and Ranking Member.
Good morning and thank you to our witnesses who are here
today and for holding this hearing.
I want to make sure that we understand today that we really
need to have this discussion to combat financial fraud, and it
is no secret. We have heard comments from our chair that fraud
schemes are on the rise, and the bad actors are now finding new
and creative ways to defraud consumers.
For example, the Federal Trade Commission data showed us
that, in 2024, American consumers lost more than 12.5 million--
billion dollars to fraud, a 25 percent increase from the
previous year.
Our constituents in red and blue districts alike are being
robbed of their hard-earned savings, and I am eager to work
with my Republican colleagues to develop sharper tools to deter
fraud, folks, and protect American consumers, starting with
today's hearing.
Although I appreciate the bipartisan approach to tackling
this matter, we cannot ignore the stark contradictions between
the goal of today's hearing and the Trump Administration's roll
back of key financial crime measures that would help us detect
and deter fraud.
The President, along with Elon Musk's Department of
Government Efficiency (DODGE) is trying to unlawfully eliminate
the Consumer Financial Probation Bureau (CFPB), the agency, as
you know, that is responsible for protecting Americans from
fraud and abuse. The President announced that the United States
will no longer enforce Foreign Corrupt Policy Practices Act--
the Foreign Corrupt Practices Act (FCPPA), which prohibits
Americans from bribing foreign officials. Also, the Treasury
Secretary, Scott Bessent, unilaterally announced that the
Department will not be enforcing the bipartisan Corporate
Transparency Act (CTA), which President Trump signed into law
during his first term, against U.S. persons exempting over 99
percent of the companies Congress intended the law to cover.
Gutting the CTA eliminates a critical tool for law
enforcement to detect and deter fraud cases that involve
anonymous shell companies, effectively making the United States
a haven for money launderers, traffickers, and fraudsters.
Let me just give you an example. In 2022, six individuals
were charged with scamming over 20,000 victims by tricking them
into paying for tech repair services. Victims paid more than
$10 million. I am going to say that again: Victims paid more
than $10 million to bank accounts tied to a network of shell
companies.
While I join my colleagues on the other side in calling out
the need for key beneficial ownership reforms, the
administration repeatedly chooses to gut the law entirely
instead of working in a bipartisan manner to ease small
business compliance burdens.
In just 2 months, President Trump has made it easier for
financial fraud to devastate hardworking families, particularly
older adults, by unlawfully dismantling the pillars of our
financial crime regulatory regime.
While I, again, appreciate this hearing, I hope the
discussion only underscores the vital significance of this
regime and the need to preserve it if we were truly, truly to
prevent fraud and protect our constituents.
Once again, to our witnesses, I hope that you can shed some
light on this, and I yield back.
Chairman Davidson. I thank the gentlewoman.
I now recognize the ranking member of the full committee,
Ms. Waters, for 1 minute.
STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
FINANCIAL SERVICES COMMITTEE, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Thank you, Chairman Davidson and Ranking Member
Beatty for convening this hearing on fraud.
U.S. fraud losses were estimated at nearly $13 billion in
2023, but many think the actual amount is much higher.
Especially for the 100 million Americans over age 50, fraud is
a serious threat to their secure retirement and well-being.
Congress must take financial crime seriously. It must stand
up for the tools it has enacted, like the Bank Secrecy Act and
Corporate Transparency Act, to detect fraud and hold fraudsters
accountable.
Congress must stand up for the bank examiners,
investigators, prosecutors, agencies, and consumers that are
under attack by the Trump regime and his billionaire cabinet,
and we must end Trump's own schemes to defraud the American
public using his meme coin and stablecoin.
I thank you and I yield back.
Chairman Davidson. I thank the Ranking Member.
Today we welcome the testimony of: Mr. Darren McLaughlin,
he is the Executive Vice President and Chief BSA/AML (Bank
Secrecy Act/Anit-Money Laundering) and Sanctions Officer for
Flagstar Bank in Michigan and is testifying on behalf of the
American Bankers Association (ABA); Ms. Jacqueline Burns Koven
is the Head of Cyber Threat Intelligence at Chainalysis; Mr.
Jeff Brabant is the Vice President for Federal Government
Relations at the National Federation of Independent Businesses
(NFIB); and Ms. Kathy Stokes is the Director of Fraud
Prevention for the American Association of Retired Persons
(AARP).
We thank each of you for taking time to be here. Each of
you will be recognized for 5 minutes to give an oral
presentation of your testimony.
Without objection, your written statements will be made
part of the record.
Mr. McLaughlin, you are now recognized for 5 minutes for
your oral statement.
STATEMENT OF DARRIN MCLAUGHLIN, EXECUTIVE VICE PRESIDENT AND
CHIEF BSA/AML & SANCTIONS OFFICER, ON BEHALF OF THE AMERICAN
BANKERS ASSOCIATION
Mr. McLaughlin. Thank you, sir.
Thank you Chairman Davidson, Ranking Member Beatty, Ranking
Member Waters, and members of the subcommittee. Thank you for
the opportunity to testify.
My name is Darren McLaughlin, and I am the Executive Vice
President (EVP) and Chief BSA/AML Officer for Flagstar Bank
based in New York. I am testifying today on behalf of the
American Bankers Association. These views are my own and do not
necessarily reflect the views of my employer.
Criminal enterprises are targeting all Americans. One in
three adults have experienced financial fraud or a scam in just
the last 12 months, while nearly two in five have experienced a
financial loss.
Bad actors have leveraged cutting-edge technology, social
media, and telecommunications to target American's life
savings. Through increasingly sophisticated techniques, bad
actors make false promises of huge financial returns on
fictitious investment opportunities.
I represent the thousands of talented BSA and anti-fraud
professionals across the country who have dedicated their
entire careers to protecting our customers and the U.S.
financial system, but our customers are still under attack.
To succeed, we need a more strategic approach that includes
the government, the banking industry, and other industries
across the economy. It is critical that the banking industry
receive transparent and actionable feedback from the government
and important regulatory reforms to let us focus on the real
threats.
I would like to emphasize three things today. First, banks
are doing important work to combat fraud, including leveraging
technology, continuously improving anti-fraud operations, and
investing in customer anti-fraud education, but a whole-of-
government approach is needed.
Financial institutions across the country have implemented
rigorous risk-based AML compliance and anti-fraud programs that
alert us to signs that customers have started to send money in
unusual patterns. Unfortunately, these customers sometimes fall
victim to those overseas characters.
We can share heartbreaking stories across the industry
about innocent customers who have lost their lifetime savings
to investment scams. As hard as we try, sometimes we cannot
convince our customers that they are the victim of a scam in
progress.
Although we file suspicious activity reports with the
Treasury's Financial Crimes Enforcement Network, by the time
law enforcement receives the report, it is often too late.
A major part of this threat comes from overseas, and these
bad actors are using new generative artificial intelligence
(AI) tools to increase the sophistication and effectiveness of
their outreach. There must be a better approach to tackling
this grave problem. Greater involvement by and coordination
with the government is essential.
Second, banks need timely, actionable and feedback from--
actionable data and feedback from the government on priority
threats. The Federal Government has a database bursting with
threat information, which should be shared with the private
sector.
Although thousands of SARs are filed, they may not actually
reflect criminal or other illicit acts. It would help banks to
see analysis of these reports and other information the
government may have about this illicit activity.
Finally, we need meaningful reforms of the BSA rules,
including creating a true risk-based approach to BSA/AML
compliance, providing transparent government feedback to banks
regarding priority threats, reform of outdated currency
transaction reporting, streamline and update the suspicious
activity and other reporting forums that we must complete, and
increase collaboration between bank regulators and the banks.
In conclusion, banks are working hard to combat fraud, but
it is clear our customers are still under attack. To fight back
and succeed, we need a whole-of-government approach that
includes greater transparency and actionable feedback from the
government. We need other sectors to do their part, and we need
important regulatory reforms to let us focus on the real
threats.
Chairman Davidson, Ranking Member Beatty, and Ranking
Member Waters, and members of the subcommittee, we are grateful
for your leadership and holding this hearing to highlight the
extraordinary and growing financial fraud problem that is
plaguing our country.
We look forward to working with you and your colleagues to
explore what Congress, the regulatory agencies, and the Federal
Government can do to help.
Thank you once again for the opportunity to testify, and I
look forward to answering your questions.
[The prepared statement of Mr. McLaughlin follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Davidson. Thank you, Mr. McLaughlin.
Ms. Burns Koven, you are now recognized for 5 minutes for
your oral statement.
STATEMENT OF JACQUELINE BURNS KOVEN, HEAD OF CYBER THREAT
INTELLIGENCE, CHAINALYSIS
Ms. Burns Koven. Chairman Davidson, Ranking Member Beatty,
Ranking Member Waters, and distinguished members of the
subcommittee, thank you for inviting me to testify before you
today on the pressing issue of fraud targeting Americans.
My name is Jacqueline Burns Koven, and I am the Head of
Cyber Threat Intelligence for the blockchain data platform
Chainalysis where we help make blockchain safer and more secure
so that financial institutions, businesses, and government can
engage cryptocurrency with confidence.
Leveraging the blockchain's inherent transparency, we track
cryptocurrency activity by illicit actors, such as those
engaged in scams, and provide data on their financial activity
to private and public sector customers.
Today's hearing shines an important spotlight on scams
facing the American people as a matter of national security,
most notably, so-called pig butchering scams, also referred to
as investment or confidence scams, that target and build
relationships with individuals, convincing them to invest in
fraudulent opportunities.
Scan syndicates are well-resourced. According to
Chainalysis data, for each of the past 4 years, scam operators
received over $10 billion in cryptocurrency payments, with 2024
estimated as a record year.
It has never been easier for scammers to access tools to
make the con more convincing and scalable. The peer-to-peer
marketplace, Huione Guarantee, for example, has become a one
stop shop for the scam supply chain.
As we highlighted in our annual crypto crime report, Huione
has processed more than $70 billion in crypto transactions, and
its infrastructure facilitates laundering services, as well as
the sale of contact information for outreach to potential scam
victims, web-hosting services, social media accounts, and AI
software.
Fraudsters can always be counted on to abuse novel
technologies for their aims, but the utilization of
cryptocurrency should fundamentally place scammers at a
disadvantage.
Cryptocurrency transactions are inherently public, and the
data from those transactions is preserved on a transparent,
immutable ledger. In fact, Stablecoins, in particular, are
freezable midstream, which has led to spectacular seizures of
scammed funds.
