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EXAMINING THE BSA/AML REGULATORY 

COMPLIANCE REGIME 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

JUNE 28, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–26 

( 

(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 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

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 

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 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

BLAINE LUETKEMEYER, Missouri, Chairman 

KEITH J. ROTHFUS, Pennsylvania, Vice 

Chairman 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

BILL POSEY, Florida 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANDY BARR, Kentucky 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

MIA LOVE, Utah 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

WM. LACY CLAY, Missouri, Ranking 

Member 

CAROLYN B. MALONEY, New York 

GREGORY W. MEEKS, New York 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

AL GREEN, Texas 

KEITH ELLISON, Minnesota 

MICHAEL E. CAPUANO, Massachusetts 

DENNY HECK, Washington 

GWEN MOORE, Wisconsin 

CHARLIE CRIST, Florida 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 28, 2017 .................................................................................................... 1 

Appendix: 

June 28, 2017 .................................................................................................... 45 

WITNESSES 

WEDNESDAY, JUNE 28, 2017 

Anderson, Faith Lleva, Senior Vice President and General Counsel, American 

Airlines Federal Credit Union, on behalf of the Credit Union National 

Association (CUNA) ............................................................................................. 6 

Baer, Greg, President, The Clearing House Association ...................................... 7 

DeVaux, Lloyd, President and Chief Executive Officer, Sunstate Bank, on 

behalf of the Florida Bankers Association ......................................................... 9 

Lowe, Heather A., Legal Counsel and Director of Governmental Affairs, Global Financial Integrity ........................................................................................... 11 

APPENDIX 

Prepared statements: 

Anderson, Faith Lleva ...................................................................................... 46 

Baer, Greg ......................................................................................................... 59 

DeVaux, Lloyd .................................................................................................. 102 

Lowe, Heather A. .............................................................................................. 114 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Luetkemeyer, Hon. Blaine: 

Written statement of the American Gaming Association .............................. 131 

Written statement of the American Land Title Association ......................... 132 

Written statement of the Independent Community Bankers of America .... 135 

(1) 

EXAMINING THE BSA/AML REGULATORY 

COMPLIANCE REGIME 

Wednesday, June 28, 2017 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:13 p.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

[chairman of the subcommittee] presiding. 

Members present: Representatives Luetkemeyer, Rothfus, Posey, 

Ross, Pittenger, Barr, Tipton, Williams, Love, Trott, Loudermilk, 

Kustoff, Tenney; Clay, Maloney, Scott, Velazquez, Green, Heck, 

and Crist. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representative Davidson. 

Chairman LUETKEMEYER. The Subcommittee on Financial Institutions and Consumer Credit will come to order. Without objection, 

the Chair is authorized to declare a recess of the subcommittee at 

any time. 

Today’s hearing is entitled, ‘‘Examining the BSA/AML Regulatory Compliance Regime.’’ Before we begin today, I would like to 

thank the witnesses for appearing. We certainly appreciate you 

taking time out of your schedules to be here and participate today. 

I look forward to your comments. 

I now recognize myself for 2 minutes for an opening statement. 

The goals of the Bank Secrecy Act and anti-money-laundering legal 

regime are laudable: Institutions and government agencies should 

work together to prevent money laundering and terrorist financing. 

However, the reality is that well-intentioned regulation has spiraled out of control and resulted in a breakdown of what should be 

a collaborative relationship between law enforcement, financial regulators, and institutions. Today, regulators essentially deputize 

credit unions and banks as law enforcement and allow for a regulatory regime that is both opaque and punitive. 

BSA/AML-related settlements have increased significantly in 

both amount and frequency. Institutions are reporting surges in 

total investment in AML. And their consumers, especially those 

conducting financial transactions internationally, bear the brunt of 

this regulatory cost. I fear the BSA/AML process oftentimes benefits no one, not the institution and not law enforcement. 

