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THE ANNUAL TESTIMONY OF THE 

SECRETARY OF THE TREASURY 

ON THE STATE OF THE 

INTERNATIONAL FINANCIAL SYSTEM 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

MARCH 22, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–80 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

March 22, 2016 ................................................................................................. 1 

Appendix: 

March 22, 2016 ................................................................................................. 71 

WITNESSES 

TUESDAY, MARCH 22, 2016 

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury ...................... 5 

APPENDIX 

Prepared statements: 

Lew, Hon. Jacob J. ........................................................................................... 72 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Beatty, Hon. Joyce 

American Banker article entitled, ‘‘You’ll Never Get Real Oversight of 

the CFPB This Way,’’ dated March 18, 2016 .............................................. 80 

Lew, Hon. Jacob J. 

Written responses to questions for the record submitted by Representatives Barr, Ellison, Hinojosa, Luetkemeyer, Messer, Ross, Rothfus, and 

Murphy .......................................................................................................... 84 

(1) 

THE ANNUAL TESTIMONY OF THE 

SECRETARY OF THE TREASURY 

ON THE STATE OF THE 

INTERNATIONAL FINANCIAL SYSTEM 

Tuesday, March 22, 2016 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, Royce, Lucas, 

Garrett, Neugebauer, Pearce, Posey, Luetkemeyer, Huizenga, 

Duffy, Hurt, Stivers, Stutzman, Mulvaney, Hultgren, Ross, 

Pittenger, Wagner, Barr, Rothfus, Messer, Schweikert, Guinta, Tipton, Williams, Poliquin, Hill; Waters, Maloney, Sherman, Capuano, 

Hinojosa, Clay, Lynch, Scott, Cleaver, Moore, Ellison, Himes, Foster, Kildee, Murphy, Sinema, Beatty, Heck, and Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

come to order. Without objection, the Chair is authorized to declare 

a recess of the committee at any time. 

Today’s hearing is entitled, ‘‘The Annual Testimony of the Secretary of the Treasury on the State of the International Financial 

System.’’ 

Before we begin today’s hearing, we need to keep in our thoughts 

and prayers the victims of this morning’s attacks in Belgium, as 

well as their loved ones and the first responders who are working 

to care for the injured and bring justice to those responsible for this 

terror. 

I ask that we pause for a moment of silence. 

Thank you. I will now recognize myself for 3 minutes for an 

opening statement. 

This morning, we welcome Secretary Lew for his testimony on 

the IMF and the international financial system. It is a system that 

faces serious challenges brought on by spending-driven debt and 

reckless monetary policies around the globe. 

Fortunately for hardworking American taxpayers, needed IMF 

reforms were passed by Congress in December, even if they weren’t 

the reforms the Administration wanted. Notwithstanding IMF 

quota reform, Congress reduced the U.S. contribution to the IMF 

for the first time in its history, sunsetting over $40 billion in credit 

lines. 

2 

Congress also restored, over the Administration’s objections, a 

rule that limits large IMF loans to countries with unsustainable 

debt. This rule was first put into place in 2002 but was, unfortunately, altered by Treasury in 2010, when the IMF improperly 

bailed out Greece, a bailout that has led to nothing but additional 

bailouts. 

What remains certain for the international finance system, 

though, is that the IMF will never be able to bail out the United 

States if we remain on the Administration’s current spending trajectory. 

As our monitors show, our national debt is spinning out of control and is undeniably unsustainable. During his time in office, 

President Obama has presided over the five largest nominal deficits in history. He has piled up more debt than every President 

from George Washington to Bill Clinton combined—a debt that 

leaves every American family owing an average of $153,000. 

Although our witness, Secretary Lew, and other Administration 

officials constantly attempt to change the subject to declining deficits, three facts remain. 

Number one, the deficits have only declined relative to the historic highs set by this Administration. Two, every deficit, declining 

or not, actually increases the national debt. And three, under the 

President’s policies, deficits will soon begin rising again despite a 

$3.4 trillion tax increase and will approach the $1 trillion threshold 

before the end of the decade. 

That means the President’s legacy will be a debt so large that 

at the end of his budget, we will spend more on debt service annually than what we spend on national defense, Medicaid, education, 

and transportation infrastructure. Only spending on Medicare and 

Social Security will be larger than interest on the national debt. 

According to the Congressional Budget Office, the President’s legacy of debt may very well compromise our national security and increase the likelihood of a fiscal crisis. As we all know, it is the poor 

who will suffer most when this occurs. 

That is why the national debt and debt ceiling remain deadly serious matters. Regrettably and inexcusably, the Treasury Department, for over 2 years, has stonewalled, obfuscated, and misled 

Congress as our committee has investigated Treasury’s contingency 

planning for the debt ceiling. 

That is why we recently issued a staff report entitled, ‘‘The 

Obama Administration’s Debt Ceiling Subterfuge.’’ I believe the report clearly reveals that Treasury has sought to withhold from 

Congress and the American people information about their contingency plans for the purpose of pressuring Congress to acquiesce to 

the Administration’s position that there only be a naked debt ceiling increase without any reforms or fiscal discipline—or in other 

words, to hasten our national bankruptcy. 

We know the President’s legacy will be one of doubt, decline, and 

debt. And as documents continue to be withheld, let us hope that 

deception will not be added to the list. 

The Chair now recognizes the gentlelady from Wisconsin, Ms. 

Moore, ranking member of our Monetary Policy and Trade Subcommittee, for 2 minutes. 

Ms. MOORE. Thank you so much, Mr. Chairman. 

3 

And welcome back, Secretary Lew. 

I think I ought to begin my comments by bashing my Republican 

colleagues and defaming them in the worst way that they know, 

and that is to thank them for working with you and the Obama Administration to pass IMF quota reform. 

I give Chairman Hensarling and Chairman Huizenga a hard 

time, but I have enjoyed working with Chairman Huizenga on the 

Monetary Policy and Trade Subcommittee, and I recognize that he 

and other Republicans had a big part in making this quota reform 

happen. 

I know that you, too, have worked really hard in getting this over 

the line, and I really think it is going to benefit us in the long run. 

Congress has been behind in the curve, but it was the right thing 

to do for the world and certainly for this country. And I am pleased 

that Christine Lagarde is again going to be heading the IMF, and 

I think on balance she is doing a tremendous job. 

Ranking Member Waters and I join Ranking Member Levin and 

Representative Rangel in urging that capital controls policy in the 

TTP be harmonized with IMF guidelines, and I was very pleased 

that it was included in the final agreement. 

I am looking forward to our conversation today. I hope that you 

might talk to us a little bit about money laundering and your efforts to combat that. But at the same time, the other side of that 

is, of course, trying to make sure we figure out how to get remittances in the hands of those who are very needy. 

I look forward, again, to your testimony. 

And I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee, for 2 minutes. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

Secretary Lew, I am going to move quickly, but I appreciate you 

appearing here with us today. And there are obviously a lot of very 

important international issues that need to be addressed. 

One of those that I am extremely concerned about is the problem 

of the role of the IMF in future lending to Greece. In 2010, Greece 

received an IMF bailout under the exceptional access rule, in which 

the IMF provided a 3-year assistance package totaling 40 billion, 

or more than 3,200 percent of the country’s quota—well beyond any 

limit that had been in place. In 2012, a new $37 billion program 

superseded that 2010 bailout. 

Under normal access, IMF countries can borrow up to 200 percent of their quota per a 12-month period, or up to 600 percent 

total. With exceptional access, borrowers can exceed these limits 

provided that their debt is considered sustainable with a high probability of paying off that debt. 

It is important to note that Greece did not meet the criteria for 

exceptional access lending, and the IMF has, in fact, conceded that 

it made mistakes in bailing Greece out. As you know, the fund’s 

own evaluation department has found that internal assessments 

which permitted Greece to take part in the exceptional access 

framework were inaccurate, resulting from overly optimistic foreVerDate Nov 24 2008 18:47 Aug 17, 2017 Jkt 023888 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\23888.TXT TERI
4 

casts of debt sustainability, renewed market access, and government commitment to reforms. 

Although I am pleased that the IMF’s systemic exemption for exceptional access was finally repealed earlier this year, I am very 

concerned that earlier this year—just in January, actually—the 

IMF board replaced it with significant new loopholes that will 

allow that to continue. Backed by the U.S. executive director, they 

decided that countries like Greece can receive assistance even 

when their debt is not sustainable with high probability, providing 

that there is a ‘‘reprofiling’’ of that debt. 

This new reprofiling seems to violate the spirit of the reforms 

that were included in the 2015 omnibus, in which Congress eliminated a systemic exemption due to the exploitation by Greece. I 

have stated before that the Treasury Department should resist the 

urge to push the IMF towards any more bailouts of Greece, and I 

will be introducing legislation today that will prevent future bailouts of countries that fail to meet the IMF’s traditional rules. 

I have let the IMF know about that. They are aware of my concerns and this legislative initiative, as well. 

So with that, Mr. Chairman, I appreciate the opportunity, and I 

yield back. 

Chairman HENSARLING. The Chair now recognizes the ranking 

member for 3 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I would like to thank Secretary Lew for coming to testify before 

us today on the state of the international financial system. The 

IMF quota reform package that was adopted after a 5-year delay 

as part of December’s omnibus spending deal is an important 

achievement and a positive reflection on the perseverance of U.S. 

Treasury officials and Democratic Congressional leaders to get this 

deal done. 

Previously, the failure of the U.S. Congress to approve the IMF 

quota reform had put the world economy and financial system in 

serious jeopardy. With ratification now complete, what is essential 

to U.S. interests is to restore some impetus to ongoing IMF reform 

and to repair, in part, the damage that has been done to the U.S. 

reputation for leadership. 

The price the Administration paid for the quota reform included 

a commitment which it achieved to seek to eliminate the systemic 

exemption—the rule that says 2010 has allowed lending even when 

there was a risk that the debt was unsustainable and that was 

used to support loans for the periphery countries of Europe. 

Many believe that the fund should revert back to its original exceptional access rules. I am perfectly fine using such rules as one 

of many guides when thinking about policy, and I agree that policy 

should be transparent and systematic as possible. 

But I am also sure that in a complex, ever-changing global economy, policymaking cannot be trusted to a simple instrument rule. 

I believe that the fund should recognize that the problem with 

rigid, predetermined thresholds is that they will inevitably conflict 

with the unpredictable circumstances of reality and that exceptions 

are going to be inevitable in some cases. 

Finally, before closing I want to take a moment to acknowledge 

the senseless loss of life caused by brutal and tragic events unfoldVerDate Nov 24 2008 18:47 Aug 17, 2017 Jkt 023888 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\23888.TXT TERI
5 

ing in Brussels today. The attacks on the innocents serve as a painful reminder of how important our efforts are in countering the financing of terrorism. 

Secretary Lew, I know you are deeply committed to disrupting 

the networks that finance terror and I hope you will share more 

with us today about areas where increased resources or enhanced 

authorities may assist you in your work. I look forward to your testimony, Mr. Secretary. 

And I yield back the balance of my time. 

Chairman HENSARLING. The gentlelady yields back the balance 

of her time. 

Today, we welcome the testimony of the Honorable Jacob J. Lew. 

Secretary Lew has previously testified before this committee so I 

believe he needs no further introduction. 

Without objection, Mr. Secretary, your written statement will be 

made a part of the record, and you are now recognized for 5 minutes to give an oral presentation of your testimony. Thank you. 

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Thank you, Chairman Hensarling, Ranking Member Waters, and members of the committee, for the opportunity to 

testify here today. Before I begin I would like to just say a few 

words about this morning’s events in Belgium. 

The United States condemns in the strongest possible terms today’s act of terrorism in Brussels. Our thoughts and prayers go out 

to innocent civilians targeted in these horrific attacks. 

At Treasury, we work with foreign governments every day to 

identify terrorist financing networks, and in the wake of attacks we 

work with them even more so. We work especially closely with our 

counterparts around the world. 

Right now, Treasury analysts are reviewing information to try 

and uncover leads on the Brussels attacks and we have offered our 

assistance to Belgian authorities. Our hearts go out to victims of 

today’s events and our commitment to stopping the flow of funds 

to perpetrators of these kinds of attacks remains steadfast. 

Since my testimony last year, our economy has continued its 

record-breaking streak of private sector job creation, which has 

reached 6 consecutive years and more than 14 million jobs. Over 

the last 2 years, we have experienced the strongest job creation 

since the late 1990s. 

At 4.9 percent, the unemployment rate is half of its 2009 peak, 

and we continue on a sound fiscal path. From Fiscal Year 2009 to 

Fiscal Year 2015, the deficit of the share of GDP fell by almost 

three-quarters to 2.5 percent. 

The passage of the omnibus spending bill in December has 

helped to build on this momentum, contributing to our economic 

growth and helping to strengthen our international leadership. The 

agreement included critical IMF quota and governance reforms 

that have helped to preserve the central role of the United States 

in the international economic system and advance our economic 

and national security objectives. 

That agreement demonstrated that we have the capacity to find 

common ground on difficult issues, and it lays the foundation for 

6 

addressing some of our long-term challenges. But more work remains to strengthen critical investments in our domestic and national security priorities. 

The international financial institutions, the IMF, multilateral 

banks, and related multilateral trust funds are an important part 

of the President’s approach to bolstering national security and driving long-term prosperity. Our investments in these institutions promote our strategic interests in international stability. 

They help unlock the next generation of export markets for 

America’s businesses and workers while fostering private sector development and entrepreneurship. And they are some of the most 

cost- effective ways to reinforce economic growth at home and respond to critical challenges abroad. 

The IMF remains the foremost international institution for promoting global financial stability. Through its three main activities—surveillance, technical assistance, and lending—the IMF promotes economic stability and helps prevent and resolve financial 

crises when they occur. 

This work promotes global growth, enhances U.S. national security, and alleviates poverty in member countries. At a time of increased economic uncertainty, the IMF is actively working with 

countries vulnerable to low oil prices, financial market volatility, 

and other external shocks to provide policy advice and financing 

when appropriate. 

The United States plays a key role in shaping IMF policy 

through its position as the IMF’s largest shareholder. Over the past 

year we have supported the creation of an IMF debt relief facility 

for low-income countries hit by public health disasters like the 

Ebola virus, and we encourage the IMF to help developing countries mobilize domestic resources for development. 

At the direction of Congress, the United States championed reforms to the exceptional access lending framework to tighten requirements on debt sustainability. Our investments in multilateral 

development banks like the World Bank also supports national security objectives, increases economic growth, and reduces poverty. 

Over the years, MDB Assistance has nurtured the economic reforms, infrastructure, and social investments that have driven the 

growth of some of our most strategic trade partners. They play an 

important role in building sustainable and transparent economic 

growth in emerging and developing countries. And more and more, 

we have come to see the MDBs as vital partners in helping to address national security threats. 

In addition to meeting our current commitments to the MDBs, it 

is urgent that we work with Congress to address our prior unmet 

commitments, which now approach $1.6 billion. At the World Bank, 

this is particularly urgent, as failure to meet our commitments this 

year will result in a loss of U.S. shareholding that could impact our 

veto power, damage our credibility, and weaken our ability to 

shape policy priorities. 

Successful development also depends on good governance and a 

well-functioning state. For over 25 years, Treasury’s Office of Technical Assistance (OTA) has provided advice and training to government officials in developing and transitional countries so they can 

build affective public financial institutions. OTA helps countries 

7 

improve government operations across several areas, including 

planning and executing budgets, managing debt, collecting revenue, 

developing sound banking systems, and combating corruption. 

OTA is particularly helpful with our foreign policy, security, and 

economic priorities in Ukraine, Central America, Africa, Asia, and 

other regions. Treasury’s international programs are some of the 

most cost-effective ways to reinforce economic growth at home and 

to respond to critical challenges abroad. Specifically, U.S. leadership in international financial institutions enables us to influence 

how and where resources are deployed, often on a scale that we 

cannot achieve through our bilateral programs alone. 

It is crucial that we continue to have bipartisan support for these 

institutions to ensure that our influence remains as strong today 

as it has been over the past several decades. Treasury looks forward to continuing the dialogue with Congress on the important 

role that the international financial institutions play in the global 

economy, especially as we implement the IMF reform legislation 

and negotiate replenishments of several of the MDB windows that 

serve the world’s poorest countries. 

Thank you very much, and I look forward to your questions. 

[The prepared statement of Secretary Lew can be found on page 

72 of the appendix.] 

Chairman HENSARLING. Thank you, Mr. Secretary. 

I now recognize myself for 5 minutes for questioning. 

Mr. Secretary, one thing maybe we can agree on is that tens of 

millions of our fellow countrymen are unhappy. I think one of the 

reasons they are unhappy is too often, they see an Administration 

that either makes up law, ignores law, or lives above the law, and 

they see a Congress that they think is helpless or hapless in dealing with that. 

In that context, Mr. Secretary, I think you know that for almost 

3 years this committee has been seeking documents regarding debt 

ceiling contingency planning and information shared with the Justice Department regarding what some call ‘‘too-big-to-jail.’’ And as 

I think you are aware, almost 1 year ago this committee subpoenaed documents from Treasury, and in that time we have yet to 

receive the documents. 

You were asked about this last week in your appearance before 

the Appropriations Committee and you said, ‘‘Lawyers are working 

through the document request.’’ Mr. Secretary, it has been almost 

3 years for these requests. 

You also mentioned in your appearance before the Appropriations Committee that you will provide us with ‘‘appropriate material.’’ But, Mr. Secretary, with all due respect, Article 1 of the Constitution states, and there is longstanding Supreme Court precedent, that this branch of government has the oversight rule. We get 

to deem what is appropriate for oversight and investigation. 

With all due respect sir, it is not you. It has everything to do 

with checks and balances, and separation of powers. 

Thus, my first question: As custodian of records, do you understand our subpoena of May 11, 2015, imposes a legal obligation on 

you personally to ensure that the requested records are produced? 

8 

Secretary LEW. Mr. Chairman, we recognize the important oversight role that Congress plays and we take seriously the responsibility— 

Chairman HENSARLING. Okay. But Mr. Secretary, the question 

is, do you understand a personal legal obligation? Is that your understanding? 

Secretary LEW. Mr. Chairman, Treasury has taken steps to respond to each and every one of your— 

Chairman HENSARLING. I will ask you again, Mr. Secretary. Do 

you understand that you have a personal legal obligation? If you 

don’t, then I would recommend that you study 2 U.S.C. 192 

through 194, and 18 U.S.C. 1505. 

So I will ask you for the last time, do you understand that you 

have a personal legal obligation to ensure these requested records 

are produced? 

Secretary LEW. Mr. Chairman, Treasury’s approach to the committee’s inquiries has followed the longstanding Executive Branch 

policy set forth by President Reagan in 1984— 

Chairman HENSARLING. Mr. Secretary, you have had 3 chances 

to answer the question. I will move on. 

Has anyone directed you not to comply with this committee’s 

subpoena of May 11, 2015? 

Secretary LEW. Mr. Chairman, just the other day we responded 

in detail to the inquiry from this committee laid out— 

Chairman HENSARLING. My question, Mr. Secretary, is, has anyone directed you not to comply with this committee’s subpoena of 

May 11, 2015? It is a simple yes-or-no answer. 

Secretary LEW. Mr. Chairman, as the letter that we sent to the 

committee indicates, we have been reaching out to the committee, 

responding, sending documents— 

Chairman HENSARLING. A third time, Mr. Secretary: Has anyone 

directed you not to comply with this committee’s subpoena of May 

11, 2015? 

Secretary LEW. Mr. Chairman, we have been trying to work with 

the committee to provide appropriate information— 

Chairman HENSARLING. I am trying to get you to answer a simple yes-or-no question. It is no wonder the American people get outraged. 

Mr. Secretary, it is a simple yes-or-no question: Have you been 

directed not to comply with the subpoena? Yes or no, please, sir. 

Secretary LEW. No, Mr. Chairman I am—we have been trying to 

respond to this subpoena. That is the point I am trying to make. 

Chairman HENSARLING. Okay, well for the third time you didn’t 

answer that question. 

Next question then: Have you directed anyone at the Treasury 

Department to withhold documents from this committee, pursuant 

to the committee’s subpoena of May 11, 2015? 

Secretary LEW. Mr. Chairman, if you just give me a moment to 

answer your question, we have been— 

Chairman HENSARLING. If you will answer the question, Mr. Secretary, I will give you a moment for context, but we need to start 

off with a yes or no. 

Secretary LEW. With all due respect, these are not yes-or- no 

questions. If you want an answer, I am happy to give that— 

9 

Chairman HENSARLING. I don’t know how much more simple it 

could be. Have you directed anyone at the Treasury Department to 

withhold documents from this committee, pursuant to the committee’s subpoena of May 11, 2015? If you will give me a yes or no, 

Mr. Secretary, I will give you a moment for context. 

Secretary LEW. Mr. Chairman, at my direction, the Department 

staff has been reaching out to the committee trying to seek an accommodation. The committee has not followed up with any meetings to try and work through that. We have provided thousands of 

pages of documents. 

Chairman HENSARLING. It has been 3 years, Mr. Secretary—3 

years on some of these document requests. 

Secretary LEW. But in many cases, we don’t know what the committee is even looking for. 

Chairman HENSARLING. Well, Mr. Secretary, if I need to provide 

you with another copy of the subpoena, I would be glad to do it. 

Are you at least certifying, then—are you prepared to certify in 

writing that you are in compliance? Because so far, you have failed 

to do so. You can’t tell me that you are trying to comply and then 

not certify that you are in compliance. 

Secretary LEW. Mr. Chairman, respectfully, what we suggested 

in letters going back many months was that the attorneys should 

sit down and talk with each other, go through the details. I was 

being diplomatic at the Appropriations Committee the other day. 

This committee has not responded to our offers to meet at the attorney level. So we have been trying to be responsive. 

Chairman HENSARLING. Mr. Secretary, what do you think would 

happen to an ordinary citizen, a school teacher or a factory worker, 

if they refused to comply with a legal subpoena? What do you think 

would happen to them? 

Secretary LEW. Mr. Chairman, we have been working to comply 

with the committee’s request. 

Chairman HENSARLING. Mr. Secretary, with all due respect, that 

just doesn’t have credibility. It just doesn’t have credibility. 

The Ranking Member is recognized for 5 minutes. 

Ms. WATERS. Thank you very much for being here, Mr. Secretary. 

The chairman just talked about the American citizens’ distrust 

with government and how angered they are with government. 

Mr. Secretary, I believe that if there is anger and distrust it is 

because of the way we conduct ourselves here. And when the Secretary of the Treasury is battered and disrespected then I think the 

American people see that more as the Congress of the United 

States not being able to work with each other, more than some socalled demand for a response to pages that have been seen, or 

questions that have been sent, or depositions. 

As I understand it, we have received over 3,000 pages from the 

Treasury since May 11, 2015. And as I understand it, there were 

four more depositions that were issued yesterday. 

And I want you to know, Mr. Secretary, that we are not consulted at all by the opposite side of the aisle on these depositions. 

We don’t have the kind of cooperation here in this committee that 

would lend itself to seeking information from you or any of the 

other Secretaries. 

10 

This has become a game of ‘‘gotcha.’’ This has become a game of, 

‘‘We are going to overwhelm you with subpoenas and questions so 

that we will be able to say you have not responded.’’ 

I am hopeful that the important issues of the Treasury are being 

worked on every day. We are in a situation where, yes, our economy is performing, and since 2008 we certainly have made advances. 

But we are concerned about the volatility of the markets and we 

want you to concentrate on the real issues. And I would hope that 

your office would not be tied down trying to respond to unreasonable requests from this committee. 

I don’t think and I don’t believe they are legitimate. And I apologize for the way that you are being treated here this morning, not 

being able to answer a question, being interrupted, not accepting 

that you are willing to have an explanation. And so it should not 

work that way and I want to get on with dealing with the real 

issues that you are confronted with. 

Since initiating free market reforms in 1978, China has been one 

of the world’s fastest-growing economies, averaging 9.7 percent in 

real gross domestic product growth annually from 1979 to 2015 and 

lifting 660 million people out of extreme poverty. 

Over the past few years however, China’s economy has slowed. 

Its real GDP growth was 7.3 percent in 2014 and 6.9 percent in 

2015 and is projected by the IMF to fall to 6.0 percent by 2017. 

What are the implications of a slowdown in China for the United 

States as well as the global economy more broadly? 

Secretary LEW. Thank you, Congresswoman Waters. 

China’s economy is one of the two largest economies in the world, 

along with our own. And it is not as integrated with the global 

economy in the way ours is in terms of financial systems, in terms 

of the interlocking relationships of those financial institutions, but 

it is the purchaser of a vast amount of inputs from around the 

world. 

So there is understandably a lot of focus on China’s economy because it has a lot to do with what global growth will look like in 

the future, particularly in emerging economies that provide so 

many inputs to China. China is in the middle of a reform process 

that is very important to China, and it is important to the global 

economy. 

As they move towards a more market-oriented system it is going 

to be bumpier. There will be more volatility. They are going to have 

to learn how to tolerate some of those disruptions the way those 

of us more experienced with market economies do. 

But they are going to have to stick to the reform path because 

if they don’t, if they don’t open their market, if they don’t make the 

changes that will have market signals become the more powerful 

drivers of the economy, they will be left with an overhang of overcapacity that will weigh them down and make it so that some of 

the doomsday scenarios would then become much more meaningful 

risks. 

I think China has a lot of tools; it has a lot of capacity. The question to me is not the question many have asked, is China out of 

tools? They have $4 trillion of foreign reserves. They have enorVerDate Nov 24 2008 18:47 Aug 17, 2017 Jkt 023888 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\23888.TXT TERI
11 

mous resources within their government to deal with policy. What 

they need to do is not back away from the reform program. 

Ms. WATERS. Thank you, Mr. Secretary. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

I am going to take a slightly different direction on my questioning, but not because I don’t believe that what the chairman has 

been saying is extremely important. I am concerned, as well, about 

responses just to simple letters. I have gotten two dated March 

18th, one dating back as of last year, in May. So speed has not exactly been Treasury’s M.O. here. 

But my question is on the IMF—and you address this a little bit 

on pages three and four of your written testimony, starting on page 

two—but the Greeks obviously have suffered the Eurozone’s highest unemployment rates: 25 percent for the past 4 years, youth unemployment near 50 percent. Instead of helping reduce Greece’s 

public debt-to-GDP ratio to 110 percent as planned, the fund has 

witnessed the debt-to-GDP ratio climb to over 175 percent despite 

major restructuring of debt in 2012. 

Clearly, IMF involvement has done little to improve the lives of 

Greek citizens, in part because Greek leaders have been slow-walking reforms for years. Last December, Greek Prime Minister Alexis 

Tsipras was unapologetic, criticizing the fund’s ‘‘unconstructive attitude on fiscal and financial issues.’’ He indicated that the IMF 

should stay out of any future bailout. He and I agree on that one. 

On page four, you actually mention that at the direction of Congress—this is a quote out of your written testimony—‘‘At the direction of Congress, the United States championed reforms in the exceptional access lending framework to tighten requirements on 

debt sustainability.’’ 

But then the United States led the charge to go against these reforms by inserting new loopholes. And I am just curious and confused as to why you would take a bipartisan congressional directive 

and go against that with the IMF. If the Greeks don’t want the 

IMF’s medicine, and if the medicine has been so ineffective anyway, why should we insist on giving them more taxpayer dollars? 

Secretary LEW. Congressman, let me start with the reforms at 

the IMF and then move— 

Mr. HUIZENGA. Very quickly, yes, please. 

Secretary LEW. —to Greece very quickly. 

The reforms removed the provisions that allowed systemic risk to 

cause an exception that would allow lending that is of the nature 

you describe. The exceptional access program remains very important. It has been the way we have seen assistance provided to 

many important countries. The case of— 

Mr. HUIZENGA. But why would we introduce more loopholes on— 

I mean, IMF rules stipulate the country must possess ‘‘the political 

and institutional capacity to ensure success of an exceptional access loan.’’ In short, government must be competent and must be 

committed to the reforms. 

12 

Earlier this year, the Greek defense and foreign ministers—I am 

sure you are aware of this—threatened to ‘‘flood Europe with migrants, including potential terrorists’’ if the country didn’t get what 

it wanted in bail-out negotiations. 

And Defense Minister Panos Kammenos said, ‘‘If Europe leaves 

us in the crisis we will flood it with migrants and it will be even 

worse for Berlin if in that wave of millions of economic migrants 

there will be some jihadists of the Islamic State too. If they—European creditors—strike us, we will strike them.’’ 

We might have just seen that in Brussels today. Isn’t that true, 

Mr. Secretary? 

Secretary LEW. No. Congressman, I think that is a conclusion 

that I have no basis to comment on and I think we shouldn’t jump 

to a statement like— 

Mr. HUIZENGA. I hope not. But when you have the— 

Secretary LEW. If I could just comment on— 

Mr. HUIZENGA. —defense minister of Greece threatening Europe, 

our NATO allies— 

Secretary LEW. So, if I could— 

Mr. HUIZENGA. —how in the world can we allow them to even 

qualify for this? 

Secretary LEW. If I can respond to your questions— 

Mr. HUIZENGA. Please, quickly. 

Secretary LEW. —both on the financial and on the larger set of 

issues in Europe. On the financial side, there have been many important reforms enacted in Greece over the last year. 

I am not going to disagree that the process was very bumpy and 

messy and the whole world was watching it, but after an opening 

set of conversations that was not constructive the government of 

Greece settled down and enacted more reforms than anyone 

thought possible. 

Why is it important for the IMF to remain engaged? This is principally a European challenge. It has been all along. But it has been 

important to Europe to have IMF as a partner. I— 

Mr. HUIZENGA. They have settled down, but earlier this year— 

not last year; this year—we have the defense minister and others 

making outrageous comments that— 

Secretary LEW. So if I— 

Mr. HUIZENGA. —which I still don’t understand why you would— 

Secretary LEW. Yes. If I could just try to keep separate that— 

Mr. HUIZENGA. —lead the parade to try to include additional 

loopholes— 

Secretary LEW. If I can keep— 

Mr. HUIZENGA. —and just let them qualify. 

Secretary LEW. If I can keep separate the financial and the kind 

of geopolitical for a moment, on the financial side, I think the IMF 

is only going to remain involved if there is an ability to do a debt 

sustainability review, which will be based on some debt forgiveness, debt restructuring that would be required, if it is sustainable 

and it is consistent with the IMF rules. 

If they do that, then that will keep a European commitment together. And why is that important to us? I think at a time of geopolitical instability it would not be a good thing for Europe or for 

13 

the United States if we were to see real tensions of Europe breaking apart again. There— 

Mr. HUIZENGA. We see that already. And I think this is why I 

am going to be introducing and dropping the bill today trying to 

tighten those loopholes. I would suggest that Treasury not go 

against Congress again on a bipartisan manner and that you need 

to work with us on this oversight. 

So thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Wisconsin, Ms. 

Moore, ranking member of our Monetary Policy and Trade Subcommittee. 

Ms. MOORE. Thank you so very, very much, Mr. Chairman. 

Mr. Secretary, you have indicated that our economy is growing 

very slowly at 2 percent. And, of course, our colleagues here are 

fond of reminding us that we are $919 trillion in debt. 

Of course we, just in the last budget negotiations, did another 

$700 billion in unpaid-for tax cuts, some good and some tax extenders that were not so good. But anyway, they are all unpaid for, on 

top of the wars we didn’t pay for. 

And so we are now, over the next couple of decades, $2 trillion 

more in debt from this policy. I also sit on the Budget Committee, 

and the solution there to this is sort of more austerity. Let’s block 

grant Medicaid, let’s voucherize Medicare, let’s cut the social services block grant, let’s take the entitlement status away from Pell 

Grants and for food stamps. 

And I guess, as the Secretary of the Treasury, I am wondering 

if you think austerity is the solution to our deficit problem? 

Secretary LEW. Congresswoman, I think we have to make sure 

our economy is growing, and part of that means we have to maintain fiscal policy that keeps it growing. And we also have to take 

a long-term view and have a sustainable fiscal outlook. 

If you look at where we started in 2009, there was an economy 

that was crashing. There was a debt that was skyrocketing and a 

debt that was completely out of control, growing to over $1 trillion. 

We brought it under control. It is not down to zero. The deficit is 

not down to zero, but we have reduced it by three-quarters to 2.5 

percent of GDP. 

I think if you look at this next 10-year period, we maintain stability and it is a foundation to then look at the challenges of how 

do you deal with the 20-, 30-, 40-year challenges. In these next 10 

years, I think that the United States, like the rest of the world, has 

to focus on the reality that there is insufficient demand in the 

world. 

The United States is doing a little better than most of the rest 

of the world, but you can’t grow the global economy by just cutting 

spending everywhere. We are seeing that hasn’t worked in other 

places. In the United States right now, we have great needs. 

Infrastructure is an enormous need in this country. We need it 

to have a sound economy in the future; we need it because it puts 

people to work and good jobs. And this is the time to do it, when 

we have the ability to finance it at very low cost. 

So I think that the question of what we do in the medium- and 

the long-term, and what we do in the short-term, are not the same. 

14 

And I was also OMB Director for 3 years in the 1990s and I produced surpluses in 3 years. So I, more than anyone else, understand the value of fiscal discipline. 

