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Senate FSGG Treasury Hearing

Senate Committee on Appropriations Subcommittee on Financial Services and General Government

A Review of the Fiscal Year 2023 Budget Request for the Treasury Office of Terrorism and Financial Intelligence and the Treasury Financial Crimes Enforcement Network

Topline

  • Chair Van Hollen focused his questioning on Russian oil markets, and both he and Ranking Member Hyde-Smith asked questions on beneficial ownership. Other topics included digital assets, AML, and sanctions.
  • Senator Boozman asked about Treasury market structure, and Adeyemo said stakeholder consultation is necessary and that Treasury has recently announced its intent to put out a Request for Information to solicit private sector and other stakeholder input.

Witnesses

Opening Statements
Chairman Chris Van Hollen (D-Md.)

In his opening statement, Van Hollen touted a funding increase for the Internal Revenue Service (IRS) and discussed the importance of the Treasury Office of Terrorism and Financial Intelligence (TFI) and the Treasury Financial Crimes Enforcement Network (FinCEN) to American security. He then highlighted current efforts to draft legislation on secondary sanctions on Russia.

Ranking Member Cindy Hyde-Smith (R-Miss.)

In her opening statement, Hyde-Smith suggested that previously enacted sanctions against Russia have not adequately addressed Russian aggression.

Testimony

The Honorable Wally Adeyemo, Deputy Secretary, Department of the Treasury

In his testimony, Adeyemo stated that Treasury has taken swift and bold actions to hold Russia accountable for its brutal war of choice and has used sanctions in service of two objectives: denying the Kremlin access to the resources needed to prop up the Russian economy or invest in their military and degrading Russia’s ability to project power. He then said Treasury must be properly resourced to respond to new efforts to evade sanctions. He then highlighted the budget concerns of the IRS, adding that additional funds would enable the IRS to narrow and work to close the tax gap.

Question & Answer

Treasury Market Reform

Sen. John Boozman (R-Ark.) said the Treasury market has been described as the biggest, deepest and most essential bond market on the planet and that investors historically view Treasuries as risk-free or near-cash assets and safe havens for investors during market crises. He also said the resiliency of Treasury markets has been called into question by recent disruption events in which market price volatility increased and where the amount of liquidity available decreased, resulting in some market observers calling for structural and regulatory changes to enhance the capacity and resiliency of the market. Boozman stated that Treasury market reforms should “do no harm” or cause unintended ancillary effects and that any proposals or recommendations on any structural or regulatory changes should be vetted and supported by investors. He then asked where the Department is in its review of Treasury market structure, if any changes are being considered, and how far the Department is in its process. Adeyemo said he agreed with Boozman that Treasury should consult with stakeholders as it thinks through these reforms and that Treasury recently announced that it will put out a Request for Information (RFI), which will give the private sector and other stakeholders an opportunity to provide advice as Treasury thinks of its reform agenda going forward. In addition, he noted that late last year, Treasury put forth a framework in terms of areas of focus on market structure. He also agreed that the Treasury markets are the deepest and most liquid in the world, the reforms they make will only strengthen those markets, and in order to do that, Treasury needs to rely on information from market participants going forward.

Boozman followed up by asking how he expects to engage and understand the views of investors. Adeyemo responded that through putting out an RFI, stakeholders will be able to formally provide detail and feedback through an open process, and in addition, the Treasury is speaking to market participants on a regular basis on a reform agenda in addition to other federal regulators.

Digital Assets

Sen. Joe Manchin (D-W.V.), noting the illicit applications of cryptocurrency, asked for recommendations on putting guardrails on cryptocurrency. Adeyemo said Treasury has rulemaking authority over illicit financing, that illicit actors will try to use cryptocurrency, and that Treasury will work with Congress to address the issue. Hyde-Smith asked if bitcoin can be used to evade Russia sanctions. Adeyemo said Treasury has not seen cryptocurrency to be a main route of evasion but that Russia hosts cybercriminals who use cryptocurrency, prompting Treasury to use sanction authority to pursue exchanges in Russia. Van Hollen asked about ransomware and cryptocurrency. Adeyemo said Treasury wants to increase the cost to cybercriminals of their activity by taking apart the ecosystems, including in cryptocurrency, that allow them to operate, adding that this requires cyber incident reporting by targeted industries.

Treasury Tele-Work Policy

Hyde-Smith raised concerns about the tele-work policy at Treasury. Adeyemo said every Treasury employee that needs to be in the office is in the office.

Sanctions

Van Hollen asked how Treasury is ensuring an effective sanctions regime against Russian oligarchs. Adeyemo gave the example of sanctions used recently against a Russian yacht company and companies in other countries that have provided support to sanctioned entities. He added that Treasury is working to strengthen a coalition of allies and financial institutions to enforce sanctions and seize assets.

Beneficial Owernship

Boozman asked if business concern over the definition of beneficial ownership is something FinCEN is considering in its rulemaking. Adeyemo said yes and referenced comments received during the public comment process. Van Hollen raised the issue of hedge funds being exempted from reporting information on the identity of their clients and Treasury’s upcoming beneficial ownership rule. Adeyemo said Treasury will finalize the rule and then look to see what areas the rule does not cover where illicit finance may be flowing. He added that he hopes to finalize the rule before the end of the year. Hyde-Smith asked about the costs of beneficial ownership reporting to small businesses. Adeyemo said Treasury wants to set up the reporting regime in a way that is as scaled to the challenge and modest as possible.

For more information on this hearing, please click here.

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