Blockchain intelligence provides insight into the entire
scam supply chain, laundering patterns, and even to scale at a
level unparalleled to traditional finance. Indeed, a single
cryptocurrency payment to a scam can often lead to identifying
hundreds of other victim payments of a multimillion dollar
fraud scheme, allowing for a more effective disruption and
restitution efforts rather than just one-off criminal
investigations.
However, the current reality is that scammers are
exploiting the siloed nature of how the public and private
sector identify and respond to these schemes. Scammer
syndicates are organized and agile, and they are capitalizing
on our visibility gaps.
Today scam victims have multiple State, local, and Federal
agencies they can report to, yet there is no easy mechanism for
these agencies to share with each other, let alone with the
private sector best positioned to prevent additional victims.
Financial institutions reporting on scams have no
visibility into the scams reported by their peers, leaving them
unable to protect their customers from scams known to the
government or to the financial institution next door.
At the same time, private sector entities outside of
financial institutions on the frontline of scams lack the
structures to comprehensibly share and receive information from
the public sector about scam activity that would allow them to
take more proactive measures.
It is essential to modernize and streamline bidirectional
scam reporting and response between public and private sectors
to facilitate restitution and the prevention of additional
victims.
Furthermore, too often scam victims are turned away from
local authorities who are ill-equipped to properly assess
crypto cases. We must ensure law enforcement's access to
blockchain analysis and training and invest in tech-driven
efficiency to swiftly take action with intelligence and seize
funds.
Over the past 10 years, Chainalysis has supported hundreds
of cases involving the freezing of assets in partnership with
government agencies worldwide, helping to secure at least $12.6
billion worth of illicit crypto. It is imperative that we
develop strategies to prevent Americans from falling prey to
scams altogether.
Chainalysis acquired Alterya, which utilizes artificial
intelligence to identify early stage scam activities, enabling
financial institutions large-scale upstream detection. We
further support a regulatory framework that clearly delineates
responsibility for oversight of businesses offering Stablecoins
and trading services.
Finally, we need to close gaps in AML/Countering the
Financing of Terrorism (CFT) standards implementation. In the
absence of cooperation, more pressure is needed to disrupt
financial networks, define laws, and regulatory norms.
Thank you again for the opportunity to provide testimony on
this important topic. I am encouraged by the subcommittee's
interest, and to that end, we invite Congress' continued
engagement on this topic to combat scams and better protect
Americans.
I look forward to your questions.
[The prepared statement of Ms. Burns Koven follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Davidson. Thank you for that.
Mr. Brabant, you are now recognized for 5 minutes for your
oral statement.
STATEMENT OF JEFF BRABANT, VICE PRESIDENT, FEDERAL GOVERNMENT
RELATIONS, NATIONAL FEDERATION OF INDEPENDENT BUSINESS
Mr. Brabant. Chairman Davidson, Ranking Member Beatty,
Ranking Member Waters, and the members of the House Committee
on Financial Services, thank you for allowing me to testify
before the committee today.
My name is Jeff Brabant, and I am the Vice President of
Federal Government Relations for the National Federation of
Independent Business.
NFIB is the voice of small business in Washington, DC, all
50 State capitals, and our Nation's courts. We represent about
300,000 small business owners with the average NFIB member
employing about seven to eight people.
Data privacy is a significant concern for small business
owners. A prime example of this is the Corporate Transparency
Act. Under the CTA, small businesses with fewer than 20
employees and 5 million in revenue are required to report their
beneficial ownership information to the Financial Crimes
Enforcement Network. This includes a scanned copy of a driver's
license or passport of every beneficial owner.
Federal, State, local and international law enforcement and
intelligence agencies can access this information without a
subpoena or warrant. Small businesses fear their information
will be targeted by criminals, politically motivated
individuals, or subject to cyberattacks by our Nation's
adversaries that could expose their personal information to
actual criminals and nefarious actors.
Some small businesses have fallen victim to companies,
which may be scam operators, offering to file beneficial
ownership information (BOI) data. A recent search of ``CTA BOI
filing'' on Google demonstrates this problem.
Three sponsored BOI companies appear before the official
FinCEN result. One of these companies in particular, BOIR.org,
even uses an imitation government seal with an eagle on it to
appear like an official seal that the U.S. Government would
use.
Recently, an Indiana farmer contacted NFIB regarding one of
these scam companies. This farmer had begun the process to file
through a scam company but did not complete the filing. Still,
this farmer had $249 charged to his credit card. Now the farmer
is searching for a refund but likely will not get one.
Small businesses overwhelmingly oppose the CTA. Thankfully,
President Trump recognized the absurdity of beneficial
ownership information reporting requirements. He called the law
invasive, outrageous, and an economic menace. He could not be
more right.
The ultimate irony is that a law that supporters claim is
for national security has likely opened the U.S. economy,
American citizens, and small business owners to more data and
privacy risk. The Federal database will be breached. It will be
hacked, and private information will leak.
This is why Congress and Treasury must immediately and
permanently delete the records of the millions of U.S. small
business owners who already filed their BOI with FinCEN. This
is non-negotiable. It has to be destroyed.
Let me be clear. The CTA is unconstitutional and should be
overturned by the courts. Absent intervention from the courts,
Congress can clean this mess up by passing Chairman Davidson's
Repealing Big Brother Overreach Act. This legislation will
repeal the CTA so a future administration could not revive or
expand the statute.
Congress could also exempt law-abiding U.S. small
businesses from the CTA, as the Trump Administration has
proposed.
Before I close, I would like to draw attention to the issue
of internet protocol (IP) and identity theft by fraudulent, as
well as legitimate Chinese businesses, such as Temu.
NFIB members have shared stories of how their popular
American-made products are being stolen and ripped off by
Chinese companies. One of the more egregious examples is of the
Illinois-based and American-made Power Planter. Power Planter
is a garden auger manufacturer that works in standard cordless
drills.
This small business has been the target of nonstop IP and
identity theft by Chinese scammer companies. These companies
will copy and paste Power Planter's copywritten images,
verbiage, and advertising imagery, including their Made in
America claim, and sell from China at a lower cost.
The Chinese product is of inferior quality, and, when it
breaks, consumers do not even realize it is from China and
often complain directly to Power Planter, even leaving negative
comments on their social media pages.
Power Planter has dedicated significant resources to try
and stop these scammers, but it is a full-time job. In fact,
this small business has been forced to retain counsel, whose
job is to track rip-off companies on sites like Amazon,
Alibaba, and eBay, and report them to the appropriate company
for removal.
There have been instances where Power Planter's counsel has
removed several thousand such imposters in a single month. The
process of getting the scam company taken down often takes
several attempts, and even then, there is often a remedial
process where they are allowed to begin selling again or
another company pops right back up. It is an endless game of
Whac-A-Mole.
These fraudulent companies are taking money out of the
pockets of American businesses and workers.
Thank you for the opportunity to discuss the impact of
scams and fraud on small businesses, and I look forward to your
questions.
[The prepared statement of Mr. Brabant follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Davidson. Thank you, Mr. Brabant.
Ms. Stokes, you are now recognized for 5 minutes for your
oral statement.
STATEMENT OF KATHY STOKES, DIRECTOR OF FRAUD PREVENTION
PROGRAMS, AMERICAN ASSOCIATION OF RETIRED PERSONS
Ms. Stokes. Thank you and good morning.
My name is Kathy Stokes, and I am the Director of Fraud
Prevention Programs for AARP. Thanks for inviting me to testify
on behalf of AARP at this important hearing.
This morning I am going to shed light on the true impact of
fraud, its potential to victimize anyone, and its significant
threat to national security.
Through the Fraud Watch Network, AARP educates older adults
on the risk that fraud poses to their financial security,
meeting them where they are. We have hundreds of volunteers
that work with our State offices and communities all over the
country to help older Americans avoid fraud.
We share information online, through newsletters, and to
podcasts, and we cover fraud in most editions of our
publications that tens of millions of Americans receive.
Our victim support program, including a help line receiving
500 calls daily, and support groups that address fraud's
emotional impact helps people like Dave, who lost family and
friends and contemplated suicide after having his home and his
business stolen from him through a romance scam.
The recent growth in fraud has been meteoric, but the
Federal Trade Commission (FTC) estimates underreporting,
suggesting real fraud losses in 2023 were not the reported
$10.4 billion but $158.3 billion.
Criminals do not discriminate on who they target, but when
older adults are victimized, the financial impact can be
catastrophic. These people are financially ruined. They
experience emotional and health impacts. Often their families
are torn apart, and many once financially secure Americans who
did the right thing and saved for a comfortable retirement are
left to rely on government safety nets.
In my written testimony, I describe how the sophistication
and scale of today's transnational crime rings have led to them
becoming a national security threat. These enterprises leverage
a vast array of tools to commit their crimes, including all
methods of communication and forms of payment, complex
impersonation schemes, anonymous shell companies, human
trafficking, and more.
Take the Jalisco New Generation Cartel in Mexico. It is
using scams to fund things like sending meth and fentanyl
across our southern border or take the massive explosion of
financial grooming schemes, the origins of which are Chinese
organized crime in Southeast Asia. Their goal is to cripple the
U.S. economy.
The reason scams succeed beyond sophistication and scale
relies on how our brains work. Criminals know that they can
force our brains to bypass logic by getting targets into a
heightened emotional state. Criminals call it getting targets
under the ether, and academics have shed light on the actual
science behind it.
Linda, a professor, shared her story with AARP about the
day her life was turned upside down when a tech support scam
that started with a fear-inducing computer pop-up message led
to a 4 and a half month nightmare that forced her retirement
and saw her buying gold bars and putting them into a stranger's
car. When she realized the crime, she said it was like the
walls of her house blew down.
Now, there is no single solution to the fraud crisis. It
will take a whole-of-society approach. For individuals, it is
things like better protecting ourselves, freezing our credit,
using password managers and multifactor authentication.
For educators, it is focusing on the red flags that are
important but so is training on how most scams come at to us
and what to do when they do.
For industry, financial institutions must continue to
innovate on fraud mitigation. Tech companies must build safety
and security into product design and manufacturing.
Telcos must find a way for stopping the scams over the
networks from reaching Americans, and industry and law
enforcement must work together.
AARP is a founder of a new public-private partnership
called The National Elder Fraud Coordination Center, and we
will enhance the ability for private industry and the public
space to work together to begin to solve elder fraud crimes.