But I also understand that you can’t do it without a growing 

economy. Last year, the actions you described in total helped grow 

the U.S. economy by roughly half a percent. And with the 

headwinds coming from internationally slow growth, I am glad we 

have that extra energy in the U.S. economy. 

Ms. MOORE. Thank you so much. So, just to be clear, you think 

our long-term challenges with Social Security, Medicare, Medicaid—70 percent of our economy is spending. If you take money 

away from people, how is it possible to grow the economy without 

folk having money in their hands? 

Secretary LEW. The challenge in the long-term has always been 

to have the right balance of revenues and spending to deal with 

structural issues. I think that if you look at what we have done in 

the last 7 years, we have bent the cost curve on health care. 

Some people don’t like the Affordable Care Act, but nobody can 

deny that it has kept costs from going up. That has an enormous 

impact on the Federal budget. 

We have taken tremendous strides to reduce spending, I think 

too much so on the discretionary side. 

Ms. MOORE. I have 30 seconds, so, do people need to have 

money? Do you agree that our economy depends on people having 

money to spend, like raising the minimum wage, like not cutting— 

Secretary LEW. I think if you look at the power of the U.S. economy, it is driven by consumer demand, and that consumer demand 

is important at all levels of the income spectrum. And people who 

work full-time ought to be able to be above the poverty line, which 

is why I think we need to raise the minimum wage. And we know 

that money will be spent. 

Ms. MOORE. All right. Thank you so much. 

And I yield back my 2 seconds. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from New Jersey, Mr. 

Garrett. 

Mr. GARRETT. Thank you, Mr. Chairman. 

After listening to the Secretary’s responses to your questions— 

or non-responses—Mr. Chairman, I think anyone viewing today’s 

hearing would say, Mr. Secretary, that you are the epitome of what 

is wrong with Washington today. The disdain that you have for the 

American people, your failure to answer the simplest of questions, 

is what is wrong with Washington and why the public has the view 

of the bureaucracy and the bureaucrats, such as yourself, here 

today. 

The questions that we put to you are basic ones and simple ones, 

asking sometimes for long answers and sometimes for simple, short 

answers. 

I got a new phone the other day, and I have this curious question. Do you have a—do you use a cell phone, iPhone, or anything 

like that? Do you carry that with you? 

Secretary LEW. I carry it, but I hardly use it. 

Mr. GARRETT. Okay. So there is almost a simple answer. 

15 

So in your communications with people, whether on your phone, 

iPhone, e-mails, letters, phone calls, or other things, the chairman 

asked you a simple question. Has anyone from the Administration 

ever directed you to not comply with the subpoenas? 

So it is a simple question of whether, through any of these communication devices that you may have, one way, or shape, or another, has anyone directed you to do that? That is a yes-or-no question. 

Secretary LEW. Congressman Garrett, I answered the question— 

Mr. GARRETT. No, you didn’t. 

Secretary LEW. —by saying we have been working to comply. We 

are trying to comply. 

Mr. GARRETT. Excuse me, excuse me. The question was not 

whether you are working to comply. That was your answer. 

The question was, has anyone communicated this to you? Has 

anyone communicated that to you, Mr. Secretary? Yes or no? 

Secretary LEW. Congressman, you can make this seem like a yesor-no question. I am not aware of any communications telling me 

what to do on anything I am doing here today. 

Mr. GARRETT. There you go. 

Secretary LEW. I am giving you an answer— 

Mr. GARRETT. That is the— 

Secretary LEW. —of what we are doing. I would think— 

Mr. GARRETT. Thank you, Mr. Secretary. The answer is— 

Secretary LEW. I would think you would want to know what we 

are doing. 

Mr. GARRETT. The answer is no, then, is—you are saying no one 

has ever communicated that to you. 

Mr. Chairman, I think that was the answer you were trying to 

get. 

I have been trying to get answers from you as well for a long period of time—9 months ago, both in committee and through a letter, I asked you to respond to some of the concerns I have regarding the implications of something else: the ISDA protocols on bank 

insolvencies and what effect they would have on nonbank institutions. I have not yet heard from you in over 9 months. I don’t see 

why you couldn’t answer me. 

So my simple question now, since I haven’t heard back is, will 

you assure us that if any proposals come up, you will oppose any 

plans that would require U.S. companies to basically give up, waive 

their protections to U.S. law and sovereignty? 

Secretary LEW. Congressman, I am going to need you to give me 

a little bit more detail of what you are asking me about if you want 

me to answer that question. 

Mr. GARRETT. I guess since my time is limited, we sent that— 

there was a— 

Secretary LEW. I am happy to respond. I am just not sure what 

you are asking. 

Mr. GARRETT. Okay. We directed that to you back in—last year, 

9 months ago, and I guess if you are happy to respond, we would 

ask you to respond to that back then. 

As far as trying to get information from you, that is one thing; 

to you is another. 

16 

Here is a $10 bill. And there is a whole discussion going on of who should be on the $10 bill. You are familiar with that whole 

issue? 

Secretary LEW. Yes, I am. 

Mr. GARRETT. And I know you have done a good thing. You have 

solicited the American public’s opinion quite a bit. You are nodding 

your head. 

Secretary LEW. Yes. We got a lot of comments. 

Mr. GARRETT. That is great. How come, then, when you are dealing with international bodies such as the FSB, you do not solicit 

for public opinion and the stakeholders in the same manner when 

you get into negotiations regarding financial standards and international bodies? 

Secretary LEW. We do work with stakeholders. 

Mr. GARRETT. Will you commit going forward to ask for input, 

just like you did on the change of the $10 bill, as you would on 

dealing with international bodies? 

Secretary LEW. You know, we do reach out to stakeholders as we 

do our work domestically and internationally, and we will continue 

to do so. 

Mr. GARRETT. That is great. That is good to hear. So will you engage in a formal notice-and-comment period as well? 

Secretary LEW. I am not going to comment on notice and comment for international proceedings. 

Mr. GARRETT. Why not? 

Secretary LEW. Because I am not aware of any appropriate notice-and-comment process for international proceedings. We do notice and comment for domestic rules. 

Mr. GARRETT. Do you have the authority, the power to establish 

formal notice-and-comment periods? 

Secretary LEW. Look, I think we have a lot of mechanisms for 

consulting with both public and private sector stakeholders. We 

will continue to do that. 

Mr. GARRETT. Would you commit to doing this one more? Because— 

Secretary LEW. I don’t think notice and comment is the answer 

to everything. We are not doing notice and comment on the $10 bill 

either. 

Mr. GARRETT. But this is a little bit more important than the $10 

bill. This is— 

Secretary LEW. You asked me, would we do the same thing. 

Mr. GARRETT. Would you commit to doing a formal notice-andcomment period— 

Secretary LEW. I don’t think notice and comment is the answer 

to everything. It is the right way to perceive formal rules. 

Mr. GARRETT. I understand it may not be for everything. But on 

this area I am simply asking you, would you commit to doing so? 

Secretary LEW. Congressman, I think that work that is done in 

the FSB is critically important work— 

Mr. GARRETT. So, the answer is no. 

Secretary LEW. —but it doesn’t make U.S. policy. When we make 

U.S. policy and rules— 

Mr. GARRETT. So when you do— 

Secretary LEW. —we go through notice and comments. 

17 

Mr. GARRETT. So when you solicit input, because you said you do 

solicit input, it is just your soliciting input from who you want to 

hear from, as opposed to all of the Americans who want a formal 

process. 

Secretary LEW. I dare say when we solicit input, we get input 

from many who do not share my view, not just those who share my 

view. 

Mr. GARRETT. Thank you. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, ranking member of our Capital Markets Subcommittee. 

Mrs. MALONEY. Welcome, Secretary Lew. 

I know that this hearing is about international finance, but I 

would first like to ask about Puerto Rico, as it has a very pressing 

economic issue facing the country, and it impacts on ours. 

It is in a severe financial crisis which could really explode into 

a humanitarian crisis. And we know that it now has roughly $72 

billion in debt outstanding and an additional $43 billion in unfunded pension obligations. And to make matters worse, Puerto 

Rico does not have access to Chapter 9 bankruptcy or to any restructuring process that would allow it to renegotiate its debt and 

creditors, its obligations. 

And now I have been told that Treasury is working with the Natural Resources Committee on crafting legislation to address this financial crisis, but as you know, there is a Supreme Court case taking place right now, literally they are hearing the arguments in 

court today. And that case addresses whether Puerto Rico is prohibited by Section 903 of the Bankruptcy Code from enacting its 

own state-level municipal process and regime. 

Other States are also prohibited from enacting their own municipal bankruptcy codes, but they have access to Chapter 9, they 

have access to bankruptcy. Puerto Rico does not have access to 

Chapter 9. So it is unclear to me as why we subject them to the 

same prohibition on enacting their own municipal bankruptcy code. 

So one idea that I feel is worth pursuing and considering is simply carving Puerto Rico out from the Section 903 ban on States enacting their own municipal bankruptcy codes. That way we could— 

Congress could authorize Puerto Rico to enact its own restructuring 

regime for all of its municipalities. 

And this has precedent in that the Supreme Court upheld New 

Jersey’s State-level municipal bankruptcy in 1942. It was Congress 

that enacted legislation prohibiting States in the future from doing 

so, but we could likewise enact legislation allowing, or carving out, 

the ability of Puerto Rico to so ask—to act. 

But my question really concerns the impact that the economy 

and Puerto Rico and the restructuring would have on our very important municipal bond market that finances so much of the improvements in our urban areas. And a lot of critics are arguing that 

allowing Puerto Rico to restructure their debt would have a terrible, terrible consequence in the muni-bond market here in America, that it would drive up borrowing costs for other States as well 

even though they are not affected by Puerto Rico’s restructuring. 

18 

And I would like to know what your response is to these arguments, and also do you think that a territorial bankruptcy regime 

for Puerto Rico would harm the broader municipal bond market 

that is so successful in America? 

Secretary LEW. Congresswoman Maloney, there is an immediate 

crisis in Puerto Rico; it is not a future crisis. For all practical purposes they are in default because they are not paying some of their 

bond issues and they have big payments due in May and July, and 

we don’t see a path for them to be able to make those payments. 

The need for action is immediate. 

I don’t believe that it is going to solve the problem if there is restructuring of just a small piece of Puerto Rico’s debt. A restructuring is going to have to be inclusive of all of Puerto Rico’s debt 

in order to address the crisis that they have. 

I think that the work that is being done—I haven’t seen the work 

product of the Natural Resources Committee, but the work that is 

being done is very important and it is very time-sensitive. What we 

think needs to be in it is we think there needs to be an oversight 

authority that is the gatekeeper; we think that there needs to be 

the ability to restructure all of Puerto Rico’s debt, because even 

some of their general obligation debt has to be at a minimum rescheduled in order for there to be a solution; and we don’t think 

it is a one-size-fits-all approach. 

In terms of the impact on other municipal bonds, three of the 

leading bond analysts have put out studies that contradict the notion that it is going to have spillover effects on other municipal 

bond markets. In fact, what we know about the municipal bond 

market is that each issue is looked upon independently based on 

the risk and the quality of the credit. And I believe that the worst 

thing for the municipal bond market would be a disorderly 

unwinding in Puerto Rico, which is what will happen if Congress 

doesn’t act. 

Chairman HENSARLING. The time of the gentlelady has expired. 

Mrs. MALONEY. Thank you. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman. 

Welcome, Mr. Lew. Right over here. 

Secretary LEW. I can’t see you through— 

Mr. DUFFY. I just want to revisit a few of the questions that were 

asked by the chairman. 

Again, you understand that you have a legal obligation to provide 

the documents requested and subpoenaed by this committee, to this 

committee. Is that correct? 

Secretary LEW. Congressman, I answered that question already. 

We are working to respond. 

And I will clarify one thing I said before. I said we did not get 

any response to our offer to meet. After we received subpoenas last 

week— 

Mr. DUFFY. I am going to reclaim my time— 

Secretary LEW. —there was then a response that— 

Mr. DUFFY. I don’t mean to be offensive, but are you having any 

trouble hearing today? Is your hearing working? 

Secretary LEW. I am hearing you just fine. 

19 

Mr. DUFFY. Okay. So let’s try this one more time: Do you understand that you have a legal obligation to provide documents as— 

Secretary LEW. As I said, we have been responsive and we continue to work to be responsive. 

Mr. DUFFY. But you are not answering my question. And is it 

your—in regard to anyone directing you to not comply with our 

subpoena? Did that happen? 

Secretary LEW. Congressman, I responded to that question already. 

Mr. DUFFY. What is the answer? Tell me one more time. 

Secretary LEW. I am not aware of any instructions on anything 

I am saying today. You are talking to the Secretary of the Treasury 

and I am giving you my— 

Mr. DUFFY. And as the Secretary of the Treasury, have you directed anyone at Treasury not to comply with our document request? 

Secretary LEW. I’m sorry that I couldn’t hear. I didn’t hear you. 

Mr. DUFFY. Okay. Have you directed anyone at Treasury to not 

comply with our document requests? 

Secretary LEW. No, quite to the contrary. At my direction our 

staff has reached out and written letters— 

Mr. DUFFY. Have they been told to comply with us? 

Secretary LEW. —seeking to have the conversations that would 

enable us to reach accommodations. 

Mr. DUFFY. You have told your staff to comply with our document requests? 

Secretary LEW. You know, the practice— 

Mr. DUFFY. Yes? 

Secretary LEW. I have told them to reach an accommodation with 

the committee, which would— 

Mr. DUFFY. Let me express my concern to you. 

Secretary LEW. —reach an accommodation with the committee, 

which requires— 

Mr. DUFFY. So we have a subpoena that is almost a year old. The 

document request, when we try to do it nicely with you, goes back 

21⁄2 years, and you have failed to comply with those document requests. 

And I think anyone sitting in this room listening to the responses 

that you gave the chairman, that you gave Mr. Garrett, and that 

you are giving me, would say that you are not compliant. We ask 

very simple questions and you say, ‘‘I am not going to answer a 

question.’’ But you come in and say, ‘‘Listen, ladies and gentlemen—’’ 

Mrs. MALONEY. Will the gentleman yield? 

Mr. DUFFY. I will not. 

You come in and say, ‘‘I am trying to work with you; I am trying 

to answer your questions; I am trying to be compliant,’’ when you 

don’t even answer simple questions that this committee poses to 

you. 

You indicated, I think, in your— 

Secretary LEW. Can I ask you a question, Congressman? Congressman, can I ask you a question? Did you read the letter that 

we sent you last week? 

20 

Mr. DUFFY. Yesterday? I want to talk about what you sent me 

yesterday. Are you aware that you sent me— 

Secretary LEW. On March 18th, we sent you a letter. 

Mr. DUFFY. —a document dump last night, yesterday. Are you 

aware of that? 

Secretary LEW. We have been providing documents on a regular 

basis. 

Mr. DUFFY. Okay, so you provided 1,035 pages. Correct? 

Secretary LEW. I didn’t count the pages, Congressman. 

Mr. DUFFY. Roughly, does that sound about right? 

Secretary LEW. We sent a lot of pages. 

Mr. DUFFY. Okay. And you are trying to comply with our subpoena, is that right? 

Secretary LEW. We have sent thousands of pages, and— 

Mr. DUFFY. Let’s talk about the kinds of pages that you send. So 

in the thousand pages that were sent to our committee this week— 

you can look up at the board—664 of those pages were news clippings, letters to Members of Congress, CRS reports, hearing transcripts, and public information. Another 223 pages were private 

sector research from Finch Barclays, Merrill Lynch. Another 109 

pages were from the Bipartisan Policy Center. And then 39 pages 

was a memo on the 1985 debt limit impasse. 

This isn’t the documents that we requested. This is public information you are just throwing our way to try to say, ‘‘Listen, we 

have sent you thousands of pages,’’ though it is thousands of pages 

of noncompliant material. 

One of the e-mails that you sent us I think is consistent with all 

of your compliance and your testimony today. At the very top you 

will notice that it says ‘‘spam.’’ You are sending us spam e-mails 

from Treasury and trying to tell this committee that you are complying. 

And so, let me ask you this. We have asked you to provide employees of Treasury—Anne Wall, Randall DeValk, Priya Aiyar, Patrick Pinschmidt—and you have refused to allow them to come and 

be interviewed by this committee. Is that correct? 

Secretary LEW. Congressman, we have tried in repeated communications with this committee to arrange meetings to reach accommodations to be able to provide information. You know when we 

got a response? Last night. Last night, after the better part of a 

year. 

Mr. DUFFY. Mr. Secretary, we asked for documents, and as those 

who oversee you, you should comply. Or you should assert a privilege. 

Secretary LEW. Congressman, the process of responding to these 

requests is well-established. It involves give and take— 

Mr. DUFFY. It is well-established. 

Secretary LEW. It involves give and take. 

Mr. DUFFY. Are you asserting a privilege? 

Secretary LEW. Excuse me? 

Mr. DUFFY. Have you asserted a privilege as to why you haven’t 

complied with our document requests? 

Secretary LEW. Congressman, we have not yet had the conversations we should have between counsel. Hopefully, that will begin 

immediately and we will be able to work our way through it. 

21 

Mr. DUFFY. If you look at the answers—Mr. Lew, look at the answers you gave us today. Does anyone here believe that you are 

going to actually comply with our requests that are 21⁄2 years old, 

when you can’t even acknowledge that you understand that you 

have the legal obligation to provide these documents? 

Ms. WATERS. Mr. Chairman, I have a unanimous consent request. Mr. Chairman? 

Mr. DUFFY. Mr. Lew, again, you are everything that is wrong 

with government— 

Ms. WATERS. Mr. Chairman? 

Chairman HENSARLING. The time of the gentleman has expired. 

Ms. WATERS. I have a unanimous consent request. 

Chairman HENSARLING. The gentlelady will state her request. 

Ms. WATERS. I ask unanimous request for a recess. 

Chairman HENSARLING. I object. 

The Chair now recognizes the gentleman from Texas, Mr. Hinojosa, for 5 minutes. 

Mr. HINOJOSA. Thank you, Chairman Hensarling and Ranking 

Member Waters, for holding this hearing on the annual state of the 

international finance system. 

Welcome, Secretary Lew. I am pleased that you are testifying 

today because this hearing gives us and this committee the opportunity to discuss the North American Development Bank, better 

known as the NADBank, in San Antonio, Texas. 

As you know, the NADBank was created in 1994 as part of 

NAFTA to alleviate the environmental concerns and economic problems that would be created by the movement of commerce and people to the U.S.-Mexico border region. 

Since its creation over 20 years ago, the bank has made a tremendous improvement to some of the most impoverished communities in both nations, including towns and colonias in my congressional district and along the U.S.-Mexico border, from Brownsville, 

to El Paso, and all the way to the California-Mexico border. 

The bank’s investments have brought lifesaving potable drinking 

water to millions of people, many of whom faced health-threatening 

conditions due to unsafe sources of drinking waters. 

So that leads me to the first question. In January 2015, during 

the high-level economic dialogue, President Obama and Mexican 

President Pena Nieto agreed to double the bank’s capital from its 

current $3 billion to $6 billion, split evenly between the two nations. Can you tell us why the bank is seeking to double its capital? 

Secretary LEW. Congressman, the Administration is looking for 

this capital increase because it will allow the United States to continue supporting these kinds of infrastructure projects on our border that are so important. It deepens our relationship with Mexico, 

it addresses environmental issues that are cross-border issues. And 

it is an important aspect of our economic life to have those issues 

addressed, and only we and Mexico are the parties of interest, 

which is why in the NADBand and the U.S.-Mexico relationship is 

so different. 

Mr. HINOJOSA. In June of 2015, Moody’s rated the NADBank as 

Aa1, reflecting the bank’s strong capitalization and liquidity position as well as noting the support of the bank receives from both 

22 

the United States and Mexico. Moody’s rated the bank’s outlook as 

stable. 

So do you expect the bank will maintain that strong financial position moving forward? 

Secretary LEW. Congressman, the rating agencies have changed 

their methodologies in a way that, for idiosyncratic reasons, could 

have an adverse impact on NADBank. They are looking at whether 

there is concentrated activity, and when you are talking about two 

countries—only two countries—being involved in all the activity on 

one border, it by its basic nature is concentrated activity. Most of 

the international financial institutions are diversified. 

I think that, importantly, there are no nonperforming loans. So 

if you look at the core quality of the credit, it is very strong. I don’t 

know what the rating agencies will do. 

Mr. HINOJOSA. I like that response on how strong it is. 

Since 2010, the bank’s lending portfolio and debt issuances have 

grown significantly. Has the increased lending portfolio had a negative impact on the bank’s financial position? 

Secretary LEW. As I say, there are no nonperforming loans, so I 

think the bank remains in a strong financial position. 

Mr. HINOJOSA. What steps has the bank taken to ensure that its 

debt issuances do not become an oversized liability for the bank? 

Secretary LEW. I think that the key is for there to be careful review of projects to make sure that each project that is funded can 

sustain the debt that is going to it. And, given the amount of work 

that needs to be done on the U.S.-Mexico border, there are a lot 

of good projects before you get to anything that would be questionable. 

Mr. HINOJOSA. I agree with you. There are a lot of good projects 

on both sides. 

In 2011, I introduced H.R. 2216, the North American Development Bank Enhancement Act, a bill to allow the bank to expand 

its mandate beyond the environmental infrastructure projects. 

Would Treasury support efforts to expand the bank’s mandate this 

year, 2016? 

Secretary LEW. Congressman, I am not familiar with the expansion proposal. I am happy to look at it. 

I think that the definition, as it is, permits some expandability 

because transportation, for example, is part of it, reducing emissions. So things like transportation, water, sanitation, renewables 

are all part of it. But I would be happy to look at the proposal. 

Mr. HINOJOSA. Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, chairman of our Housing and Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Mr. Lew, I have a couple of questions on a different subject here 

with regard to SIFI designations. You testified last week in front 

of the Appropriations Committee with regard to arbitrary thresholds for SIFI designations, and I just wanted to get a little clarification here. Your response was that you oppose raising the bank 

threshold SIFI designation to $500 billion. 

Secretary LEW. I’m sorry, I couldn’t hear the last thing you said. 

23 

Mr. LUETKEMEYER. Last week at the House Appropriations Committee, your response to asset thresholds was that you oppose raising the bank SIFI threshold to $500 billion, is that correct? 

Secretary LEW. I commented on that issue. Last year, there was a proposal to go to $500 billion—$500 billion is a very large financial institution. 

The number is now $50 billion. There has been a lot of debate, 

should it go from $50 billion to $100 billion. What I said is that 

there is a big difference between $100 billion and $500 billion. 

Mr. LUETKEMEYER. Yes, but I guess the question then becomes— 

assets is only one thing. I think we need to be looking at this based 

on the risk and the asset makeup and liability makeup of each one 

of these institutions. Would you agree with something like that? 

Secretary LEW. Look, I think that there are a lot of different criteria aside from just size that raise questions of risk, but I think 

that size is an important criteria because the larger an institution 

is, the more likely it is to be— 

Mr. LUETKEMEYER. With regards to nonbank SIFIs, we have had 

two companies that sold off major books of business in an effort to 

escape the designation. And yet they have not been de-designated. 

Don’t you think it would be helpful to have an off-ramp of some 

sort to be able to do that so that these businesses know how and 

what they need to do to be able to get de-designated? 

Secretary LEW. First, Congressman, I don’t think the reason that 

those decisions are made are to get de-designation. I have talked 

to the CEO of one of those firms who said expressly it was not; it 

was a business decision for reasons of sticking to the core business 

of a technology and manufacturing company. 

There is a process for de-designation. There is an annual review, 

and if a company sheds risk and comes in for review on an annual 

basis, that is the way to get de-designated. And we look forward 

to seeing applications that reflect that kind of change. 

Mr. LUETKEMEYER. Okay. With regard to another issue, international insurance legislation, we are working, in my subcommittee, to put in some guardrails with regard to the conversations taking place at the IAIS. Those would require the United 

States to uphold and advocate for our system of regulation. Do you 

have any objections to that mission, to try and make sure we protect our insurance industry here in this country? 

Secretary LEW. Can you just clarify which provisions—which proposal you are talking about? 

Mr. LUETKEMEYER. We haven’t dropped the bill yet, but we are 

working on a bill to try and put some guardrails on the discussion 

so that those advocates— 

Secretary LEW. I am just not sure what discussions—which discussions— 

Mr. LUETKEMEYER. With the IAIS. 

Secretary LEW. On what subject though? 

Mr. LUETKEMEYER. Capital standards and all sort of— 

Secretary LEW. For insurance? 

Mr. LUETKEMEYER. Yes. For all other insurance supervision. 

Secretary LEW. We have been working—I assume you are talking 

about insurance now? 

Mr. LUETKEMEYER. Right, right. 

24 

Secretary LEW. Yes, we have been working to negotiate a covered 

agreement to make sure that we don’t end up in a place where 

other countries can set standards that would require our companies 

to take action. 

Mr. LUETKEMEYER. So you would support what we are doing, I 

take it? 

Secretary LEW. I think the right thing to do is to complete the 

covered agreement, to have prudential issues addressed and not to 

get into a situation where there is conflicting capital kinds of 

standards, and any action in this area should be action we take in 

the United States. 

Mr. LUETKEMEYER. I think we are putting the cart before the 

horse there. I think we need to make sure that we have the ability 

to protect our folks first before we engage in any sort of agreements, period. But I appreciate the comments. 

With regards to paying our Nation’s bills, the New York Fed 

serves as the Treasury’s fiscal agent, is that correct? 

Secretary LEW. Correct. 

Mr. LUETKEMEYER. Did you know that since 2011, the New York 

Fed has conducted so-called tabletop debt ceiling exercises that 

contemplated prioritizing payments of principal and interest on 

debt? 

Secretary LEW. Yes. 

Mr. LUETKEMEYER. When did you learn that? 

Secretary LEW. I don’t recall. 

Mr. LUETKEMEYER. Did the Treasury direct the New York Fed to 

conduct these tabletop exercises? 

Secretary LEW. Congressman, during the period when we were at 

risk of going into default, there was a lot of analysis being done of 

what mechanically would work. My understanding of these exercises is that they were checking to see if the pipes would work. 

Mr. LUETKEMEYER. Okay. You are aware of that then. 

The problem, then, is on two separate occasions, October 10, 

2013, and May 7, 2014, you appeared before the Senate and you 

appeared before the House and indicated something contrary to 

that. 

Secretary LEW. No I didn’t. What I said at the time and what 

I believe now is we have never gone into a world where Congress 

has failed to extend the debt. We have never been in a world where 

there has been a question on whether you could or couldn’t— 

Mr. LUETKEMEYER. Sir, you fail to acknowledge that these exercises were going on. 

Secretary LEW. I know what I said. What we have learned since 

then is that the technical capability is there. We don’t know if it 

works. It has never been tried. I don’t want to be the one who finds 

out, and I hope nobody here wants to find out. 

Mr. LUETKEMEYER. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott. 

Mr. SCOTT. Thank you very much. 

It might be appropriate for us to examine the impact and what 

you are doing in terms of the financing of terrorists, particularly 

25 

in view of what happened earlier this morning over in Brussels. 

And your Treasury Department has this authorization. 

But before I get to that, are you aware, Mr. Lew, that there have 

been documented 73—I think it is 73—individuals working at 

America’s airports with ties to ISIS? 

Secretary LEW. Congressman, I know that there has been work 

done to identify risks in this area. I couldn’t— 

Mr. SCOTT. Let me just suggest this. Cox Media—WSB, particularly—did a story. Cox Media has media outlets, and newspapers, 

and radio stations, television stations all across this country. I 

would like to ask if you might contact them and get the full report 

on that report. 

Just contact, it is Cox Media. WSB television is the local affiliate 

in Atlanta, Georgia, and we did an interview on that. 

My whole point is this: In this financing of terrorism, we have 

to start looking at the other end of it. In other words, there is the 

money laundering and there is that going, but there is also the demand for it. And such a thing as this—and this particular incident, 

too many of our airports have these private contractors that come 

in and help to sort of subsidize the workforce at the airports. 

This was the same incident that happened abroad not too long 

ago, where a baggage handler came and put the bomb right on the 

plane. And I am sure you are familiar with that. The reason I am 

saying that is that this evil, this terrorism, has no greater target 

in mind than our Nation’s airports. Our greatest tragedies have 

been because of that. 

We have to do everything we can to let the American people 

know that our airports are safe. So on that end, if your staff 

would—and my staff could assist you as well, but I think it is important for you to have that report. Homeland Security, I think— 

Secretary LEW. Yes, I am happy to look at it, Congressman. The 

Department of Homeland Security works vigilantly— 

Mr. SCOTT. But my point is that it is not—you have the money 

end. I am not talking about that end. 

I am talking about how we are failing in our efforts. Now, we 

passed a bill that I sponsored called the International Financing 

Hezbollah Act. Are you familiar with that one? 

Secretary LEW. Yes. 

Mr. SCOTT. All right. Now, in that Act, we directed the President 

to direct and to identify, to investigate, to use Treasury, to use the 

FBI, to use all of our brilliant—the CIA—investigative powers to 

identify sources of funding, the dummy companies that trail on it. 

So with that in mind, let me just ask you, what is your application of the law, and what is your report on how ISIS and these 

other terrorist organizations are getting their funding? 

Secretary LEW. Congressman, I have less than a minute, so I am 

going to do my best. 

We have an extensive operation, the best in the world, to track 

terrorist financing. We support U.S. operations, we support friends 

around the world when they are trying to track down financial ties. 

We are drilling into every lead we get. 

We work extremely closely with the intelligence community and 

the Homeland Security Department on leads. We have the ability 

26 

to track when they get identification of individuals who need to be 

tracked. So it all flows from the intelligence that we get. 

Mr. SCOTT. Let me— 

Secretary LEW. And we are working on Hezbollah to identify targets. On ISIL, it is a slightly different case on ISIL because it is 

a very internal financing system. In 14 seconds, I can’t answer it, 

but if I could get another minute I would be delighted to. 

Mr. SCOTT. Okay. All right. 

Then I want to ask you this: The Iran agreement makes avail- able to Iran a huge cash load of over $100 billion. They are the 

number one sponsor of terrorism, and particularly to Hezbollah. 

Secretary LEW. Mr. Chairman, these questions about ISIL financing in Iran are very important. If I could just— 

Chairman HENSARLING. Please give a brief answer, Mr. Secretary. We will extend— 

Secretary LEW. So on ISIL financing, the structure of it has 

changed as ISIL has grown. It started out that they seized territory, they took the money out of vaults, and they had it. 

That is not going to sustain them. They have too much territory, 

too many needs, and we have been too effective at hitting some of 

those vaults. 

What they do now is they try and use local resources like oil and 

they extort money from the people who live there. We have worked 

with the government of Iraq to shut down banks and to limit 

money exchanges. We have worked with the government of Iraq to 

stop paying people in ISIL-controlled territory. We are using military operations to blow up every aspect of the oil industry we can. 

Has it been 100 percent successful? No. It is hard to get in there 

to be 100 percent. But it has been successful enough that in some 

areas they have had to cut in half what they pay their fighters, so 

we know it is working. 

We have more work to do. We work every day to find every lead 

we can. 

On Iran, if I could just take 30 seconds, I am happy to— 

Chairman HENSARLING. Please, Mr. Secretary, go ahead. 

Secretary LEW. —the notion of the amount of money going to 

Iran has been greatly overstated in a lot of places. At some level, 

it looks like there is $100 billion that goes to Iran. We know that 

no more than $50 billion can actually go because of limitations and 

encumbrances on the money. The government of Iran itself says 

they think they may get access to $30 billion. 

What we know is they have hundreds of billions of dollars of domestic needs, and we will continue to take action against funding 

of terrorism, funding of regional destabilization, funding of human 

rights violations. So we are going to do our level best to make 

sure— 

Mr. SCOTT. But my point is, is there any mechanism in place to 

make sure that none of that money goes into the hands of groups 

like Hezbollah, the Houthis? 

Secretary LEW. We have ongoing sanctions in those areas and we 

are continuing to work on designating and enforcing those sanctions. 

Mr. SCOTT. Thank you, Secretary Lew. 

And thank you, Mr. Chairman, for the extra time. 

27 

Secretary LEW. I apologize for going over, but those are important questions. 

Chairman HENSARLING. No, those are topics of great interest to 

Members on both sides of the aisle. 

The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

I am interested in the line of questioning that you initiated in 

your questioning, and so I would like to see if maybe you get more 

answers than you got the first time around, so I want to yield my 

time to you. 

Chairman HENSARLING. If the gentleman would yield to the 

Chair, Mr. Secretary, let’s go back to document production here. 

You have stated that you believe you have been reasonable in this 

process. I accept that. But I hope you understand there is a level 

of frustration for document requests that have been pending in 

some cases for 2 to 3 years, and a subpoena which is almost 1 year 

old. 

We have had over a dozen questions for the record that were produced from last June’s hearing for which we have yet to receive 

any information from your Department. You saw the chart that 

was placed by Chairman Duffy on the monitors that showed that 

basically when we had requested documents, most of what we received were news clips and speeches. 

So yes, Mr. Secretary, there is a level of frustration here. A question that Chairman Duffy asked, which I do not believe you answered, and if you did then forgive me, I wish to know—I am unaware that Treasury has asserted any executive privilege with respect to any of the documents that have been subpoenaed. So I am 

unaware that Treasury has invoked any executive privilege. 

