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House Appropriations FSGG Hearing on Combating Financial Crimes

House Appropriations Subcommittee on Financial Services and General Government

“Treasury’s Role in Combatting Financial Crimes”

Tuesday, March 12, 2019

 Key Topics & Takeaways

  • Money Laundering: Rep. Matt Cartwright (D-Pa.) asked about some of the innovative approaches banks are using to identify money laundering and terrorist financing, as well as pilot programs, to which Mandelker applauded federal banking agencies and the Financial Crimes Enforcement Network (FinCEN) for encouraging such innovation. She continued that while she could not go into specifics publicly, there is “a lot of good innovation coming from” the banks.
  • Sanctions: Quigley asked how money laundering is used to avoid sanctions, such as transferring assets to another corporation. Mandelker explained that the Office of Terrorism and Financial Intelligence (OTFI) carries out Congress’s intent, and that the entire financial infrastructure is sanctioned, to include shell companies and front companies, so that all of the entities are “radioactive globally.”
  • Marijuana: Reps. Mark Amodei (R-Nev.) and Charlie Crist (D-Fla.) asked about the ability for banks to service marijuana companies in states where marijuana is legal. Mandelker explained that FinCEN issued guidance in 2014 explaining the types of suspicious activity reports (SARs) that banks should file when doing such business, adding that Treasury cannot change what is prohibited under federal law, only Congress can.

Witness

 Opening Statements

Subcommittee Chairman Mike Quigley (D-Ill.)

In his opening statement, Quigley stressed the need to understand the tactics of terrorists and financial criminals attempting to harm the financial security of the U.S. using money laundering. He noted that Treasury plays a “vital role” in protecting U.S. financial security and that the Office of Terrorism and Financial Intelligence (OTFI) uses tools, such as sanctions, to protect the financial system.

Testimony

Sigal Mandelker, Undersecretary, U.S. Department of Treasury

In her testimony, Mandelker noted that the OTFI had an active last year, imposing nuclear sanctions against Iran, applying “maximum pressure” on North Korea, targeting Russian companies, and ramping up their efforts to combat terrorist financing. She continued that the OTFI is increasing their efforts to share information with the private sector, as well as calibrating tools and authorities through bilateral and multilateral agreements with partners to disrupt specific threats.

Questions & Answer

Bank Secrecy Act (BSA) and Anti-Money Laundering (AML)

Rep. Matt Cartwright (D-Pa.) asked about some of the innovative approaches banks are using to identify money laundering and terrorist financing, as well as pilot programs, to which Mandelker applauded federal banking agencies and the Financial Crimes Enforcement Network (FinCEN) for encouraging such innovation. She continued that while she could not go into specifics publicly, there is “a lot of good innovation coming from” the banks.

Quigley asked what tools the OTFI uses to detect foreign banks that launder money for a U.S. person or entity, to which Mandelker replied that they have a “great deal” of information related to banking activity, including sanctions evasion, and that they analyze it to make decisions on how to move forward. She added that the information they have comes from the BSA, intelligence community and law enforcement.

Quigley also asked about how money laundering is used to avoid sanctions, such as transferring assets to another corporation. Mandelker explained that the OTFI carries out Congress’s intent, and that the entire financial infrastructure is sanctioned, to include shell companies and front companies, so that all of the entities are “radioactive globally.”

Artificial Intelligence (AI)

Cartwright asked how banks are using AI to strengthen compliance measures, and Mandelker replied that banks must stay several steps ahead of illicit actors as the criminals are finding more sophisticated ways to get around the rules. She noted that banks are sharing information with each other which allows for the industry to see a broader pattern of activity, adding that it is “very important.”

Marijuana

Reps. Mark Amodei (R-Nev.) and Charlie Crist (D-Fla.) asked about the ability for banks to service marijuana companies in states where marijuana is legal. Mandelker explained that FinCEN issued guidance in 2014 explaining the types of suspicious activity reports (SARs) that banks should file when doing such business, adding that Treasury cannot change what is prohibited under federal law, only Congress can.

Cryptocurrency

Rep. Sanford Bishop Jr. (D-Ga.) asked about companies, such as Facebook, creating virtual currency that can be sent over social platforms, such as Venmo. Mandelker replied that the OTFI is focusing heavily on this issue, adding that FinCEN produced guidance in 2014 that stated virtual currency transmitters are the same as other money transmitters and therefore subject to the same compliance requirements. She continued that the OTFI is undertaking a global effort to get other countries to bring enforcement cases against those not in compliance.

Quigley asked how the OTFI keeps up with the encryption of virtual currency, and Mandelker replied that they receive BSA reporting from the exchangers and administrators, as well as their foreign counterparts and law enforcement.

Terrorist Financing Target Center (TFTC)

Rep. David Joyce (R-Ohio) asked about the TFTC, to which Mandelker explained that it is a new initiative that partners with all of the Gulf Cooperation Council (GCC) countries to disrupt terrorist financing through GCC regions. She continued that she would like for other countries to have the same tools and methods to detect and disrupt terrorist financing, adding that the TFTC has conducted several workshops and trainings on how to accomplish this.

For more information on this hearing, click here.