At AARP, we are looking forward to working with
policymakers to address fraud by supporting resources for State
and local law enforcement: to hire and train staff and secure
tools that combat the fraud crimes; to improve fraud reporting
systems so law enforcement can prioritize cases; to reinstate
the casualty and theft loss deduction to address the taxation
of stolen assets; support legislation to limit the damage of
crypto ATMs; and support the National Elder Fraud Coordination
Center. You can learn more about that at fightelderfraud.org.
Thank you.
[The prepared statement of Ms. Stokes follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Davidson. Thank you.
I really appreciate all our witnesses. We learned a lot
just from your opening statements, and, wow, what a challenge.
We will now turn to member questions.
I now recognize myself for 5 minutes of questioning.
Mr. McLaughlin, based on your 27 years of experience, have
you seen an expansion in the efforts to stop fraud?
Mr. McLaughlin. Thank you for your question, Chairman.
Over 27 years, yes, there has been a huge, huge, emphasis
on protecting our customers in the industry. We have tackled
this via enhancing our education programs, via workshops in our
branches, educational material posted on our websites----
Chairman Davidson. So your own efforts in the industry, but
also you have seen more regulatory pressure to disclose and
report, correct?
Mr. McLaughlin. Correct, yes. The increased significance or
pressure placed on financial institutions to identify and
report suspicious activity and fraud has grown over the course
of the last 27 years.
Chairman Davidson. Has the number of fraud cases and the
size and scope of the fraud also increased?
Mr. McLaughlin. Yes, sir.
Chairman Davidson. In a way, it is like, well, in spite of
our effort, we have not really stopped it. We have not
necessarily shrunk it either.
Some would say, ``Well, gosh, imagine how bad it would be
if we had not been doing these things.'' On the other hand,
maybe the way we are going about it is not working.
Could you highlight what you think works and what maybe
could be done more effectively from your experience.
Mr. McLaughlin. Thank you again.
From my experience, what has been working is the increased
investment within the public sector in education, in advanced
technologies to catch the fraud at the front door, as we call
it, before they are able to transact with the institutions.
Also, advancements in the models and scenarios for which we
monitor customer behavior once that account is established.
What we could be doing better, I would say, is establishing
that relationship, that public-private relationship, where
there is a flow of information back and between the government
and the regulated financial institutions that I represent.
The government sits on a mountain of data from the hundreds
of thousands of SARs that are filed and CTRs that are filed, as
well as the prosecutions that law enforcement----
Chairman Davidson. Do they normally get back to you? Here
is a case: I was working on the Weaponization Committee last
Congress. One bank was asked by the Federal Bureau of
Investigation (FBI) to report on their customers, and the bank
said, ``We need a warrant or subpoena.'' Then the FBI came back
and said, ``Well, why do you not generate a suspicious activity
report,'' where none had previously existed.
Is that kind of interaction with law enforcement normal?
Mr. McLaughlin. Yes. The financial services and the
financial institutions that I have had the honor of working for
do have good relationships with law enforcement. However, to
protect the laws and the regulations that the financial
institutions fall under, we do often, after conversations with
law enforcement, request the subpoena to turn over information.
Now, it is unusual to receive that type of conversation
where a SAR was not filed, but usually once the SAR is filed,
outreach begins, and conversations and flow of data start
happening.
Chairman Davidson. Thank you for that.
I look forward to working with you all and my colleagues to
make our system more effective.
I just want to highlight Mr. Brabant. I appreciate your
testimony because not only are individuals being scammed, but
businesses are and especially small businesses.
You referenced a bill, the Repealing Big Brother Overreach
Act. It has 133 House cosponsors and identical legislation
sponsored by Senator Tuberville in the Senate.
The change that you referenced that the Trump
Administration has done by focusing beneficial ownership
reporting requirements on foreign entities, is that an
improvement for American citizens?
Mr. Brabant. I think absolutely an improvement for American
citizens and an improvement for American small businesses. When
you are looking at 32.6 million reports FinCEN was expecting in
year one, that is not a risk-based approach, that is a needle-
in-a-haystack approach. When you refine it down to a smaller,
more risk-based approach, it should be a win.
Chairman Davidson. I appreciate you also referencing to
what we need to do with the existing data, so thank you for
that.
Ms. Stokes, I really appreciate your emphasis on seniors
and the great work you have done to educate seniors.
Working with our county prosecutors, do you have a way to
roll that toolkit out through member offices, so we make sure
that our county prosecutors who are on the frontlines--they
often feel unsupported by Federal resources.
In your experience, in what you are seeing, are these like
lone actors trying to scam people or is it sort of an organized
crime effort that is hitting individuals and businesses?
Ms. Stokes. Thank you for that question, Representative.
For a long time, we have all held this assumption that the
fraudster is some guy in his mom's basement making phone calls
and lurking on social media. I am sure those guys are still out
there, but they are not the ones that are causing the majority
of the problems.
This is transnational----
Chairman Davidson. Thank you. I wish I had longer, but my
time has expired. I hope you can respond in writing. Sorry I
did not leave you enough time there.
My time has expired, and I now recognize the ranking member
of the subcommittee, Ms. Beatty, for 5 minutes for questions.
Mrs. Beatty. Thank you, Mr. Chairman.
I will continue with Ms. Stokes.
I think we all touched on this earlier, but I would like to
go a little deeper into it. The bipartisan Corporate
Transparency Act, as you know, was created to prevent bad
actors from hiding behind anonymous shell companies. Can you
clearly lay out for us how this relates to fraud prevention and
how the CTA and the beneficial ownership database would be a
critical fraud prevention tool?
Ms. Stokes. Thank you, Representative Beatty, for that
question.
I think that--I have a lot of opportunities to interact
with law enforcement, financial crimes investigators, and I
understand from them how critical information is and will help
them get to the bottom of the cases. Anything that takes away
from that would be a challenge.
The tools that criminals use are vast. They are complex
impersonation schemes and fake websites, shell companies, and
human trafficking. There are so many crimes within this crime.
Mrs. Beatty. Maybe you can answer this as a follow-up. Can
you address how Treasury's recent decision to exempt more than
99 percent of the companies that Congress intended to cover
will weaken our fraud prevention efforts?
Ms. Stokes. Thank you, Representative.
I can say that anything that is going to reduce information
that can be actionable by law enforcement from our perspective
when it comes to fraud that is a crisis, is very problematic.
Mrs. Beatty. Okay.
Mr. McLaughlin, let me ask you this. It has been mentioned
several times already this morning that fraud is rapidly on the
rise, by you, by my colleagues. Each year American consumers,
as we know, are reporting significantly greater financial
losses to scams, and we clearly need to take, I believe, a
whole-of-government approach to tackling this problem.
I understand that there are several Federal and State and
local organizations that play various roles in addressing
fraud, but there is currently no one central location for fraud
victims to seek help.
Can you shed some light on or explain the current
disjointed framework and any suggestions you would have for us
in Congress that we could instate a streamlined, user-friendly
process for fraud victims to report these crimes to?
Mr. McLaughlin. Thank you for your question, Ranking
Member.
Currently, in the industry, we work with several not-for-
profits that focus on this, including AARP and other well-
established fraud, anti-fraud groups. At the local, State and
Federal law enforcement level, we also interact because we all
believe that this is something that is growing and that we need
to tackle.
There are working groups that are established. There are
conferences that are held where idea-sharing occurs. There is
also a greater need for transparency in the actual anti-fraud
movement.
When financial institutions in the public sector file
suspicious activity reports or file with adult protective
services when it comes to elder exploitation, there is very
little time we get feedback on the information that we provided
to see if it was actionable for those agencies.
The sharing of knowledge back and forth would allow us to
actually target specific threats to our customers and our
population. Centralizing a fraud group within law enforcement
or a regulatory agency would give our customers a central point
of contact but also allow the financial institutions as well to
have a central point of contact to continuously build upon the
programs that we have.
Ms. Beatty. Okay.
I might have enough time for either one of you to give us
any insight on how fraudsters are using social media platforms
to lure victims in.
Ms. Stokes? Mr. McLaughlin? Anything on that?
Ms. Stokes. Thank you for that question.
Yes, social media is one of the biggest vectors for fraud,
and we see so much harm coming from them. Yet, we do not see a
concerted effort to take down the social media profiles that
are there and are known to be related to scams, and a lot more
needs to be done by that industry to----
Ms. Beatty. My time is almost up. Yes, or no? Is that
something that Congress should be looking into, you believe?
Ms. Stokes. Yes.
Mrs. Beatty. Okay. Thank you.
Chairman Davidson. Thank you.
The gentleman from Oklahoma, also the Chairman of the Task
Force on Monetary Policy, Mr. Lucas, is now recognized for 5
minutes.
Mr. Lucas. Thank you for holding this hearing, Mr.
Chairman. Thank you to our witnesses for testifying today.
In my regular meetings with bankers across my home State,
the issue of fraud is one that often comes up. They are on the
ground. They are seeing the people in their community being
taken advantage of.
It is unfortunate then that, oftentimes, Federal agencies
place reporting burdens on our financial institutions rather
than trying to get at the root of the problem.
Mr. McLaughlin, how does it affect your communities, our
communities, I should say, when our credit providers have to
spend all their time complying with what some might define as
burdensome reporting requirements?
Mr. McLaughlin. We have finite resources available to us
within the public financial institution sector. When increased
burden is placed on us, we have to make certain risk-based
decisions as to where to deploy those resources, where to spend
money, on our investments in technology and other operational
efficiencies that we can garner to continuously focus on the
mission of catching as many bad guys as we possibly can.
When we get more burden in terms of more checkbox
exercises, that just means we have to expend more resources to
tackle the job.
Mr. Lucas. If I could follow up on that question.
Oftentimes, our credit providers are the first to notice
when something goes wrong. I recently met with bankers again in
my district that told me countless stories of how they were
able to identify fraudulent activities and protect their
customers.
Bankers are allies in detecting fraud, but they are not
responsible for enforcing the law, and they should not be asked
to do so by the Federal Government.
Mr. McLaughlin, could you expand on how we could support
our financial institutions that are targeted by these crimes?
Mr. McLaughlin. I am going to go back to--and thank you for
your question.
I am going to go back to the transparency between local,
State, Federal law enforcement, regulatory agencies, and
FinCEN.
The access to data and allowing these smart individuals
that we have working for us and data scientists across all
sectors, allowing us to analyze the data to focus on the threat
at hand instead of having us focus on check-the-box exercises
that many financial institutions face today would be a huge
step forward.