Are you aware if executive privilege has been asserted with respect to any of the documents subpoenaed? And if so, do you have 

a list of those documents? 

Secretary LEW. Congressman, we have tried to reach out, to have 

conversations to clarify what is requested, to seek accommodations, 

to work in the spirit of President Reagan’s direction to executive 

agencies on how to deal with congressional oversight in a respectful 

and responsive way. 

We wrote in December. We wrote in January. We wrote again 

last week. It was only after four additional subpoenas were delivered that we got a call back to try to set up— 

Chairman HENSARLING. Mr. Secretary, I will accept what you are 

saying, but you are not answering the question. Are you aware if 

executive privilege has been asserted? I am unaware. 

Secretary LEW. I am not aware of any assertions of privilege— 

Chairman HENSARLING. Thank you. That was the only question 

I was asking, Mr. Secretary. 

Secretary LEW. But I think you know as well as I do that is the 

end of the process, not the beginning. 

Chairman HENSARLING. I am simply asking—well, when you say 

the end of the process, it is a process that has been going on for 

almost 3 years. 

28 

Secretary LEW. The process of accommodation requires conversations that haven’t even begun. We have reached out, so we have 

initiated conversations but we have seen no response. 

Chairman HENSARLING. Mr. Secretary, I assure you that a subpoena would not have been issued had we not had to wait years. 

This isn’t a matter of dealing with— 

Secretary LEW. But in December, we offered— 

Chairman HENSARLING. This isn’t a matter of days to weeks, Mr. 

Secretary. This has been going on for months and years. Let me 

ask— 

Secretary LEW. Yes. Maybe we can get to a better place where 

these conversations take place and we can find a path to accommodation, which is always our goal. 

Chairman HENSARLING. Mr. Secretary, you testified before our 

committee on May 7, 2014, that the Administration has never 

made any decision to prioritize debt payments. Do you agree— 

Secretary LEW. That is correct— 

Chairman HENSARLING. —that you testified to that? 

Can you pull up chart number six, please? 

As I think you are well aware, we are in possession of a number 

of documents that have come from your fiscal agent, the New York 

Fed, of various e-mail communications amongst and by Federal Reserve officials. This one dated September 17th states, ‘‘Treasury is 

adamant they will make P&I’’—I assume principal and interest 

payments—‘‘not considering possibility of missing debt payments.’’ 

Number seven, please? 

This one is dated Friday, September 20th: ‘‘Treasury continues 

to be adamant they will make principal and interest payments on 

the debt. This is a slightly different position than prior exercises 

where prioritization of debt payments was not specified.’’ 

Chart eight? 

‘‘As you may have heard’’—this one is dated Monday, September 

23rd—‘‘unlike the 2011 planning around prioritizing payments and 

rolling maturities, the Treasury has said they will make all principal and interest payments this time around.’’ 

So you were aware of these tabletop exercises, correct? You testified to that earlier today— 

Secretary LEW. Mr. Chairman, the tabletop exercises were not in 

pursuance of a decision that had been made. They were exploring 

how to answer the question that you have asked me, is it technically possible? Now, I can’t speak— 

Chairman HENSARLING. The documents that were just presented, 

have you seen these documents? 

Secretary LEW. Only in recent months. At the time, I was not in 

on that— 

Chairman HENSARLING. Pull up chart number two, please. 

Secretary LEW. Mr. Chairman, if I could just respond to your 

question, because the real point here is we should never be in a position where we have to make decisions about what to do when you 

default. If you could default on Social Security or Medicare instead 

of principal and interest you are still in default. 

Only the President can make a decision what to pay and what 

not to pay. That decision was never made— 

29 

Chairman HENSARLING. Mr. Secretary, I agree with that assessment. But I think you know that roughly half of the times that 

Congress in the modern era has voted on a debt ceiling, it has included some type of spending restraint to take us off the path to 

bankruptcy as well. 

Last chart, chart number two, a memo dealing with Federal Reserve Governor Powell. 

Two interesting comments from Powell. He understands why 

Treasury wants to maximize pressure on Congress by limiting communications about contingency planning. 

Mr. Secretary, did you direct somebody to maximize pressure on 

Congress by limiting communications about contingency— 

Secretary LEW. No. What I have said to this committee and other 

committees of Congress is, yes, we look at what is technically possible. We don’t know if it works. We believe that it would be a 

grave mistake and a disservice to this country to ever default. 

That is my view now, it was my view then, and it will be my 

view in the future. And it would be a mistake if Congress goes 

down this path again. It would hurt our country— 

Chairman HENSARLING. Well, it is interesting evidence from the 

New York Fed about the motivations of Treasury. 

The time of the gentleman from Texas has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Clay. 

Mr. CLAY. Thank you. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for your appearance today. We 

must not forget that this Administration brought us back from the 

brink of an economic collapse in 2008 that was not brought on by 

this Administration. But this Administration helped prepare a 

budget in an economy that was on the brink of collapse. 

So I wish my colleagues on the other side of aisle wouldn’t forget 

that and would recognize the good that has come out of it. 

Mr. Secretary, how would you assess the effectiveness of the Financial Action Task Force (FATF) in identifying key terrorism financing risk and issuing universal recommendations for addressing 

them? 

Secretary LEW. Congressman, I think FATF is a very important 

organization that establishes norms and practices that, if followed 

around the world, would create the ability to do what we do in the 

United States more broadly. Candidly, we are far ahead of many 

other countries in terms of having the capacity to take those authorities and implement them effectively. 

One of the things that I think we have to do—and the IMF has 

a big role to play in this and FATF itself has a big role to play in 

this—is to provide the kind of technical assistance to make sure 

that we built up the capability around the world so the countries 

that want to be cooperative have the tools that they need. 

We had a meeting at the U.N. in December where, for the first 

time in the history of the U.N. Security Council, finance ministers 

met. I chaired the meeting and we had a unanimous vote to designate ISIL in the same category as Al Qaeda, which exposed anyone having even an intermediary role to sanctions. It is all rooted 

in the ability to see it and act on it. 

30 

FATF was at that meeting. FATF is following up with countries 

to help build the capability. 

But I don’t want to exaggerate where other countries are. We are 

even ahead of our most sophisticated colleagues, and we offer a lot 

of assistance, for example in Western Europe, when they need 

leads to be followed up on. 

Mr. CLAY. And in light of what happened today in Brussels, I am 

sure there is a need for expansion of FATF. 

Secretary LEW. Yes. And we have already reached out to offer assistance, as we did after the bombings in France and we do on an 

ongoing basis, sharing information in between when it is appropriate. 

Mr. CLAY. Thank you so much. 

And at this time, I would like to yield the balance of my time 

to the ranking member, Ms. Waters. 

Ms. WATERS. Thank you very much. 

I would just like to give you an opportunity to share with us your 

attempts to cooperate and your desire to work with us in a reasonable manner. 

Secretary LEW. Thank you, Congresswoman Waters. 

The range of requests from this committee has been many. We 

have provided thousands of pages of material and, as has been 

noted, we provided an additional thousand pages of material just 

this week. 

In December—on December 17th and January 21st, we invited 

committee staff to meet to discuss what other information the committee needs. On the debt limit alone, we provided the committee 

over 3,800 pages of documents on this topic. 

And over the last 3 months, we have tried to reach out to the 

committee to find out what further materials would be useful. In 

the interim we did identify some additional materials on our own. 

I have a great deal of respect for the oversight function that Congress plays and it is appropriate for Congress to play. We seek to 

find accommodations to provide information and would only ask for 

those kinds of conversations that are necessary to go through the 

accommodation process to proceed. 

Ms. WATERS. Have you received a response from this committee 

when you have reached out to them to attempt to come together 

and have some discussion around these issues? 

Secretary LEW. Well, only yesterday evening, but that was after 

four people on the Treasury staff received subpoenas for interviews. 

So we didn’t have conversations that would help us work it through 

before that. 

Ms. WATERS. So I think what I heard today is that you are still 

offering. 

Secretary LEW. Yes. We remain available and anxious to have 

those kinds of conversations. 

Ms. WATERS. You and your staff are available? 

Secretary LEW. Yes. The right level is for counsel to counsel. 

That is how these things have been worked out for 40 years that 

I have been part of. 

Ms. WATERS. Perhaps before you leave, you can speak directly to 

the chairman, and reinforce your desire to be responsive and to 

talk and to have these discussions. Perhaps that would be helpful. 

31 

Perhaps there is some misunderstanding about what efforts you 

have made to try and accommodate the many, many, many requests and the subpoenas and all of that. 

I do appreciate your willingness to do this, and again, perhaps 

maybe a conversation directly with the chairman might help. 

Secretary LEW. Thank you, Congresswoman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from South Carolina, 

Mr. Mulvaney. 

Mr. MULVANEY. Secretary Lew, I want to continue the conversation about the debt ceiling, not because I want to beat a dead 

horse, but mostly because I continue to be amazed, in my view, at 

an Administration that I perceived as wanting to create the threat 

of a financial crisis. 

We have already established in your previous visits here that 

your comments to the contrary notwithstanding, the technical ability to prioritize did exist and does exist. That issue has been put 

to rest. 

Secretary LEW. I testified to that effect at this committee last 

year. 

Mr. MULVANEY. And I am giving you the benefit of the doubt, 

Mr. Lew. When we are going to agree, you might as well let me 

do it, because it is not going to happen that often. 

I want to talk about something else today, though, if we could 

bring up the first slide. 

You have said on several occasions that no decision had been 

made to prioritize. This is an e-mail on September 17th. We got 

these from internal e-mails at the New York Fed: ‘‘Treasury is adamant that they will make P&I payments.’’ 

Next slide. 

‘‘Treasury continues to be adamant that they will make payments—principal and interest payments on the debt.’’ 

Next slide, please. 

‘‘As you may have heard, unlike the 2011 planning around 

prioritization payments and rolling maturities, the Treasury has 

said they will make all P&I payments at the same time.’’ That is 

September 23rd, September 27th. 

Next slide, please. 

‘‘Even though the Treasury has directed the Reserve Banks, they 

intend to make all P&I payments, et cetera.’’ That is September of 

2013; 2 weeks later you went to the Senate and said that no decisions had been made to prioritize. 

In May of 2014, several months later, you came to this committee 

and brought a letter from the previous day and you testified to the 

same thing. It says, ‘‘We stress that no decision regarding what to 

do in a situation was made during the recent debt limit impasses.’’ 

I will leave it to others to speak to the truthfulness of that statement and the truthfulness of what you have said to this committee. 

It is not what I want to focus on today. I want to focus on the next 

piece of the puzzle. 

Secretary LEW. Congressman, if I might? 

Mr. MULVANEY. Sir, I will, but—and I will give other folks a 

chance. I am trying not to take the whole 5 minutes. 

32 

Secretary LEW. When somebody questions the truthfulness of a 

statement, I think I am permitted the opportunity to respond. 

Mr. MULVANEY. No, but it is not what I want to talk about. 

Secretary LEW. Because you have mischaracterized what I have 

said and it is incorrect— 

Ms. WATERS. Mr. Chairman, point of order. 

Mr. MULVANEY. In fairness to— 

Ms. WATERS. Point of order, Mr. Chairman. 

Chairman HENSARLING. The gentlelady will state her point of 

order. 

Ms. WATERS. Mr. Chairman, I— 

Chairman HENSARLING. The clerk will stop the clock. 

Mr. MULVANEY. Thank you. 

Ms. WATERS. I have a point of order that the committee is not 

exercising proper decorum. 

Mr. MULVANEY. May I speak to the point of order, Mr. Chairman? 

Ms. WATERS. Mr. Chairman, if I may, when it is implied that the 

Secretary of the Treasury is not being truthful, he should be given 

an opportunity to respond to that. It should not be left saying, ‘‘I 

have accused you of not being truthful, but I want to move on.’’ 

And I would say that if we are to comply with proper decorum, 

you would allow the Secretary of the Treasury to respond to what 

has been said as to his being untruthful. 

Mr. MULVANEY. May I speak to the point? 

Chairman HENSARLING. Does any other Member wish to be 

heard on the point of order? 

The gentleman from South Carolina? 

Mr. MULVANEY. I have already indicated to the witness that I intend to leave him time at the end of my 5 minutes to respond. I 

do intend to do that. I would like to get through my presentation 

first and then give him the opportunity to respond to all of my 

points. 

In addition, no one is stopping him from receiving time from the 

opposition, the other side, the other party, to speak to my points, 

which we regularly do in this committee. 

Chairman HENSARLING. If no other Member wishes to be heard, 

I would like to ask unanimous consent that the Secretary be given 

30 seconds in which to address the issue that he wanted to address, and then we will go back to the gentleman from South Carolina. 

If so, would the gentlelady withdraw her point of order? 

Ms. WATERS. Mr. Chairman, I appreciate your offer, but I hardly 

think 30 seconds is sufficient. 

If the chairman would reconsider the amount of time to be in 

compliance with decorum, I certainly would agree to that. I hardly 

think 30 seconds is sufficient. 

Chairman HENSARLING. Mr. Secretary, I will simply, by unanimous consent, yield you as much reasonable time as you may consume, and if the gentlelady cares to withdraw, we will give the Secretary a moment to address the issue that was raised by the gentleman from South Carolina. 

Ms. WATERS. Thank you, Mr. Chairman. I withdraw. 

33 

Secretary LEW. Thank you, Mr. Chairman. And I am from New 

York, so I talk fast. 

All I wanted to say is when I testified on a number of occasions, 

I stated what was correct then and is correct now. The decision has 

never been made by the only people who can make the decision— 

that is the President of the United States on the advice of the 

Treasury Secretary—what to do. That decision was not made. 

I can’t tell you what different officials in different organizations 

said to each other. But I can tell you the decision wasn’t made. 

And we should never have to make a decision about how the U.S. 

Government defaults, which is what happens if Congress fails to 

raise the debt limit. And I don’t think defaulting on payments to 

veterans is any better than defaulting on payments to foreign bond 

holders. 

Chairman HENSARLING. I think we are getting a little far afield 

of the question now, but thank you, Mr. Secretary. 

And now we will go back to the gentleman from South Carolina. 

Mr. MULVANEY. I thank the chairman, and I thank the ranking 

member. 

Let’s get to the question that I wanted to ask, Mr. Lew, which 

goes to the next slide, which is why no one at Treasury wanted to 

tell us. The next slide is from September 24th, another internal 

New York Fed document, which says, ‘‘Agree the close hold here is 

crazy, counterproductive, and adds risk to an already risky situation.’’ This is an internal document in the New York Fed. ‘‘I will 

bring this up at the meeting at 11.’’ 

Next slide, please. 

The last sentence of this long selection says, ‘‘It is also totally unclear when and whether TRSO intends to share this thing with the 

affected business areas, especially given their request that I refrain 

from sharing this document, a request that I am obviously ignoring 

because I think it is outrageous that they are keeping such a close 

hold on this type of such a late date.’’ 

TRSO, I understand, is one of your internal working groups. 

The next slide, please. 

Another internal New York Fed documents with two interesting 

comments from Powell. Number two, he understands why Treasury 

wants to maximize pressure on Congress by limiting communications about contingency planning. 

Mr. Lew, this speaks to the very heart of why we have been beating you up on this for the last 3 or 4 years. So this is the question 

I wanted to ask from the very beginning: Who at Treasury made 

the decision to try to maximize pressure on Congress by limiting 

communications about contingency planning? 

Secretary LEW. Congressman, the decision that we made was to 

make sure Congress and the American people understood the risk 

of what happens if the debt limit is breached. 

Mr. MULVANEY. That is not what the e-mail speaks to. The email speaks— 

Secretary LEW. That was our decision. We do not believe that 

there is a path towards prioritization that works. 

Mr. MULVANEY. I get that. Mr. Lew, you said that 100 times and 

that is why we keep cutting you off because it is becoming redundant. 

34 

So my question is this—I am not asking you about informing us 

about the risks of a debt ceiling. I am asking you specifically about 

the comments within the New York Fed, which is your agent, and 

with— 

Secretary LEW. Congressman— 

Mr. MULVANEY. Let me finish—and it is clear from all the documents we received from them through you that they were integrally involved with this as far back as 2011. And clearly people 

within the New York Fed thought that you were withholding information from Congress about contingency planning. And I want to 

know who told them that and why. 

Secretary LEW. I can’t speak to what other people thought. I can 

tell you that— 

Mr. MULVANEY. If I asked Mr. Powell that, what would he say? 

Secretary LEW. —In 2011 and 2013, there were serious questions 

about whether the pipes could even handle this kind of decision. 

Mr. MULVANEY. We have covered all that. 

Secretary LEW. What we know for sure is, we know you can’t do 

that with all the payments of the Federal Government. 

Mr. MULVANEY. I am giving you the benefit of the doubt, Mr. 

Lew. All I am asking you— 

Secretary LEW. And we can talk about the substance and maybe 

make some progress here. 

Mr. MULVANEY. Who made the decision not to tell Congress and 

who made the decision not to tell the public? 

Secretary LEW. Congressman, I am telling you we decided to 

share with the Congress and the public what we knew, which was 

that if there were no debt limits— 

Mr. MULVANEY. But you never shared with us— 

Secretary LEW. —default would be a terrible thing— 

Mr. MULVANEY. —or the public the contingency planning and 

prioritization. 

Secretary LEW. And the contingency planning may or may not 

work. We don’t know that. 

Chairman HENSARLING. The time of the gentleman— 

Secretary LEW. I can’t sit here today and tell you that there is 

a plan. There is no plan to manage through a default. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, ranking member of our Housing and Insurance Subcommittee. 

Mr. CLEAVER. Mr. Secretary, is there a plan? 

Secretary LEW. As I was just trying to say, Congressman, these 

are questions about, technically, could you choose to pay bond holders, including foreign bond holders, and not pay American citizens 

things that they are due? I acknowledged to this committee that 

there is a technical capability to pay principal and interest, including to all of the foreigners who own U.S. bonds. 

I think we have to pay our bond holders. I think we also have 

to pay our veterans; we also have to pay Medicare; we also have 

to pay for the lights to go on in this room and in veterans’ hospitals 

around the country. 

35 

And I think the notion that there is a workable plan for the Government of the United States to default is the highest form of irresponsibility. And that is what is really the issue here. 

Mr. CLEAVER. Thank you. 

I came here interested in oil more than anything else. There was 

a time when we said we have to produce more oil to reduce our dependence on imported oil from the Middle East because of the 

chaos. 

I am wondering now, today, AAA does this daily, gasoline price 

dealing, and so today the average price around the country is 

$1.99. So I am wondering what is the impact on the world economy, and on us here at home, of the almost unprecedented drop in 

oil prices and also the gasoline at the pump? 

Secretary LEW. Congressman, there is no simple answer, because 

it is different in different countries. As somebody who came of age 

in the policy world in the 1970s and 1980s, the notion that low oil 

prices and low gasoline prices would be bad for the U.S. economy 

is something that I find hard to embrace. 

There is no question but that it is very hard right now with the 

United States as a producer in many parts of the country—in the 

pats of our economy that are focused on oil production, it is very 

hard. 

Overall, for the U.S. economy, lower oil prices actually are like 

a tax cut. It lowers the cost of individuals and businesses to do 

their business. 

Around the world there are variable conditions, depending on 

whether you are a producer or a consumer. Generally there are 

more consumers than producers, so I think low oil prices actually 

are something of a boost to global demand. 

At the same time, it has caused a lot of uncertainty, and in terms 

of the economies of countries that are oil producers it has created 

volatility in the markets. It is not without its costs. There will be 

firms that fail. That has consequences. 

I think that the challenge we have is to use this moment of low 

energy prices to redouble our commitment and develop alternatives 

so that we continue over time to see a sustained world of moderated energy costs even when things change and there are external factors that are driving prices up. 

I think that the reason for the price being down now has been 

viewed in different ways by different analysts. Some view it as 

being a shortage of demand, a weak global economy. Some view it 

as being an excess of supply; there are more producers in the world 

and there is more energy—more oil on the market. 

The reality is it is a little bit of both. And we need a stronger 

global economy. And when the global economy is stronger, we are 

going to need more energy. 

So I think we have to look beyond the moment to the future, 

which is why all of the energy work that we do with the all-of-theabove strategy remains very important. 

Mr. CLEAVER. I am not sure whether or not this Congress will 

do a major infrastructure program during my lifetime. Tragic, from 

my vantage point. 

But when the price of oil drops and then the drop in the price 

at the pump, it impacts the revenues that we have historically used 

36 

for highway transportation bills. At a time when our infrastructures is hemorrhaging all over the country, the money that is being 

made available both on the State tax as well as the Federal tax on 

oil is so low. That is the one negative that I— 

Secretary LEW. Yes. No, obviously it has reduced the revenues 

into the Highway Trust Fund. 

I firmly believe we should find other ways of expanding the investment we make in infrastructure. We proposed using tax reform—business tax reform—as a way to bring one-time money in 

for the next several years to get the kind of increase and infrastructure investment that we need for our economy. I wish that 

was something we could make progress on even this year. 

Mr. GARRETT [presiding]. The gentleman’s time has expired. 

Mr. Messer is recognized for 5 minutes. 

Mr. MESSER. Thank you, Mr. Chairman. 

And thank you, Secretary Lew. I want to start with something 

I think ought not be that controversial, and it is around the extraordinary measures that are taken to try to lengthen the amount 

of time before we breach the debt. 

As you know, there was $350 billion I believe you guys were able 

to shift around in your Department from varying accounts. That is 

incredible power, shifting billions from retirement accounts, government workers’ pensions, and the like. 

But it is remarkable how little transparency is required in those 

extraordinary measures. And so we offered an amendment that 

passed unanimously actually on the Floor, but I just would like 

your opinion of it, that would just require the Department of the 

Treasury to articulate publicly what extraordinary measures you 

intend to use, what, if any, costs there would be to those measures, 

and how long to put an estimate out before it would extend our effort before we breached it— 

Secretary LEW. Congressman, I am not familiar with the amendment. I am happy to look at it. 

We do have, both in my time and previously, always communicated with Congress and informed Congress as we have used extraordinary measures. So there has been transparency. I don’t 

think— 

Mr. MESSER. After the fact, you have reported transparency, but 

no one in the public knows what accounts you are moving around. 

Secretary LEW. At the time. It is contemporaneous, actually. 

Mr. MESSER. And you haven’t given us a date certain of when 

that extension would be or some— 

Secretary LEW. You don’t always know precisely because it depends on the day-to-day cash flow. That is why operating the government—something as large as the government— 

Mr. MESSER. Okay, so at a minimum—again, not trying to be 

controversial here—it is not required by law that you do it? 

Secretary LEW. I would have to check. We do it. Whether it is 

required or not, I would have to check. 

Mr. MESSER. Okay. We will pursue that with your staff— 

Secretary LEW. And I am not trying to be argumentative either. 

Obviously, it is not a good thing. 

I don’t like having to deploy extraordinary measures. It creates 

anxiety in the U.S. and global economy for no good purpose. And 

37 

we have so many risks out there that we don’t control, not having 

anxiety about the Federal Government being able to pay its bills 

is something we do control. 

Mr. MESSER. Sure. Of course, I don’t think any of us like the extraordinary measures. It just seems to me if we are going to do 

them, the public ought to know what we are doing, when we are 

doing it, how much it is going to cost, and how long it is going to 

extend it. 

So we will work with your staff. Hopefully, we can reach agreement there. I think it is the sort of commonsense measure that we 

should put forward. 

I would like to return now, to this question of having the technical capacity to prioritize debt and how far your staff has pursued 

it. You, I think, have said before the committee—and I’m not trying 

to put words in your mouth, but that you have articulated for at 

least a year that you have the technical capacity to— 

Secretary LEW. Yes. I don’t remember the exact date. I remember 

that I testified to this committee last year and I said it. I don’t remember the date. 

Mr. MESSER. Okay, so you have said that for a while. 

Secretary LEW. Yes. But I have also said that the technical capacity doesn’t actually give me the comfort that we know it works. 

It is a complicated process. 

Mr. MESSER. —said here it is irresponsible to breach the debt, 

and so you don’t think we ever should. I would just suggest that 

it is irresponsible to not explore a plan for what you can do under 

your technical capacity. 

So I guess I am just asking you this: Have you instructed your 

staff? Are you working through it? 

You said you don’t know what it looks like in the real world. Has 

your team looked at what it might look like in the real world? 

Secretary LEW. Yes, they have looked at the work that has been 

done in these tabletop exercises, but you would have to go into a 

nonpayment regime to actually test it, and I don’t think any of us 

want to do that. So there is kind of a tabletop sense that you could 

pay principal and interest through the system that pays principal 

and interest. But we have never tried to cut it off and do it that 

way, and— 

Mr. MESSER. Are you suggesting— 

Secretary LEW. —what I have also said is we don’t have that 

ability over the whole Federal payment system to do that. 

Mr. MESSER. Yes, and just again, are you suggesting that the 

only way to really know is we would have to do it? 

Secretary LEW. Ultimately, you would end up only learning if you 

cross that threshold and if the President made the decision to pay 

those bills and not others. 

Mr. MESSER. Have you put together reports of what this would 

look? Is there an analysis that could be shown to Congress of what 

your team— 

Secretary LEW. I don’t recall what the nature of the—form of the 

analysis was. I have mostly had conversations. 

Mr. MESSER. It seems to me that unless we agree that the debt 

limit should just go away, we are going to continue to have one. 

It is still a possibility that that debt limit be breached, and, as you 

38 

said, if you have the technical capacity at Treasury to do something 

about it, we ought to do more than just have a tabletop discussion. 

We ought to have an analysis of what that would look like provided 

by you so both the President and Congress can see what that would 

look like. 

Secretary LEW. Right. But to be clear, the people who were corresponding on those e-mails that you showed don’t have the ability 

to make the decision. Only the President can make that decision. 

Mr. MESSER. No, of course. But it sounds like now we don’t have 

the information to make a decision. 

Secretary LEW. We didn’t in 2011, that is for sure. If you ask me 

now if there is the technical capacity, I would say yes, there is the 

technical capacity through a tabletop exercise. It might work; it 

might not work. 

Mr. MESSER. Let me ask you a different way. Are you in the 

habit of making big decisions at Treasury on tabletop analysis? 

Secretary LEW. Most decisions we make are not the kinds of 

avoidable decisions to create a crisis that this one would be. This 

one would be a self-inflicted wound. There is no reason to ever test 

it. 

Mr. MESSER. Thank you. I yield back Mr. Chairman. 

Mr. HUIZENGA [presiding]. The gentleman yields back. 

The Chair recognizes the gentleman from Massachusetts, Mr. 

Capuano, for 5 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary. Mr. Secretary, I had no intention 

of coming over this morning. I know you are a big boy, and you can 

take care of yourself. 

Unfortunately, I made a huge mistake. I actually turned the TV 

on. 

I was watching the hearing. And honestly, I was a little bit embarrassed, and a little bit angry, and I thought I would come over 

here and just do two things. 

Number one is I know that one of the first things I heard was 

a big concern about the deficit and the debt, and it is a legitimate 

concern. But apparently you are personally responsible for all of it, 

and I just—first of all, I am pretty impressed by that power and 

that incredible presence. 

But nobody mentioned anything about the Bush tax cuts that 

were totally unnecessary; nobody mentioned two wars that were— 

one of which was totally unnecessary, and all the money we spent 

in Iraq without paying for it. No one mentioned those items. No 

one mentioned the recession. No one mentioned the vote that this 

House—two votes this House took late last year that increased the 

deficit by almost $2 trillion, one of which votes on the tax extenders 100 percent of my colleagues on the other side of the aisle voted 

for that. One hundred percent of them. Sixty-four percent of them 

on the other side of the aisle voted for the omnibus. 

No people are saying, ‘‘I share the blame of this terrible, terrible 

thing.’’ 

So that kind of—I don’t mind—I don’t like the deficit; I don’t like 

debt like anybody else. At the same time, I think those of us who 

participated in that should stand up and own what we should own, 

39 

as opposed to trying to put all of the blame on one individual. That 

is number one. 

Number two, to be perfectly honest, I have had differences with 

you and we have discussed them. I still have some differences and 

that is fine. But those are reasonable, thoughtful differences. I 

hope that you see them the same way. We can disagree and still 

be respectful. I still like and respect your professionalism. 

And honestly, my questions have been answered, and I just 

wanted to take the last 3 minutes of my time to offer you an opportunity to do one of two things. Either you can address any of the 

items that you were not given the opportunity to address by anybody on this board, or you can take 3 minutes and take a deep 

breath, put your feet up, take a relax, and—I am not trying to get 

you out of the zone, but at the same time no one else is giving you 

the opportunity to answer questions, and I thought if you want to 

take the opportunity, fine. If you don’t, I am perfectly fine to sit 

here and read my Blackberry for the next 21⁄2 minutes. 

Secretary LEW. Thank you, Congressman. 

Look, I think if you look at the fiscal path that we have been on 

as a country for the last 2 decades, I have spent as much of my 

time as anyone else trying to reach a responsible fiscal policy. In 

the 1990s, when I was Director of OMB, we had a surplus because 

we worked on a bipartisan basis to reach a balanced budget agreement and then save the surplus and not spend it. 

You have described what happened in the years after my tenure 

and it created a big, big problem. We spent that surplus and then 

we had a recession that put us into a deficit, and then we had to 

spend to get out of the recession. 

And we are now in a place where we are doing a lot better. The 

economy is growing. 

But we are not at a place where I would say kind of grinding the 

economy down by trying to reach a balance prematurely would be 

a good thing to do. I think that the conversation we have had about 

infrastructure in some of the back-and-forth this morning illustrates that there are pressing needs in this country to get our economy and the people of this country where they need to be. 

So I would hope that we could have the kind of bipartisan discussion about tax and spending policies that over the next 20, 30 years 

gets us where we need to be. But over 10 years, we have gone from 

skyrocketing deficits and debt that was crossing through 100 percent of GDP to a stable situation where we have reduced the deficit 

from 10 to 2.5 percent of GDP and we have stabilized the debt. 

For somebody whose last testimony in the Clinton Administration was projecting paying off the national debt, I wish that a lot 

of the things that happened afterwards that squandered the deficit 

hadn’t happened. But we don’t get to go back and change that. 

And it would be a terrible thing for this country if we accepted 

the myth that somehow these last few years have been anything 

but an improvement—a dramatic improvement—in our fiscal position. 

Mr. CAPUANO. —the last 45 seconds— 

Secretary LEW. I could fill 40 seconds, but I think I will stop. 

Mr. CAPUANO. Mr. Chairman, I am not yielding back just yet. I 

am contemplating what I am going to do with my last 26 seconds. 

40 

And now we are done. Thank you— 

Chairman HENSARLING. The time of the gentlemen has expired. 

The Chair now recognizes the gentlemen from Arizona, Mr. 

Schweikert. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

And to my friend from Massachusetts, I was waiting for the offer 

of manis and pedis, with the excess time, but you know, hey. 

Secretary Lew, I would like to actually go in a slightly different 

direction. I know rhetorically, our side focuses on what I believe is 

the crushing debt that is coming, and the other side on, ‘‘Hey, look 

at how much better our world is.’’ But could we spend a couple of 

minutes just sort of looking at the headwinds that come to the next 

Administration? Some of it is demographic. 

I am holding a report right now, ‘‘The Coming Pension Crisis,’’ 

talking about government pensions, both State and municipal here 

in the United States and around the world. It is saying municipal 

pensions, the unfunded liabilities is now over 100 percent of GDP. 

I am looking at an environment right now where GDP now, from 

the Atlanta Fed a couple of days ago, we are back under 2 percent 

GDP; 14 years left in the Social Security Trust Fund; 9 years left 

in the Medicare Trust Fund; 56 months left in Social Security disability. 

There are some really ugly things happening. And you and I 

know much of that we desperately need economic growth to cover 

these sins. 

How much in your team do you actually focus on, here is the 

debt management, here is the reality of what is happening, both 

because of lack of economic growth, demographics, and other 

things? How much actuarial math is happening at the Treasury 

Department saying, ‘‘This is our future?’’ 

Even our previous conversations about, should we be selling 

long-term bonds, truly long-term bonds to get beyond the demographic bubble. What are you modeling? 

Secretary LEW. What am I what? 

Mr. SCHWEIKERT. Modeling in your team. How much are you 

looking at this incredible wave of debt that is going to crush us? 

Secretary LEW. Congressman, we have known for the last 50 

years that the Baby Boomers would retire roughly now and— 

Mr. SCHWEIKERT. Well, Congress seemed to just discover it a couple of years ago. 

Secretary LEW. Congress actually dealt with it in 1983 in Social 

Security reforms that have been very effective because they reflected the way you work on a bipartisan basis to deal with what 

goes into the trust fund, and what comes out of the trust fund. 

So— 

Mr. SCHWEIKERT. But right now Social Security is at a 2.7 percent GDP that we are not even hitting, and the Social Security 

Trust Fund is gone in 14 years. 

Secretary LEW. So, the thing that I think it is important to remember is that the ongoing revenues in Social Security still continue to fund the bulk of the benefits—over 65 percent of the benefits. 

