[House Report 115-905]
[From the U.S. Government Publishing Office]


115th Congress    }                                   {         Report
                        HOUSE OF REPRESENTATIVES
 2d Session       }                                   {        115-905

======================================================================



 
       IMPROVING STRATEGIES TO COUNTER WEAPONS PROLIFERATION ACT

                                _______
                                

August 24, 2018.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 6332]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 6332) to require the Director of the Financial 
Crimes Enforcement Network to submit a report to Congress on 
the way in which data collected pursuant to title 31 is being 
used, and for other purposes, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                          Purpose and Summary

    On July 12, 2018, Representative Scott Tipton introduced 
H.R. 6332, the ``Improving Strategies to Counter Weapons 
Proliferation Act.'' The legislation would require the 
Financial Crime Enforcement Network (FinCEN) to report to 
Congress annually for five years on the intelligence products 
it generates from Bank Secrecy Act (BSA) filings on 
proliferation finance transactions moving through the U.S. 
financial system; its collaboration with law enforcement 
agencies, the Intelligence Community, and foreign financial 
intelligence units; and on its advisory reports issued to 
financial institutions to make maximum use of BSA data.

                  Background and Need for Legislation

    H.R. 6332 amends Section 310 of title 31, United States 
Code, to require the Director of the Financial Crime 
Enforcement Network (FinCEN) to report to Congress annually for 
five years on the financing of weapons proliferation and to 
provide guidance to financial institutions on how to best 
identify procurement patterns and implement these identifiers 
into their anti-money laundering and ``Know Your Customer'' 
processes like they do with other illicit and terror finance.
    Countering the financing of weapons proliferation is a key 
foundation of U.S. counter-proliferation efforts. The Financial 
Action Task Force (FATF) encourages financial entities to check 
customers against sanctions lists to avoid any assistance in 
the financing of weapons proliferation activities. As the U.S. 
assumed the presidency of FATF in July 2018, there is an 
opportunity to provide more leadership to the financial 
industry to help identify and counter the financing of weapons 
proliferation.
    Proliferation finance generally receives less attention 
than other illicit finance threats such as money laundering and 
terror financing. It is often difficult for government 
authorities or financial institutions to identify the financing 
of weapons proliferation. The networks of procurement agents 
involved may be complex and often involve ``front'' companies 
which operate in a number of different jurisdictions. The goods 
and materials involved are, for the most part, standard 
industrial or occasionally dual-use items. The latter, although 
subject to export controls, still may be hard to identify. For 
due diligence, most financial institutions rely on screening 
both transactions and customers against lists of sanctioned 
individuals or entities. Governments and regulators generally 
require nothing more of financial institutions.
    Publicly available material about the characteristics of 
the financing of weapons proliferation, or documented 
methodologies, has also been relatively sparse. The most 
comprehensive study of typologies of the financing of 
proliferation to date was published by the FATF in 2008, which 
included case studies and a list of 20 possible indicators, 
including, for example, transactions connected with designated 
individuals or entities or with countries of proliferation 
concern. These case studies involve classic and established 
financial mechanisms--wire transfers, trade finance products, 
cash, checks, and, in a few cases, credit cards.
    Financing schemes fund illicit weapons proliferation. These 
operations cannot continue if the Federal government can 
frustrate or more importantly end these financing 
opportunities. H.R. 6332 will help to further these goals by 
studying what specific activities may indicate engagement in 
proliferation financing and deny bad actors with the ability to 
take advantage of the global financial system.

                                Hearings

    The Committee on Financial Services Subcommittee on 
Terrorism and Illicit Finance held a hearing examining matters 
relating to H.R. 6332 on July 12, 2018.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
July 24, 2018 and ordered H.R. 6332 to be reported favorably to 
the House without amendment by a recorded vote of 56 yeas to 0 
nays (recorded vote no. FC-198), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. The 
sole recorded vote was on a motion by Chairman Hensarling to 
report the bill favorably to the House without. The motion was 
agreed to by a recorded vote of 56 yeas to 0 nays (Record vote 
no. FC-198), a quorum being present.