Mr. Lucas. Turning to you, Mr. Brabant, I have heard again
from a number of my small businesses across Oklahoma that are
worried about the increased administrative burden that many
reporting requirements place on them.
Small businesses, by definition, have fewer resources to
devote to these lengthy and elaborate reporting regimes. Can
you talk about the harms of overly broad reporting mechanisms?
How does rulemaking like the previous administration's rule
on beneficial ownership, actually hurt our efforts to stop
fraud?
Mr. Brabant. Yes. When something is overly broad, it is
extremely challenging. For example, you have the ``substantial
control'' prong in the definition, which is essentially defined
as ``substantial control.''
The previous administration defined it so broadly to be
senior staff. If you are a restaurant manager and you have no
ownership stake, you probably have substantial control.
One of the challenges when you are a small business owner
is, well, what senior staff do I have to put in? FinCEN does
not clearly define this. You are worried about going to jail
for 10 years because you might not have put enough senior
staffers in. It is a real challenge.
Then you have to ask yourself how pertinent is this
information that is being reported that has sometimes just
staff out there with no ownership control at all.
Mr. Lucas. Ms. Burns Koven, you have worked in this
industry from various vantage points and have seen the ebbs and
flows of the financial crime operators. What trends are you
seeing today in financial fraud and how can we, perhaps, try to
get ahead of this industry, so to speak?
Ms. Burns Koven. Thank you for that question.
I think we have seen broadly that illicit actors of all
stripes, whether that be fraudsters, drug traffickers, are
using jurisdictions with weak AML/CFT standards. They are
looking for those paths of least resistance.
In closing those gaps, in capacity building or even
applying pressures to jurisdictions willingly being blind to
the use of their platforms for laundering, we can better
identify and prevent these illicit actors from reaping the
rewards of their activities.
Mr. Lucas. Mr. Chairman, let me simply say, in closing,
customers are feeling it. Financial institutions are feeling
it. Fraudsters do not discriminate when it comes to who they
steal from, and we need to focus on that problem and give our
law enforcement tools it needs to stop these criminals rather
than just more paperwork.
Thank you, Mr. Chairman.
I yield back.
Chairman Davidson. I thank the gentleman.
The gentlewoman from California, also the ranking member of
the full committee, Ms. Waters, is now recognized for 5
minutes.
Ms. Waters. Thank you very much, Mr. Chairman, and members.
I am about to ask a question about a particular situation
in this country that is hardly believable, but I am pleased
that we are here talking about following the money, tools and
techniques to combat fraud.
Here is some money I want us to follow.
Ms. Stokes, days before Donald Trump took office, he
introduced the meme coin dedicated, of course, to himself.
While the entities behind his Trump meme coin earned nearly
$100 million in trading fees in less than 2 weeks, hundreds of
thousands of small traders suffered $2 billion in losses over
the same timeframe.
Days after he released his coin, Melania Trump issued her
own coin. The many concerns about this are not only that the
Trump family profits or how this venture has become the biggest
component of the President's personal wealth, more than even
the real estate for which he is known. It raises questions
about the use of cryptocurrency, including meme coins to
entice, to police, to defraud people out of their hard-earned
savings.
Further, at the same time that Donald Trump is offering his
meme coin and other cryptocurrency products to enrich himself,
his regime is considering the rules that will define how
cryptocurrency is regulated. They are in charge.
It also comes at a time when Trump and Republicans are
working hard to lower, even to remove, barriers to fraud and
financial crime.
As an expert in fraud prevention, how do criminals use
cryptocurrency to commit fraud, especially that which targets
older Americans? Why is cryptocurrency so attractive to bad
guys and how do the perpetrators, such as transnational
criminal organizations, make crypto appealing to the victim?
By the way, not only has the President created this coin,
meme coin, he is also involved with the company on
Stablecoins--because we are negotiating Stablecoins right now.
In the middle of our negotiations, he is creating his own
company on Stablecoins.
What is going on?
Ms. Stokes. Thank you for that question, Representative
Waters.
I do know that when cryptocurrency is in the news, the
criminals follow. This does create tremendous opportunity
because generally everyday Americans do not really understand
what crypto is. They do not understand that its value is simply
based on supply and demand, so the investments can seem really
attractive.
We are seeing two ways that crypto is showing up in the
fraud space. One is crypto investment schemes where people are
having everything stolen from them. That is the goal of the
criminals, to steal every penny from every victim.
The other is the use of crypto ATM machines. You have
probably seen 12,000 of them around the country. They are in
big businesses and grocery stores. The criminals are convincing
the victim of an urgent matter that they have to address, and
they have to go to the bank. They take out wads of cash, then
they walk over to these crypto ATM machines, and they put a
hundred dollars at a time into these machines, taking sometimes
hours, which is a risk in and of itself. Then they send the
money to those who they think are going to help them, and it
goes into the wallet of a criminal.
Ms. Waters. Wow. Well, thank you. Let me move on.
We know that anonymous shell companies are common tools
used by fraudsters to facilitate their crimes and to launder
the proceeds of their bad act.
For example, two Chinese nationals were arrested for
allegedly leading a scheme to launder 73 million in proceeds
from cryptocurrency investment scams. The victims transferred
millions of dollars to U.S. bank accounts opened in the names
of over 70 U.S. shell companies whose apparent purpose was to
launder the proceeds of the fraud.
Similarly, the leader of a large-scale time share resale
scam was sentenced to prison for defrauding more than 1,000
victims, many of them elderly, out of their millions, using a
network of fake front companies in cities across the country.
These examples abound, and I would like to submit for the
record a fact sheet from the Transparency International U.S.
that describes how these corporate entities registered in the
United States are abused for a range of fraudulent purposes.
The Trump regime, with the help of my colleagues across the
aisle, are trying to make such fraud schemes easier by gutting
the Corporate Transparency Act, which helps the government
combat who----
Chairman Davidson. The gentlewoman's time has expired.
Ms. Waters [continuing]. truly owns these shell companies.
Enough, enough, enough.
I know I do not have any more time.
I yield back.
Chairman Davidson. Without objection, I will accept the
gentlewoman's submission without objection.
[The information referred to can be found in the appendix.]
Chairman Davidson. The gentleman from Texas, Mr. Sessions,
is now recognized for 5 minutes.
Mr. Sessions. Mr. Chairman, thank you very much.
Before we go too far, I want to acknowledge the gentleman,
Hon. Jack Fields, former member of our Texas delegation who was
the Ranking Member of Energy and Commerce when he retired in
1996, is with us today.
Mr. Fields, I want to thank you. You have been a guardian
of moving America forward for a long time, and I think, as you
watch what is going on and have since you have left, you have
seen where the things that developed also have a downside to
them, an underbelly that we are speaking about today.
I want to, if I can, go to anybody on the panel. I have
heard--I have read the testimony and also the things which we
have prepared Mr. Davidson's great staff about, the overview.
Increasingly, what comes out today is we have a problem, and I
think we have seen and heard this.
What has Federal law enforcement done to mirror up to try
and stop this?
I know there are working groups. We heard there is a
national elder fraud, a task force you are trying to gather
together as an industry.
Who is--What agency is the lead that you would look to?
Anybody.
Mr. McLaughlin. I will take the first stab at that.
Thank you for your question, sir.
From a financial institution standpoint, we would interact
with local or Federal agencies within the State that we found
fraud.
Mr. Sessions. Can you name that? In other words, I know
that the Securities Exchange Commission (SEC) or Financial
Industry Regulatory Authority (FINRA) has jurisdiction over
looking at transactions and data information. When you have
something that you considered to be a crime, who do you look
for? Who is the lead agency?
Mr. McLaughlin. Again, thank you for your question.
It depends on the fraud that we are seeing. If we are
seeing checks or financial fraud, we would contact the Secret
Service in some cases because they sit within the Department of
Treasury and have that exposure.
If we are talking about elder abuse, financial
exploitation, we would reach out to Adult Protective Services
(APS) and/or the FBI within the city or State that the crime is
taking place.
Mr. Sessions. Have we, as Members of Congress, through the
law, made it clear to not just consumers but really the
industry about who--have we streamlined that? Do you know who
to go to in a given circumstance?
Ms. Burns Koven. Thank you for the question.
I think more can be done to streamline reporting and
modernize it so that we can connect the dots from a one-off
investigation to understanding that entire scheme so that we
can actually increase recovery and restitution and make more
victims whole.
We have had spectacular seizures by U.S. Government of
cryptocurrency assets. Chainalysis has worked with governments
around the world seizing over $12.6 billion worth of illicit
crypto.
More needs to be done to upskill and train at the State and
local level to ensure those departments that are the first line
of response oftentimes for victims are well equipped to
understand and act quickly to pursue these cases and seize
those funds.
Mr. Sessions. I am well aware that many U.S. attorneys and
other agencies within law enforcement want to look at minimums.
It is not big enough for them until it gets to a certain
stature, and I have heard testimony, which I believe is true,
unless you go and plug a circumstance and challenge someone,
they are going to continue these things.
I think that it is important that what the chairman is
doing here. That we do pass his piece of legislation that I
received yesterday, but we also have to have that translate to
the Department of Justice, to law enforcement that actually we
honor them and ask them to please understand more about this.
I think, as they look at the crime, they also see what
might be called MOs, method of operations, of how people do
this. Then the feedback comes to you, which was talked about.
We fill out these reports, and we do not hear anything back. We
are not sure whether what we are providing is enough
information, whether it was specific information.
I think some success stories would go a long way to do
that. I think that I would love to have this subcommittee delve
into that angle of what we need to do better to incent law
enforcement to want to do that, whether it is us paying
attention or gathering things together.
I want to thank you, Warren, for doing this hearing. I
think it is most instructive about our job as Members of
Congress to warn people, in particular seniors.
I yield back my time, Chairman.
Chairman Davidson. I thank the gentleman.
The gentleman from California, who is also the Ranking
Member of the Task Force on Monetary Policy, Mr. Vargas, is now
recognized for 5 minutes.
Mr. Vargas. Thank you very much, Mr. Chairman, and thank
you for holding this hearing.
I also thank the ranking member and the witnesses. Thank
you for being here. I think it has been very, very informative.
I do have to call out, though, right at the beginning, when
a lot of my colleagues on the other side like to talk about
unconstitutionality or illegal acts. It is funny that none of
them seem to call out the executive orders of President Trump.