Mr. SCHWEIKERT. Nope. Actually, I think under the CBO study 

were 2018 Social Security goes negative, that the tax revenue and 

41 

I think interest revenue will no longer—and we pay ourselves, 

what— 

Secretary LEW. The point I am making isn’t that at some point 

the revenue goes negative, but that the revenue keeps coming in 

and will continue to pay for the bulk of Social Security’s ongoing 

expenses. And the gap is what is the issue for the long-term financing. 

Mr. SCHWEIKERT. But that gap—think about that gap. Today, the trust fund has what, $2.8 trillion? And we have burned through 

that principal in 14 years. 

At the same time we are paying ourselves 3.1 percent interest 

and the tax revenue. And Social Security is actually the easy one 

to fix compared to Medicare. 

Secretary LEW. Yes. 

Mr. SCHWEIKERT. But also, when I look at the public and private 

pension issues out there, I am just wondering, the scale of these 

things, is it just pushed off to the next presidency? 

Secretary LEW. Having spent 1983 working to fix Social Security, 

I had hoped that 5, 6 years ago we would have been able to have 

the kind of conversation about that kind of a bipartisan approach. 

It didn’t happen. 

I think that we are in better shape because our fiscal position is 

improved. There is still more work to do. 

Mr. SCHWEIKERT. No, I need to correct that. And I know that is 

our script here, but that is not true. 

Our modeling just a couple of years ago, we weren’t expecting 

this level of anemic GDP growth. Remember the model just a couple of years ago? We were going to be at 4, 4.3 percent. Now today 

I am being told that this quarter we are at 1.9 percent. 

Let’s collectively have an honest discussion here. This is really 

bad. 

Secretary LEW. There is no question stronger GDP growth, 

stronger economic growth will help us deal with an awful lot of 

challenges, including funding Social Security and private pensions. 

I think that if you look where we were 7 years ago, and where we 

are now, we are in a stronger position to ask that question. 

Mr. SCHWEIKERT. We may be stronger than 7 years ago, but this 

is still crashing down upon us— 

Secretary LEW. That is where I guess I disagree a little bit. I 

don’t think it is crashing down upon us. I think we have time to 

deal it. 

Mr. SCHWEIKERT. Okay, so if I tell you 14 years on Social Security, 9 years on Medicare, 56 months on Social Security disability, 

and we should just pretend things are fine? 

Secretary LEW. No. I think that these issues need to be addressed. I am not disagreeing. But I don’t think it is a crisis for 

today. What would have— 

Mr. SCHWEIKERT. I need to yield back. I will beg of you, send me 

the information from your team on what you are actually doing to 

deal with this. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Lynch. 

42 

Mr. LYNCH. Thank you, Mr. Chairman. 

And thank you to the ranking member, as well. 

Welcome, Mr. Secretary. It’s good to see you again. 

Mr. Secretary, the chairman and the ranking member some time 

ago created a Task Force on Terrorism Financing here in this committee, and together with myself and Mr. Fitzpatrick and Mr. 

Pittenger, we have been working basically in the Middle East, 

North Africa, and my colleagues are leaving for Central America in 

the not-too-distant future. 

And the examples where we have had the greatest success in 

North Africa and the Middle East have been the result of coordination with your office, with FinCEN, the Financial Crimes Enforcement Network, and then also in several countries we have worked 

with Treasury attaches who are part of the U.S. embassies in those 

countries. 

And it goes from Afghanistan, to Jordan, to Egypt, Tunisia, Morocco. All of those countries, the level of cooperation we have from 

them, which has been considerable, has been the result of your 

work and the work of people like Joe Parker. I think he may be 

retired now, but he was very, very instrumental in setting up some 

of these financial intelligence units within these countries to push 

back on money laundering and also terrorist financing. 

The problem that we see is that it is spotty. Even in Joe Parker’s 

example, he handled—he had a big portfolio. He had a big region 

where he would hop from country to country to help us convince 

the host country to adopt anti-money laundering statutes, just 

basic stuff: know your customer, helping the local banks prevent 

terrorist groups from using the legitimate financial system to 

spread terror. 

And it is ironic today, we have ISIL taking credit for the attacks 

in Brussels, and obviously all our prayers and thoughts are with 

the people of Brussels this afternoon. 

But is there a way to amplify what Treasury is doing, and is 

there a way to—I am not saying you need to have 192 Treasury 

attaches in every country around the globe, but certainly there are 

problem areas where we could use some more help. And Treasury’s 

people, the Office of Foreign Asset Control (OFAC), your technical 

people, the Office of Technical Assistance (OTA), and FinCEN— 

they have been great on this stuff. 

And they can educate not only the foreign central banks but also 

they do a great job in informing our embassies at large, in terms 

of what role they could be playing to shut off the financial system 

to these terrorist groups. 

Secretary LEW. Congressman, I couldn’t be more proud of the 

work that our offices, from OFAC to the Treasury attaches to our 

Office of Technical Assistance, do. They really are the leaders in 

the world on this, and what they need more than anything else is 

well-equipped partners around the world. 

Mr. LYNCH. Yes. 

Secretary LEW. I think that the financial attaches are our eyes 

and ears around the world. And we could use more of them, but 

what we really need to do is get people in country to provide the 

technical assistance. And that is more of an OTA function than it 

is a Treasury attache function. 

43 

The leading providers of technical assistance around the world 

for—to build these capabilities are ourselves, through OTA, the 

IMF, and FATF. We worked closely with all three—well, obviously, 

we are one of the three. We work closely with the other two. 

We met in December in the U.N. and had FATF at the meeting. 

I chaired a meeting at the Security Council, the first time finance 

ministers in the history of the U.N. met in the Security Council, 

and we had a unanimous resolution to designate ISIL for the same 

treatment that Al Qaeda is given, which means that even intermediaries are subject to sanction. 

And part of that message was for FATF standards to be put in 

place and for the world to come together to provide technical support to build in the kinds of capabilities that you describe. 

We have a lot of work to do. Even our most advanced partners 

are not where we are. Their intelligence apparatus is not as welldeveloped. Frankly, they don’t have a comfort level with some of 

the surveillance that is making it impossible for them to see some 

of the things that are going on. 

We have information that we provide to countries like France 

and Belgium to help them monitor and track and, after a terrible, 

horrific accident like today, respond. Our people are already engaged in that and we will work around the world to build these capabilities. 

Mr. LYNCH. If OTA would need more resources, we would expect 

to— 

Secretary LEW. We proposed a doubling of OTA over the next— 

Mr. LYNCH. Okay. 

Secretary LEW. —several years. I think it is critically important. 

Mr. LYNCH. Okay. Great. Thank— 

Secretary LEW. We get more bang for the buck out of OTA than 

anything else. 

Mr. LYNCH. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, chairman of the House Foreign Affairs Committee. 

Mr. ROYCE. Thank you very much, Mr. Chairman. 

Secretary Lew, I just wanted to talk trade. 

When there is a level global playing field, American workers and 

the American economy win. On TPP, I know you share the concern, 

as you have said, that data localization provisions are a trade barrier, pure and simple, as you explained. 

And as you know, TPP allows companies to transfer data across 

borders and to be protected from server localization directives. 

However, electronic payments and the financial services sector are 

excluded from the data localization part of the agreement. 

And you have talked about the possibility of having some kind 

of side agreement to thread the needle, as you explained on this 

issue. Where are we in discussions now with our TPP partners? Do 

you think a side deal is possible this year on this? 

Secretary LEW. Congressman, what I have said is that data localization in general is a barrier of free trade and we have opposed 

it vigorously in things like electronic payment systems, where it is 

no more than an excuse to put a server farm in your country and 

44 

create jobs or to make it more expensive for international competition. 

In the area of financial services, there are two competing important goods. One is to prevent the kind of nontariff barrier from 

being put in effect. The other is to make sure prudential regulators 

have access to what they need when they need it. 

And the reason this is so hard is that there are legitimate concerns prudential regulators have. What I have been doing is working with our prudential regulators to try and have them work 

through an understanding where—how going forward we might be 

able to address this. 

Mr. ROYCE. I appreciate the stated priority— 

Secretary LEW. But in terms of TPP, I have tried to be very careful that there is very limited room to change TPP. So I don’t want 

to raise that— 

Mr. ROYCE. But in terms of a side agreement, which you did 

raise that issue— 

Secretary LEW. Yes. 

Mr. ROYCE. —we need to see demonstrable progress on this 

issue. I stand ready to help on this, and I know many of my colleagues do as well. So I think it is a prerequisite to get this issue 

solved in a creditable way. 

And let me go to my last question here. 

In July, you testified to the Senate that Iranian banks will not 

be able to clear U.S. dollars through New York, or hold correspondent account relationships with U.S. financial institutions, 

or enter into financing agreements with U.S. banks. Iran, in other 

words, will continue to be denied access to the world’s largest financial and commercial market. 

And I have received reports from the Administration that it is 

now considering providing Iran with access to the U.S. financial 

systems. So are these reports which contradict your previous testimony correct, and is the Administration planning to ease restrictions on Iran’s access to U.S. banks? 

Specifically, are you considering permitting Iranian banks to 

clear transactions in dollars with U.S. banks or foreign financial institutions, including offshore clearinghouses? The reason I raise it 

is because Iran remains the foremost state sponsor of terrorism in 

U.S. judgment, a country of particular concern for its abuses of religious freedom, of—as a primary money laundering concern, as we 

say about Iran. 

This is clearly an explicate recognition that any financial transaction with Iran in U.S. dollars risks supporting the regime’s illicit 

activities. And the international community agrees. Iran remains 

on the black list of the Financial Action Task Force on money laundering. So that is why I raise this issue. 

Secretary LEW. Congressman, we have reached an agreement 

with Iran that has caused Iran to roll back its nuclear program, 

which has done an enormous amount to increase the security of the 

United States. Part of the agreement was for Iran to have nuclear 

sanctions lifted. 

We made clear that we would lift the nuclear sanctions but keep 

in place sanctions on terrorism, sanctions on human rights violaVerDate Nov 24 2008 18:47 Aug 17, 2017 Jkt 023888 PO 00000 Frm 00048 Fmt 6633 Sfmt 6633 K:\DOCS\23888.TXT TERI
45 

tions, sanctions on regional destabilization. We will continue to do 

that. 

Mr. ROYCE. Yes, because our argument was that they need to 

stop building ballistic missiles. But they just tested four of them. 

Secretary LEW. We have continued to make clear— 

Mr. ROYCE. Yes. 

Secretary LEW. —that we do not consider missiles testing permitted. 

Mr. ROYCE. So we are not going to give them access to— 

Secretary LEW. So the— 

Mr. ROYCE. —the U.S. dollar or U.S. financial systems? 

Secretary LEW. We are continuing to look at how we comply with 

the Joint Comprehensive Plan of Action to make sure that Iran 

gets relief under the nuclear portions while we keep pressure on 

Iran on these other issues. 

Mr. ROYCE. Yes, but remember the basic commitment that was 

given to us in Congress: The Iranian banks will not be able to clear 

U.S. dollars through New York. 

That is the commitment, and they are still in violation of ballistic 

missiles, on support for terrorism, and abusing its people. Thank 

you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlemen from California, Mr. 

Sherman. 

Mr. SHERMAN. Thank you, Mr. Secretary. 

Often when you come here, I ask about contentious issues, ask 

you to break up the big banks. And I have said something about 

TPP that wasn’t entirely favorable. 

This hearing has been contentious and so I am going to devote 

my 5 minutes to things that—it won’t be quite Mr. Capuano, where 

we just give you 30 seconds of silence to rest, but these will be the 

least contentious issues you deal with today because they basically 

involve working with me on a few issues that will never be on the 

front page of a newspaper. 

We have tax treaties with hundreds of countries around the 

world, or at least—hundreds is not the right—scores of countries 

around the world. We devote a substantial amount of money to trying to achieve our international development goals. And so we can 

always provide foreign aid to Armenia, and that costs us money. 

But we could also achieve those goals by having a tax treaty. 

Now, we are currently negotiating a treaty dealing with tax enforcement, but the gold standard of tax treaties is your basic tax 

treaty on double taxation. The Armenian embassy tells me that 

they are willing to start with our basic framework and negotiate 

a tax treaty. They have negotiated a tax treaty with Canada, so Ottawa was able to do it. 

Do you see your Department working toward a tax treaty with 

Armenia? 

Secretary LEW. Congressman, the primary purpose for a bilateral 

tax treaty is to avoid double taxation. We are not aware of a double 

taxation problem in Armenia. 

Mr. SHERMAN. I would retreat just to—we have a chicken and 

egg circumstance. You don’t get the business investment because 

46 

you don’t have the tax treaty. Then you don’t need the tax treaty 

because you don’t have the business investment. 

Given that this Congress has provided well over a billion dollars 

of aid to Armenia, it would seem that having one member of your 

staff work on this for a while to achieve the same objectives— 

Secretary LEW. I appreciate that. And obviously, to negotiate a 

tax treaty is quite labor intensive; to look at the things is less so. 

We have been looking at comments that come in. I would be happy 

to follow up. 

Mr. SHERMAN. Okay. 

The next issue relates to the Porter Ranch gas leak, the biggest 

gas leak in history: 5,000 of my constituents have left their homes. 

And this is not something I told your staff I would be asking you 

about, but Section 139—what we have is people living in hotels at 

the expense of the gas company and now they are told, ‘‘You may 

be taxed on the money being paid for that hotel. But you can’t live 

in your home because of the gas leak.’’ 

Now, the good news is Congress passed Section 139(c)(3), which 

says that you can avoid this travesty because gross income doesn’t 

include payments for living off-site if it results from any other 

event which is determined by the Secretary to be catastrophic in 

nature. And I wonder if you can work with me toward making a 

fair determination that the largest gas leak in history, which displaced 5,000 families for months, meets this standard. 

Secretary LEW. Congressman, thank you for bringing this to our 

attention. I wasn’t aware of it until then. 

Our staff has been talking to your staff and has reached out to 

the relevant parties. They haven’t completed the analysis yet, but 

we understand the timeliness of this given that it is tax season, so 

we will continue to work on it. 

Mr. SHERMAN. I look forward to working with you, but I would 

hope that you would direct your staff to lean in the direction of 

fairness. I am a former tax lawyer myself. I know that a very 

strong argument can be made on this. 

And we have a similar issue, and that—not one that is quite as 

pressing, but we have a drought in southern California. This is the 

most environmental Administration in history. And people are 

being told that if they accept a payment—not even a payment—if 

the local water utility pays for the cost or part of the cost of ripping 

out their lawn and replacing it with cactus or replacing it with 

rocks or something else that uses less water, that they could be 

having to pay an income tax on what they are doing to help the 

community. 

And I hope that you could direct your staff, again, not to change 

the law, but to lean in an environmental direction. 

Secretary LEW. That I was not aware of, but we will follow up 

on it. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Hampshire, 

Mr. Guinta. 

Mr. GUINTA. Thank you, Mr. Chairman. 

And thank you, Secretary Lew, for being here. 

Very quickly, I want to follow up on what the gentleman from 

California was talking about relative to TPP. You said last week 

47 

in a subcommittee—F.S. Appropriations Subcommittee—quote— 

‘‘Because we have a principal position that data localization in general is bad, we are working to see if there is a way to thread the 

needle.’’ 

I understand I can’t necessarily reopen— 

Secretary LEW. The other half of that was there are real prudential concerns and we have to balance those. 

Mr. GUINTA. So, can you very quickly tell me what a side agreement may look like and would this be— 

Secretary LEW. I can’t tell you right now. If I knew where this 

was headed, I would be happy to say so. 

I think that the challenge we have is that the prudential regulators, our prudential regulators, feel that they need to be certain 

that they can get access to what they need when they need it. And 

unfortunately, during the financial crisis there was an incident 

where with a major institution they were denied access in a timely 

way and it interfered with both crisis management and resolution. 

So the question is, how to make sure they get what they need 

while— 

Mr. GUINTA. I understand that. I appreciate that. Relative to 

TTIP, obviously, U.S. financial institutions as well as European allies have asked for this particular area. I understand you are including or are working on TTIP, is that correct? 

Secretary LEW. We continue to work on TTIP and we think it is 

important that financial markets be opened up in the course of the 

TTIP negotiation. 

Mr. GUINTA. Okay. Moving on to a different subject, in your role 

as Chair of FSOC, I am sure that you know market participants 

spent a lot of significant time in proprietary investment strategies 

and that differences exist from the 2012 report of the Council of Inspectors General on Financial Oversight. 

Can you tell me how FSOC is addressing the differences that 

exist on a FSOC-wide basis to ensure Federal agency members are 

properly safeguarding information? 

Secretary LEW. I think each of the regulators has an obligation 

to protect the information that is within their area. One of the 

challenges that we have is that to do the systemic review that 

FSOC is charged with requires sharing information in an appropriate way. 

What we do is we limit the—and anonymize data and we make 

it so that each of the parties can be certain that they are complying 

with the responsibility that they have to protect— 

Mr. GUINTA. To that end, would you provide our committee with 

a brief policy and procedures, outline that, what FSOC regulators 

are doing? 

Secretary LEW. I am happy to follow up afterwards and find out 

exactly what you are looking for and see if we can be responsive. 

Mr. GUINTA. But can you commit to something in writing to show 

us what the policies and procedures are for regulators? 

Secretary LEW. I am not sure that I am the right one to address 

each of the regulators. The FSOC— 

Mr. GUINTA. As Chair of FSOC— 

Secretary LEW. Well, let me follow up with you. 

Mr. GUINTA. Okay. 

48 

Secretary LEW. And obviously, each regulator speaks to its own 

statutory requirement. 

Mr. GUINTA. Sure. I appreciate your willingness to follow up. 

That brings up—if we could put up a slide—another concern that 

I want to echo that some of my colleagues have brought up already, 

and that is document production. 

I have a slide here that shows the Financial Services Committee 

requested information from Treasury on CFPB’s plan to renovate 

their leased office building. Obviously, 4 different letters, 288 days 

have passed since we have heard from this matter, going back to 

June 9th of 2015. 

Second example, Thursday, September 17th, 2015, about 6 

months ago almost to the day, Under Secretary Nathan Sheets 

came to testify during the Monetary Policy and Trade Subcommittee hearing. I personally submitted questions for the record. 

That was 6 months ago. I still have not received a response. 

I have those items here. Can I ask when I can expect to get a 

response and why the delay? 

Secretary LEW. Congressman, I am happy to take that back. 

There was a June 9th letter, I understand, requesting information. 

An August 25th response where Treasury informed the committee 

that a report by the Inspector General for the Federal Reserve 

Board found the work authorization related to the renovation was 

finalized after a CFPB Director was appointed, at which point— 

Mr. GUINTA. I’m not sure that they actually addressed the specific issues in the four letters. That being said, the September 17th 

request that I have issued 6 months ago still has not—can you follow up on that— 

Secretary LEW. I am happy to follow up on that. 

Mr. GUINTA. And finally, in my last few seconds I want to move 

to economy. You are aware that the President’s budget includes a 

deficit of almost $800 billion at the 10-year end of the budget window? 

Secretary LEW. I am familiar with the President’s budget, yes. 

Mr. GUINTA. Okay. And are you aware that the gross Federal debt under the President’s budget increases almost $8 trillion, from 

$19.4 trillion to $27.4 trillion in 2026? 

Secretary LEW. Yes. But I am also aware that GDP grows, and 

as a percentage of GDP, we have stabilized the deficit and the— 

Mr. GUINTA. All right. Well, let’s get the GDP. My understanding 

is the President’s budget projects annual real GDP growth never 

exceeds 2.6 percent. Is that correct? 

Secretary LEW. I don’t remember the exact decimal number, but 

it is the right range. 

Mr. GUINTA. Thank you. 

I have run out of time, so I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. Foster. 

Mr. FOSTER. Thank you, Mr. Chairman, and Mr. Secretary. 

I would like to return, if I may, to the actual subject of this hearing. The capital outflows in China are now in excess of a trillion 

dollars a year. The Institute of International Finance estimated 

outflows in January alone of about $113 billion. 

49 

Now, when you have a trillion dollars in capital flight in a $10 

trillion economy, it seems to me that this effect alone is more than 

enough explanation for the slowdown in economic growth in China. 

Would you agree that it is a major contributor? 

Secretary LEW. I am not sure how much to attribute the capital 

flight to the slower growth or the slower growth to the capital 

flight. I think that there has been capital moving out of China. 

Some of it has been to repay foreign debt; some of it is money 

leaving the country. It is a little bit hard to know exactly where 

the line is and there are stronger views than there are data on the 

subject in a lot of the analysis that I have read. 

Look, I think China has a serious economic challenge ahead of 

it. It has to go through this enormous transition from an industrial 

economy, an export-driven economy, to a consumer-driven, more 

market-oriented economy. 

The faster they establish confidence that that transition is underway and that they will stick to it, I think the faster they will see 

progress on stemming some of the capital flight. 

Mr. FOSTER. Okay. The other structural problem I think they 

have to have is that basically the pileup of wealth at the very top, 

which is a universal problem, actually, in developed economies. 

And in large part, I believe this $1 trillion of capital flight consists 

of wealthy Chinese pulling their money out of China, often to 

spend that money in economically unproductive assets like empty 

apartments in Manhattan or Vancouver or you name it. 

And so it seems like when the wealthy in China break their social compact to reinvest productively in their own country and instead invest in less productive assets offshore that it lowers not 

only Chinese economic growth but economic growth throughout the 

world when productive assets, making new factories, et cetera, are 

replaced by investments of the rich. 

And that is more—and actually, if we look in the mirror, this is 

sort of a universal behavior of the wealthy elites throughout the 

world, that they tend to invest conservatively and that means low 

return on investment. And I was wondering if you—don’t you agree 

that this behavior—the universal behavior of wealthy people to: (A) 

move their money offshore; and (B) invest in less productive assets, 

is a major contributor to the economic slowdown in the world? 

Secretary LEW. Congressman, there is no question but that both 

wealthy individuals and firms have a lot of cash and there could 

be a lot more investment. And I think the question is why is there 

not more investment being done? 

I think a lot of it gets to a sense of concern that global growth 

is weak and demand is weak and that— 

Mr. FOSTER. But the demand is weak because of the— 

Secretary LEW. It is circular— 

Mr. FOSTER. —pileup of the wealth distribution. 

Secretary LEW. Yes. And we— 

Mr. FOSTER. There is no shortage of consumers who would buy 

stuff in China if they had the money to do so. 

Secretary LEW. Yes. Look, I think in China there is no question 

but that the right policy is to give the consumer in China more resources. One of the things the consumer in China is going to need 

50 

is confidence that there is a safety net. They don’t have the kind 

of social safety net we have. 

Savings in China are extraordinarily high because, through a 

combination of the one-child rule and no safety net, people feel the 

only way they can take care of their future is by savings. Now unfortunately, the people who do more risky investment are some of 

those small savers. So when China has a volatile stock market, oftentimes it is small investors who are highly leveraged, which is 

a very dangerous thing. 

They have a lot of things that they need to fix. 

I think that the question of the kind of course direction of the 

economy comes first. They have to make the transition to a more 

consumer-driven, more market-oriented economy. 

That means the consumer is going to be central. They need to 

build a better safety net so the consumer feels free to spend. 

And they do have wealth and income distribution issues and corruption issues that they need to attend to. I would say that we 

have some income distribution issues that we need to attend to as 

well. 

Mr. FOSTER. That is right. And when you say strengthen the 

safety net, you are talking about effectively taxing the wealthy 

elites in China to provide— 

Secretary LEW. Whether it is taxing the elites or it is— 

Mr. FOSTER. Effectively— 

Secretary LEW. —corporations, entities pay dividends to support 

them. There is a variety of ways. China’s tax system is a complicated one. I am not as expert in the details— 

Mr. FOSTER. Not like ours. 

Secretary LEW. —of it as ours. 

Mr. FOSTER. Right. Okay. I guess that was the main thrust of my 

question. I think this is a major effect that is underappreciated is 

that the crosstalk between wealth distribution and offshore capital 

blows I think has become a major—a macroeconomic factor that 

has to be factored in. 

Thank you. My time is up. 

Secretary LEW. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce. 

Mr. PEARCE. How you doing, Mr. Secretary? Hi. Good to see 

you— 

Secretary LEW. We are going all back and forth. 

Mr. PEARCE. Yes, okay. 

So the President is in Cuba this week, the first President in 90 

years to visit. Have you been involved in the discussions about normalizing relations and trade with Cuba? 

Secretary LEW. Yes. 

Mr. PEARCE. So the President stated in December that he would 

like to go to Cuba when there is progress in the liberty and freedom and the possibility of ordinary Cubans. What progress did we 

make since December that now has changed the President so he 

should go? 

Secretary LEW. Congressman, the purpose of the President’s— 

51 

Mr. PEARCE. No, I didn’t ask the purpose. He made the comment, 

sir, and you are in the discussions, and I just would like to know 

what progress Cuba has made since December in freedom, liberty, 

and the possibilities for ordinary Cubans? 

Secretary LEW. The purpose of the changes that we have made 

is to open— 

Mr. PEARCE. Okay. That is not my question. I apologize. I don’t 

mean— 

Secretary LEW. Well, I do— 

Mr. PEARCE. I have 5 minutes. I— 

Secretary LEW. I do have an answer to your question if I can get 

beyond the first few words. I am happy to answer at your pleasure. 

Mr. PEARCE. I am waiting. I am like Mr. Capuano. I am waiting, 

breathlessly quiet. 

Secretary LEW. One of the things that we are going to be doing 

is opening communication lines—telecommunications, bringing 

computers in—people-to-people contact. That is going to contribute 

to an environment that is very different than what we have seen 

over the last 50 years that hasn’t worked. 

I am not suggesting that Cuba is changing instantaneously. I 

don’t think the President is suggesting— 

Mr. PEARCE. The President suggested that they needed to change 

and they didn’t change, sir. I don’t think so. 

If we pursue this normalization, do you think that the treaty obligations between the two should take place, like the extradition of 

fugitives, 70 fugitives up and down there? 

One guy named Charlie Hill killed a New Mexico cop back in 

1971. He’s been living a life of freedom down there. So would you 

hope that we get to see Mr. Hill back in New Mexico and just see 

if he is guilty or not? 

Secretary LEW. Congressman, I am going to have to defer to my 

colleagues who have expertise on things like extradition— 

Mr. PEARCE. You don’t have a personal opinion about complex 

things like extradition and— 

Secretary LEW. I just don’t have enough facts. I— 

Mr. PEARCE. —enforcement of rule of law? You don’t have opinions about— 

Secretary LEW. No, I do have opinions on the rule of law on democracy, and that is one of the—we have been seeing that for the 

last 50 years the policy of embargo and cutting Cuba off has done 

nothing to improve it. And I am certainly hopeful that the policy 

change we have put in place will lead to the kinds of changes that 

I think we all want to see in Cuba. 

Mr. PEARCE. Yes. Judging from President Castro’s comments 

today, it doesn’t look like it is moving that way very fast. He says, 

‘‘You can’t ask me this many questions.’’ It is kind of a laugh, really. 

So do you know Mr. David Cohen? 

Secretary LEW. Yes, I do. 

Mr. PEARCE. He was here in November of 2014. We had a fairly 

energetic discussion about the funding of ISIS. And you alluded to 

that earlier in the conversation today. 

52 

You said it is hard to get in there to blow up the—you were referring to blowing up the oil. What does that mean, it is hard to 

get in there? 

Secretary LEW. We have gotten pretty good at it, actually. We 

have targeted points of real vulnerability, particularly the tanker 

trucks that move oil in the country into the— 

Mr. PEARCE. What I just read is that—so when he was here he 

said they are getting a million dollars a day. 

Secretary LEW. Yes. I think that— 

Mr. PEARCE. And so now they—that is $365 million a year. Now 

then, in December of 2015 it is 500, and that report talks about 

trucks getting in the line to get oil filled up and they wait months. 

Months in the line to get one truck of oil, and our airplanes are 

flying overhead, meanwhile they are sitting down here in a line 

that is five kilometers long. 

And so what exactly does it mean that we are being successful 

at interrupting? Because it doesn’t—if their revenue is going up— 

now, keep in mind the price of oil in 2014 was at 70 at the time 

he testified. So 70 down to 30, and they are doubling their revenues. It doesn’t sound like that we are being very effective, honestly, sir, with all due respect. 

Secretary LEW. Congressman, as I said earlier, it is very difficult 

work and we have to keep at it. They are going to keep changing 

with they do and we have to keep up with their changes. By blowing up— 

Mr. PEARCE. I have 25 seconds, sir, and if I could comment—very 

difficult work. It is not difficult to wait. You have— 

Secretary LEW. This is an important issue. I would think you 

would want to know the answer— 

Mr. PEARCE. You have UAVs sitting up there, they are watching 

every tank, and when a tanker truck gets full you simply pop it 

with some incendiary— 

Secretary LEW. No, that is not what we do, Congressman. We actually have been very successful identifying where they keep their 

tanker trucks, getting at them when they are not full of oil, when 

they are not with people— 

Mr. PEARCE. If they are waiting in lines five kilometers long, it 

is not hard to know where they are keeping them— 

Secretary LEW. The reality is this is going to be an ongoing challenge. It is not something that will be solved once and for all. But 

the fact that they have had to cut salaries to fighters because they 

are starved of cash means that we are making progress. We have 

to keep at it. 

Mr. PEARCE. They made $2 billion last year, sir. They are not 

starved for cash. According to the CNN— 

Chairman HENSARLING. The time of the gentleman has expired. 

Secretary LEW. In a classified setting, I would be happy to go 

through some of— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty. 

Mrs. BEATTY. Thank you, Mr. Chairman. 

Thank you, Ranking Member Waters. 

And thank you, Mr. Secretary. 

53 

Let me go back to the subject of international monetary financial 

policies and start by thanking you and those in your OTA office for 

working with my staff and office on Somalian remittance. We have 

the second-largest Somalian population in the country and, as you 

know, with the weak central banking, they have had great difficulties. 

So you have been responsive; you have sent a team of folks over 

to work on something difficult. 

Let me spin off on this, because sitting here through this entire 

hearing has been disappointing to me. And I want to apologize just 

in part to you, but more to the people who are watching, because 

they lump us all together and talk about ‘‘The Congress’’ and what 

we are doing. 

I read an article in the American Banker, and I was hoping that 

we would have learned from this, because last week we had another one of your colleagues here, Directory Cordray with the 

CFPB. And this article talks about how ineffective it is when you 

are rude and disrespectful and you don’t allow people to answer the 

questions—people who are well-versed and seasoned. 

Mr. Chairman, I would like to enter this into the record, if possible. 

Chairman HENSARLING. All such exhibits are allowed under general leave and without objection. 

Mrs. BEATTY. Thank you. 

I also want to thank you for your answers to the questions about 

the subpoenas. Now, while I am not a lawyer, practical law talks 

about, in article after article, when an individual or people like 

your staff receives subpoenas that it is very customary for them to 

contact the parties who have subpoenaed them and try to respectfully and informally work out the differences. So I also applaud you 

for that. 

I think it is also important for the American audience who watch 

us to know who we are talking to beyond our titles. And so when 

I think about your rich history, I think about you not only being 

the 76th Secretary of the Treasury; a White House Chief of Staff; 

you mentioned in reference being an OMB Director and tons of 

other jobs; you have worked for a Congressperson; you have worked 

for a Speaker of the House, Tip O’Neill; and most impressive, you 

married your childhood sweetheart and you are still married, the 

all-American dream with two children. 

But let’s talk about you in your role as Harvard graduate, and 

Georgetown Law School graduate. Your close friends say you are 

exceedingly meticulous. Some would say that you are a brilliant 

scholar. 

I think it is important when we hear the question after question, 

that clearly you understand the question, and from where I sit you 

have clearly not only answered the question but gone far beyond 

the call of duty, as one in your position who is responsive for the 

international monetary financial policies of the trillions and trillions of dollars. You have shared with us the great growth in the 

economy; you have shared with us how we have reduced unemployment. 

And so I say to you, as this Congresswoman, proud to sit here, 

that I say to you the two most important words that I was taught 

54 

and the two most powerful words that one can say, and that is 

‘‘thank you.’’ My mother taught me that a long time ago. Because 

she said sometimes it is better to listen than to talk louder than 

the person. 

Because you were asked the question, ‘‘What would happen if a 

person in a regular job were sitting there and answered?’’ 

Let’s change that around, Mr. Secretary, and ask, ‘‘What if a regular person talked to us in that loud voice, pointing their finger 

and pencil and not letting you answer the question?’’ 

You don’t have to answer that, Mr. Secretary. We know what 

that answer would be. 

And lastly, my father, who knew me best, said, ‘‘Remember to always say I’m sorry.’’ 

I’m sorry for what you have had to go through. 

I yield back 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Mr. Lew, good afternoon to you. 

Mr. Lew, on your last visit when you were here and I had occasion to talk with you we discussed at some length informationsharing between Homeland Security’s Trade-based—Trade Transparency Units, and also FinCEN’s role and their sharing together 

and how important that was. And to the extent that they are sharing, in terms of related to trade-based money laundering, that we 

would be successful. 

When I asked this question to you about sharing between Homeland Security and FinCEN, your response to me at the time was, 

‘‘I started out with a strong bias that we ought to work as one government and that we need to cooperate and collaborate. I started 

out sympathetic to this initiative.’’ 