                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 6332 
will provide a focus on the financing of weapons proliferation 
by providing for a report to Congress on FinCEN's intelligence 
products relating to the financing of proliferation financing, 
how FinCEN collaborates with other agencies and foreign 
partners, and FinCEN's advisory notices to financial 
institutions.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 2, 2018.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 6332, the 
Improving Strategies to Counter Weapons Proliferation Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 6332--Improving Strategies to Counter Weapons Proliferation Act

    H.R. 6332 would require the Financial Crimes Enforcement 
Network (FinCEN) in the Department of the Treasury to submit an 
annual report to the Congress on FinCEN products and other 
agency activities that address the financing of weapons 
production and distribution. Based on the cost of similar 
reports, CBO estimates that implementing the bill would cost 
less than $500,000 annually; such spending would be subject to 
the availability of appropriated funds.
    Enacting H.R. 6332 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply.
    CBO estimates that enacting H.R. 6332 would not increase 
net direct spending or on-budget deficits in any of the four 
consecutive 10-year periods beginning in 2029.
    H.R. 6332 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    The CBO staff contact for this estimate is Mark Grabowicz. 
The estimate was reviewed by H. Samuel Papenfuss, Deputy 
Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    Duplication of Federal Programs

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed rule 
makings: The Committee estimates that the bill requires no 
directed rule makings within the meaning of such section.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 6332 as the ``Improving Strategies 
to Counter Weapons Proliferation Act.''

Section 2. Financial crimes enforcement network reporting requirement

    Section 310 of title 31, United States Code, is amended by 
adding at the end the following:

    ``(e) Reports Relating to Use of Collected Data.''
    Not later than 1 year after the date of enactment of this 
subsection and every year thereafter, the Director shall submit 
to the Committee on Financial Services of the House of 
Representatives and the Committee on Banking, Housing, and 
Urban Affairs of the Senate a report on intelligence products 
created by FinCEN on finance transactions for the proliferation 
of weapons from filings submitted pursuant to subchapter II of 
chapter 53; FinCEN's efforts to collaborate with law 
enforcement agencies, the intelligence community, and foreign 
financial intelligence units to maximize the use of data that 
is collected pursuant to subchapter II of chapter 53; and 
advisory notices issued to financial institutions (as defined 
under section 5312(a)) on financial activity related to the 
proliferation of weapons.
    Any part of the report that involves information that is 
properly classified under criteria established by the President 
shall be submitted to the Congress separately in a classified 
annex.
    No report is required after the end of the 5-year period 
beginning on the date of enactment.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, and existing law in which no 
change is proposed is shown in roman):

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                      TITLE 31, UNITED STATES CODE




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SUBTITLE I--GENERAL

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CHAPTER 3--DEPARTMENT OF THE TREASURY

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SUBCHAPTER I--ORGANIZATION

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Sec. 310. Financial Crimes Enforcement Network