In fact, interestingly, a Republican-appointed judge, Judge
John Coughenour said this, ``that one of the orders is
blatantly unconstitutional.'' He says, ``I have a difficulty
understanding how a member of the bar could State unequivocally
that this is a constitutional order. It boggles the mind.''
Again, I think it is important to call that out because I
know we have heard time and time again since I have been here
the CFPB is an illegal bureau. It went all the way to the
Supreme Court. Certainly, the Supreme Court did not agree with
my colleagues. I think that has to be called, so I call it out.
I do want to ask this. There seems to be a contradiction in
what some of you have been saying today. It is interesting. If
you listen to what some of you said, you said, ``The government
has a whole bunch of information, and they ought to give it to
us, and sometimes in real time so we can help them solve this
fraud problem.''
Then I heard somebody else saying, ``The government has too
much information, and this information, in fact, could be
hacked and then that would be very detrimental to us.''
It seems that is what I heard. Did I not hear that?
Let me go first to Mr. Brabant. It sounded to me like you
were saying you are not confident with some of the information
the government holds.
Mr. Brabant. Absolutely. If--the beneficial ownership
information database going forward have 32--over 32 million
driver's license photocopies of small business owners, which
would make it a hacker's dream to get that information, from an
identify perspective.
Mr. Vargas. Right. In fact, we see right now a lot of the
complaints that we are getting about DOGE is they are trying to
get into people's private information that no one knows why
they need it. Then it seems--and not for a negative purpose,
you guys want to stop fraud, but it seems like you are saying
the Federal Government has a whole bunch of information, and we
would like to have it in real time so we can stop this fraud.
Well, it seems like it potentially could be a massive invasion
of privacy. How do you reconcile that? Yes.
Mr. McLaughlin. Thank you for the question. The folks that
I represent, the thousands of dedicated anti-money-laundering
and fraud professionals care for our customers' data just as
much as everybody else in the industry. However, we have a
responsibility to our customers to collect data and collect
illicit threats on our customers to do things like transaction
monitoring.
Mr. Vargas. No one disagrees with that, and I have to tell
you, I come from the perspective that I think banks try to do
the right thing with this information. I do not think they want
their clients to be defrauded. I do not believe that at all. I
think you guys are trying hard, but I also--I am not one of
these guys who think the government is the bad people either. I
think the government attempts to do the right things, too.
Sometimes it falters like anything else.
It does seem like you are asking for a lot of information,
private information that a lot of people would have a problem
with you having. In fact, I am kind of surprised my colleagues
on the other side did not call that out. They are usually
pretty good about this privacy stuff. It seems like you are
saying, ``Hey, give us a whole bunch of this information
back.'' Is there not a conflict there.
Mr. McLaughlin. Again, thank you for the question. It is
not a conflict from the financial crimes' perspective. We as
financial institutions collect a lot of sensitive information
on our customers already to establish a reasonable belief in
that customer's identity.
The information I am looking for, and the folks in my
industry are looking to partner with, is a secure transmission
of information that has been used in a financial crime outside
of the institution that we are employed by.
Mr. Vargas. No. I get that. I get that. The government has
a lot of information, and you would like some of that, too. I
do not know, it seems to me that it could be a massive invasion
of privacy. I am surprised that my colleagues on the other side
have not called it out.
I do want to say one thing. You talked about the financial
fraud with the farmer. When the CFPB was still in order, we
could still go after that. In fact, right now, when they are
calling about fraud, no one answers the damn phone.
We have elderly people, we have people in the military,
veterans in San Diego that call the CFPB, and there is nobody
on the other side of the line, and that is a problem.
With that, I yield back.
Chairman Davidson. I thank the gentleman.
The gentleman from Texas, also the Chairman of the Small
Business Committee, Mr. Williams, is now recognized for 5
minutes.
Mr. Williams of Texas. Thank you, Mr. Chairman, and thanks
to the witnesses for being here.
Ms. Burns Koven, we are seeing an evolution in how fraud is
committed and concealed, particularly through the use of
emerging technologies like decentralized exchanges and
cryptocurrencies. These tools are not only being exploited by
traditional scammers behind investment funds and pig butchering
schemes but increasingly by sophisticated transnational
criminal organizations, including Mexican drug cartels that are
adapting their tactics to evade the detection.
In many cases, these groups are bleeding fraud proceeds
with other illicit revenue streams and using crypto
infrastructure to obscure the origin and flow of funds.
Now, from your vantage, what trends are you seeing in how
fraudsters, both individual and organized, are using these
technologies to evade AML controls, and how is your
organization working with the private sector and law
enforcement to stay ahead of these evolving threats and ensure
that we can continue to track down these criminals effectively.
Ms. Burns Koven. Thank you for the question. We are able to
track these cartels purchasing fentanyl precursors from Chinese
dealers who are primarily operating in cryptocurrency. We are
seeing illicit actors adopt cryptocurrency for the same reason
it is being used for legitimate purposes, because it is stable;
it is liquid, fast. Any technology, we can count on fraudsters
to abuse. Luckily, we have been able to track some of these
fentanyl dealers and Mexican cartels, but they are early stage
in cryptocurrency, and they are not expert launderers, which
provides excellent opportunity for intervention.
I want to highlight the Eastern District of Wisconsin for
forfeiting $5.5 million in cryptocurrency associated with
cartels and Chinese fentanyl precursor dealers.
There are a number of cases where we see this over and over
at the Federal and State and local level, and we need to make
sure that the State and local investigators are equipped to be
able to identify and track these payments.
Mr. Williams of Texas. Thank you. One particular area of
concern of mine is how government-related reporting
requirements, such as FinCEN's beneficial ownership information
rule, may be putting small businesses at, and their owners, at
risk.
The rollout of BOI reporting under the Corporate
Transparency Act has required millions of small businesses to
navigate a complex new Federal compliance system, often for the
first time.
Unfortunately, bad actors are using the requirements of the
rule to exploit business owners to--emails, fraudulent
websites, and scam calls impersonating FinCEN.
I applaud the Trump Administration for scaling back its
harmful requirement recognizing this approach a burden and
security risk that rule--that this rule has placed on small
businesses, but there are still bad actors we must protect
small businesses and entrepreneurs from.
Mr. Brabant, how has FinCEN BOI reporting requirements
opened up small businesses to the threat of fraud and scams,
and how can Congress better protect small business owners from
BOI-related fraud.
Mr. Brabant. Thank you, Congressman.
The first one I discussed earlier is filing scams
themselves. When you do a Google search, the first several
results are not going to be from FinCEN. They are going to be
from BOIR.org, who have what looks like a government seal with
an eagle in it.
Some of these sites are charging $400 to file, and then
small business owners have no idea if their information is
actually being filed.
Then, of course, there is the question of when you have
your--a copy of your driver's license in a data base and there
are tens of millions of driver's licenses in there, it is only
a matter of time until that information is leaked or hacked,
and that opens up significant identity theft risks.
Mr. Williams of Texas. Thank you. I have limited time but,
Mr. McLaughlin, could you elaborate on how the current filing
burden of SARs and CTRs are affecting community banks, and how
Congress can provide financial institutions with some relief
from these burdens while still giving law enforcement the
information and tools that they need.
Mr. McLaughlin. Thank you for your question. I think the
burden needs to be shifted to a risk-based approach that is an
alignment between regulatory agencies, law enforcement, and
then the financial institutions.
Check-the-box exercises are a drain on resources across the
industry, and it is demoralizing to the institution, the folks
that I represent that we are not focusing on the threat, the
real threat to our customers, but, rather, we are taking part
in check-the-box exercises to get the machine of filing SARs or
CTRs out within the regulatory expected SLEs.
Mr. Williams of Texas. Thank you. I yield my time back, Mr.
Chairman.
Chairman Davidson. Thank you, gentleman.
The gentleman from Illinois, who is the Ranking Member of
the Financial Institution Subcommittee, Mr. Foster, is now
recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chair and to our witnesses. I
would like to talk a little bit about identity fraud and
particularly the role of digital identity systems and maybe
ameliorating some of that. States like Louisiana are using
digital driver's license to keep kids off porn websites, things
like that.
I guess my first question, Ms. Stokes, what fraction of the
fraud that is really at some point against seniors involve
identity fraud, where someone is representing themselves online
as someone who they are not?
Ms. Stokes. Thank you for that question, Representative. It
kind of goes two ways. Identities that have been stolen and
used fraudulently can be used for a whole range of things. When
we are talking about what is happening online, people do not
need a stolen identity to pretend who they are. I mean, it is
too easy. You can create----
Mr. Foster. I guess the question is, is that, if it became
sort of standard practice when someone contacts you, sends you
an email, text message, contacts you on social media, to just
give a little token that says, ``Here is the proof that I am
the legally traceable person.''
Ms. Stokes. Thank you, Representative. There are activities
underway in the industry to try to come to that, and I would
think that would benefit everybody.
Mr. Foster. It seems like, when--like one of you mentioned
the error message on the screen that sort of triggered a big
relationship that turned--that was just completely fraudulent.
If that--just it became standard practice, and then you can
contact me. Someone can send me an anonymous text, and I will
just assume it is coming from some AI-generated trash. If they
are willing to identify themselves, then I will pick it up,
even if I do not recognize the name. It seems like it is a much
healthier way to end up with this wave of identity fraud that
we are seeing.
Another thing, a lot of you mentioned the need to catch
this at the front door and the use of technology. One of the
new pieces of technology that may become important are these AI
personal assistants and companions that are really, in some
cases even simple robots that seniors fall in love with when
they have--get into memory care situations or, just the taxi
driver I know spends his day in conversation with an AI asking
him questions about sports scores or how the wild fire is
doing. It seems like on an entity like that, if properly
designed and regulated, could be sort of looking over the
shoulder of elders as they are on the internet and saying, hey,
you know, this AI personal assistant, which is being rolled out
by dozens of AI companies, could, if done right, really be the
first line of defense against this. Are you--is anyone aware of
something like this that is under development or being marketed
that way?
Ms. Stokes. Thank you, Representative. I am not aware of
those. I am sure that it is out there, but we have grave
concern about the misuse of generative artificial intelligence.