So that was your statement then, and then in response to my 

questions to you, we got a response back from your staff for the 

record that stated the following: ‘‘Treasury and DHS are in regular 

contact regarding ways our two agencies can better inform our respective efforts to combat terrorist financing. We are confident that 

we can achieve this important goal through our ongoing strategic 

relationship while at the same time maintaining our respective 

database autonomy.’’ 

Mr. Lew, there seems to be a conflict in terms of perspective and 

philosophy of how they would work together in information-sharing 

that is really so vital. If Homeland Security has certain data that 

we are not accessing at FinCEN, that certainly restricts your ability to be able to intercept the information we need. 

Could you kindly respond to this different viewpoint between 

your staff and yourself? 

Secretary LEW. I am not sure it is a different viewpoint. Our activities in tracking down terrorist financing depend on the constant 

flow of information from intelligence agencies and other partner 

agencies like DHS. And likewise, we provide enormous amounts of 

information on an appropriate basis back to them. The question of 

whether or not— 

55 

Mr. PITTENGER. Let me ask you, are you willing to enter into an 

agreement with DHS in terms of information-sharing? 

Secretary LEW. I am not aware of a problem right now in terms 

of information-sharing. What I do know is that full access to all the 

database would put a lot of information that is not necessary into 

a place that it probably shouldn’t be. And I think the question is, 

how do we make sure the right information is fully shared, and we 

each protect systems where personal privacy is at issue for the 

other information as well. 

I am happy to follow up. After you and I talked at the meeting, 

we talked in North Carolina, as well, about it. I have followed up 

with my staff and have urged them to keep working on this. 

It has not been brought to my attention that there is a problem 

in terms of the flow of information, but if there is something specific that you are concerned about, I agree— 

Mr. PITTENGER. I think the word that stuck to me was that there 

should be a sense of autonomy coming from your staff. That is directly opposite, in terms of what I heard, and I just want to make 

sure that there is an ongoing effort to share this data. 

You have incredible access to data, and I am familiar with the 

work that you have and what you contribute. And, frankly, I think 

that we have a greater need for access with the private sector in 

their efforts to try to work along our side. But this access to data 

is a very critical component among agencies, among the private 

sector, and, frankly, with our allies around the world. 

Secretary LEW. Yes. I really do believe that the practices we have 

at Treasury lead the world in how to get the right information into 

the right hands, and we provide an enormous number of leads to 

the appropriate agencies. 

Mr. PITTENGER. Yes, sir. 

Secretary LEW. You are asking about a querying of data basis on 

a kind of real-time basis. I— 

Mr. PITTENGER. Exactly. I need some follow up on that, if you 

could. 

Two other questions, quickly. FATF has an important role in 

terms of bringing its members countries, 34 countries, into those 

four regulatory compliances, but they are not an enforcer. What is 

your response of what we do with countries like Turkey, Kuwait, 

and Qatar, who clearly have been complicit in terms of transferring, financing, and being accessible on that? 

Secretary LEW. Look, we raised these issues very strongly in bilateral— 

Mr. PITTENGER. What tools do we really have? I have raised the 

issues too. I have been to those countries. They dodge every way 

they can. But what do we— 

Secretary LEW. I think we are making progress, though I think 

it is— 

Mr. PITTENGER. It is a nice word. And I am not trying to really 

cut you off, but I don’t have much time. 

The reality is they are very aggressive in their efforts, they have 

been, and we really haven’t done much—seen much cooperation 

from them in terms of not being complicit with the financing component. 

56 

And my last question deals with Iran and the banks that come 

under SWIFT authority. Do you believe that these banks are going 

to be able to access—I didn’t get a clear answer from you—that 

they can have access and work with American financial institutions? 

Chairman HENSARLING. Brief answer, please. 

Secretary LEW. I think that what I said in the earlier response 

is that we will comply with the Joint Comprehensive Plan of Action 

and lift the nuclear sanctions; we will keep other sanctions in 

place. Part of the agreement was to give Iran access to money that 

it has a right to. We will work on making that happen. 

It is not going to be our goal to block transactions that are legitimate under the Joint Comprehensive Plan of Action, but we will 

enforce on other areas like terrorism and the like. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Washington, Mr. 

Heck. 

Mr. HECK. Thank you, Mr. Chairman. I ask unanimous consent 

to enter into the record correspondence dated March 18th to the 

gentleman from Wisconsin from the Assistant Secretary for Legislative Affairs at the Department of the Treasury. 

Chairman HENSARLING. Again, these are allowed under general 

leave, but without objection, it is so ordered. 

Mr. HECK. Thank you for being here, Mr. Secretary. Earlier you 

had indicated verbally, and I just want to confirm that, in fact, on 

the dates December 17th, January 21st, and March 18th, you had 

extended an offer to sit down and work through the issue of the 

supply of certain materials and response to request, that being in 

addition to, by my best count, more than 5,000 pages of documents 

you had already submitted. Is that correct, sir? 

Secretary LEW. That is correct. 

Mr. HECK. I would like to associate myself with the remarks of 

the gentlelady from Ohio. I was first elected to the State House of 

Representatives 40 years ago this year, and my muscle memory as 

a fairly young man was formed by strict rules prohibiting the impugning of another person’s motives. And I have been somewhat 

surprised in my now 39 months here that that is allowed on too 

often an occasion. 

But I took the time to actually look up the House rules. And the 

House rules do indicate that committee meetings shall be in strict 

conformity with an observance of the acceptable standards of dignity, propriety, courtesy, and decorum traditionally observed. 

So the specific words that I want to associate myself with, with 

respect to the gentlelady from Ohio are ‘‘I’m sorry.’’ You didn’t deserve that, and I, frankly, found it to be an egregious breach of our 

own rules. 

Now on to the substance, last fall I think it was Under Secretary 

Sheets who was here, and I queried him as to whether or not we 

had actually reached out to the newly formed Asian Infrastructure 

Investment Bank to see about ways in which we might collaborate, 

cooperate with that new deep pool of funds available. He seemed 

to indicate that it was really important that they engage in best 

practices but response didn’t go much farther than that. 

57 

There have been a couple of intervening events that it seemed 

to me might affect the degree of which we are reaching out: President Xi’s visit, the IMF quota reform. So my question, sir, is have 

we reached out to them? Is this an area where we might collaborate or cooperate more to invest in infrastructure? 

Secretary LEW. Congressman, I appreciate your comments. 

And with regards to the Asian Infrastructure Bank, we have 

made clear from the start that we think it is a good thing for there 

to be more investment in infrastructure. And we didn’t have an objection in principle to a new institution but that it was critical that 

a new institution adhere to high standards. 

I am actually quite pleased that sitting here today I can say that 

our pressure for high standards has been heard by the other countries participating and by China itself. And as they approach making their first commitments, they are certainly saying all the right 

things about adhering to high standards. 

In terms of collaboration with them, the way that we have talked 

to them about collaborating is through the existing—the older 

international financial institutions, where if they can collaborate on 

projects, the new institution piggybacks on the safeguards and the 

standards of the older institutions. So there is work underway looking at co-financing, for example. 

We have also offered on a bilateral basis to provide any technical 

advice that we can. Because frankly, a lot has been learned in the 

last 70 years, and those lessons don’t all need to be relearned. They 

say that it is going to be open for fair contracting practices, and 

I trust that American firms will want to participate in that. But 

we have not explored joining any more formally. 

Mr. HECK. Thank you. 

On the subject of infrastructure, it seems to me that what we 

consider to be infrastructure has evolved very considerably over the 

centuries, from the 18th Century—roads, bridges, aqueducts; the 

19th Century—railroads and later sewers; the 20th Century— 

phones, water treatment, water lines; and in the 21st Century, 

broadband. All physical. 

But it occurs to me that when it comes to economic development 

we might want to consider ‘‘soft’’ infrastructure investments, namely standing up a financial regulatory framework, especially in underdeveloped nations, for whom not having a developed financial 

regulatory framework is a great impediment to economic development. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Missouri, Mrs. 

Wagner. 

Mrs. WAGNER. Thank you. Thank you, Mr. Chairman. 

And thank you, Secretary Lew, for coming and for staying the 

duration here. 

Following up on my colleague Mr. Guinta’s discussion with you, 

I want to bring up the ongoing TTIP negotiations that have been 

occurring with our counterparts in the E.U. Next month, I know 

the President will be traveling to Germany to discuss efforts to advance negotiations on this trade deal. However, as we all know, financial services continues to be an issue that is not on the table. 

58 

As you said last year, sir, you support increasing market access 

but view talks on regulation with I believe the word was skepticism. Different regulatory regimes, especially when they aren’t 

equivalent, would seem to affect market access significantly. Isn’t 

it difficult to draw a line between market access and regulations, 

sir? 

Secretary LEW. No, Congresswoman. Actually it is standard practice for market access to be something that is negotiated in a trade 

agreement. 

It would be very unusual for prudential regulatory issues to be 

covered in a trade agreement. We don’t think it is appropriate for 

prudential regulatory issues to be handled there. 

There are a lot of places where we collaborate around the world, 

including with our European friends, to try and reach agreement 

on goals that we all share in terms of high standards. We have the 

high standards we are trying to pull everyone up to. 

I don’t think that a trade agreement that could end up chipping 

away at some of our protections would be the place for prudential 

regulation to be reopened. 

Mrs. WAGNER. With all due respect, many participants have said 

that previous mechanisms, so to speak, to engage the regulatory coherence have fallen short, such as the Financial Markets Regulatory Dialogue, the FMRD. Doesn’t this trade agreement represent 

a unique opportunity, sir, to get communications and coordination 

between the U.S. and the E.U. right? 

Secretary LEW. In my conversations with the European Commission, I have actually heard in the last few months a recognition 

that opening the prudential issues in TTIP would not be acceptable 

to us, and I have heard a renewed interest in using the Financial 

Markets Regulatory Dialogue as a place to try to drive those discussions, which we think is a right way to do it and we are happy 

to engage that way. 

Mrs. WAGNER. I heard quite differently, that it is just feckless 

and, frankly, non-effective. And as a former United States Ambassador and Diplomat to one of the financial hubs in Luxemburg, I 

find your response concerning. 

On the subject, moving on, of comparing E.U. and U.S. in terms 

of financial service regulations, I would like to bring up the E.U.’s 

call for evidence that is currently ongoing looking at unnecessary 

regulatory burdens and other unintended consequences. 

In fact, just last week European Commissioner for Financial Stability Jonathan Hill said, ‘‘You can’t expect to get everything right 

or to predict exactly how rules are going to interact.’’ 

Secretary Lew, do you disagree with Lord Hill’s statement? 

Secretary LEW. I think that Lord Hill’s statement reflects the 

fact that we always need to keep asking is what we are doing right 

and appropriate, and we certainly take that view in terms of our 

analysis of everything that we do. 

Mrs. WAGNER. It doesn’t seem FSOC has ever taken up such a 

comprehensive review such as what the E.U. is currently doing. Do 

you support dialogue here in the United States. 

Secretary LEW. Well— 

Mrs. WAGNER. Let me finish my question, sir, please—here in 

the United States, similar to what the E.U. is doing with the call 

59 

for evidence to look at the impacts that all—all of our post-financial 

crisis regulations have had on economic growth and financial stability? 

Secretary LEW. Our prudential regulators are in the middle now 

of a regular process that is every 5 years of reviewing their regulations to look back and see which regulations require reconsideration. I think that is the right way for it to happen. They have 

been having hearings around the country. 

They each have the authority over their own organic statutes. It 

is not an FSOC responsibility. 

And I must say, when I was OMB Director and I did a lookback 

of the Federal agencies that report directly, I was struck that it 

was not in my purview to go into the independent agencies. This 

other process is the right way to do it. 

Mrs. WAGNER. The E.U.’s call for evidence asks for real analysis 

regarding the cumulative impact of regulations, including regulations that have yet to be implemented. How have you all looked at 

future regulations, such as Basel 4.0 and the fundamental review 

of the trading book, and how these fit in with our current structure? 

Secretary LEW. Our view is that we always need to be looking 

at the risks of the future, not the past. We have to make sure that 

our financial regulatory system doesn’t become out of date. And we 

do that domestically; we do that internationally as we participate 

in various multilateral bodies. 

Mrs. WAGNER. I think I have run out of time. 

I yield back. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr. 

Mr. BARR. Thank you, Mr. Chairman. 

And, Mr. Secretary, thanks for your testimony today. I wanted 

to follow up on the questions from my colleague, Mr. Pittenger, as 

a member of the Terrorism Financing Task Force. As you know, 

the work of Treasury is critically important, particularly the Office 

of Technical Assistance. 

We know from our hearings—our hearings have revealed significant gaps in the anti-money laundering and counterterrorist financing capacity in many developing countries. And my question to 

you is, given the role of the Office of Technical Assistance and the 

Agency for International Development at the State Department 

within the U.S. Government, which of these agencies takes the lead 

in providing that assistance to our allies in other countries? 

Secretary LEW. Obviously, the Office of Technical Assistance has 

the subject matter knowledge to be most capable in this area. 

USAID has resources in some places that we don’t. We collaborate 

together to try and work in partnership. 

One of the reasons we have proposed over the next several years 

to double OTA is it is, I think, one of the most important ways that 

we can build the capacity in other countries, not just in terrorist 

financing. 

One of the things you need to do is have transparency and an 

openness in the business environment to get those countries where 

60 

they need to be. That gives you the ability to deal with terrorist 

financing. 

So you get multiple improvements by building the kind of infrastructure in this area. I have seen tremendous progress made in 

places where our OTA advisers are in there. 

Mr. BARR. Obviously, given today’s news, the tragedy in Brussels, we continue to be reminded that we must confront radical Islamic terrorism. 

Secretary LEW. Yes. 

Mr. BARR. We must be proactive. Disengagement is not an option. 

And so I would hope that we certainly coordinate within our own 

government, in terms of who takes the lead on providing that technical assistance. Because we know from our work and our oversight 

that these developing countries have significant gaps in terms of 

their financial systems, their law enforcement systems, judicial systems. 

Secretary LEW. I totally agree. I don’t think the problem is coordination. The reason we ask for more resources is we just don’t 

have enough people out there, and I think we could do a lot more 

good work with more people. 

Mr. BARR. Let’s talk about the Financial Action Task Force. Obviously, that task force peer reviews countries, and makes recommendations. Should we work with the FATF to have recommendations on coordinating technical assistance to developing 

countries? 

Secretary LEW. We do work with the FATF on coordinating assistance. We work with the IMF on coordinating assistance. Between ourselves, FATF, and IMF, that is where most of the assistance is coming from, and we work very closely together constantly. 

Mr. BARR. I think we do have a good model there and we do need 

to have recommendations on better coordination. Under Secretary 

Kimmitt, in our hearing, indicated that while we have plenty of 

Commerce Department and USAID attaches over a number of our 

embassies, there are only a couple dozen Treasury attaches in our 

embassies deployed worldwide. That seems to me to be an insufficient number, given the threat environment. 

And it doesn’t seem—it wouldn’t seem to me that we can sufficiently project our economic or our counterterrorism financing objectives without more Treasury attaches deployed worldwide. 

Would you agree with that? 

Secretary LEW. I wouldn’t say no to more Treasury attaches. I 

would not suggest any inadequacy in the Treasury attaches we 

have out there. They do a tremendous job. 

Mr. BARR. I am not suggesting that, but a couple of dozen— 

wouldn’t you agree that having Treasury attaches deployed in more 

places would be at least as important as agriculture attaches? 

Secretary LEW. I am not going to question the value of other attaches. I can tell you the value of Treasury attaches is very high. 

Mr. BARR. We need to continue to work on that. 

Quickly, in my remaining time, let me ask you about insurance 

capital standards and sequencing. I am concerned that the IAIS 

standard-setting process might front run and prejudice the Federal 

Reserve process for insurance capital standards rulemaking. ObviVerDate Nov 24 2008 18:47 Aug 17, 2017 Jkt 023888 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 K:\DOCS\23888.TXT TERI
61 

ously Congress weighed in by requiring the Fed to implement 

nonbank-centric standards, more insurance-based capital standards. 

What we don’t want is for the international community to make 

an end run on that. Do you share those concerns? And what is 

Treasury doing to ensure that the IAIS timeline accommodates the 

work of the Fed going first? 

Secretary LEW. We discussed earlier how important it is for us 

to make progress with a covered agreement. If we get a covered 

agreement that would make clear what the line between prudential 

and capital issues is, that would be the—be a lot of protection to 

our firms. We don’t think that other countries should set capital requirements for our— 

Mr. BARR. That is good to hear because domestic regulators have 

adopted FSB rules for banking, so we would hope that Treasury 

would work with Fed to prevent— 

Secretary LEW. I’m not sure I agree with that characterization of 

the FSB rules for banking, but I am happy we agree on insurance. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

And if we could stay on this international insurance issue for a 

minute, I am concerned that foreign negotiators will use this process as a vehicle to impose rules that put U.S. firms at a disadvantage by unfairly targeting products they offer. 

As you know, the IAIS has approved higher capital charges for 

some U.S. insurance products by labeling them as nontraditional. 

However, there are similar insurance products offered by foreign 

firms that have not been subjected to a higher capital charge. 

I see this as a clear example of foreign negotiators using international rules to hurt U.S.-based firms. Why does this imbalance 

exist, and what is Treasury doing to address it? 

Secretary LEW. I have tried to respond, Congressman, that the 

E.U. is implementing insurance regulatory reform that they call 

Solvency II, that will subject an issuer to disadvantageous treatment if the insurer’s country of domicile is not recognized as equivalent by the E.U. 

One of the reasons to get this covered agreement is to have a 

frame preventing that from happening. So we are very much engaged and very much focused on this. 

Mr. ROTHFUS. Chair Yellen testified before this committee recently and lamented the headwinds that are facing the economy. I 

would argue that many of the headwinds that we face are manmade and self-imposed. I consider the Affordable Care Act, where 

we had the Congressional Budget Office say that is going to cost 

2 million jobs— 

Secretary LEW. I was with you on the first half of the sentence. 

Mr. ROTHFUS. But then you look at EPA regulations that are 

throwing middle-class workers in my district out of work. 

And then you look at the Dodd-Frank Act, which was sold as a 

way to end too-big-to-fail and product consumers when it ends up 

enshrining is too-big-to-fail in law. And, of course, former Treasury 

Secretary Geithner acknowledged that it didn’t end too-big-to-fail. 

62 

And it was sold as protecting consumers, and I see consumers losing products like free checking. 

A 2015 report by the Office of Financial Research (OFR) pointed 

out that market liquidity had become more fragile, that brokerdealer inventories had shrunk, and that those inventories had concentrated in high-quality liquid assets. The Office of Financial Research highlights several factors contributing to fragility in fixed 

income markets, namely bank capital standards and the Volcker 

Rule. Do you agree with OFR that these regulations are a factor 

leading to reduced fixed-income liquidity? 

Secretary LEW. Congressman, as I have testified to this committee before, we are open to looking at any of the contributing factors. Market liquidity is an important element in any well-functioning financial system. And by most measures of market liquidity, particularly in the Treasury markets, we are now within historical ranges. 

That said, there are things going on in the markets that require 

more attention. That is one of the reasons we have put out a request for information to try and understand how some of the transformation and the structure of our markets is affecting the way the 

markets perform and potentially liquidity. 

I think that we are in a world now of electronic trading, highfrequency trading, algorithmic trading, where many, many—really 

most of the transactions taking place are not what people think of 

as traditional individuals making decisions. That is having, potentially, an effect as well. 

So we are doing a request for information to try and get to the 

bottom of it. 

Mr. ROTHFUS. I guess I am trying to—I think you would agree 

in part, then, with some of the conclusions— 

Secretary LEW. I don’t attribute great weight to the notion that 

regulatory changes are a key driver. I think if you look at the stability of our financial system, the health of our economy, and the 

health of our markets—in the beginning of this year we had substantial market volatility— 

Mr. ROTHFUS. Regulatory— 

Secretary LEW. —and nobody questioned— 

Mr. ROTHFUS. I’m sorry. You said regulatory actions are not a 

key driver? 

Secretary LEW. I said I am not convinced that they are a key 

driver. Yes, that is what I said. 

Mr. ROTHFUS. Okay. I would like to touch on something that 

former Treasury Secretary Larry Summers recently mentioned. He 

penned an op-ed in the Washington Post saying it is time to kill 

the $100 bill. In that piece he discusses a recent paper by Harvard 

University’s Kennedy School of Government and advocates for stopping the issuance of high-denomination notes like the 500 euro 

note and the $100 bill, or even withdrawing them from circulation. 

According to Mr. Summers, who has apparently supported this 

idea since the late 1990s, ‘‘Removing such currency from circulation 

would reduce corruption and crime around the world while having 

little downside for legitimate business or savers.’’ Summers goes on 

so far to call for a global agreement to stop issuing high-denomination notes. 

63 

Steve Forbes recently wrote in The Wall Street Journal that he 

is concerned that this idea would actually harm average Americans. And I am wondering if you have an opinion on this? 

Secretary LEW. Look, I think there is a big difference between 

the $100 bill and the 500 euro note or the 1,000 Swiss franc note. 

I think very large bills like the 500 euro bill are problematic. I 

think the $100 bill is the most— 

Mr. ROTHFUS. They are problematic because? 

Secretary LEW. Because the ease with which you can move large 

amounts of money is five-fold from what a 100 euro bill would be. 

Mr. ROTHFUS. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for taking the time to be here. 

I want to be able to visit with you. Actually, I will go off of my 

colleague’s comment, where you just made the comment that you 

are not convinced that regulatory changes are a key driver in terms 

of some of the challenges that we are having. 

And I would like to go back to when we visited last year. We 

were talking about small banks and the impacts that they are feeling because of the regulatory burdens that are being placed on 

them. I am sure you are well-aware that we have had more consolidation of banks, fewer applications for new banks starting up into 

our communities, providing the access that you were talking about 

just a little earlier in regards to liquidity, to be able to grow the 

economy. 

Because we have, frankly, a tale of two economies in this country, given your opening statement that was rather glowing on the 

American economy. As you travel through the 3rd District of Colorado, we are continuing to see in many cases what the real unemployment level, double-digit unemployment, more businesses shutting down than new business startups. 

And many of those businesses have expressed to me that their 

challenge is being able to get capital from their local banks. The 

banks are telling us they are having an inability to be able to make 

those loans because of expanded regulations. 

And when you are making the comment that regulatory changes 

are not a key driver, we have had testimony come in from Fed 

Chair Yellen and FDIC Vice Chair Hoenig acknowledging that 

there is a problem with rules and regulations and the impact on 

our financial markets. Do you dispute their comments? 

Secretary LEW. I would like to see the specific comments to respond to rather than just— 

Mr. TIPTON. They were talking about the trickle-down regulatory 

effect. 

Secretary LEW. I think we are talking about different things 

when we use the word ‘‘liquidity.’’ Typically, liquidity is used to 

talk about matching buyers and sellers in markets for stocks and 

bonds. 

I think what you are asking about is a slightly different question 

and it is not something we typically refer to as liquidity, but it is, 

64 

what is the availability of lending to small businesses and maybe 

individuals. 

We believe that the credit box has gotten narrower in some ways 

than it needs to be. That is why, for example, the FHA last week 

moved to try and make clear that the credit box for mortgages 

should be eased some. I think on the small business side, a lot of 

small businesses before the financial crisis got access to capital by 

having individuals really tap into their home equity. 

So it is a different question than what happens— 

Mr. TIPTON. I guess my point is in regards to the regulations 

that we are seeing on a lot of our community banks. Last year, 

when we sat down and visited you had expressed that you hadn’t 

really talked about this in terms of the FSOC. In fact, when we reviewed the minutes from 2010 to 2014 it had not been raised once. 

What is the threshold that has to be passed? What metrics have 

to be in place for—to have those conversations take place at your 

level? 

Secretary LEW. Look, I have had conversations with all of the 

prudential regulators about the need to use the flexibility that they 

have to not have a one-size-fits-all approach. And I don’t believe 

they have a one-size-fits-all approach. But they need to keep looking at what can they do to provide the kind of proper accommodation to small institutions that don’t present the kinds of risk that 

some of the larger ones do. 

When we talk about small institutions, we are not always talking 

about the same thing. The real community banks are quite small. 

Even the $50 billion threshold that is now in place for a SIFI is 

way bigger than your typical community bank. 

When the people raise questions of institutions of hundreds of 

billions of dollars, we are not talking about community banks anymore. 

Mr. TIPTON. But unfortunately, as Chair Yellen, and again, Mr. 

Hoenig pointed out as well, we are seeing that trickle-down effect 

of regulations that are impacting those. Is that an important thing 

for you to be able to address? 

Secretary LEW. I think we have to do two things at the same 

time. We have to make sure that our system is safe and sound and 

that we are not exposed to the kind of financial crisis that did so 

much damage to this country in 2007, 2008. And I think we have 

to constantly be asking ourselves, ‘‘Are there things that we can do 

to make it easier for small financial institutions?’’ We are doing 

both of those. 

Mr. TIPTON. I guess the point, Mr. Secretary, that our banks are 

asking, the community banks, which did not cause the financial crisis is, ‘‘When can we expect to be able to see some action, rather 

than talk?’’ 

Secretary LEW. The kinds of things that we have discussed in 

this hearing room and other hearing rooms, there are areas like 

the regularity of reviews for small banks, where we are open to 

having conversations. But when we see a piece of legislation that 

would really repeal major parts of financial reform, that is a place 

we are not going. 

So it is a question of can you have a conversation about the reasonable thing. 

65 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

Mr. HILL. Thanks, Mr. Chairman. 

And thank you, Mr. Secretary, for being here. 

Let me add my comments on previous questions submitted. As 

a former Treasury employee, you are making me look bad. I submitted questions to you on June 17, 2015, like Representative 

Guinta, and I hope you will assure me that you will get prompt answers to my questions. 

Secretary LEW. I will certainly go back and— 

Mr. HILL. They are all softballs. They are easy. I promise. 

On the subject of TTIP, I know my colleague from Missouri 

touched on that, but I want to have a nuanced question on that 

with you. I know you have been involved, and certainly OASIA has 

been involved in the negotiating team on development of TTIP. 

And are you pleased with TTIP as it relates to financial services 

from your briefings and review of it? 

Secretary LEW. I think that we have had challenging discussions 

but we are making some progress now. I believe that financial market access should be part of the TTIP negotiation. I don’t believe 

that prudential regulations should be. 

I think we have made some progress with the Europeans, and to 

shift the discussion of prudential regulation to the existing international bodies that are set up to appropriately deal with it. 

Mr. HILL. There is a really important derivative issue over in the 

subject of data management and data centers that was a big part 

of TTIP. Financial services are not included. 

Secretary LEW. I think you mean TPP. 

Mr. HILL. I’m sorry, TPP. And I have heard concerns that that 

data center issue is problematic. Our international services companies are not being treated like nonfinancial services— 

Secretary LEW. The data localization issue is a very difficult one. 

We generally oppose data localization requirements. I put a considerable amount of effort into making sure that data localization was 

not required in parts of the financial services industry like electronic payments, where it was really no more than a nontariff barrier. 

In the area of financial institutions, the issue is that our own 

prudential regulators feel that they need to be guaranteed access 

to timely and appropriate prudential information, and there has 

been experience during the financial crisis where that was cut off. 

So we are trying to reconcile legitimate interests of the financial 

institutions not to have nontariff barriers and costs imposed on 

them, but also the needs of our prudential regulators to be guaranteed access to information. 

We are trying to work our way through that, as I have said before, to see if we can thread the needle. TPP is closed, so we can’t 

reopen TPP. Perhaps there could be some mention in some side 

piece that is helpful. But really the question is going forward, what 

are the—what will be the framework for a TTIP or for a future BIT 

negotiation? 

Mr. HILL. I think the financial services players can certainly provide regulators data that they need in order to do their job looking 

66 

forward and meeting expectations. But it is concerning that financial services companies, some of the biggest and best in the world 

that are headquartered here, are not getting the same accordance 

on data localization that nonfinancial services are. So I respect 

your view on it, but I think it deserves more discussion. 

Secretary LEW. Yes. And the reality is that the problem did exist 

during the 2008 financial crisis, so it is not ancient history. 

Mr. HILL. No, I understand. But also people have changed a lot 

of things in their operating style since then. 

Secretary LEW. And that is why we are trying to work our way 

through it. 

Mr. HILL. Yes. TARP—it is hard to believe we are talking about 

TARP this many years later. Large banks have been facilitated 

through the Treasury to exit TARP with—on pretty favorable 

terms and close down that part of the program. But a lot of small 

banks have not had that favorable treatment from the Treasury, 

particularly those that are in the community development program. 

I am wondering if I could have your commitment that if people 

bring you a market-oriented offer to exit their TARP position that 

they could be done by the end of the Obama Administration? 

Secretary LEW. It would be my fondest hope for us to be able to 

say that TARP was completely done— 

Mr. HILL. I would think so. I would think it would be one of— 

Secretary LEW. We have made huge progress— 

Mr. HILL. —the feathers in your cap. 

Secretary LEW. Yes. 

Mr. HILL. But there are a lot of small institutions that are not 

getting, I think, the attention when they are bringing quality opportunities to exit TARP. I really urge you to look into it. 

Secretary LEW. We will continue to put every effort into it. It has 

been challenging to get proposals of the quality you are describing, 

and that is why it has been slow. 

Mr. HILL. The other thing that is on my mind is recently, I introduced a bill that was marked and moved forward on commercial 

mortgage-backed securities. And the Fed has a rulemaking that I 

think will put conduit loans and some other kinds of commercial 

mortgage-backed securities really in jeopardy from refinance risk 

over the next couple of years, and I think Treasury should be very 

interested in the bill we have put forward in this committee. 

Secretary LEW. I am happy to take a look at it. 

Mr. HILL. Thank you. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Maine, Mr. 

Poliquin. 

Mr. POLIQUIN. Thank you, Mr. Lew, very much for being here. 

I appreciate it. 

I would like to follow up on a little bit of the discussion a short 

time ago with Mr. Guinta, from New Hampshire. One of the new 

regulators, as a result of the Administration’s new financial regulations, is the CFPB. They have a new office building for their 1,500 

employees downtown, Mr. Lew, and it cost the taxpayers about 

$200 million. And the CFPB doesn’t own the building; they spent 

about that amount of money to rehab it, and I think that is a huge 

waste of taxpayer money, sir. 

67 

Mr. Cordray was here, the Director of the CFPB, in March, and 

he testified in front of this committee when Mrs. Wagner questioned him, and I quote—‘‘It was the Treasury who was in charge 

of all Bureau operations at the time the decision was made.’’ 

And so my question to you, sir, is there have been follow-up letters that date back now 288 days asking you specifically in Treasury, the folks who work for you, who, in fact, at the CFPB or 

Treasury—they said it was you folks who were in charge—made 

the decision to waste that kind of money? Do you know who that 

was? 

Secretary LEW. Congressman, I responded earlier that we did follow up on this and provide the Inspector General findings. I am 

happy to go back and— 

Mr. POLIQUIN. With all due respect, sir, I have the letter right 

here that you responded to which was dated June 16th of 2015. It 

says, ‘‘The Treasury is working to respond to your requests.’’ I repeat, ‘‘The Treasury is working to respond to your requests.’’ 

That was 288 days ago. It was signed by Mr. Randall DeValk. 

So I am just asking you for a commitment now, Mr. Lew, if you 

don’t mind, can you give me a specific day when you will get back 

to us as to who was responsible for wasting that kind of money? 

Secretary LEW. Congressman, without agreeing to your characterization, I am happy to follow up. 

Mr. POLIQUIN. Okay. And when will you follow up and specifically give us the date when you will get back to us who is responsible for making that decision? 

Secretary LEW. Congressman, after this meeting we will get back 

and work— 

Mr. POLIQUIN. Okay. It has been 288 days, Mr. Lew. I don’t want 

to be rude, but that seems to be an awful lot of time. Here is what 

concerns me— 

Secretary LEW. On August 25th, we did—Treasury informed the 

committee that a report by the Inspector General of the Federal 

Reserve Board found that the work authorizations related to the 

renovation were finalized after the CFPB— 

Mr. POLIQUIN. Mr. Lew, here is what— 

Secretary LEW. We have responded, but I am happy to go back 

and see what additional responses— 

Mr. POLIQUIN. I appreciate that. 

Here is what I am concerned about, Mr. Lew. These are very 

simple questions I am asking you. They are not complicated at all. 

You are the Secretary of the Treasury of the United States of 

America, and if you are unwilling or unable to answer a simple 

question, I think it puts in doubt to the American taxpayers how 

you are going to be able to make the decisions that affect our capital markets, our economy, and our freedom. 

Secretary LEW. We have provided 200 pages of information to the 

committee on the condition of the building when it was transferred— 

Mr. POLIQUIN. Okay. I am looking for who was— 

Secretary LEW. So we have given a lot of material and I am 

happy to look and see what you are looking for— 

Mr. POLIQUIN. Great. 

Secretary LEW. —and see if we can be helpful. 

68 

Mr. POLIQUIN. Thank you. And you won’t give me a specific commitment when, so let’s move on. 

Mr. Lew, you are familiar, I am sure, with the budget that was 

submitted by President Obama a short time ago that never balances ever. You are familiar with that budget? 

Secretary LEW. I am familiar with the budget, yes. 