  (a) In General.--The Financial Crimes Enforcement Network 
established by order of the Secretary of the Treasury (Treasury 
Order Numbered 105-08, in this section referred to as 
``FinCEN'') on April 25, 1990, shall be a bureau in the 
Department of the Treasury.
  (b) Director.--
          (1) Appointment.--The head of FinCEN shall be the 
        Director, who shall be appointed by the Secretary of 
        the Treasury.
          (2) Duties and powers.--The duties and powers of the 
        Director are as follows:
                  (A) Advise and make recommendations on 
                matters relating to financial intelligence, 
                financial criminal activities, and other 
                financial activities to the Under Secretary of 
                the Treasury for Enforcement.
                  (B) Maintain a government-wide data access 
                service, with access, in accordance with 
                applicable legal requirements, to the 
                following:
                          (i) Information collected by the 
                        Department of the Treasury, including 
                        report information filed under 
                        subchapter II of chapter 53 of this 
                        title (such as reports on cash 
                        transactions, foreign financial agency 
                        transactions and relationships, foreign 
                        currency transactions, exporting and 
                        importing monetary instruments, and 
                        suspicious activities), chapter 2 of 
                        title I of Public Law 91-508, and 
                        section 21 of the Federal Deposit 
                        Insurance Act.
                          (ii) Information regarding national 
                        and international currency flows.
                          (iii) Other records and data 
                        maintained by other Federal, State, 
                        local, and foreign agencies, including 
                        financial and other records developed 
                        in specific cases.
                          (iv) Other privately and publicly 
                        available information.
                  (C) Analyze and disseminate the available 
                data in accordance with applicable legal 
                requirements and policies and guidelines 
                established by the Secretary of the Treasury 
                and the Under Secretary of the Treasury for 
                Enforcement to--
                          (i) identify possible criminal 
                        activity to appropriate Federal, State, 
                        local, and foreign law enforcement 
                        agencies;
                          (ii) support ongoing criminal 
                        financial investigations and 
                        prosecutions and related proceedings, 
                        including civil and criminal tax and 
                        forfeiture proceedings;
                          (iii) identify possible instances of 
                        noncompliance with subchapter II of 
                        chapter 53 of this title, chapter 2 of 
                        title I of Public Law 91-508, and 
                        section 21 of the Federal Deposit 
                        Insurance Act to Federal agencies with 
                        statutory responsibility for enforcing 
                        compliance with such provisions and 
                        other appropriate Federal regulatory 
                        agencies;
                          (iv) evaluate and recommend possible 
                        uses of special currency reporting 
                        requirements under section 5326;
                          (v) determine emerging trends and 
                        methods in money laundering and other 
                        financial crimes;
                          (vi) support the conduct of 
                        intelligence or counterintelligence 
                        activities, including analysis, to 
                        protect against international 
                        terrorism; and
                          (vii) support government initiatives 
                        against money laundering.
                  (D) Establish and maintain a financial crimes 
                communications center to furnish law 
                enforcement authorities with intelligence 
                information related to emerging or ongoing 
                investigations and undercover operations.
                  (E) Furnish research, analytical, and 
                informational services to financial 
                institutions, appropriate Federal regulatory 
                agencies with regard to financial institutions, 
                and appropriate Federal, State, local, and 
                foreign law enforcement authorities, in 
                accordance with policies and guidelines 
                established by the Secretary of the Treasury or 
                the Under Secretary of the Treasury for 
                Enforcement, in the interest of detection, 
                prevention, and prosecution of terrorism, 
                organized crime, money laundering, and other 
                financial crimes.
                  (F) Assist Federal, State, local, and foreign 
                law enforcement and regulatory authorities in 
                combatting the use of informal, nonbank 
                networks and payment and barter system 
                mechanisms that permit the transfer of funds or 
                the equivalent of funds without records and 
                without compliance with criminal and tax laws.
                  (G) Provide computer and data support and 
                data analysis to the Secretary of the Treasury 
                for tracking and controlling foreign assets.
                  (H) Coordinate with financial intelligence 
                units in other countries on anti-terrorism and 
                anti-money laundering initiatives, and similar 
                efforts.
                  (I) Administer the requirements of subchapter 
                II of chapter 53 of this title, chapter 2 of 
                title I of Public Law 91-508, and section 21 of 
                the Federal Deposit Insurance Act, to the 