Mr. Foster. Well, this would be an AI on your side. This
would be a product provided to that person whose job it was to
defend that person against the wave of garbage out, AI-
generated garbage on the internet. It seems like there may be
something there, and it would be an interesting project for a
nonprofit, for example, or just a company to think about
developing because that--what you would really love is that, if
every senior on the planet had a benevolent advisor looking
over their shoulder and saying, ``You know, I am very familiar
with the millions of frauds that exist and what you just are
getting here on your screen looks a whole like a fraud I have
seen a thousand times before,'' and that can be done it seems
with properly regulated AI assistance. It seems like that is a
real opportunity. Any thoughts you had on that or anything that
you are aware of being developed I would be interested in.
Let us see. I guess, Representative Vargas made the point I
wanted to make about the tension between knowledge sharing and
privacy because, when you are talking about knowledge, you are
talking about knowledge of things that, where there is no
warrant and no--not necessarily probable cause--but, if you see
the whole picture, you can assemble the probable cause. It
seems like that is very sensitive legal grounds, legal
territory to try to figure out how to strike that balance. I
just--we have to make sure that, as politicians, we are not
sort of making two inconsistent requests of whatever legal
system we set up for that.
Anyway, I guess, that--last quick question. What fraction
of the ByBit hack money has been recovered, the $1.5 billion
North Korean--what fraction has been successfully laundered?
Ms. Burns Koven. Thank you for the question. I am not
familiar with the current status. This is an ongoing
investigation, but Chainalysis has aided the recovery of $40
million to date of that.
Mr. Foster. Okay. At one point--most--a big part of it has
been successfully laundered and is lost forever. Is that
correct?
Ms. Burns Koven. It is ongoing, sir.
Mr. Foster. Thank you. I yield back.
Chairman Davidson. Thank you, gentleman.
The gentlewoman from California, Mrs. Kim, is now
recognized for 5 minutes.
Mrs. Kim. Thank you, Mr. Chairman. I want to thank you for
holding this hearing, and I want to thank our witnesses for
joining us today.
Recently, I have been really concerned about the role that
the Huione group plays in cyber scam operations.
Ms. Koven, I know that Chainalysis played a very sizable
role in exposing the group's illicit activity. Can you break
down what exactly your research found?
Ms. Burns Koven. Thank you for the question. We have been
tracking Huione for a long time. Since 2021, Huione has
processed $70 billion worth of cryptocurrency. Huione Guarantee
operates as peer-to-peer marketplace allowing venders and
buyers to connect. It receives a profit, a fee from those
transactions. These vendors are nakedly selling scam material,
social media accounts, money meal services. Huione also offers
an exchange capacity, and it is a one-stop shop for scammers
giving them everything they need to conduct scams at scale for
cheap.
Mrs. Kim. Those that are critics of blockchain often paint
it as a technology existing primary to launder money or for
other illicit activity. However, they fail to realize that the
transparency that comes with the digital ledger can make it
easier to identify and shut down bad actors.
Ms. Koven, how did you leverage blockchain technology in
your investigation in Huione group?
Ms. Burns Koven. The blockchain reveals a very detailed
story about Huione, way more granularity than we would ever
have from traditional financial institution investigations, and
it paints a very vivid picture of its illicit exposure.
We see many of our scams are using Huione as a common
denominator, the common place to launder cashout funds, but
also reinvest the proceeds of scams for additional materials
used to target additional victims.
It provides a very powerful tool for financial institutions
that leverage our platform for transaction monitoring, as well
as investigative law enforcement to understand its inner
workings.
Mrs. Kim. As we try to shut down organizations like the
Huione group, do you think sanctions are an effective tool?
Ms. Burns Koven. Sanctions are certainly a powerful tool,
one tool in the toolbox. I think more clarity would enable
financial institutions and cryptocurrency businesses that
leverage our data to understand if and when they have exposure,
whether they have customers sending to or receiving funds from
Huione; it essentially cuts Huione off from the mainstream
crypto ecosystem.
Mrs. Kim. Could you give us an example of how this was
actually used and--it was sanction--was being effective?
Ms. Burns Koven. Sanctions have been most effective when
coordinated with law enforcement. That one-two punch of not
only designations but also takedowns.
Just last month, Garantex, which is a sanctioned Russian
service, persisted despite sanctions. Certainly at any--any
cryptocurrency business with receiving from or to Garantex has
the ability to block those transactions effectively.
What we are now examining is, because Garantex has been
blacklisted, it is potentially rebranded, but it allows us to
follow the money trail to identify that next iteration. Even
when they are in jurisdictions that are not compliant with
Western law enforcement, we can still impose cost; we can
inject friction.
Mrs. Kim. Thank you. I want to shift gears now and focus on
the burden that suspicious activity reports have become on
community financial institutions.
Mr. McLaughlin, I want to ask you the questions. For
community banks that have smaller regulatory teams, how much
harder is it to complete the SARs with the level of details
that is required?
Mr. McLaughlin. Thank you for your question. The burden on
a smaller financial institution versus a larger institution is
greater. At a larger financial institution, there is an
investment in automation and other ways to beat the
investigative process and the SAR filing or CTR filing more
automative and faster.
At the community bank or smaller financial institution
level, the burden is on the person. The person has to basically
write the who, what, where, when, how, and why the activity
took place, and in great enough detail so that we are turning
over SARs to the law enforcement that is considered actionable
intelligence. We do not like getting feedback that we need to
amend SARs or things like that to provide more data. We look to
provide as much data upfront so that law enforcement can take
it, but it is a very burdensome process because, at that level
of institution, there is not a lot of automation that takes
place.
Mrs. Kim. Thank you very much.
I yield back.
Chairman Davidson. Thanks, Mrs. Kim.
The gentleman from Illinois, Mr. Casten, is now recognized
for 5 minutes.
Mr. Casten. Thank you, Mr. Chairman.
Mr. McLaughlin, first, I just want to State the obvious:
You currently have systems in place, right, to block, freeze,
reject any transactions and report them to the Office of
Foreign Assets Control (OFAC) if they are done by shady
characters, sanction evaders, child traffickers? Is that a
broad, yes?
Mr. McLaughlin. Yes, sir.
Mr. Casten. Okay. I am glad to hear it. You would be in
trouble if you said anything else.
Tomorrow, the committee is going to markup stablecoin
legislation, which would include language to treat stablecoin
issuers as financial institutions under the Bank Secrecy Act,
in which case they would also have to comply with anti-money-
laundering, Know Your Customer rules that you comply with as
well.
Is it your view that, if--that stablecoin issuers should be
subject to those same rules that you comply with, regardless of
how those rules may change, the rules should not be different
for one financial institution to another?
Mr. McLaughlin. Thank you for your question. Yes, sir, I do
believe any product, service, industry, or technology that is
responsible for moving funds between customers or citizens has
to be subject to regulation to make sure that they are
protecting the customers or----
Mr. Casten. Okay. Since you have presumably got some
experience filing SARs reports and what-have-you, can you
speculate on what the bad guys would do if we had a stablecoin
regime where all of a sudden, they were not subject to the same
rules that a depositor at your institution is subject to.
Mr. McLaughlin. Thank you, again. I can speculate that the
bad guys would become even more aggressive in the space in
terms of targeting vulnerable individuals to defraud, steal,
and abuse the customers of the stablecoin.
Mr. Casten. Well, I certainly agree. I am glad to hear you
say it. I raise that because some of my colleagues on the other
side of the aisle believe that stablecoin issuers should not
have to comply with anti-money-laundering rules, and I guess,
if you are here to represent our Nation's child traffickers,
that is a good position to have. But I think it is important to
make sure we keep those protections.
Ms. Koven, I want to move to you just to think about what
might happen if we do not have those protections in place. My
understanding, from your 2020--from Chainalysis 2025 crime
report is that stablecoins account for 63 percent of all
illicit transactions that you had tracked and that sanctioned
entities are increasingly using stablecoins because of the
difficulty of using the U.S. dollar. Do I have that basically
right on what your 2025 report said?
Ms. Burns Koven. Yes, sir. Stablecoins have become the
currency of blockchains. They are by far the most transacted
cryptocurrency today and we support efforts to establish
regulatory frameworks across stablecoin issuers. Robust
consistent standards across this growing market can ensure----
Mr. Casten. I appreciate that, but I just want to focus on
that 63 percent of the illicit activity is done on stablecoins,
and I want to understand that number because my understanding
of how what you can track is that you cannot see the off-chain
transactions, right?
Ms. Burns Koven. Correct.
Mr. Casten. It is 63 percent of the stuff that is
trackable, but, presumably, if the bad guys know what is
trackable, there might be some--there might be more than 63
percent if you could track everything.
Ms. Burns Koven. As an investigator, for me personally it
is a gift when illicit actors decide to dabble on stablecoins
because of the traceability and, also, seizability midstream.
Mr. Casten. It is sort of like I love the guy who robs 7-
Eleven without a mask and holds his ID up to the camera before
he pulls the gun out. Right. Presumably there is more there.
Now, I say that because, if I am a bad guy and we do not
regulate stablecoins, I can imagine a scenario where I go on to
buy some other kind of crypto. I use that to launder money. I
then bring that onto an exchange that is issuing the
stablecoin, convert it to stablecoin. Those are all off-chain
transactions. You would not see any of that, right, if that was
the means of money laundering?
Ms. Burns Koven. We have still had spectacular seizures,
including a $225 million seizure of stablecoins associated with
the scam funds. Scammers know it is visible and traceable but
are still taking the risk of dabbling in it.
Mr. Casten. I am not saying this to criticize Chainalysis.
I am just saying that, because you are not tracking the off
chain, if I bought another crypto, went onto an exchange where
the exchange was issuing this--because the exchanges run their
own ledgers, right? That is--you do not see that stuff, right.
That is, like you mentioned Garantex earlier, but my
understanding is that Garantex loves Tether because they can do
all that sort of stuff and bypass the system. Even though we
have, hopefully, we are clamping down on Garantex, you could
still do that inside other exchanges and not track that, right?
Ms. Burns Koven. Absolutely. That is why regulatory
frameworks that put standards on those cryptocurrency
businesses to understand all this swapping that is going on is
imperative.
Mr. Casten. I really appreciate your expertise. I am out of
time. A marker for tomorrow: Let us make sure we do not make
things easier for the bad guys.
I yield back.
Chairman Davidson. I thank the gentleman.
The gentleman from Tennessee, Mr. Ogles, is now recognized
for 5 minutes.
Mr. Ogles. Thank you, Mr. Chairman.
To the witnesses, a new landscape has developed before us,
and the bad actors have clearly figured out a way to thrive in
that environment.
I want to go back to Huione. Up until January, Apple and
Google users on those two platforms could access--Ms. Koven,
when you look forward to Huione, what is currently the
accessibility for Americans or Westerners to that platform and
other platforms that may pose similar risks?