Mr. POLIQUIN. Okay. And you are also familiar, I assume, Mr. Lew, with the fact that it increases spending by $2.5 trillion, increases taxes by $3.4 trillion, with this budget? 

Secretary LEW. There are a variety of policies in the budget, but 

it would restore taxes to roughly where it was when we had a balanced budget the last time— 

Mr. POLIQUIN. Okay. And I am sure you also know that this 

budget that never balances increases the debt from the current $19 

trillion to $27 trillion. It triples from when the time the President 

arrived. So you are familiar with this budget? 

Secretary LEW. I am also familiar with the percentage of GDP— 

Mr. POLIQUIN. Okay. 

Secretary LEW. —which stabilizes as a— 

Mr. POLIQUIN. Okay, so you are familiar with this budget. 

Secretary LEW. —percent of GDP and the debt as a percent of 

GDP. 

Mr. POLIQUIN. Thank you, sir. Do you think short-term interest 

rates will remain at zero forever? 

Secretary LEW. No, I don’t, but neither does our budget. Our 

budget assumes interest rates that are far above what the current 

market— 

Mr. POLIQUIN. Okay. Then I also assume that you are familiar 

with the OMB projections that in 3 years, the annual interest payments on the debt at that time will be about $440 billion in 1 year, 

which will equal what we spend on Medicaid. 

And I am sure you are also familiar with the fact that in 7 years, 

the OMB projects that the interest on the debt will exceed what we 

spend on national defense. 

So my question to you, sir is, given the fact that this Administration continues to submit budgets to us that increase spending, increase taxes, increase the debt, never balance, at what point, Mr. 

Lew, do you think those interest payments—not the percent of the 

GDP represented by the deficit—but when do those interest payments become a concern of yours? 

Secretary LEW. Look, Congressman, as GDP grows, nominal dollars grow, and having cut the deficit by three-quarters from 10 to 

2.5 percent of GDP has put us on a stable path. We have more 

work to do but we are not in a moment of crisis like we were when 

the President took office. We are in a stable, sustainable place. 

Mr. POLIQUIN. Mr. Lew, I would debate you a little bit on that, 

with all due respect. I am a former State treasurer of Maine. There 

are 49 States that have to balance their budgets; the government 

here does not. They spend what they want, and borrow what they 

need. 

Do you think a balanced budget amendment to the Constitution 

is something that we need, Mr. Lew? 

Secretary LEW. No, I do not. 

Mr. POLIQUIN. Tell me why you don’t. 

69 

Secretary LEW. I think you are out of time, but I am happy to 

respond if the chairman would like me to. 

Mr. POLIQUIN. I would appreciate that, Mr. Chairman, if the Secretary could respond to that question. 

Chairman HENSARLING. Quick response, please. 

Secretary LEW. I think that the responsibility for making policy 

rests with the Congress and the President, that a mechanical approach that would make it difficult if not impossible to respond to 

crises or economic turmoil— 

Mr. POLIQUIN. Those are not, with all— 

Secretary LEW. —would be very, very bad. I am happy at another 

time to— 

Mr. POLIQUIN. With all due respect, Mr. Lew, there are bills that 

have been submitted that I have co-sponsored, along with others, 

that give plenty of flexibility in that budgetary process. The American people have seen that the Congress and the Administration 

cannot live within its means. Don’t you think it is time to help 

them with a— 

Chairman HENSARLING. The time of the gentleman has expired. 

I would like to thank the witness for his testimony today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witnesses and to place his responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

I would remind the witness that we have over a dozen questions 

which are still pending by both Democrats and Republicans from 

the June hearing. So I would ask our witness to please take this 

seriously and have Treasury respond promptly. 

This hearing stands adjourned. 

[Whereupon, at 1:20 p.m., the hearing was adjourned.] 

(71) 

A P P E N D I X 

March 22, 2016 

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EMBARGOED FOR DELIVERY 

Jacob J. Lew 

Secretary, United States Department of the Treasury 

Testimony before the House Committee on Financial Services 

Hearing on the National Advisory Council on International Monetary and Financial 

Policies and on the State of the International I<'inancial System 

March 22. 20 16 

Chainnan Hensarling, Ranking Member Waters, and Members of the Committee, thank you for 

the opportunity to testify today. 

I want to begin by acknowledging the bipartisan passage of the omnibus appropriations hill in 

December, which is already contributing to our economic growth and rebuilding our leadership 

internationally. This agreement demonstrates that we have the capacity to find common ground 

on difficult issues and lays a foundation for addressing some of our long-tenn challenges. 

Over the past seven years under the President's leadership, we have seen a sustained economic 

recovery and an unprecedented decline in the federal budget deficit. But more work remains to 

make sure we are upholding the basic American belief that everyone who works hard gets a fair 

shot at success. In recognition of this, the FY 2017 President's Budget puts forward the building 

blocks of a social compact for the 21st century and creates the conditions for sustained economic 

growth. The budget also makes critical investments in our domestic and national security 

priorities while adhering to the bipartisan budget agreement signed into law last fall, and it lifts 

sequestration in future years so that we continue to invest in our future. 

I would also like to thank Congress for passing the [nternational Monetary Fund (IMF) quota and 

governance refonns last December. The IMF has promoted stability, jobs, and growth for the 

past 70 years, The refonns we put in place reinforce the central leadership role of the United 
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States in the global economic system. Passage of lMF reforms is strengthening our hand in 

global economic fora such as the G-20 at a time of rising economic uncertainty. Moreover, we 

are now better positioned to further our international policy objectives, such as multilateral 

support for Ukraine, through IMF engagement. 

Last year was a landmark year for international development, which, in addition to IMF quota 

reform, saw the adoption of the Addis Ababa Action Agenda and the 2030 Agenda for 

Sustainable Development, and culminated with the successful adoption of the Paris Agreement 

on climate change. Our budget request affirms the U.S. commitment to the international 

financial architecture and to maintaining our global leadership. 

The intemational financial institutions (lFis}-the IMF and multilateral development banks 

(MDBs), including related multilateral trust funds-are a critical part of the President's approach 

to bolstering national security and driving long term prosperity. Our investments in these 

institutions promote our strategic interests and international stability. They help unlock the next 

generation of export markets for America's businesses and workers, while fostering private 

sector development and entrepreneurship. Additionally, these investments are some of the most 

cost-effective ways to reinforce economic growth at home and respond to critical challenges 

abroad, like financial instability, poverty, environmental degradation, and food insecurity. 

International Monetary Fund (IMF) 

The lMF remains the foremost international institution for promoting global financial stability. 

Through its three main activities-surveillance, technical assistance, and lending-the IMF 

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promotes economic stability and helps prevent and resolve financial crises when they occur, 

thereby promoting growth, enhancing U.S. national security, and alleviating poverty in its 

member countries. At a time of increased economic uncertainty, the lMF is actively working 

with countries vulnerable to low oil prices. financial market volatility, and other external shocks 

to provide policy advice and financing, when appropriate. 

Examples of how the IMF advances U.S. interests are numerous. The IMF was a first responder 

providing significant financial support to Ukraine, helping a key U.S. ally sustain momentum on 

economic reform in the face of Russian aggression and make progress in addressing endemic 

corruption. IMF engagement in the Middle East has helped reduce economic vulnerabilities in 

key U.S. allies. such as Jordan and Tunisia, and is providing advice to help Iraq address the large 

fiscal gap resulting from the oil price shock and the fight against ISJL. The IMF also supports the 

Sustainable Development Goals through capacity building and financing for low-income 

countries, actively encourages transparency and accountability in all of its member countries, and 

works with the G-20 to encourage policies that foster strong, sustainable, and balanced global 

growth. 

The TMF is an important partner for the United States and the Financial Action Task Force 

(FA TF) in the fight against illicit finance. Since 2000 the IMF has recognized that combatting 

money laundering and terrorist finance is essential to the integrity and stability of the financial 

sector, based on the F ATF's standards. Since that time, the IMF has integrated AMLICFT 

measures into its lending conditionality, economic surveillance and capacity building activities. 

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The United States plays a key role in shaping IMF policy and institutional issues through its role 

as the IMF's largest shareholder. Over the past year, the United States supported creation of an 

IMF debt relief facility for low-income countries hit by public health disasters such as the Ebola 

virus, and encouraged an active capacity-building role for the JMF in helping developing 

countries mobilize domestic resources and use them effectively for development. The United 

States welcomed retonns to the IMF's policy on public debt limits in IMF-supported programs 

so that limits would be more comprehensive and tailored to country risks. At the direction of 

Congress, the United States championed reforms to the Exceptional Access Lending Framework 

to tighten requirements on debt sustainability. 

Multilateral Development Banks (MDBs) 

Our investments in MDBs, including the World Bank and the regional development banks. 

promote national security, economic growih, and poverty reduction. The MDBs finance 

investments in developing and emerging economics, including in infrastructure. health, 

education, governance, and business climate retonn. 

The assistance and technical know-how of the MDI3s has nurtured the economic reforms. 

infrastructure, and social investments that have driven the growth of some of our most strategic 

trade partners. They also play an important role in building sustainable and transparent 

economic growth in emerging and developing countries. Additionally, the MOBs are vital 

partners in containing national security threats, especially at a time when we are asking the 

MOBs to do more to address the root causes ofrefugec and other forced displacement crises, to 

better integrate refugees into host countries, to support pandemic responses, and to invest in 

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sustainable infrastructure that contributes to global growth and creates jobs. As an example, the 

Inter-American Development Bank (IDB) has taken a leading role in helping El Salvador, 

Guatemala, and Honduras implement reforms to spur economic growth, which will help address 

the root causes of the flow of vulnerable migrants to our border. 

In addition to meeting our current commitments, it is urgent that Congress address our prior 

unmet commitments, which are approaching $1.6 billion. Doing so with respect to the World 

Bank is particularly urgent, as failure to meet our unmet capital commitments to the Bank will 

result in a loss of U.S. share holding, which would not only impact our voting power, bringing us 

closer to losing our veto, but also damage our credibility and weaken our ability to shape policy 

priorities. The World Bank provides critical support tor strategic U.S. priorities such as 

responding to the Syrian refugee crisis. delivering financing to Ukraine, and financing 

infrastructure in the poorest countries in Africa and Asia. 

The international community, including the FA TF. G-7, and the G-20, is continuing its focus on 

addressing the serious threat posed by illicit actors misusing legal structures, like shell 

companies, to hide their identity and help perpetrate a range of financial crimes. The United 

States Government plays a leadership role in each of these fora as we have long recognized the 

importance of addressing this vulnerability. Much of this work is focused on countries requiring 

the disclosure of the beneficial owner, the individual or individuals who ultimately owns or 

controls a legal entity when it is formed. One key component of these efforts is to make 

beneficial ownership information more readily available to law enforcement agencies to 

investigate financial crimes such as money laundering and high-level corruption. The MDBs 

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have made great strides in recent years to enhance transparency though the collection of 

information on the beneficial owners of legal entities to safeguard their funds and minimize the 

potential that these funds are diverted from their intended purpose. 

Treasury supports the goals of recent legislation, the Consolidated and Further Continuing 

Appropriations Act. 2015. that requires that MDBs collect and verify the beneficial ownership 

information oflegal entities that receive appropriated funds. We commend the World Bank for 

the recent steps it has taken to collect this information not just for private sector investments, but 

for all procurement funded in World Bank projects and to publish it online. 

Addressing Complex Global Challenges 

When it comes to global challenges such as protecting the environment, food insecurity, and 

gender imbalances, the world continues to rely on multilateral institutions and strong U.S. 

leadership within them to help developing countries make concrete investments. U.S. support 

for specialized multilateral funds leverages resources from other donor countries and the private 

sector, significantly multiplying the impact of American taxpayer dollars. 

In particular, the Global Environmental Facility (GEF) helps countries protect the environmentincluding preserving the ozone layer, protecting fisheries, combating wildlife trafficking, and 

reducing mercury pollution that can contaminate our food supply. The Green Climate Fund 

(GCF) is designed to be a key element of the collective global effort to build climate resilience 

and reduce carbon pollution by enabling developing countries to invest in those goals and 

transition to a more sustainable development path through national planning. 

6 
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The budget request includes funding for a targeted number of other important programs, 

including the Central America and Caribbean Catastrophe Risk Insurance Program, the World 

Bank Global Infrastructure Facility (GIF), the Global Agriculture and Food Security Program 

(GAFSP), and the International Fund for Agricultural Development (IF AD). 

Successful development also depends on good governance and a well-functioning state. For over 

25 years. Treasury's Office of Technical Assistance (OTA) has provided advice and training to 

government officials in developing and transitional countries so they can build effective public 

financial institutions. OTA helps countries improve government operations across several areas, 

including planning and executing budgets, managing debt, collecting revenue, developing sound 

banking systems, and combating corruption. OTA is particularly helpful with our foreign policy, 

security and economic priorities in Ukraine. Central America, Africa, Asia, and other regions. 

Conclusion 

U.S. leadership in the IF!s enables us to influence bow and where resources are deployed--often 

on a scale that we cannot achieve through our bilateral programs alone. They allow us to 

promote U.S. national security, and global economic growth and poverty reduction. No other 

institutions so ef1Cctively leverage our limited resources in service of our national and global 

interests. However, bipartisan support is required to ensure that our influence in the lMF and 

MOBs remains as strong today as it has been over the past several decades. Treasury looks 

forward to continuing the dialogue with Congress on the important role of the IFis in the global 

7 
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economy, especially as we implement the IMF reform legislation and negotiate replenishments 

of several of the MDB windows that serve the world's poorest countries. 

I look forward to working with you on these critical issues and welcome your questions. 

Thank you. 

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You'll Never Get Real Oversight of the CFPB This Way I Bank Think Pagel of 4 

AMERICAN BANKER. 

You'll Never Get Real Oversight of the CFPB This 

Way 

By Rob Blackwell 

March 18,2016 

WASHINGTON- Republicans on the House Financial Services 

Committee finally caught Consumer Financial Protection Bureau 

Director Richard Cordray in a lie on Wednesday, when he 

responded to a lawmaker by saying, "I actually enjoy coming before 

the committee." 

Unless Cordray is a masochist, there is no way that could be true. 

For three hours, Cordray was subjected to hostile questioning from 

most of the GOP panel members and a few Democrats. They 

demanded answers about everything from the agency's plan to rein 

in payday lending to allegations of discrimination anil retaliation 

against employees. If bankers- many of whom are frustrated with 

the CFPB given the sheer number of regulations it has releasedwere watching, many doubtless would have been cheering on the 

sidelines. 

But if the committee meant to conduct true oversight of an agency 

so many Republicans clearly detest, it failed miserably. 

T1me and again, lawmakers effectively stepped on their own lines, 

asking Cordray important questions and never bothering to let him 

respond. They allowed theatrics to trump (pun intended) substance, 

using their time to berate the CFPB chief instead of engaging in a 

productive discussion. 

Generally, the exchanges worked like this: 

1. The lawmakers asks a question. 

2. Cordray starts to answer. 

DATE: 3/29/16 

TIME: 2:00PM ET/11:00 AM PT 

DURATION: 1 Hour 

SPONSORED BY 

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---- -----

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----- - ----- ----·-

1-!0STWBY 

AMERICAN BANKER 

3. The lawmaker interrupts Cordray, yelling at him that he hasn't answered the question. 

Perhaps the most glaring example of this was an exchange between Rep. Ann Wagner, R-Mo., who seized on 

comments made by Cordray earlier that he had never "ducked and dodged" questions from committee members 

and that he responds to all letters from panel members in a timely fashion. 

http://www.americanbanker.comlbankthink!youll-never-get-real-ovcrsight-of-the-cfpb-this... 3/22/2016 
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You'll Never Get Real Oversight of the CFPB This Way J Bank Think Page 2 of 4 

"All right, Director Cordray, let's have a conversation," Wagner said. 

She noted that the committee had sent a subpoena to the CFPB in December, requesting documents related to 

serious accusations that the agency discriminated against employees and retaliated against those who raised 

issues internally. 

"Despite you saying the CFPB is committed to transparency and compliance, always answer our letters, never duck 

or dodge, you all have failed once again to respond adequately to this subpoena," she said. 

Here's where the problems starl Following is a transcript of the exchange: 

Wagner: You have failed to comply. 

Cordray: In what way? 

Wagner: That's theCordray: Give me a specificWagner: You haven't responded to the subpoena or to the letter. 

Cordray: Give me a- of course we've responded. We've produced another, I think, 20,000 pages of 

documents. 

Wagner: Not in any adequate way, shape, or form. 

Cordray: Well, okay, tell me how it's inadequate? That's just.. 

Wagner: Will you submit- will you absolutely right now commit to complying with our committee? If 

so, when? 

Cordray: We have been working to comply all along. We will continue to work to comply. 

Wagner: "Working to comply," Director Cordray, is what we call ducking and dodging. 

Except the person ducking and dodging the question appears to be Wagner, not Cordray. After accusing him of a 

faHing to adequately respond to a subpoena- potentially a crime- she never provides specifics as to how the 

agency's response is inadequate. 

And make no mistake, this is an important question. American Banker first reported in 2014 that the agency was 

likely to give higher evaluations- and therefore higher pay to white employees than African-Americans or 

Hispanics. The agency responded by scrapping its employee compensation system and remitting $5 million to most 

affected of the staff members. But there are ongoing questions about allegations of retaliation by management, 

questions that aren't resolved by pointlessly scolding Cordray. 

And unfortunately, this type of exchange was the rule, not the exception. To be sure, Congressional hearings often 

bring out lawmakers' dramatic sides, resulting in grandstanding. But the ones with Cordray in the House Financial 

Services Committee are particularly histrionic. In contrast, the Senate Banking Committee hearings with the CFPB 

chief are far more sedate, and are all the more illuminating because of it. 

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You'll Never Get Real Oversight of the CFPB This Way I Bank Think Page 3 of 4 

Rep. Scott Garrett, R-N.J., used his time to question Cordray about the CFPB's efforts to study arbitration clauses. 

But the exchange quickly devolved into bickering about whether the 2010 Dodd-Frank Act, which mandated that the 

CFPB look into arbitration, trumps the 1929 Federal Arbitration Act, which allows arbitration clauses in contracts. 

Following is a transcript of part of the exchange: 

Garrett: Has Congress ended the ability of arbitration? 

Cordray: So in the Military .. 

Garrett: That's a yes or no question. 

Cordray: In several respects, yes, they have. 

Garrett: I didn't say 'in several respects.' I saidCordray: Yes, in several respects they have. 

Garrett: - have they ended the use of arbitration? 

Cordray: Under the Military Lending Act they barred arbitration clauses in lending contracts to service 

members. 

Garrett: So we can't seem to getCordray: Under Dodd-Frank they barred it in residential mortgage contracts, for the most part. 

Garrell: Have we totally eliminated arbitration? 

Cordray: No, but they thenGarrett: Okay. Thank you. 

Cordray:- but they gave us, then, authority Congress conferred it to us. I'm not making it up. 

That exchange is exhausting to read, let alone watch - now imagine dozens like it playing out over three very long 

hours. 

Sometimes lawmakers resorted to props to make !heir point. Rep. Steve Stivers, R-Ohio, had an aide hand Cordray 

a toddler's T -shirt and asked him to put it on. Cordray understandably declined. 

"You wouldn't fit in it," Stivers told him. "So the two ways you could fit in that are go on a massive diet and restrict 

yourself, which is what a lot of our community financial institutions are doing to make themselves smaller to serve 

their clients less; or they could strain the T-shirt and break the T-shirt, the T-shirt being the regulation. That's the 

problem you're putting folks in." 

There's a serious point in what Stivers is saying: the proliferation of regulations is crushing small institutions. But 

the point is lost amid a ridiculous discussion about a child's T-shirt. 

It's a good example of why this semiannual hearing is so often a disappointment. Lawmakers are raising important 

issues, including the CFPB's tendency to use enforcement authority in lieu of rulemaking powers, the need for 

1ttp://'<;Y'\Vw.americanbanker.comlbankthink/youll-never-get-rea!-oversight-of-the-ctpb-this... 3/22/2016 
83 


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You'll Never Get Real Oversight of the CFPB This Way I Bank Think Page 4 of 4 

regulatory relief for small banks, the agency's plans to rein in certain products and its treatment of its staff. But 

those issues are subsumed by the posturing and shouting. 

It's sometimes as if the lawmakers believe they are in the finale to the movie "A Few Good Men," with the 

congressman playing Tom Cruise's role and Cordray cast as Jack Nicholson's character. 

"Was it Elizabeth Warren who absolutely ordered and authorized the [building] renovation, sir?" Wagner demanded 

at the end of the hearing. 

"I don't know. It seems like that's what you're trying to get me to say," Cordray replied. 

"I want the truth, sir," Wagner replied. 

Maybe they can't handle the truth. One thing's for sure: We're not going to get to it this way. 

Rob Blackwell is the Washington bureau chief of American Banker. The views expressed are his own 

:(\l\1: SOURCEMEDIA" o:> 2015 SourceMed<O All rightscesecved 

http:/ /wv.rw .americanbanker. com/bankthinklyoull -never -get-real-oversight -o f-the-cfpb-this... 3/22/20 !6 
84 


23888.013

Questions for the RecordfiJr Secret my Jacob J Lew 

House Financial Services Comrnittee 

"The Annual Testimony r?lthe Secretar_v r?lthe Treaswy on the State of the International Financial 

Syslem" 

Hearing held March 22. 2016 

Rep. Andv Barr 

Question l: 

Secretary Lew, as you know, Kentucky has a long and proud association with the sport of 

thoroughbred horse racing. We are coming up on the l42"d running of the Kentucky 

Derby this May and, hopefully, on the First Saturday in May we will get the first look at 

another Triple Crown Winner. 

The horse breeding and racing industry in this country is a $26 billion industry that 

nationwide accounts for nearly 400,000 jobs and produces almost $2 billion in tax revenue. 

Just as important as the breeders and owners, however, are the people who go to the track, 

follow the races and place their bets. In short, pari-mutuel wagering is the lifeblood of this 

very important industry. 

I and several of my House colleagues from both sides of the aisle have written and met with 

your staff in the Office of Tax Policy to talk about the critical need to update the tax 

reporting and withholding rules that apply when someone is lucky enough to have a 

winning pari-mutuel wager. 

We are grateful that Treasury is looking seriously at our concerns and has included these 

issues in its current project related to the reporting and withholding of other gambling 

winnings. 

What concerns me, Mr. Secretary, is that we have no sense of when Treasury may finish its 

work hopefully to modernize the rules that apply to pari-mutuel wagers. My constituents, 

and those with ties to the industry across the country, are anxious to have clarity, especially 

as we approach Triple Crown season. 

Can you please give me a sense of when we might sec the new rules you are working 

on? 

• Understanding that not everyone has deep understanding of the uniqueness of parimutuel wagering, has Treasury been proactive in reaching out to stakeholders, 

including racetracks, tote companies, horseplayers, and state racing officials to 

ensure any new rules accurately and fairly reflect the realities of wagering iu the 

21st Century? 

• Is Treasury contemplating any other administrative or regulatory guidance, short of 

new regulations, that also might address the administrative and record keeping 

burdens imposed on pari-mutuel wagering? 
85 


23888.014

Questions for the Record for Secret my Jacob.! Lew 

1-Iouse Financial Services Committee 

"The Annual Testimony (?(the S'ecrefaTJ' qf'the Treasw~v on the State oft he International Financial 

Svstem·· 

Hearing held March 22, 2016 

Answer: 

Personnel from the Treasury's Office of Tax Policy and the JRS Office of Chief Counsel are 

currently working on a regulatory project under§ 31.3402(q)-l regarding identical wagers in the 

case of winnings from pari-mutuel gambling. We have received significant input from industry 

stakeholders and interested parties in response to a prior request for comments, and this input has 

been very helpful in understanding these issues. We are considering the comments received and 

hope to have this guidance out soon. Following the issuance of this guidance, interested parties 

will have an opportunity to comment. Treasury and IRS will weigh these comments in 

considering whether and what additional steps should be taken. 
86 


23888.015

QuestionsjiJr the Recordji;r Secret my Jacoh J. Lew 

1/ouse }'inancial Services Committee 

"The Annual Testimony of the Secret my o{the Treaswy 011 the State of the International Financial 

System .. 

Hearing held March 22, 2016 

Rep. Keith Ellison 

Carried Interest 

Question 1: 

Many have decried the tax loophole known as "carried interest" which allows managers of 

private equity, venture capital and other private investment funds to receive their share of 

profits, as carried interest, instead of regular income. Under current law, the income they 

earn as is often taxed at the long-term capital gains rate of 20 percent. That's about half the 

rate most would pay if their income were taxed as ordinary income, once you add payroll 

taxes to the top marginal rate of 39.6 percent. 

In a New York Times editorial on .June 12,2014, economist Victor Fleischer recommended 

that the administration take unilateral action to end this costly and unfair tax dodge which 

furthers income inequality and the wealth gap. Fleischer stated that the Administration 

should direct the Internal Revenue Service to reclassifY managers as service providers, 

which would require that their income be taxed as ordinary income. Others, such as David 

Lebedoff have made similar arguments. 

• Can the Treasury Department direct the IRS to tax fund managers as service 

providers under Section 707(a)(2)(A)'? This section of the tax code addresses the 

kinds of compensatory arrangements between a partner and the partnership. 

Answer: 

Carried interest reform continues to be an important priority for the Administration, as reflected 

in the Administration's FY 2017 budget proposal to tax at ordinary rates a partner"s share of gain 

on an ''investment services partnership interest." A version of this proposal has been in all the 

Adtninistration"s Budgets since 2009. 

In July 2015 we issued proposed regulations under Section 707(a)(2)(A) that, when finalized will 

tax fund managers at ordinary rates on certain amounts that lack entrepreneurial risk (including 

income resulting from so-called "management fee waivers"). While the proposed regulations arc 

narrower in scope than the Administration's budget proposal. the proposed regulations once 

finalized will require many fund managers to pay ordinary income tax rates on a larger amount 

of their overall income. Treasury and the Internal Revenue Service are continuing to evaluate 

our authority to address the carried interest issue through administrative action, but there are 

limitations. For example. Mr. Fleischer states in the editorial cited in your question, "[t]axing 

fund managers as service providers under section 707 would be at odds with the legislative history[.]" 

We therefore continue to believe that a legislative approach to carried interest reform is the best 

and most appropriate course of action. 
87 


23888.016

Questions for the Rccordfor Secret my Jacoh .1. Lew 

1-!ouse Financial Service.\' Committee 

''The Annual Teslimony of/he Secrelary o{lhe Treaswy 011 !he Stale of the lnlemalionul Filwncia/ 

System" 

Hearing held March 22, 2016 

Corporate Inversions 

Question 2: 

Corporations are renouncing their American citizenship. This results in less revenue to 

support our legal and patent systems, airports and bridges, educational systems, and more. 

When corporations invert, they avoid federal taxes, yet still claim benefits paid for by other 

business and individual taxpayers. 

The New York Times explored one of these proposed mergers- between Pfizer and 

Allergan, a company that previously renounced its citizenship- in a recent story. 

The Times article noted that this merger would likely lead to even more such inversions 

and tax avoidance. Stephen Shay, former Obama Administration appointee as Deputy 

Assistant Secretary for International Tax Affairs and multinational tax expert, was quoted 

as saying that Treasury "has the prerogative to make a more muscular application of its 

administrative authority than they have already." 

Both House and Senate members urged you last month to apply more fully every tool at 

your disposal to stop these inversions and stem the flow of revenue that we are losing as a 

result of these tax-motivated deals. One form of tax avoidance is what tax lawyers call a 

"hopscotch" transaction- a move that one of the prior Treasury Notices addressed. 

But these narrow notices have been circumvented, and the problem has only worsened. 

The Wall Street Journal counted the Johnson Controls-Tyco deal as the 12th expatriation 

since the first Treasury Notice in September 2014 .• Just lowering the threshold in that prior 

notice would prevent the Pfizer merger from going through or, if it proceeded, result in 

tens of billions more to the U.S. Treasury. 

Will Treasury adopt regulations that will prevent Pfizer and other multinationals 

from dodging their responsibility to help pay for our national security and other 

vital public services? 

Answer: 

On April4. 2016. the Treasury Department and the Internal Revenue Service (IRS) issued 

temporary regulations that both limit the ability of U.S. companies to invert and reduce the tax 

benefits of inversions. In addition to fom1alizing Treasury's two previous actions in September 

2014 and November 20 !5 that limited the ability of U.S. companies to invert and reduced the tax 

benefits of inversions, these temporary regulations take additional actions to limit inversions and 

the tax benefits of inversions. In particular, the temporary regulations address •·serial 

inversions:· They prevent a foreign company (including a recent inverter) that acquires multiple 

U.S. companies in stock-hased transactions over a short period of time from using the resulting 

increase in size to avoid the statutory inversion ownership thresholds tor a suhsequcnt U.S. 
88 


23888.017

QueslionsjiJr the Recordfor Secretary Jacob J Lew 

House Financial Services Committee 

"The Annual Tcstimon.v '~the Secrctarv cJ(/he Treaswy on the State olthe International Financial 

.. ~pstem '' 

Hearing held March 22, 2016 

acqmstl!on. Furthermore, on April4, 2016, the Treasury and the IRS also issued proposed 

regulations to curb the use of earnings stripping by focusing on transactions that some 

multinational firms use to generate large interest deductions in the United States by simply 

transferring financial instruments that they characterize as debt between subsidiaries without 

financing new investment in the United States. 

We will continue to explore additional ways to limit inversions. But only new anti-inversion 

legislation can stop these transactions. Until that time, creative accountants and lawyers will 

continue to seck new ways for companies to move their tax residences overseas and avoid paying 

taxes here at home. We urge Congress to take action, and we believe the best way would be to 

enact comprehensive business tax reform with specific anti-inversion provisions. These 

proposals are detailed in our FY 2017 Budget submission. The Administration has been working 

with Congress for several years in an effort to reform our business tax system, make it simpler 

and more pro-growth. and address the incentives that encourage companies to invert. and we will 

continue to do so. 

Currency Manipulation & TI'P 

Question 3: 

In November 2015, the monetary authorities of the Trans-Pacific Partnership (TPP) 

countries released a joint declaration to address unfair currency practices. Through the 

declaration, the TPP countries re-affirmed their commitment to avoid currency 

manipulation and pledged to increase transparency and reporting requirements on 

exchange rate policies and data and engage in multilateral dialogue on macroeconomic and 

exchange rate policy issues. However, the declaration falls short of including any 

enforceable mechanism against currency manipulation. 

• In your view, does this side agreement provide enough protection for U.S. businesses 

and workers against unfair currency practices by other TPP countries, now and in 

the future? 

Answer: 

The Joint Declaration contains strong elements that promote accountability in exchange rate 

policies. including commitments to exchange rate policies that avoid unfair currency practices. 

bilateral and multilateral engagement, and to increased transparency on exchange rate issues. On 

currency standards, countries are making significant commitments at senior levels on important 

exchange rate policies. No country takes these commitments lightly. 

The Joint Declaration builds in unprecedented transparency provisions that will allow TPP 

countries and stakeholders to better monitor implementation of the exchange rate commitments. 

TPP countries will publicly report their foreign-exchange intervention and foreign reserves data, 

some for the first time. Further, the Joint Declaration also includes an ongoing review process 

where the United States and TPP partners can hold each other accountable for fulfilment of the 
89 


23888.018

Questionsfhr the Recordfi>r Secret my Jacoh J Lew 

!-louse Financial Services Committee 

"The Annual Testimony of/he Secret my of/he TreasW:J' m1the Stale <((the lnEernalional Financial 

System" 

Hearing held March 22, 2016 

commitments. The Joint Declaration applies to all TPP countries to prevent unfair currency 

practices. In the future, it will also apply to those countries that accede to the TPP, subject to 

transparency and other conditions determined by existing TPP authorities. 

De-risking/ Remittance Flows to Developing Countries 

Question 4: 

Money Service Businesses 

In .January of2015, Treasury hosted a roundtable to discuss some of the challenges that 

money service businesses were, and continue to have, in securing the bank services they 

need to help customers send money abroad. 

• Can you provide an update on the work that Treasury has done since that 

roundtable to promote financial access for lawful and legitimate money services 

businesses (MSBs)? 

Answer: 

Treasury remains actively engaged on the issue of access to financial services in the United 

States for money services businesses (MSB) and clarifying the expectations for financial 

institutions with respect to their MSB customers. Since the January 2015 Treasury-sponsored 

MSB roundtable-which brought together more than I 00 participants from the private sector. 

government, and regulatory community-Treasury has continued its efforts to promote financial 

access for MSBs and their customers, while continuing to safeguard the financial system from 

abuse. 

As part of Treasury's effmts to further clarify regulatory expectations with respect to MSBs. 

The Financial Crimes Enforcement Network (FinCEN). a bureau of the Treasury Department, 

has issued detailed guidance clarifying regulatory expectations with respect to MSBs. In March 

20 !6, FinCEN pub! ished guidance reiterating anti-money laundering (AML) program obi igations 

that MSB principals must understand and appropriately account tor when assessing the risks 

associated with their agents. This clarifying guidance is intended to facilitate a better 

understanding of how MSB principals and their agents can comply with AML requirements. 