                extent delegated such authority by the 
                Secretary of the Treasury.
                  (J) Such other duties and powers as the 
                Secretary of the Treasury may delegate or 
                prescribe.
  (c) Requirements Relating to Maintenance and Use of Data 
Banks.--The Secretary of the Treasury shall establish and 
maintain operating procedures with respect to the government-
wide data access service and the financial crimes 
communications center maintained by FinCEN which provide--
          (1) for the coordinated and efficient transmittal of 
        information to, entry of information into, and 
        withdrawal of information from, the data maintenance 
        system maintained by FinCEN, including--
                  (A) the submission of reports through the 
                Internet or other secure network, whenever 
                possible;
                  (B) the cataloguing of information in a 
                manner that facilitates rapid retrieval by law 
                enforcement personnel of meaningful data; and
                  (C) a procedure that provides for a prompt 
                initial review of suspicious activity reports 
                and other reports, or such other means as the 
                Secretary may provide, to identify information 
                that warrants immediate action; and
          (2) in accordance with section 552a of title 5 and 
        the Right to Financial Privacy Act of 1978, appropriate 
        standards and guidelines for determining--
                  (A) who is to be given access to the 
                information maintained by FinCEN;
                  (B) what limits are to be imposed on the use 
                of such information; and
                  (C) how information about activities or 
                relationships which involve or are closely 
                associated with the exercise of constitutional 
                rights is to be screened out of the data 
                maintenance system.
  (d) Authorization of Appropriations.--
          (1) In general.--There are authorized to be 
        appropriated for FinCEN $100,419,000 for fiscal year 
        2011 and such sums as may be necessary for each of the 
        fiscal years 2012 and 2013.
          (2) Authorization for funding key technological 
        improvements in mission-critical FinCEN systems.--There 
        are authorized to be appropriated for fiscal year 2005 
        the following amounts, which are authorized to remain 
        available until expended:
                  (A) BSA direct.--For technological 
                improvements to provide authorized law 
                enforcement and financial regulatory agencies 
                with Web-based access to FinCEN data, to fully 
                develop and implement the highly secure network 
                required under section 362 of Public Law 107-56 
                to expedite the filing of, and reduce the 
                filing costs for, financial institution 
                reports, including suspicious activity reports, 
                collected by FinCEN under chapter 53 and 
                related provisions of law, and enable FinCEN to 
                immediately alert financial institutions about 
                suspicious activities that warrant immediate 
                and enhanced scrutiny, and to provide and 
                upgrade advanced information-sharing 
                technologies to materially improve the 
                Government's ability to exploit the information 
                in the FinCEN data banks, $16,500,000.
                  (B) Advanced analytical technologies.--To 
                provide advanced analytical tools needed to 
                ensure that the data collected by FinCEN under 
                chapter 53 and related provisions of law are 
                utilized fully and appropriately in 
                safeguarding financial institutions and 
                supporting the war on terrorism, $5,000,000.
                  (C) Data networking modernization.--To 
                improve the telecommunications infrastructure 
                to support the improved capabilities of the 
                FinCEN systems, $3,000,000.
                  (D) Enhanced compliance capability.--To 
                improve the effectiveness of the Office of 
                Compliance in FinCEN, $3,000,000.
                  (E) Detection and prevention of financial 
                crimes and terrorism.--To provide development 
                of, and training in the use of, technology to 
                detect and prevent financial crimes and 
                terrorism within and without the United States, 
                $8,000,000.
  (e) Reports Relating to Use of Collected Data.--
          (1) In general.--Not later than 1 year after the date 
        of enactment of this subsection and every year 
        thereafter, the Director shall submit to the Committee 
        on Financial Services of the House of Representatives 
        and the Committee on Banking, Housing, and Urban 
        Affairs of the Senate a report on--
                  (A) intelligence products created by FinCEN 
                on finance transactions for the proliferation 
                of weapons from filings submitted pursuant to 
                subchapter II of chapter 53;
                  (B) FinCEN's efforts to collaborate with law 
                enforcement agencies, the intelligence 
                community, and foreign financial intelligence 
                units to maximize the use of data that is 
                collected pursuant to subchapter II of chapter 
                53; and
                  (C) advisory notices issued to financial 
                institutions (as defined under section 5312(a)) 
                on financial activity related to the 
                proliferation of weapons.
          (2) Separate presentation of classified material.--
        Any part of the report under paragraph (1) that 
        involves information that is properly classified under 
        criteria established by the President shall be 
        submitted to the Congress separately in a classified 
        annex.
          (3) Sunset.--No report is required under this 
        subsection after the end of the 5-year period beginning 
        on the date of enactment of this subsection.

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