Ms. Burns Koven. Yes. We are seeing scam syndicates
primarily leveraging these compounds. Huione Guarantee
continues to be the common denominator for the majority of
scams that we see, including the laundering of scammed
proceeds, as well as facilitating the tools and services needed
to perpetrate the scam, so identities and data to contact and
reach out to Americans for targeting of these confidence and
pig butchering scams.
Mr. Ogles. If you could wave a magic wand, what would be
your fix, what would be the defense, that firewall that we put
up here to protect the end user, the Americans, from this type
of scamming activity.
Ms. Burns Koven. Chainalysis has flagged Huione in our
products so that financial institutions with exposure to Huione
can make risk-based decisions on funds going to or coming from
that platform.
More regulatory pressure on institutions that are
flagrantly abusing or flouting regulatory norms is important.
Closing those gaps for AML standards is important because of
this jurisdictional arbitrage is certainly occurring.
Mr. Ogles. Obviously, this is focused in China, but what
about--are there other nation-states that you have concerns
about who are doing similar--or learning from other bad actors
and scaling up to, quite frankly, abusing Americans? My
apologies.
Ms. Burns Koven. Certainly, if Huione did not exist, there
would be other jurisdictions, other services ready to take its
place, and so we need to continue to use blockchain analytics
to understand where these funds are going and who--where the
illicit users wind up having success laundering funds.
Mr. Ogles. Well, back to this platform, when you look at
the child trafficking that is taking place and the movement of
dollars, there has been--again, the bad actors have leveraged
this technology to monetize the abuse of individuals but, in
particular, children. Again, what are next steps in to combat
that, being more aggressive in that space as we--as this is
becoming really a plague of our society?
Ms. Burns Koven. These are--these scams are operated by
organized criminal syndicates involved in not only scamming but
gambling, child trafficking, and sex trafficking. Being able to
find those centers of gravity, inject operational friction,
deprive them of funds, so seizing funds, and, also, being able
to cause them to be a pariah in the ecosystem is incredibly
important. We need that blockchain analytic capability to
understand where the funds are going and identify those behind
it.
Mr. Ogles. In other words, go after the money at the end of
the day, right?
Ms. Burns Koven. Yes.
Mr. Ogles. Mr. Chairman, I would love to get--when you talk
about the regulatory regime that our colleague from the other
side, I would love to get your thoughts over the next few--my
remaining time on what you envision as a regulatory regime for
stablecoin and, quite frankly, the caution that we must--how we
must proceed with caution so that we do not disrupt our
marketplace that can be a benefit to the market but at the same
time understanding there are victims in the process.
Chairman Davidson. I think--thanks for the dialog here, but
I think Mr. Casten's concerns about illicit finance are well
placed, and it highlights that technology is changing.
Stablecoins are a little different way, and that is why our
witness from Chainalysis, I think you did a great job
answering, and we like when things are on chain; we can follow
it even easier.
When I am talking about the things in my other committee,
in Foreign Affairs, a lot of the things that we are looking at
with non-State actors that are circumventing our sanctions,
which are things our committee does--doing those kinds of
things on chain are more traceable. In a lot of ways, that is
exactly what we want.
Sometimes we do not even want to turn off the flow of cash
immediately. We want to be able to follow the flow so that we
can actually target, in the case of warfare, connect targets.
Then, in the case of going after organized crime, we do not
necessarily want the guy working out of mom's basement. We want
to know who he is reporting to. The question is, are those
tools better? We are going to talk about that in a lot of ways.
Thanks, Mr. Ogles.
Mr. Ogles. I yield back.
Chairman Davidson. The gentleman's time has expired, and he
has yielded.
The gentleman from California, Mr. Liccardo, is now
recognized for 5 minutes.
Mr. Liccardo. Thank you, Mr. Chair.
Thank you to our witnesses for all this information. The
hearing, of course, is captioned ``Follow the Money,'' and I
used to be involved in prosecuting drug traffickers and human
trafficking as a Federal prosecutor and later as a District
Attorney (DA). Certainly I had plenty of challenges following
the money when we knew that there was information being
provided by entities that was false, that would conceal who the
actors were and who was controlling them, and, most
importantly, who was getting the money from the criminal
enterprise because we knew those were the folks who were really
running the show.
I will give you a quick example. We had, I remember, a
Cuban national who was controlling a major human trafficking
enterprise in southern California, of course, using entirely
U.S. corporations, filed under California and other States'
laws, with U.S. citizens essentially, ostensively being their
officers.
I am concerned, as I know the National District Attorneys
Association is also concerned, based on what we see from their
statement, December 2024, about this legislation that we are
currently considering that would exempt every U.S. corporation
under a certain threshold, the size, from Corporate
Transparency Act's requirements providing basic information--
information--I am sorry--basic ownership information to FinCEN.
Let us be clear about what that information is under the
law. It is the name of the owner, their date of birth, their
address, and some identifying number from a driver's license or
passport, or some other government--that is it. Four items.
Now, my experience, certainly trying to get the identity of
those individuals controlling these entities that are engaged
in criminal activity, was pretty important. I guess I just want
to ask, Ms. Stokes, does it help, based on your experience, to
be able to have this kind of information if we are trying to
combat fraud?
Ms. Stokes. Thank you, Representative. Absolutely the
information is critical, and I just want to point out that we
have heard a lot about concerns of administrative burden and
concerns of data privacy.
I want to turn to the burden of the victim. When you look
in the aggregate of how much has been stolen just in 2023, an
estimate from the FTC is $158.3 billion, that is three times
the revenue of the Coca Cola company. We have to understand
that, yes, there are burdens on businesses, and maybe some
could be put together better than others, but we cannot be
moving away from rules that help protect consumers.
Mr. Liccardo. I agree, Ms. Stokes. In fact, I believe Mr.
Brabant suggested somehow or another that corporations have to
hire Certified Public Accountants (CPAs) and other outside
counsel to be able to submit this information about the name of
the owner, the date of birth, the address, and their basic, I
guess, driver's license number. Is that your experience, that
you need outside counsel to do such things?
Ms. Stokes. Thank you, Representative. I cannot speak to
that because that is not the space I work in, but I hear your
point.
Mr. Liccardo. $153 billion in losses.
Ms. Stokes. 158 billion.
Mr. Liccardo. 158 billion. Thank you for that.
Mr. Brabant, you might have guessed, I was going to you
next. I am trying to understand why providing these four basic
pieces of information, which, by the way, I had to provide when
I opened an LLC last year--any bank would require it. It is
pretty basic information--what is the extraordinary burden
involved here.
Mr. Brabant. It is also a photocopy of a driver's license,
but it is that information that challenges the substantial
control prong.
I think one thing that is getting lost here is that every
bank already has this. This is a duplication of the customer
due diligence role, which already exists. Every single LLC that
has a bank, if the bank is doing its job, they have this
information. What this is really----
Mr. Liccardo. What happens if the bank has individuals who
are involved in criminal activity? Would you not want that
information in the hands of those who are investigating
criminal activity, not those who may be----
Mr. Brabant. Anyone who is investigating could subpoena the
bank at any time.
Mr. Liccardo. What happens if you are just investigating
for the first time and you actually need to know who you can
subpoena, and you do not know exactly where to go because you
do not have ownership information to begin with?
You raise concerns, for example, about criminal threats to
these companies, but, in fact, the law is very clear under
title 31: Penalties only accrue if you are fraudulently
reporting this information, willfully and fraudulently
reporting information that is false. Somehow or another you
have cast this as some kind of great criminalization of
corporate America. How can that be?
Mr. Brabant. That is a knowing and willing standard, which
is usually in the eye of a prosecutor.
Mr. Liccardo. Not knowingly willing. It says willfully
provide false or fraudulent. That is what the statute says. Not
knowing; it says willfully. Let us be very clear about what the
statute says.
Mr. Davidson. The gentleman's time has expired.
Mr. Liccardo. Thank you.
Mr. Davidson. The gentlewoman from Florida, Ms. Salazar, is
now recognized for 5 minutes.
Ms. Salazar. Yes. Thank you, Mr. Chairman, and thank you to
the witnesses.
My name is Maria Salazar. I represent District No. 27 in
Florida, which includes the city of Miami. For what I have been
studying, my hometown was ranked number one in the Nation with
the highest per capita fraud in the country. That cost
Floridians over $850 million. That said, Miami is a great
place, but this is pretty embarrassing.
I would like to ask, Mr. McLaughlin, if you could please
explain to us why, according to the FTC fraud report, Miami is
number one in the Nation for reported fraud. Why is that? Thank
you, Mr. McLaughlin.
Mr. McLaughlin. Thank you for your question. I cannot
really answer as to why Miami in particular is ranked number
one, but I can tell you that--I can tell you that the financial
institutions today that I have had the honor of working with
and partnering with have dedicated time, energy, and, more
importantly, resources to developing upfront detection of
fraud. However----
Ms. Salazar. Is there any specific reason why that area in
the country, specifically the city of Miami, is the number one
in the country for fraud? What are we attracting?
Mr. McLaughlin. If I would have to take a guess it is the
population of the potential vulnerable population that resides
within the State of Florida.
Also, the availability of being able to reach Miami from a
foreign country also would probably play a part in that.
Having the ability to contact an elder in Miami and talk
about the investment opportunities maybe in their home country;
it exists greater than in other large areas of the country.
Again, that is just me taking a guess using my experience over
time, but my fellow witnesses may have a better answer than I
do.
Ms. Salazar. Maybe, Ms. Koven, would you like to give us
maybe your opinion as to why the city that I represent is
number one for fraud in the country.
Ms. Burns Koven. I am unfamiliar with Miami in particular,
but, from my experience, scammers are targeting Americans
indiscriminately and are looking to develop relationships with
individuals over text and social media and very happy to have
their hands on American data to strike up those conversations
because America is a target-rich environment. It is a wealthy
country, and it makes it a prime target for these fraudsters.
Ms. Salazar. Any additional tools, any of you who would
like to share with us--any additional tools or ideas that we
should consider in order to stop this or make it a lot harder
for these scammers to attack our constituents?
Ms. Stokes. If I may, Representative.
Ms. Salazar. Of course.
Ms. Stokes. One of the points that was made a little bit
earlier--I think the targeting does have a lot to do with where
older populations are. If you broaden your look beyond Miami,
you will see probably the top five States where the highest
number of older adults live.