This guidance also helps inform financial institutions' understanding of what to expect in MSB 

AML programs and better enable them to assess the risk of doing business with MSBs. This 

guidance complements the 2005 interagency guidance published by FinCEN and the Federal 

Banking Agencies (FBAs) to help banks better understand their AML and countering the 

financing of terrorism (CFT) obligations with respect to their MSB clients. By clarifying 

regulatory expectations, FinCEN and the FBAs arc working to ensure that banks have the 

flexibility to provide services to a wide range ofMSBs while remaining in compliance with the 

Bank Secrecy Act. 
90 


23888.019

Questions for the Record for Secret my Jacob./. Lew 

flo use Financial Services Committee 

··n,e Annual Testimony o(the Secretarv o(the 7/·easW}' on the State oft he International Financial 

S)stem" 

Hearing held March 22, 2016 

Forty-five states plus the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands 

have entered into the Nationwide Cooperative Agreement and Protocol for MSB Supervision to 

promote a nationwide framework for cooperation and coordination among state MSB regulators. 

FinCEN utilizes authorities granted under the Money Remittances Improvement Act of 2014 to 

access and analyze examinations conducted by state supervisory agencies, thereby improving 

oversight of nonbank financial institutions that other.vise lack a federal regulator, such as MSBs. 

By allowing federal regulators to rely on state examinations, regulators are able to more 

efficiently ensure compliance with laws and regulations while also reducing costs for MSBs 

themselves. 

Internationally, Treasury continues to engage with multilateral bodies, such as the Financial 

Action Task Force (FATF) on the efTcctive implementation of AMLICFT standards, including 

those related to correspondent banking and financial access for MSBs. For example, Treasury 

played an important role in the drafting of the FA TF's revised guidance issued in February 2016 

highlighting that financial institutions should identify, assess, and manage the money laundering 

and terrorist financing risks associated with individual MSBs, rather than avoid this category of 

customers entirely. 

Question 5: 

There has been a substantial amount of discussion in this Committee about humanitarian 

situation in Somalia, and the dire need for Somalia to build up its financial capacity. 

Remittances play a vital role in paying for basic needs such as food, health care, education, 

and seed capital for small entrepreneurs. If we do not find ways to remediate the 

remittances situation, we run the very real risk of unintentionally contributing to Somalia's 

instability, which could lead to a collapse, and provide the perfect opportunity for 

extremist groups to take over. This concern is especially dire due to the worst drought in 

sixty years plaguing the Horn of Africa. Jt is estimated that 4.7 million Somalis need food 

aid, and that the 2016 Somalia Humanitarian Response Plan only received 4% of its 

funding to date, with $850 million in aid still needed. As you know, Somalia has a new AntiMoney Laundering Law. Passing this law is progress. 

What do you think the impact of that law will be in the short- and long-term? What 

else must Somalia do to ensure that law works to ensure funds do not reach al 

Shabaab criminals but still provide life-saving education, food and small business 

investments? 

The key to facilitating remittances to Somalia while also reducing the risk of money launderers 

or terrorists exploiting remittance services is to help Somalia develop a functioning and regulated 

financial system that includes a robust anti-money laundering and countering the financing of 

terrorism (AMLICFT) regime. The passage of an AMLICFT law in Somalia is an important step 

towards building Somalia's regulatory and supervisory capacity. 
91 


23888.020

Questions/or the RecordfiJr S'ecretmy Jacob J Lew 

Hause Financial Services Committee 

"The Annual Testimony of the Secre/arv oft he Trcaswy on the State of/he International Financial 

System" 

Hearing held March 22, 2016 

While passing an AMLICFT law is progress, Somalia must now take steps to implement and 

enforce the law, promulgate regulations, establish a functioning financial intelligence unit, and 

begin conducting examinations of financial institutions. This includes the implementation of the 

provisions in the AML/CFT law that establish money laundering and terrorist financing offences 

and require reporting entities-including money transmitters-to conduct customer due 

diligence. The United States government is actively helping the government of Somalia in this 

work. 

• Can you discuss the work that Treasury is involved in to assist in the development 

of a durable financial sector with appropriate regulations and oversight? How high 

a priority is restoring and expanding remittances to Somalia? 

• What progress has Somalia's centt·al bank made in developing the technical 

capacity, staff, and regulations needed to oversee the commercial banking sector 

and its MSB sector'? 

Helping Somalia build strong, stable and transparent systems is an important priority of the U.S. 

government, as is the continuation of remittances to Somalia. Treasury's ongoing efforts 

include: (i) providing technical assistance to Somalia; (ii) engaging with international institutions 

and partners; (iii) engaging the Somali-American community and the financial institutions that 

serve them; (iv) promoting financial access for the money service business (MSB) sector overall; 

and (v) coordinating with other agencies, including the State Department and the United States 

Agency for International Development to help build Somalia state capacity and support 

humanitarian assistance efforts. 

Treasury's Office of Technical Assistance (OTA) is providing training to the Central Bank of 

Somalia (CBS) on risk-based supervision to help build capacity to implement banking 

regulations and carry out examination and supervision procedures. OT A recently completed the 

last of six training sessions for the CBS in Nairobi in July 2016. and both OTA and the 

Government of Somali report that this engagement has been going very well. Treasury is 

discussing with the State Department and the CBS the possibility of continuing this work in FY 

2017. 

Treasury also supports efforts by the World Bank to employ a trusted agent to establish oversight 

of licensed money transmitters in Somalia and to assist the CBS in building its supervisory and 

regulatory capacity. The World Bank is also assisting the CBS to draft and implement new 

regulations and guidelines for money transmitters in Somalia. 

Additionally. Treasury supports efforts by the Department of State to help build Somalia's 

financial sector by: (i) developing the CBS' capacity to implement regulation, examination and 

supervision procedures; (ii) strengthening the capacity of Somalia's remittance sector to identify 
92 


23888.021

Questionsfilr the Rccordfor Secretary Jacob J. Lew 

House Financial Services Committee 

"The Annual Testimony of the Secretmy of the Treaswy 011 the State of the !mernational Financial 

System" 

Hearing held March 22, 2016 

customers, report transactions, detect suspicious activity, and assist law enforcement; and (iii) 

developing a customer identification and verification system in Somalia. 

Further, Treasury has worked with the International Monetary Fund (IMF) and other 

stakeholders to support the launch of a Staff Monitored Program in Somalia, which may provide 

a framework for further reforn1s in Somalia and put the country on a path towards eventual debt 

relief. 

What specific approaches has Treasury staff considered to restore and expand 

remittances to Somalia? 

In addition to offering technical assistance to Somalia, the Department of the Treasury engages 

with the Department of State. the U.S. Agency for International Development (USAID), 

international organizations. and foreign partners to coordinate technical assistance and build the 

capacity of the Somali Central Bank to develop a regulatory framework and supervisory regime 

for financial institutions in Somalia. Treasury participates on the Somalia Remittances 

Stakeholder Advisory Council, which includes representatives from Treasury, State, USAID. the 

United Kingdom, World Bank, TMF, African Development Bank, CBS. and Central Bank of 

Kenya, to coordinate multilateral efforts on the Somalia remittances issue. 

Treasury also engages routinely with the Somali-American community including 

representatives of money transmitters serving that community, non-governmental organizations 

serving East Africa, and regional banks- on Somalia remittances and the importance of long· 

tenn capacity-building in Somalia. As detailed above, banks are concerned with the risks 

associated with remittances to Somalia. An increased willingness to bank remitters serving the 

Somali-American community depends on Somalia developing a functioning and well-regulated 

financial system. 

If Congress was to pass a law directing the Treasury Department to establish a 

special regulatory regime for qualifying MSBs that transfer remittances to Somalia 

in order to enable them to access bank accounts, what should we consider? What 

criteria should be included to enable MSBs to participate? Obviously an impeccable 

state and IRS exam, access to 24-7 oversight, clean audits, bnt what else? 

• A significant portion of remittances to the Horn of Africa now flow through legal, 

though insecure channels outside the banking system. Do you consider this an 

acceptable situation from an AMLICFT point of view'! If financial crime results 

from this situation and causes a significant disruption in remittances to Somalia, 

what action would you take to restore the flow of money and prevent further 

financial crime'! 
93 


23888.022

Questions(iJI· the Record for Secrelwy Jacob.!. Le·w 

House Financial Services Commillee 

.. The Annual Tcslimonv oft he Secretwy oft he Treasury Oil/he State oft he lntemational Financial 

._~vstcm'' 

Hearing held March 22, 2016 

• If Congress was to pass a law directing the Treasury Department establish its own 

remittances pipeline, how should that be structured? What transfer services docs 

Treasury have at its disposal and how could it be engaged to enable humanitarian 

remittances to reach Somalis abroad? 

In what ways might a failure to service MSBs through the formal financial system 

contribute to a further lack of transparency in financial flows? 

Answer: 

The Treasury Department believes that an appropriate legal framework is in place for MSBs. To 

comply with their Bank Secrecy Act obligations. MSBs must register with FinCEN, implement 

AMLICFT programs, and comply with certain recordkeeping and reporting obligations. MSBs 

are examined by their state regulators and, as appropriate, by FinCEN for compliance with these 

obligations. We believe our risk-based framework fosters financial inclusion and protects the 

U.S. financial system from abuse. 

Remittances and humanitarian assistance continue to flow to Somalia through bank and cash 

courier channels. Some money transmitter businesses have decided to ship or transport cash 

directly to their affiliates abroad. This is legal, so long as individuals and companies 

transporting, mail in g. or shipping more than $1 0,000 in currency or other monetary instruments 

into or out of the United States complete and provide a Report oflntcmational Transportation of 

Currency or Monetary Instruments to U.S. Customs and Border Protection. 

Treasury recognizes the vital role of MSBs in the United States as well as in economies around 

the world, including in Somalia. According to the World Bank, remittances to developing 

countries have grown consistently from $303 billion in 2009 to $441 billion in 2015, roughly 46 

percent. The United States remains the top remittance-sending country in the world, sending 

$56.3 billion abroad, or $19.4 billion more than the next-largest sender. Further, the United 

States has had the lowest average remittance-sending costs (6.034 percent for $200 in the first 

quarter of 20 16) in the G-7 over the past eight years, well below the global and G-7 averages. 

Treasury remains committed to preserving access to financial services for the MSB industry as a 

whole, including money transmitters, and to providing essential financial access to customers 

that are less likely or unable to use traditional banking services, including in developing 

countries and underserved populations. MSI3s advance financial inclusion globally and, without 

MSBs, those customers that are unable to access traditional banking services might seek to do 

business through less regulated channels. MSI3s also provide crucial information under the Bank 

Secrecy Act to regulators and law enforcement to improve financial transparency and combat 

illicit financial activity. In Fiscal Year 2014, MSBs filed roughly 720,000 suspicious activity 

reports and 355,000 currency transaction reports. 
94 


23888.023

Questionsfor the Recordfin· Secretwy Jacob.! Lew 

!louse Financial Services Committee 

"The Annual Testimony olihe Secretary olthe Treaswy 011 the State of" the International Financial 

System·· 

Hearing held March 22. 2016 

Question 6: 

In response to my question submitted for the record to a March 2015 Financial Services 

Committee hearing you stated that "Treasury has engaged in discussion with the Federal 

Banking Agencies regarding an update to its 2005 guidance to banks on the regulatory 

expectations related to the provision of banking services to MSBs." 

• Over the past year, what decisions have been made about whether additional 

interagency guidance on remittances to Somalia specifically or MSBs generally 

would be useful and effective? I had hoped that interagency guidance would have 

been published last year. 

Answer: 

In November 2014, FinCEN issued a statement that reiterated the expectations detailed in the 

2005 interagency guidance regarding MSBs. Shortly thereafter, several other Federal banking 

agencies issued similar statements. Since then, the Bank Secrecy Act Advisory Group (BSAAG), 

a statutorily mandated advisory group consisting of industry, law enforcement and regulators 

(both state and Federal) chaired by the Director of the Financial Crimes Enforcement Network 

(FinCEN), determined this year that the broader issue of de-risking should be prioritized as a key 

topic. The BSAAG formed a specific working group to discuss the issues. Re-issuing the 2005 

interagency guidance has been a frequent topic of discussion in the working group as well as the 

broader BSAAG. Industry participants have not been consistent as to whether it would be useful 

to re-issue the 2005 guidance either in its same format or with updates because some participants 

believe that it could worsen banking access for MSBs because it would either restate risks 

associated with MSBs stated in the 2005 guidance or include discussions on new risks related to 

emerging technologies in the MSB space. 

Currently, the BSAAG de-risking working group is focused on four major initiatives, including 

hringing more transparency to the overall MSB industry and the supervision of the industry, 

providing consistent regulatory guidance on banking MSBs, and developing best practices for 

addressing the Bank Secrecy Act compliance obligations. We continue to discuss within 

BSAAG and with the banking regulators additional guidance that may be useful to address 

banking MSBs and the current de-risking environment. 

In this effort to address the four major initiatives highlighted by BSAAG, and in the spirit of the 

Money Remittances Improvement Act (MR!A), FinCEN has been working closely with the 

Conference of State Bank Supervisors (CSBS) and individual state bank commissioners to bring 

more transparency to the industry, through their Nationwide Multi-state Licensing System 

(NMLS). We have worked with CSBS to publicize the MSB information that is publicly 

available and determine if additional information would be useful from the industry on a 

quarterly basis. FinCEN is also working closely with CSBS, state regulators and the IRS to 

educate Federal bank examiners on the enhanced and coordinated supervision efforts of the MSB 

industry to address any misperception that the industry is not properly supervised. 
95 


23888.024

Questions/in· the Recordfbr Secretwy Jacob J Lew 

l!ouse Financial Services Committee 

"71Je Annual Testimony of the Secreta!)' olthe Treaswy on the State oft he International Financial 

System" 

Hearing held March 22, 2016 

Question 7: 

There has been a substantial amount of discussion in this Committee about humanitarian 

situation in Somalia, and the dire need for Somalia to build up its financial capacity. 

In response to questions submitted for the record for a March 2015 hearing you stated that 

FinCEN continues to weigh whether sharing MSB exam information would improve 

financial access for MSBs, by making due diligence more effective. 

• What is Treasury's current thinking on allowing MSBs to share their exams with 

financial institutions with which they wish to open accounts and engage in wire 

transfers? 

Answer: 

FinCEN has spoken to both the IRS and state regulators regarding MSBs' ability to share 

examination findings with banks. Treasury continues to consider the implications -legal and 

policy of allowing the sharing supervisory examination information beyond the examined 

financial institution itself. In discussions with state regulators, FinCEN learned that certain 

states allow their MSBs to share certain exam findings with banks. 

Question 8: 

Money Remittances Improvement Act 

Last Congress, we passed the Money Remittances Improvement Act (PL 113-156) to 

improve oversight of non-depository financial institutions. 

• Please provide an update of how that law is being implemented? What 

conversations have you had with all of the implementing entities including states, 

the Internal Revenue Service, FinCen and others? Which states do you think will 

participate in the coordinated oversight? What benefit do you see occurring 

because ofthis law? What limits 

Answer: 

Last year, finCEN signed a Memorandum of Understanding (MOU) with the State Regulatory 

Registry/CSBS Board to obtain access all state MSB licensing data contained in the NMLS. 

Since signing the MOU, FinCEN has obtained access to state licensing data and began analysis 

of whether MSB registration data and state licensing data would be useful to determine scope 

and risks within the MSB industry. We are now working with CSBS to obtain the licensing data 

in bulk format to facilitate usc of the data in combination with other FinCEN data. FinCEN 

hopes to use this licensing data to dctennine risk within the MSB industry and share such 

information with the IRS and the states to better risk-scope coordinated examinations. 
96 


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Questions jiJr the Recordfor Secretary Jacob.!. Lew 

House Financial Services Commillee 

"The Annual Testimony of the Secretmy o(the Ti·easury on the State of the Interna/ional Financial 

System'' 

Hearing held March 22. 2016 

Earlier this year, FinCEN also held a meeting with the IRS and state examination authorities 

regarding exam scheduling coordination. Since the passage of the MRIA, FinCEN has 

coordinated the sharing of examination schedules between the IRS and the states, and FinCEN 

will soon begin participating in the states' quarterly examination coordination calls. 

In coordination with certain states' regulatory authorities, FinCEN issued guidance that reiterates 

expectations for MSB principals regarding the supervision of their agents to better streamline 

state and IRS examination for MSB industry. We are also working with the states so that they 

better infonn FinCEN when concerns are raised through these streamlined examinations so that 

FinCEN can engage in further risk assessments. 

Currently most states that license MSBs through the NMLS, now over thirty, are participating in 

the supervision discussions. FinCEN is also discussing supervision coordination with states that 

do not use the NMLS system for licensing, and is working with CSBS to detennine whether 

MSBs can voluntarily use the NMLS to register with FinCEN. If possible, FinCEN participation 

in the NMLS could increase other states use of the system. 

OveralL state and Federal supervision coordination discussions have been successfuL These 

discussions are ongoing, with FinCEN and the state regulators continuing to find ways to 

improve MSB examination and bring transparency to the industry and its supervision. 

Question 9: 

Suspicious Activity Safe Harbor 

In your conversations with industry, financial regulators and law enforcement, are you 

hearing that institutions feel they have sufficient ability to share threat information related 

to money laundering and terrorism financing both among industry participants and with 

government? 

If not, would you support a clarification in law that institutions should be free from 

liability for sharing information they find to be suspicious and possibly related to 

illicit activity? 

Answer: 

Treasury. based on its past conversations with industry. law enforcement, and regulators, would 

support two amendments to the SAR safe harbor and section 314(b) statutes, respectively. 

First the judicial rulings are not uniforrn with respect to whether a bank or bank official must 

have a "good faith" belief that a violation occurred before filing a SAR. We would support an 

amendment clarifying that the safe harbor for the filing of a SAR does not require an institution 

to show that it filed the SAR in good faith. This will assure an institution that it may file a SAR 

without running the risk that it will be exposed to civil litigation for complying with federal law. 
97 


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Questionsfhr the RecordfiJr Secretw:v Jacob J Lew 

!louse Financial Services Committee 

''The Annual Testimony oft he Secretarr oft he Treasury on the State of the International Financial 

System" 

Hearing held March 22, 2016 

Second, Treasury would support an amendment that expands the safe harbor for information 

sharing related to financial institutions when sharing customer financial information with each 

other. Currently, section 314(b) provides a safe harbor from liability to financial institutions 

when sharing between themselves information regarding persons suspected of possible terrorist 

or money laundering activities. The expansion would allow financial institutions to have a safe 

harbor for sharing information for the purposes of identifying and reporting activities that 

involve ··any suspicious transaction relevant to a possible violation of law or regulation," not 

only those activities with suspected ties to possible terrorist activity or money laundering. 

Expanding the ability to share information regarding other crimes pursuant to the safe harbor 

would protect financial institutions that share information with one another without requiring a 

suspicion that the crime involves money laundering or terrorist activities. 

Question 10: 

AML/CFT Technical Assistance 

The United Nations has identified a need for donor nations to improve coordination of 

their development assistance programs. 

• Given this, what steps is Treasury taking to improve coordination across the U.S. 

government, with multilateral institutions, and with other donor countries'! 

Answer: 

Treasury has an established history of coordination with a wide range of technical assistance 

implementcrs, both from within the U.S. government (USG) as well as with international 

partners. This coordination is necessitated by the fact that AMLICFT regime development 

involves a wide-range of counterparts-from regulators to financial intelligence units to law 

enforcement, prosecutors and judges-and effective implementation of AMLICFT best practices 

requires resources that often extend beyond a single implementer. 

Coordination between USG implementers is facilitated by the Security Sector Assistance 

Presidential Policy Directive, which mandates coordination in all aspects of programmatic 

delivery including determining counterpart needs: identifying programmatic funding; ensuring 

that each agency provides assistance in line with its comparative advantage; and preventing 

programmatic duplication. In addition to Treasury. key USG interlocutors include the 

Departments of State, Justice. Homeland Security, and Defense. as well as 

USA! D. Coordination takes place both in Washington, D.C. by headquarters staff and in the 

field during implementation of projects. 

Treasury also coordinates with multilateral institutions and other donor countries. Coordination 

occurs in a number of ways. Most often coordination of assistance occurs in the field during 

project implementation as assistance providers seek opportunities to build on each other's efforts 

and prevent duplication. In this instance. Treasury also seeks to work with the recipient country 

to emphasize the need for it to take a leadership role in coordinating the assistance it receives. 
98 


23888.027

Questionsfor the RecordfiJr Secretary Jacob J Lew 

/louse Financial Servicf!s Committee 

"7he Annual Testimony of the Secretmy of the Treaswy on/he Slate of/he International Financial 

System" 

Hearing held 1'vfarch 22, 2016 

The Financial Action Task Force (FA TF)-Stylc Regional Bodies (FSRBs) also offer a forum for 

coordination of assistance between bilateral and multilateral assistance providers. Many of the 

FSRB meetings include sessions for coordination of assistance between providers; some also 

otTer an opportunity for providers to meet jointly with a recipient country. Treasury's policy and 

technical assistance offices work together to effectively contribute to these discussions and 

emphasize the core principles of effective technical assistance, including recipient country 

political will and commitment to sustainable outcomes. 

Question 11: 

Despite the importance of building strong institutional capacity for fighting the financing 

of terrorism, few resources here at home and abroad have been dedicated to meeting this 

challenge. Treasury's office of Technical Assistance, for example, only received $23 million 

in direct appropriations in FY 2016 ($4.5 million less than requested) and the IMF's entire 

AML technical assistance budget is less than $7 million per year. 

• Do you believe these funding levels are adequate? 

Answer: 

The President's FYI7 budget request tor Treasury's Office of Technical Assistance (OTA), 

which is a $10 million increase over the program's current funding level, recognizes the need to 

provide additional resources to help countries around the world to strengthen oversight of their 

financial sectors through AMLICFT regime development in order to combat corruption and illicit 

financial flows. 

IMF technical assistance on AMLICFT issues reaches about 30 countries a year, primarily 

financed by a donor-funded Trust Fund that was recently renewed. The United States does not 

contribute to the trust fund but is encouraging the I MF to prioritize its AMLICFT capacity 

building work. The IMF also participates in the broader Financial Stability Board (FSB) 

Correspondent Bank Coordination Group, which is reviewing how the international community 

can work together to support domestic capacity building. The most important thing the IMF can 

do is continue to make AMLICFT assessments and capacity building a regular part of its work. 

In addition, the IMF's broader efforts to help countries strengthen their financial sectors and 

improve economic governance and transparency fonn an important foundation on which the 

international community's more specific work on AMLICFT is built. 

• In your view, what explains the low levels of support for increasing multilateral 

funding for counter-terrorism financing technical assistance or capacity bnilding 

efforts? 
99 


23888.028

Questionsji;r the Recordfi;r Secretwy Jacob J Lew 

Jfouse Financial Services Committee 

"The Annual Testimony olthe Secrelwy of the Treaswy on the State oft he lntemational Financial 

System" 

Heurinrz held March 22, 2016 

Treasury is committed to advancing the fight against terrorist financing and money laundering, 

including through technical assistance and capacity building. These efforts are essential to 

developing and maintaining robust and effective AML/CFT frameworks in jurisdictions around 

the globe. To this end. Treasury's OTA provides much-needed help to build capacity. as do the 

World Bank and the IMF. 

• How might additional funding assist Treasury in fulfilling requests from foreign 

countries looking for assistance in shoring up AML/CFT deficiencies? Or in other 

words, how many requests for assistance do you have to turn down in a given year 

given your limited funding constraints? 

Answer: 

Strong and growing demand for Treasury technical assistance to help developing and 

transitioning countries strengthen AMLICFT regimes and other financial sector deficiencies 

exceeds the resources that are appropriated to Treasury's OTA. OTA seeks to supplement its 

direct appropriation with transfers from other agencies, but such transfers do not fill the gap. 

In the last year, OT A has received I 0 new requests for AMLICFT assistance from countries in 

Asia, Africa, Latin America and Eastern Europe, and expects to receive additional requests this 

year. OT A is assessing the requests, and with additional resources we would be able to 

accommodate more technical assistance engagements. OTA expects that demand for such 

assistance will continue to grow as more countries request our help to address deficiencies that 

may contribute to potential reductions in correspondent banking relationships. 

• How does Treasury's reliance on supplemental funding transfers from the State 

Department, U.S. Aid and others affect the office of Technical Assistance's ability to 

engage in sustainable, long-run capacity building projects? 

Answer: 

While funding received by OTA from other USG agencies has been an important component of 

the program's overall resources, such funding is no substitute for annual appropriations. With 

the exception of an increase in interagency funding last year to support OTA's work in Ukraine, 

the total amount of transfer funding has declined from 2010 to 2015. This decline reflects 

budget constraints at other agencies. The President's budget request recognizes Treasury's 

comparative advantage in public financial management and financial sector strengthening and 

seeks to provide more funding directly to OTA so that it can respond quickly and in a sustained 

way to growing demand for financial technical assistance in support of1.J.S. foreign policy, 

national security, and economic development priorities. 
100 


23888.029

Questions fiJI· the Recordfor Secrelaty Jocoh J Lew 

11ouse Financial Services Committee 

'The Annual Testimony of'! he Secretarv oft he Treaswy on the Stale oft he 1!11ernational Financial 

System" 

Hearing held March 22. 2016 

Question 12: 

IMF/World Bank 

• What is the specific value added by the IMF and World Bank in terms of 

countering-terrorism financing? To what extent to IMl<' and Bank programs work 

in concert with or conflict with U.S. counter-terrorism financing efforts? 

Answer: 

The World Bank and the Intemational Monetary Fund (IMF) are key allies in our efforts to 

combat money laundering and terrorist financing. The World Bank and the IMF participate in the 

Financial Action Task Force (FATF) and FA TF-regional style bodies. and their direct 

engagement in developing standards puts these organizations in a strong position to provide 

advisory services and assistance at a country level. After 9111 the Boards of the World Bank and 

the IMF now recognize the FATF recommendations as the appropriate intemational standards for 

combating money laundering and the financing of terrorism and these two organizations are the 

only non-FATF entities that are permitted to assess jurisdictions' compliance with the global 

AML!CFT standards promulgated by the FATF. To this end, the IMF incorporated the FA'IT 

standards into its Financial Sector Assessment Program (FSAP). The World Bank's and the 

lMF's intimate understanding of global standards, combined with their neutrality, global 

footprint. focus on growth. and extensive work with developing countries, make these 

organizations essential providers of technical assistance and key actors in improving effective 

global implementation of AMLICFT standards. 

Can you clarify how the potential for forced evictions affects US Treasury's votes on 

projects from international financial institutions? I'm concerned because last 

September, the U.S. Treasury voted in support of the Enhancing Shared Prosperity 

through Equitable Services program of the World Bank in Ethiopia, despite the fact 

that the program is based on a previous program with known linkages to evictions. 

The U.S. Appropriations Act in place at the time specifically mandated that the 

Secretary of the Treasury instruct the United States executive director of each 

international financial institution to vote against financing for any activities that 

directly or indirectly involve forced evictions in Ethiopia. What is the Treasury's 

policy regarding such cases? 

Answer: 

We closely review any Multilateral Development Bank (MDB) project that may lead to forced 

eviction. First, we determine whether a project's activities would result in eviction. lfthc 

project is likely to lead to evictions. we consider whether such evictions arc forced by 

considering a range of factors, including whether consultations with the locally affected 

population are adequate, prior, and appropriate; whether compensation and appropriate 

livelihood support will be provided to atTected individuals; whether grievance redress 

mechanisms will be available: and if robust monitoring will be carried out for the project. In 
101 


23888.030

Questions for the Record.fiJr Secretary Jacob J Lew 

House Financial Services Committee 

"The Annual Testimonr olthe Secretmy olthe Treaswy on the Stale olthe International Financial 

System" 

Hearing held March 22, 2016 

carrying out our assessment, we consult with the State Department, US AID and, when possible, 

civil society. 

The World Bank's Enhancing Shared Prosperity through Equitable Services (ESPES) project 

aims to improve the provision of basic services (e.g., health, education, clean water) to rural 

communities in Ethiopia. The project also aims to build the capacity of local governments to 

consult with their citizens, manage their finances, and assess and mitigate the environmental and 

social risks of small-scale infrastructure, which all address the gaps found in earlier projects. 

Given the project's focus and design (disbursement will be linked to specific targets and a 

screening tool is embedded to avoid any World Bank involvement in activities that may lead to 

forced eviction), it is unlikely to lead to evictions. Nonetheless, we will continue to closely 

monitor the implementation of this project. 

We would also note that the World Bank's Inspection Panel-an independent complaint 

mechanism for communities who believe they have been harmed by World Bank projectsinvestigated the predecessor project ofESPES ("Protection of Basic Services" or PBS). The 

Panel's investigation report concluded that the involuntary taking of land and use of force and 

intimidation were not consequences of PBS, hut that the World Bank could have done a better 

job in managing the situation. 
102 


23888.031

Questions for the Recordfor Secretwy Jacob J. Lew 

!louse Financial Services Committee 

"The Annual Testimony olthe Secret my oft he Treasury on/he Slate of'the International Financial 

System" 

Hearing held March 22, 2016 

Rep. Ruben Hinojosa 

Question 1: 

In January 2015, during the High-Level Economic Dialogue, President Obama and 

Mexican President Peiia Nieto agreed to double the Bank's capital from its current $3 

Billion, to $6 billion, split evenly between the two nations. This week, I will be introducing 

the North American Development Bank's General Capital Increase Authorization Act of 

2016, legislation which will authorize the Bank's capital increase. In the coming weeks, I 

hope to work with my colleagues on this committee to get this important piece of legislation 

passed. 

• Can you tell us why the Bank is seeking to double its capital'! 

Answer: 

Doubling the NADB's capital will allow the NADB to sustain its annual lending of around $250 

million without risk of a credit rating downgrade, which would severely hinder investments in 

environmental infrastructure along both sides of the U.S.-Mexico border. 

• Is the Bank in financial trouble? 

Answer: 

No. The NADB maintains strong financial ratios and has a strong portfolio. As its loan portfolio 

continues to grow, some of the key capital adequacy ratios that ratings agencies monitor will 

near their thresholds, placing NADB at risk of a downgrade unless it either shrinks annual 

lending from $250 million to around $70 million or receives additional capitaL 

How will the capital increase help the Bank enhance its capacity to support 

continued investments along the liS-Mexico border? 

Answer; 

The general capital increase (GCI) will help NADB maintain its credit rating, preventing an 

immediate increase in the cost of funding to NADB and its project sponsors, which would 

severely impact NADB's capacity to promote the development of environmental infrastructure in 

the border region. The GCI will allow the NADB to continue funding projects at the current 

level of roughly $250 million per year. 'l'his financing helps to catalyze the development of 

projects that have a significant environmental impact. 
103 


23888.032

Questions for the Recordfilr Secretm;v Jacob J Lew 

House Financial Services Cmnmilfee 

"The Annual Testimony oft he Secretary of' the 1/·easury on the Stale ''lthe International Financial 

Svstem ·· 

Hearing held March 22, 2016 

Question 2: 

In June 2015, Moody's rated the NADBank as "Aal" reflecting the bank's strong 

capitalization and liquidity positions, as well as noting the support of the Bank receives 

from both the U.S. and Mexico. Moody's rated the Bank's outlook as stable. 

• Do you expect the Bank will maintain its strong financial position moving forward? 

Answer: 

Yes. NADB's capital adequacy ratios will improve significantly with the new capital injection. 

NADB's portfolio remains extremely healthy. NADB plans to sustain lending around current 

levels and is taking steps to catalyze a greater share of private financing for its projects, which 

will also contribute to an efficient use of new capital. 

• What is the default rate on the Bank's lending portfolio? 

Answer: 

NADB does not currently have any loans in default. 

Question 3: 

How docs the NADBank fit within bilateral relationship between the United States and 

Mexico? 

Answer: 

The NADB deepens our relationship with Mexico as our countries jointly address cross-border 

environmental issues like air quality, clean energy, and clean water. NADB's financing helps 

improve municipal services, lowers the costs of energy for households and businesses, and 

improves quality of life. This supports job creation, economic growth, and more prosperous 

communities on both sides of the border. 

Question 4: 

How have NADBank investments along the US-Mexico border helped alleviate high 

poverty rates? How have these investments helped our two nations address mutual 

security challenges'? 

Ans~Y,er.; 

NADB's investments have contributed to improved quality oflife and livelihoods through 

investments in areas like wastewater collection and treatment, solid waste collection, paving 

roads. and renewable energy. These investments have in tum contributed to cleaner water, 

reduction of waterborne diseases, reduced air pollution, faster transport, and cheaper electricity 

for households and businesses. By helping increase incomes, improve quality of life. and create 
104 


23888.033

Questions for the Record for Secretmy .Jacob.!. Lew 

House Financial Services Committee 

''The Annual Testimony of the Secret my oft he Treaswy on the State of the International Financial 

System" 

Hearing held March 22. 2016 

jobs and business opportunities, the NADB helps create more prosperous, stable, and secure 

border communities. 

Question 5: 

Since 2010, the Bank's lending portfolio and debt issuances have grown significantly. 

• During these past six years, the bank's lending portfolio has grown 280% from 

about $480 million to now standing at approximately $L2 Billion. Why has the 

Bank's lending portfolio grown considerably? 