It is not that they just target older adults, but when they
get older adults there is a much bigger payout because they
have the assets, right. That is one thing.
Another thing is that this is organized crime, and our
system of law enforcement just is not resourced or is not able,
because of other competing demands, to look at these crimes
through an organized crime lens. If you did, you would get the
$10,000 grandparent scam in Miami connected to the $10,000
grandparent scam in Tennessee, and all of a sudden, it is a
million-dollar threshold-breaking case.
There is a new initiative underway that will launch in
April that is going to do just this, the National Elder Fraud
Coordination Center (NEFCC), and I would love to tell you more
about that if you are interested.
Ms. Salazar. Yes. Basically, what you are telling us is
that we are going to be honing and targeting the senior
population to explain to them or to send the message to be very
careful. That means that our seniors do not understand that
they are the number one prey for this type of scammers.
Ms. Stokes. Thank you, Representative. I can tell you my
job is to educate older Americans, and within 2 years of doing
this, I realized we cannot educate our way out of this and
NEFCC is not about educating. It is about pulling data together
from the private and public sectors to solve.
Ms. Salazar. We cannot educate--I mean, my time is up but
just give me 30 seconds. Why do you think education is not the
way to go with the senior population?
Ms. Stokes. We have been saying education has been the
answer for years, and where are we? You know, the $158.3
billion, $61.5 billion of which was stolen from older adults in
2023, it cannot work on its own. Because we relied on that, it
served to deprioritize any other activity that could have gone
to mitigate the loss that is now growing so meteorically.
Ms. Salazar. Thank you. I yield back.
Chairman Davidson. Thank you. I appreciate the dialog
there.
The gentlewoman from Michigan, the Chairwoman, also the
Chairwoman of the full Republican Conference, Mrs. McClain from
Michigan is now recognized.
Mrs. McClain. Thank you and thank you all for being here.
This is a really important topic. I think--and something that I
think we really need to figure out how to get our arms around.
Again, I appreciate you holding the hearing, as well as talking
about this.
I want to start with Ms. Koven. I am trying to understand
blockchain, the role it plays, but could blockchain analytics
or other technological solutions, so to speak, streamline the
filing and analysis of SARs and CTRs? If the answer is yes,
which I hope it is, could you expand on that a little bit?
Ms. Burns Koven. Yes. Thank you for the question.
Blockchain analytics is already enriching SAR and CTR quality.
Our customers from the private sector are leveraging the
insights from our data to file their SARs and CTRs today. It
paints a very vivid picture of the entire kill chain of events.
If we are talking about scams in particular, you have a
much more vivid color of where the funds are going and coming
from, counterparties as well, much more so than you would in
the traditional financial industry.
Mrs. McClain. Is the timing a lot quicker as well, I am
assuming?
Ms. Burns Koven. Yes, ma'am. That is correct.
Cryptocurrency is an attractive asset for legitimate uses, as
well as illicit, for its speed.
Mrs. McClain. In my opinion, we have all these governmental
agencies, and we have these rules and regulations, and at times
they are so cumbersome and at times overburdening for the
businesses where I think the businesses are trying to do the
right thing, and people are trying to do the right thing; it is
just the volume is so immense, right, that it just takes time
to go through that.
One of the biggest advantages I see, and I would like to
get your opinion on this, is the time, because, to your point,
the timing is crucial on when we find these. Could you talk a
little bit about the timing of this and the timeframe, how the
timeframe is shortened?
Ms. Burns Koven. Yes. We also provide real time transaction
monitoring allowing financial institutions to get alerts on
funds incoming or off--going off their platform, and they can
be alerted in real time to these funds. Really time is of the
essence, and current processes, reporting, and information
together sharing is painfully slow. Even though cryptocurrency
and the blockchain enable tracing and freezing, time is really
of the essence. We have to make sure that those insights are
delivered in a timely fashion.
Mrs. McClain. Do you have any measurables on that?
Ms. Burns Koven. No, ma'am.
Mrs. McClain. Okay. All right. Just curious. Thank you.
Mr. McLaughlin, how can FinCEN improve its communication
and feedback mechanisms with banks and blockchain analytics
firms following SARs and CTR submissions? Could you talk a
little bit about that?
Mr. McLaughlin. Sure. Thank you for your question. As
everybody can probably tell, the point of a lot of the things I
have said today is creating an open and transparent two-way
communication between the public and private sectors so that we
can begin focusing on the resources that we have on the threats
that our customers face on a daily basis.
Working with FinCEN to establish a working group or a task
force or whatever terminology you want to throw at it would
allow us to begin establishing and doing data analytics on what
the government is seeing, what law enforcement is seeing and
what the private sector is seeing so that we can--so that we
can begin putting pen to paper on what a true risk-based
approach means for financial crimes across the board, fraud,
money laundering, sanctions and terrorism finance.
Mrs. McClain. Are you getting any pushbacks or running into
any roadblocks on that?
Mr. McLaughlin. I would not say roadblocks or pushbacks. I
think with the increased scrutiny that all of you are bringing
to light today, I do think we are seeing across the industry a
knowledge-sharing exercise taking place, whether that be
informally or formally, but more work is needed.
I think, when we look at things like the Federal Financial
Institutions Examination Council (FFIEC) manual and the
revisions there. I do think a public, private, and law
enforcement type engagement would allow us to put down what the
actual requirements are so that we can point to the crimes that
we are trying to capture.
Mrs. McClain. Are you getting any pushback on that, public-
private partnerships?
Mr. McLaughlin. Personally, with the folks that I work
with, no. It is just not official. It is outside the hallways
here or at a convention or a conference that knowledge sharing
really exists.
Mrs. McClain. Thank you.
With that, Mr. Chairman, I yield back.
Chairman Davidson. Thank you, gentlewoman.
The gentleman from Iowa, who is also the vice chairman of
the committee, Mr. Nunn, is now recognized for 5 minutes.
Mr. Nunn. Mr. Chairman, thank you very much for putting
this important hearing together today. We all know that my home
State of Iowa, in the heart of the heartland, my senior
citizens are probably target number one for the scams. It is
happening across not just Iowa but the entire country.
I am proud to say that the United States is also probably
the best place for innovators to come to the forefront and
really be the superheroes in the story of fighting back.
In November, the Department of Justice used blockchain to
freeze approximately $225 million that were used in a human
trafficking scheme. However, even amongst this technological
solution situation, we remain challenged for most of our State
and local law enforcement entities to get an opportunity to
play, as, Mr. McLaughlin, you just highlighted.
One victim back in my hometown in Iowa, 68-year-old
veteran, lost over $100,000 to a scam, and challengingly, local
law enforcement could not even begin to help.
That is why today, Mr. Chair, I am introducing the
Bipartisan Guard Act to give State and local law enforcement
agencies access to the technology they need to combat these
financial fraud crimes and pig butchering scams.
Let us get started on this. Ms. Koven, I know that you and
I are on the same page here because, in your testimony, you
advised the need to train more people on things like
blockchain, those digital rails in which the future of
technology is going to operate on here in the United States.
This is exactly what the Guard Act, my bill, attempts to
accomplish.
I understand that your company has trained people in these
technologies both on the State and even down to the local
level. Can you briefly walk us through some of the examples,
and if there have been stories of success here?
Ms. Burns Koven. Yes. Thank you for the question. I am
sorry to hear about your constituent being defrauded. It is a
story we hear all too often, unfortunately.
At Chainalysis, though, we do work with over 70 State and
local governments around the country, and we have seen
astounding successes when law enforcement is trained and
equipped properly. We have only scratched the surface,
unfortunately. Particularly with the proliferation of these
types of scams, we need to better equip State and local law
enforcement to understand how to handle these cases and connect
a single fraud victim to a wider network and increase chances
of disruption and recovery.
Mr. Nunn. Jackie, I think you really highlighted a point
here that this has happened in the physical world before, and
we have had good game plans to go after it. What our Guard Act
bill is aiming to do is to create these fusing centers of best
practices at the Federal level, marry them up with local law
enforcement agencies and provide those level of resources to
really go after that so that an Iowan who loses a hundred
thousand, or a New Yorker who loses a million all have the same
access to the same resources. Is this what you have seen
through your experience to be a successful solution?
Ms. Burns Koven. Yes, sir. We should have every advantage
because the scammers are leveraging cryptocurrency, but time is
of the essence. What we have seen in working groups and small-
scale operations is that, when private and public sector are
sharing information dynamically, we can turn that wealth of
information into actionable insights quickly and have stunning
successes.
Mr. Nunn. Thank you, Ms. Koven.
Ms. Stokes, I want to thank you and your incredible team at
AARP. You are on the frontline not only guarding our seniors,
but you have helped bridge this to be a bipartisan effort. Our
Guard Act is really brought together by Mr. Gottheimer and me,
a Republican and Democrat, really working for the best interest
of the American people here.
I would like to, one, ask, how could retirees benefit from
a local law enforcement that would have access to these greater
tools that the Guard Act could provide so they can get to know
about blockchain, understand how financial fraud works, and
really address the sources of these crimes to stop the number
of victims we are seeing?
Ms. Stokes. Thank you, Representative and AARP is very
proud to support the Guard Act. I think it is critical.
We talk to probably a hundred thousand victims a year,
maybe 500 calls a day, and the vast majority of fraud victims
where money has been stolen; they have no recourse. They will
call local or State police, and even if police that they talk
to understand that it is a crime, they will still say, ``There
is nothing we can do about it,'' and sometimes do not even take
the report, which is a challenge in and of itself. Anything
that we can do to not only provide the tools but, importantly,
to train local and State law enforcement on things that they
simply do not have the training on right now would be of great
benefit to our constituency.
Mr. Nunn. Thank you, Ms. Stokes. I want to, again, say
thank you to AARP for helping lead this because it is not only
my seniors who want this; it is every American who needs this
and no one more so than my local law enforcement, who wants to
be able to help our own community get better. This gets us in
the right direction.
Mr. Chairman, thank you very much. I yield the remainder of
my time.
Chairman Davidson. Thank you very much.
I thank all of our witnesses and our colleagues for a great
hearing today. Kind of scary what is going on for the citizens
of this country. Hopefully this will help make a difference.
Without objection, all members will have 5 legislative days
to submit additional written questions to the witnesses, and to
the chairman for questions.
Witnesses, please, if you get those, respond no later than
May 6th.
[The information referred to can be found in the appendix.]
This hearing is now adjourned.
[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
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