Answer: 

The growth of the NADB's portfolio is a sign of its success as it has become more established. 

The NADB has become a trusted partner for communities and businesses along the border, and 

so demand for its financing is increasing. Private and public project sponsors are increasingly 

turning to the NADB as a financier of choice. 

This has led to NADB financing about $250 million in lending per year, contributing to the 

significant portfolio growih over the past six years. 

• Has the increased lending portfolio had a negative impact on the Bank's financial 

position? 

Answer: 

The increased lending portfolio reflects the NADB's role as a trusted financier of critically 

needed environmental infrastructure for border communities. We welcome such portfolio 

growth as NADB serves the border region. 

The increased portfolio has not diminished the quality of lending or NADB's inherent financial 

strength. but it has placed certain key capital adequacy ratios near thresholds that might 

contribute to a credit rating downgrade unless NADB receives more capital or curtails lending to 

significantly lower levels. 

Question 6: 

In that same time frame, the Bank's debt has grown from zero dollars to a bit over $1 

Billion. 

Why did the Bank decide to take on debt in 2010, and how has the Bank's level of 

debt affected the Bank's lending capacity and financial position? 
105 


23888.034

Questions for the Recordfor Secretary Jacob J Lew 

!-louse Financial Services Committee 

.. 7he Annual Testimony oft he Secretarv o(the Treaswy mzthe State of the lntemational Financial 

~~vstem ,. 

Hearing held March 22. 2016 

Answer: 

Like other MOBs, the NADB's ability to leverage its equity at reasonable botTowing costs 

allows it to significantly scale up lending capacity. NADB was able to borrow at sufficiently 

low rates to pass those costs on in its loan pricing and make financially viable investments. 

NADB's debt-to-equity ratio is one of the ratios approaching the threshold for maintaining its 

current credit rating. so without additional capital the NADB will not be able to fund additional 

lending through debt without risking a credit downgrade. With the additional capital from the 

capital increase, NADB's debt-to-equity ratio will remain stable. 

• What steps has the Bank taken to ensure that its debt issuances do not become an 

oversized liability for the bank? 

Answer: 

NADB maintains a prudential limit on debt such that total debt cannot exceed an amount equal to 

the callable portion of its subscribed capital plus the minimum liquidity level required under a 

very conservative liquidity policy. 

Question 7: 

2011, I introduced HR 2216, the "North American Development Bank Enhancement Act," 

a hill to allow the Bank to expand its mandate beyond environmental infrastructure 

projects and include infrastructure projects that promote growth in trade and commerce 

between the United States and Mexico. 

• Has the Bank's Board of Directors taken a look at expanding the Bank's mandate 

beyond projects with a significant environmental impact? 

Answer: 

NADB"s charter restricts NADB financing to environmental projects. While the Board has had 

occasional discussions on the activities that NADB can fund within its environmental mandate, 

the Board has not considered expanding NADB's mandate. 

• Would Treasury support efforts to expand the Bank's mandate? 

Answer: 

NADB has specialized expertise in environmental infrastructure, and border communities, and 

investors highly value its specialized role and strong impact in financing environmental 

infrastructure. 

Given the current constraints on NADB's financial and operational capacity, Treasury believes 

that it is appropriate for NADB to remain focused on environmental infrastructure at this time. 
106 


23888.035

Questions for the Record/or Secretary Jacoh J Lew 

House Financial Services Commilfee 

"The Annual Testimony of the Secretmy olthe Treaswy on the State a/the International Financial 

~..)ystem" 

Hearing held March 22. 2016 

Rep. Blaine Luetkemeyer: 

Question 1: 

The Consumer Financial Protection Bureau (CFPB) recently announced that it is making 

small business lending one of its policy priorities over the next two years, giving both small 

businesses and small business lenders cause for concern. This wasn't the intent of DoddFrank. The Dodd-Frank Act created the CFPB with the express mission to protect 

consumers, and not with the intent to regulate small business lending. Do you believe the 

CFPB's recent statements with respect to small businesses are consistent with its mission 

and authority? 

Answer: 

Per the statute, the purpose of CFPB is to implement, and where applicable, enforce federal 

consumer tlnancial law to ensure all consumers have access to tlnancial products and services. 

and to ensure that those products and services are fair, transparent and competitive. In some 

cases, this includes the authority to carry out certain provisions related to small businesses, such 

as the enforcement of fair lending laws and related data collections. Specifically. the Equal 

Credit Opportunity Act was amended to allow CFPB to collect and publish minority-owned, 

women-owned, and small business loan applicant data. CFPB's recent statements inform the 

public of that authority and pending activity. 

Question 2: 

The presence of online marketplace lending is growing, and more and more consumers are 

opting not to apply for loans with an online lender. The Treasury .iust finished collecting 

information on online marketplace lending last fall and, on Friday, Comptroller of the 

Currency Tom Curry stated the Office of the Comptroller of the Currency (OCC) plans to 

release a white paper on financial innovation very soon. Does Treasury believe that the 

growth of online marketplace lending poses a threat to financial stability? If so, how does 

Treasury plan on addressing this risk? Would this include examinations by the OCC or 

another regulator? 

Answer: 

Although online marketplace lending originations are growing at a fast pace, Treasury does not 

believe the industry poses a threat to financial stability. 

The activities of online marketplace lenders fall under a series of regulations across state and 

federal regulators. Loans originated by online marketplace lenders are subject to many of the 

same federal laws as loans originated by financial institutions. In the case of federal consumer 

protection laws, these laws apply equally to both parties. 
107 


23888.036

Queslionsfi;r the Recordj{;r Secrelw:v .Jacob.!. Lew 

House Financial Senices Cmnmiltee 

"The Annual Testimony of the Secret my of the Treaswy on the Slate oft he International Financial 

System" 

Hearing held March 22. 2016 

Question 3: 

What are your greatest areas of concern coming out of the Treasury's most recent 

collection of information on online marketplace lending and the OCC's upcoming white 

paper? 

Answer: 

The greatest area of concern for Treasury is that these business models, operations and datadriven algorithms supporting this industry have largely developed in favorable credit conditions. 

Although lenders have demonstrated methods to improve operational efficiencies, both the 

durability of technology-driven operations and credit underwriting, and the sustainability of 

investor demand for loans has not yet been tested. Treasury believes it is important to consider 

policies that may minimize risks to borrowers through a changing credit environment. 

Question 4: 

We've seen that recently the CFPB and the OCC are focusing more on online marketplace 

lending. The CFPB has even sent out consumer guidance that has warned about the 

potential risks involved in online marketplace lending, calling it a "young industry" that 

"does not have the same history of government supervision and oversight as banks or 

credit unions." Does Treasury share the same concerns as the Bureau about online 

marketplace lending? 

Answer: 

Treasury has spoken with the CFPB about marketplace lending and discussed our findings from 

the Request for lnfonnation. As stated previously. Treasury shares concerns that the business 

models, operations, and data-driven algorithms supporting this industry have yet to be tested 

through a full credit cycle. 

The activities of online marketplace lenders fall under a series of regulations across state and 

federal regulators. However. they are not identical to financial institutions. Although financial 

institutions and online marketplace lenders are largely subject to the same statutory requirements 

when originating loans; financial institutions arc subject to a higher degree of oversight by the 

prudential regulators while online marketplace lenders are not subject to the same federal 

oversight. particularly for small business lending. Effective oversight, particularly of small 

business online marketplace lenders. could enable greater transparency and support safe and 

affordable products for borrowers. 

Question 5: 

In his Fiscal Year 2017 budget proposal, President Obama recommended $10 million for a 

pilot prog.-am that would allow community development financial institutions to engage in 

small-dollar, short-term lending. Will Treasury supervise these loan programs and 

products? What oversight will Treasury provide of CDFis that engage in this program? 
108 


23888.037

Questions for the Recordfor Secretary Jacob J. Lew 

House Financial Services Commillee 

''11Je Annual Testimony of the SeCI·etmy oft he 71·easwy on the State oft he International Financial 

System" 

Hearing held March 22, 2016 

Does Treasury expect participating CDFis to profit from this program, or it is assumed 

that the $10 million will not be entirely repaid? 

Answer: 

The CDFI Small Dollar Loan Program (SDLP), authorized by Section 1206 of the Dodd-Frank 

Act, will provide financial assistance in the form of grants for loan loss reserves and technical 

assistance (TA) to enable CDFls to establish and maintain small dollar Joan programs as an 

alternative to predatory payday lenders. Eligible applicants will be limited to CDF!s and 

partnerships between CDFls and any other federally insured depository institution with a primary 

mission to serve targeted investment areas, such as low-income credit unions or minority 

depository institutions. Awardees will be required to provide non-federal matching funds in an 

amount equal to 50 percent of the amount received from the CDFI Fund. Dodd-Frank deiines 

small dollar loans as those that do not exceed $2,500. 

Treasury will coordinate with the prudential regulators to ensure it does not conflict with any of 

their regulations or guidance and will set program guidelines that confonn to evidence-based 

best practices. In addition, the CDFI Fund will ensure that applicants are evaluated with respect 

to their compliance with any regulations as well as the CFPB's Proposal tor Regulating Payday 

Lending. A CDfTs ability to receive an award will depend in part on its compliance with any 

safety and soundness rules governing small dollar lending, as well as with best practices 

demonstrating a borrower's ability to repay a Joan. Moreover, as with all CDFI Fund programs, 

Treasury will establish compliance and reporting requirements to ensure that grantees adhere to 

the program guidelines and use the funding appropriately. 

Treasury does not expect participating CDF!s to profit from this program. The SDLP will not be 

designed to offer permanent subsidy to CDFls providing such loans. but rather to help with the 

initial start-up costs and to address perceived risks that have prevented banks and credit unions 

ti·om starting such programs on their own. Because banks and credit unions often overestimate 

risks associated with small dollar loans, grants for loan Joss reserves will help to overcome 

institutional fears over starting a small dollar loan program. Research and experience. however, 

have demonstrated that with a well-designed product and appropriate underwriting, losses 

typically range between 2 percent and 6 percent- both manageable and in line with loss rates for 

similar types of unsecured loans. Similarly, technical assistance grants would allow banks and 

credit unions to establish a streamlined undervvriting and servicing process that will allow them 

to make safe and affordable loans to borrowers without ongoing subsidy. 
109 


23888.038

Questions for the Recordfor Secretary Jacob J Lew 

flo use Financial Services' Committee 

"711e Annual Testimony oft he Secretarv of the Treaswy on the State oft he International Financial 

.~.vstem" 

Hearing held March 22, 2016 

Rep. Luke Messer: 

Question 1: 

Last year, the Financial Stability Board ("FSB") began evaluating possible "structural 

vulnerabilities" associated with asset management activities, including activities of mutual 

funds. I understand that the FSB plans to issue a consultative document, which will 

include policy recommendations, by September of this year. 1 

Secretary Lew, I note that you Chair the Financial Stability Oversight Council ("FSOC") 

and arc one of three members of the U.S. delegation to the FSB (Fed, SEC, Treasury). U.S. 

stock and bond mutual funds are highly regulated, have a long history of successfully 

meeting shareholder redemptions, and do not experience financial distress or disorderly 

failure like banks do. What actions have you taken to ensure that the FSB--a body whose 

leadership is dominated by central bankers-understands these fundamental features of 

U.S. mutual funds and does not propose applying inappropriate, bank-oriented measures 

that would harm these funds and the millions of Americans who invest in them to meet 

retirement savings and other important financial goals'! 

As the Chair of the FSOC and a member of the FSB, how will the FSB's evaluation of the 

asset management industry inform f'SOC's own ongoing review of asset management 

activities? 

Answer: 

While the FSB and FSOC both seek to strengthen financial stability, they have distinct processes 

and are independent of one another; decisions reached in one forum do not predetermine 

decisions made in the other. On April 18, FSOC convened in a public session and voted to issue 

a written statement updating the public on FSOC's review of potential risks to financial stability 

from asset management products and activities. FSOC has developed a domestic consensus on 

potential risks to financial stability from asset management products and activities. and FSOC's 

work helps to provide leadership internationally on these issues. In addition, the chairperson and 

staff of the Securities and Exchange Commission (SEC) have played important roles in the 

FSOC' s evaluation of asset management activities, and the SEC is also a member of the FSB. 

' FSB Chairman Mark Carney stated in a February 22. 2016 letter: "By the Hangzhou Summit [in September 20 16]. 

the FSB will publish a consultative document with its assessment of any structural vulnerabilities associated with 

asset management activities and recommendations to address them". hlln:::/\\\\~f.8f.org!v,·r-:: 
110 


23888.039

Questionsfi!r the Recordfor Secretary Jacob J Lew 

House Financial Servh:es Committee 

"The Annual Testimony olthe Secretary <if the 71·easury mtthe State olthe international Financial 

Svstem·· 

Hearing held March 22. 2016 

Question 2: 

FSB Chair Mark Carney has stated that once the FSB's work ou asset management 

activities is completed, the FSB will finalize its methodology for identifying asset 

management entities for rossible designation as global systemically important financial 

institutions ("G-SIFis"). So far the FSB has issued two consultation papers addressing 

this topic. FSB's first consultation paper proposed a methodology that identified only U.S. 

regulated funds (mutual funds and ETFs) for possible G-SJFI designation. Despite an 

extensive record showing that G-SIFI designation is inappropriate for these funds, the 

second consultation paper continued to single out these U.S. funds as candidates for 

potential designation and added criteria to identify large asset managers (appearing again 

to target U.S. asset managers) as potential G-sn-Is. 

Given that U.S. mutual funds are the most transparent and regulated investment funds in 

the world, do you agree that only U.S. funds should be of concern to the FSB? 

Is it in the best interest of the United States to target only U.S. investment funds and asset 

managers for G-SIFI designation? 

How did you arrive at this decision to target only U.S. regulated funds and U.S. asset 

managers for review- did you vote in favor, did you abstain, did you object to the focus on 

only U.S. entities? 

Do you expect the FSB to revise its G-SIFI methodology further based on the results of the 

FSB's review of asset management activities? If so, how? 

Answer: 

In response to G-20 Leaders, the FSB developed a framework to strengthen the resilience of the 

financial system to potential risks from global systemically important financial institutions (GS!Fls), and called on the relevant international standard-setting bodies to develop methodologies 

for identifying G-SlFls in their respective parts of the financial sector. 

The G-20 tasked the FSB and IOSCO to develop methodologies to identify non-bank noninsurance (NBNI) G-S!Fls. which includes methodologies for asset managers and investment 

funds as well as other entities such as tinance companies, and these methodologies are still being 

developed. Finalizing these methodologies would provide national authorities with tools for 

assessing NBNI entities for risks to financial stability. 

'FSB Chairman Mark Carney stated in a February 22, 2016 letter: ·'Once the above activity-based work [on asset 

management] is completed. the FSB, jointly with !OSCO, will conduct further analysis and finalise the assessment 

methodology for asset management under the global systemically important financial institutions (G-SJFI) 

framework." lJ..!.tQ :11\\ ww. fs b .on!J\~J1.:£Qntent I up loads-' F S B-Cha i r M letter-to-G 20-\1 i_ni ~_t~_g;_:End:Q_QY~X~lQJ~..:E~t:r1@~)._-: 

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111 


23888.040

Ques/ionsfi"·the Record(i>r Secr<!lary Jacob J Lew 

!louse Financial Services Committee 

"The Annual Testimony of the Secret my of the Treaswy on the State o{thc International Financial 

Svstem" 

Hearing held March 22, 2016 

The proposed thresholds in the FSB-IOSCO draft methodologies for identifying potential NBNI 

G-S!Fls were merely an initial screen to be used to filter entities before the national authorities 

conduct a deep-dive analysis and assessment of those firms. Exceeding the initial threshold does 

not necessarily indicate the entity is global systemically important According to the draft 

methodologies, national authorities would be responsible for identifying global systemically 

important NBN! entities, if any, in their jurisdictions. 

The FSB and lOSCO undertook two rounds of public comments of on draft NBNI G-S!Fl 

identification methodologies (January 2014 and March 2015) and held a series of meetings with 

global asset managers. In July 2015, the FSB postponed the finalization of the NBNI assessment 

methodologies until its analysis of potential risks associated with asset management activities is 

complete, so that the activities analysis can inform the revised methodologies. 3 

Question 3: 

I am concerned that the International Association oflnsurance Supervisors (IAIS) 

Consultation on G-SII Assessment Methodology from November of last year is a deeply 

flawed document that does not further the goal of reducing systemic risk. I am particularly 

concerned that the approach to Non-Traditional, Non-Insurance (NTNI) products would 

penalize guaranteed lifetime products commonly available in the U.S. and would 

disadvantage U.S. companies and U.S. consumers. What are the problems with the NTNI 

approach in your view and what actions will the Treasury Department, as an IAIS 

member, take to secure necessary changes'? 

The NTNI approach categorizes guaranteed lifetime products in the U.S. as systemically 

risky, but not products in the EU with similar risk characteristics. Is that fair or 

reasonable, and how do you propose to fix this unequal treatment'? Would you agree that 

insurance products with similar risk characteristics should be treated equally regardless of 

origin? 

I am very concerned that the IAIS standard setting process might front-run and prejudge 

the Federal Reserve Board process for insurance capital standards rulemaking. The Fed 

process should be as informed, thoughtful, and transparent as possible, and should not be 

rushed by events occurring at the IAIS. Do you share those concerns and what is your 

Department doing to ensure that the IAIS timeline accommodates the important work of 

the Fed'? 

Answer: 

The United States is represented at the International Association of!nsurance Supervisors (IAIS) 

by Treasury's Federal Insurance Office (FlO), the Board of Governors of the Federal Reserve 

System (Federal Reserve), and the 56 insurance regulators of the states, District of Columbia and 

' See http://www. fsb .org/20 15/07 /next -steps-on-the-nbni-g-sifi-assessment -methodologies/ 
112 


23888.041

Questionsfor the RecordjiJr Secretary Jacob./. Lew 

!louse Financial Services Commillee 

"The Annual Testimony <?(the Secrelwy oft he Treaswy on the Stale qfthe International Financial 

System" 

Hearing held March 22, 2016 

territories, In this work, the U,S, representatives coordinate closely to represent the interests of 

the United States, Through FlO, Treasury has worked at the I AIS to promote the development of 

global insurance supervisory standards that promote both financial stability and a level playing 

field for U ,S, insurers operating on a multinational basis, 

The IAJS is currently re-evaluating its understanding of non-traditional, non-insurance (NTNI) 

activities or products of insurers, many of which contributed to the financial crisis, The global 

insurance sector is evolving rapidly, and concepts such as NTNI should be reviewed and 

reconsidered to confirm that the definition and application remain current and accurate, Working 

with other members of the U,S, IAIS delegation, FlO supports an approach that categorizes 

products with similar risk characteristics equally regardless of the country of origin, 

!A IS standards are not self-executing, In the United States, any insurance supervisory standard 

is only effective if implemented through our domestic regulatory process by either the state 

insurance regulators or the Federal Reserve. To this end, when representing the United States at 

the JAlS. FlO works closely with the Federal Reserve and the state insurance regulators in 

support of insurance capital standards that accommodate U,S, practices, 

Question 4: 

Regarding the designation of Global Systemically Important Insurers (G-Sils), should the 

I<'SB and IAIS put in place procedures for de-risking'! Do they need an off-ramp a firm can 

take to cease being classified as a G-Sil? 

Do you object to Congressional oversight of the international standard setting and G-SII 

designation process at the IAIS and FSB? If so, please explain why. 

Do you believe greater that transparency through public comment periods and 

congressional oversight would improve international standard setting process at the FSB 

for G-Sil designations and insurance capital standards? 

Answer: 

At the lAlS, FlO. working with the other U,S, members, supports a G-STl methodology (i,c,, a 

process to identify G-SIIs) that allows for annual consideration of all aspects of an insurer's risk 

profile, including activities undertaken by an insurer to limit or eliminate identified risks, To 

enhance the understanding of the insurers involved with the G-Sil methodology of both the 

process and insurer-specific standing as a result of the process, FlO supports an extensive 

exchange of information with insurers being evaluated through that exercise, The extensive 

exchange of infonnation between IAJS and the insurer will promote the insurer's awareness and 

understanding of the lAlS's key considerations and enable the insurer to determine whether how 

to adjust its risk profile, 
113 


23888.042

QuestionsfiJr the Recordfor Secretor!' Jacob J Lew 

llouse Financial Services Commiflee 

"The Annual Testimony oft he Secret my oft he Treasury on the State oj'the International Financial 

System" 

Hearing held March 22. 2016 

Treasury welcomes the opportunity to engage with Congress on prudential insurance matters of 

global importance, and FlO staff have continually engaged with Congressional staff and 

members, including through testimony at hearings, on many occasions. 

The FSB identification of G-Slfs is premised upon the lA IS's annual recommendation. The 

JAIS has a policy and practice of public engagement and transparency that, in recent years, has 

increased opportunities for stakeholder engagement. Through the 2014 IAIS structural reform 

that eliminated the prior annual fee, the IAIS became open and transparent to all stakeholders. 

notjust those that could afford the annual fcc. As a result of the IAJS 2014 structural refonn. the 

IAIS: made its website both more informative and accessible to all of the public; began to 

provide a monthly newsletter, public meeting minutes, and opportunities for the public to submit 

written comment on papers released for consultation; hosted briefings on consultation papers at 

the time of release; and provided summaries of aud replies to comments received on consultation 

papers. In addition, after public sessions in 2014 that were limited to approximately 14 hours for 

those stakeholders that paid the annual fee. beginning in 2015 the lA!S hosted approximately 

140 hours of public consultations for all stakeholders in cities around the world. 

Question 5: 

As the prudential regulator of designated SIFis, it appears as though the Federal Reserve 

has a vested interest in maintaining SIFI designations and preventing companies from 

being de-designated. The Fed has scores of employees who regulate these companies who 

would have to be laid off if these companies were de-designated. 

Secretary Lew, as the Chair ofFSOC, what steps have you taken to manage this glaring 

conflict of interest? Do you believe it is appropriate to remove the Chair of the Fed from 

the voting membership on FSOC to eliminate any appearance of a conflict of interest? 

Answer: 

The FSOC is an important forum for the heads of the federal financial regulatory agencies to 

come together to identify and respond to potential threats to financial stability. By statute. the 

FSOC has 10 voting members. and each member agency contributes meaningfully to the FSOC's 

work. It is appropriate for the Federal Reserve chainnan to have a voting membership on the 

FSOC. 
114 


23888.043

Questions for the Recordfor Secret my Jacob J Lew 

!louse Financial Services Committee 

"The Annual Testimony r:f the Secretmy of the Treaswy on the State of the lntemalional Financial 

System" 

Hearing held March 22, 2016 

Rep. Dennis A. Ross: 

Question 1: 

Secretary Lew, I understand that Treasury is working to finalize a rule to implement the 

qualified financial contract recordkeeping requirements of the Dodd-Frank. I have heard 

concerns that the current scope of the rule is needlessly broad and burdensome, and it 

would generate so much data that it would render the stated purpose of the rule moot. 

• Can you comment on how Treasury is working to address these concerns and what 

the timetable is for a final rule? 

Answer: 

Treasury published for public comment a proposed rulcmaking to implement the qualified 

financial contract (QFC) recordkceping requirements under Title II of the Dodd-Frank Act in 

January 2015. We received comments from trade associations, asset managers, insurance 

companies. clearing organizations. a nonprofit organization, and a private individual. In general. 

commenters acknowledged the need for the Federal Deposit Insurance Corporation (FDIC) to 

have QFC records necessary to exercise its role as a receiver of a covered financial company 

under Title II of Dodd-Frank. However, some commenters also requested relief from certain 

aspects of the proposed rulemaking that they argued were unduly burdensome. Treasury staff. in 

consultation with the FDIC, is carefully considering all comments received and working 

expeditiously to finalize the rule. 
115 


23888.044

Questionsf(Jr the Recordfi;r Secretary Jacob J Lew 

House Financial Services Committee 

"The Annual Testimony of the Secretary oft he Treasw)" on the State of the Intenzational Financial 

System" 

Hearing held A1arch 22, 2016 

Rep. Keith .J. Rothfus: 

Question 1: 

Clar(fication on Treaswy position onlATS Non-traditional Non-insurance framework: 

Secretary Lew, at the hearing I remarked on the decision of the International Association 

of Insurance of Supervisors (IAIS) to approve higher capital charges for some U.S. 

insurance products such as variable annuities by labelling them as non-traditional, noninsurance (commonly referred to as NTNI). I also noted that there are other insurance 

products outside of the U.S. with similar characteristics that, for some reason, have not 

become subject to a higher capital charge. 

• Please explain why this imbalance exists between U.S. products and non-U.S. 

products in terms of being deemed NTNI. 

• Outside of advocacy for a covered agreement, what is Treasury doing to fix this 

imbalance? 

Answer: 

The United States is represented at the lntemational Association of Insurance Supervisors (!A IS) 

by Treasury's federal Insurance Office (FlO), the Board ofGovemors of the Federal Reserve 

System (Federal Reserve), and the 56 insurance regulators of the states, District of Columbia and 

territories. In this work, the U.S. representatives coordinate closely to represent the interests of 

the U.S. insurance consumers and industry. Through FlO, Treasury has worked at the IAIS to 

promote the development of global insurance supervisory standards that promote both financial 

stability and a level playing field for U.S. insurers operating on a multi-national basis. 

The I AIS is currently re-evaluating its understanding of non-traditional, non-insurance (NTNJ) 

activities or products of insurers, many of which contributed to the financial crisis. The global 

insurance sector is evolving rapidly, and concepts such as NTNI should be reviewed and reconsidered to confirm that the definition and application remain current and accurate. NTNJ, as 

originally defined, appeared to be biased against the United States insurance sector, in part 

because of the absence of FlO during its development. With the engagement of FlO and, more 

recently, the federal Reserve, the United States continues to advocate for globally balanced and 

technically defensible approaches to financial stability. 

To improve the IAIS understanding and application ofNTNI, working with other U.S. members 

of the IAIS and with our international counterparts, FlO has pursued an approach that would 

change the terminology, improve the IAIS assessment of financial stability risk within the global 

insurance sector, and fairly and accurately identify and assess risk in non-U.S. insurance 

markets. 
116 


23888.045

Questionsfor the Recordfor Secretary Jacob J. Lew 

House Financial Services Commillee 

"The Annual Testimony oft he Secretary o{the 7/·easwy on the State oft he Imernational Financial 

System" 

Hearinp, held March 22, 2016 

Rep. Patrick E. Murphy: 

Question 1: 

The Treasury Department has put in place new procedures to uncover the identities of real 

estate buyers in New York and Miami in order to bring to light illegal activities in the 

business of real estate through limited liability companies. 

While I understand that this endeavor is intended to ensure that money does not fall 

into the wrong hands, I also have concerns that the broad brush used to pursue this 

may unduly burden legitimate real estate business in Florida. 

• Have measures been considered to achieve the goals of the Department, which I 

share, while placing fewer burdens on the people of Florida in the real estate 

business for the right reasons? 

Answer: 

In January 20 I 6, the Financial Crimes Enforcement Network (FinCEN) issued Geographic 

Targeting Orders (GTOs) that temporarily require certain U.S. title insurance companies to 

identify the natural persons behind companies used to pay "all cash" for high-end residential real 

estate in the Borough of Manhattan in New York City. New York, and Miami-Dade County, 

Florida. These GTOs were narrowly scoped to target the highest risk transactions in the least 

burdensome manner. FinCEN is particularly concerned about the narrow segment of the real 

estate market in which a legal entity (e.g., a shell company) pays ·'all-cash'' (i.e., without a bank 

loan) for residential property. Because these purchases do not involve bank loans, such 

transactions do not receive the same level of anti-money laundering scrutiny from banks. 

Moreover, the use of a shell company in such transactions may serve to obfuscate a person's 

involvement. FinCEN issued the GTOs to mitigate this vulnerability and to prevent evasions of 

the Bank Secrecy Act. As such, the information generated by the GTO will help law 

enforcement and inform FinCEN's broader rulemaking in this sector to ensure that any 

regulatory measures are appropriately tailored to combat money laundering while minimizing 

burden on affected parties. 

Further, to mitigate burden on affected businesses, the GTO requires reporting on a very limited 

subset of transactions. For example. the GTO covers only transactions for residential property in 

Miami-Dade County over $LOOO.OOO (and $3,000,000 in Manhattan), and only those that 

involve a legal entity purchasing the property without bank financing. FinCEN also engaged 

extensively with affected businesses prior to the GTOs becoming effective to ensure that the 

scope of the GTOs captures the most relevant information without imposing unnecessary burden. 
117 


23888.046

Questions for the RecordjiJr Secret my Jacob.! Lew 

House }<'inancial Services Committee 

"The Annual Testimony of the Secrelm:v of the Treaswy 011 the State oft he International Financial 

System" 

Hearing held March 22, 2016 

Question 2: 

On April 4, the Department proposed regulations addressing whether an interest in a 

related corporation is treated as stock or indebtedness, or as part stock and part 

indebtedness, for federal income tax purposes. These regulations were proposed in 

conjunction with others to limit cross-border merger transactions, or "inversions," and 

certain post-inversion transactions. 

I am concerned about how this may impact international treasury management practices, 

such as cash pooling and related party financing, and the potential burden on 

competitiveness if they were to prevent multinationals from engaging in treasury 

management techniques designed to minimize external borrowings and manage internal 

liquidity. 

Has a comprehensive study been performed of whether, and to what extent, the 

proposed regulations will negatively impact the U.S. economy? 

• Documentation requirements, which if not satisfied generally will result in therecharacterization of debt as equity for federal income tax purposes, may impose 

significant compliance burdens. Has the potential drag on profitability for U.S. 

companies been fully analyzed? 

Answer: 

Courts historically have analyzed whether a financial instrument should be treated as stock or 

indebtedness for federal tax purposes by applying various sets of factors to the facts of a 

particular case. Congress enacted section 385 to authorize the Secretary of the Treasury to 

prescribe such regulations as may be necessary or appropriate to determine whether an interest in 

a corporation is to be treated as stock or indebtedness for purposes of the Tax Code. The 

Treasury Department has been studying related party debt and earnings stripping for some time. 

Notices issued in 2014 and 2015, which primarily addressed inversion-related transactions, 

stated that Treasury was considering guidance to address strategies that avoid U.S. tax by 

shifting or "stripping" U.S.-source earnings to lower-tax jurisdictions, including through the use 

of intercompany debt. 

The proposed regulations are motivated in part by the significant incentives for related parties to 

engage in transactions that result in excessive indebtedness and that shift deductions to highertax rate jurisdictions, for example to the United States. The proposed regulations under section 

385 are generally limited to financial instruments issued among related parties. With respect to 

cash pooling, which is sometimes described as a system of advances- or lending and borrowing 

among related parties such as subsidiaries of a multinational firm, sometimes for short-term 

liquidity, but other times for longer-term financing. we specifically requested comments about 

whether special rules arc warranted for such cash pools, cash sweeps, and similar arrangements. 

We will take those comments into consideration when issuing final regulations. 
118 


23888.047

Questions for the Recordfor Secretary Jacob J Lew 

House Financial Services Committee 

.. 71Je Annual Testimony of the Secrct01y of the 7/·easurv on the State of/he International Financial 

Svstem·· 

Hearing held March 22. 2016 

In response to your question about economic impacts, Treasury believes the overall economic 

effects to he modest. In this regard, it is useful to refer to the material related to the proposed 

regulation that Treasury issued under Executive Order 12866. Treasury's summary of impacts 

stated that the "primary effect of the proposed regulations is expected to be an increase in 

corporate revenue.'' Treasury further stated that: 

·'Because the proposed regulations affect only certain purported indebtedness 

issued between related parties, the effects of the proposed regulations on real 

resources are expected to be small. In addition, Treasury estimates that the 

paperwork burden associated with the proposed regulation addressing the 

substantiation of the treatment of certain interests issued between related parties as 

indebtedness would be approximately $15 m i 11 ion." 

Question 3: 

The J)epartment has laid out a comprehensive approach to dealing with the debt crisis in 

Puerto Rico that would require action on the part of Congress. 

In the event that Congress fails to take action, what would the J)epartment's "piau B" look 

like'? How will the Puerto Rican people be impacted if no action is taken over the course of 

2016'? 

Answer: 

ln October 2015, the Obama Administration released a Roadmap for Congressional Action to 

support Puerto Rico. Tn response, Congress on a bipartisan basis- recently provided the 

Commonwealth with the tools it needs to comprehensively restructure its debt. On June 30, 

2016, President Obama signed the Puerto Rico Oversight, Management, and Economic Stability 

Act (PROMESA). 

PROMESA provides Puerto Rico with the debt restructuring authority outlined in the 

Congressional Roadmap coupled with strong fiscal oversight. The Administration is committed 

to naming the members of the Oversight Board, to include Puerto Rican representation, and 

helping to stand it up as soon as possible. But PRO MESA is not, in and of itself, going to be 

sufficient to solve all the problems that Puerto Rico faces. While it is an important first step on 

the path of creating more stability, actions to support the growth of the economy and to address 

shortfalls in the provision of health care on the island arc also needed. The Administration will 

continue to work with Congress to help Puerto Rico gain access to Medicaid parity and much 

needed economic growth incentives. 

0