Also concerning is that financial institutions are more risk-adverse than seemingly ever before, partially as a result of the reguVerDate Nov 24 2008 18:16 May 04, 2018 Jkt 028223 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\28223.TXT TERI
2 

latory structure. The rampant derisking seen in recent years actually, in my opinion, increases risk to the financial system, proving 

the BSA/AML regulatory regime to be ineffective and, to some degree, dangerous. 

To be clear, the intent of today’s hearing is not to discuss opportunities for financial institutions to more easily skirt the law or to 

help nefarious actors participate in illegal activity. We are here 

today to discuss improvements that could benefit both law enforcement and financial institutions while simultaneously creating a 

more effective BSA/AML regulatory construct. 

I look forward to a robust conversation with our distinguished 

panel and thank them for their participation. 

The Chair now recognizes the ranking member of the subcommittee, the gentleman from Missouri, Mr. Clay, for 5 minutes 

for an opening statement. 

Mr. CLAY. Thank you, Mr. Chairman, for holding today’s hearing 

to review the compliance regime for the Bank Secrecy Act and related anti-money-laundering requirements. 

And I thank the witnesses for sharing their perspectives on this 

topic. 

A 2016 GAO report found that from 2009 to 2015, Federal agencies assessed roughly $5.1 billion in fines, forfeitures, and penalties 

against financial institutions for violations of BSA/AML requirements. In one notable case, HSBC was required to enter into a deferred prosecution agreement with the Justice Department and forfeited more than $1.2 billion for violations of the Bank Secrecy Act 

and illegally conducting transactions with Iran and other sanctioned countries. 

A 2012 bipartisan staff report issued by the Senate Permanent 

Subcommittee on Investigations found that HSBC exposed the U.S. 

to money laundering, drug trafficking, and terrorist financing risk 

by operating its corresponding accounts for foreign financial institutions with longstanding severe AML deficiencies, including a dysfunctional AML monitoring system for account and wire transfer 

activity, an unacceptable backlog of 17,000 unreviewed alerts, insufficient staffing, inappropriate country and client risk assessments, and late or missing suspicious activity reports (SARs). 

The Senate staff report also criticized the OCC for weakly enforcing BSA/AML requirements with respect to HSBC and included a 

series of recommendations that I think should be part of our discussion on this topic. 

So as the subcommittee examines the effectiveness of the current 

BSA/AML compliance regime and reform proposals, these facts 

should help remind us that we still need a strong system that stops 

bad actors and prevents the criminal exploitation of financial systems to conceal the location, ownership, source, nature, or control 

of illicit proceeds. 

There are a number of proposals that Congress should consider. 

Ranking Member Waters introduced legislation last term that 

would, among other things, significantly increase civil monetary 

penalties for both institutions and individuals for willful and negligent violations of the BSA. And Congresswoman Maloney has introduced legislation on beneficial ownership that would eliminate 

3 

the ability of bad actors to conceal their activities in shell corporations. 

And, Mr. Chairman, at this time, I yield my time to Congresswoman Maloney. 

Mrs. MALONEY. First, I want to thank my colleague, the ranking 

member and my good friend, for yielding to me, and to thank the 

chairman for holding this hearing. I would like to also thank Chairman Hensarling for creating, first, the antiterrorism task force and 

the antiterrorism financing committee. I think it is critical, and reflects, really, the challenges that we confront. 

The anti-money-laundering rules for financial institutions are an 

incredibly important tool for combating terrorism financing. And if 

they can’t finance their terrorist activities, they are not going to 

have them. So it is a very important part of our national security 

strategy. 

But because criminals and terrorists are constantly changing 

their strategies to elude law enforcement and to hide their identities from financial institutions, the anti-money-laundering obligations also require financial institutions to do a great deal of work. 

So to the extent that we can streamline this process without letting 

our guard down and making it easier for criminals and terrorists 

to access the U.S. financial system, that would be a win-win for everyone. 

The Clearing House, which is represented on the panel today, 

published a lengthy set of recommendations in February on how to 

streamline the anti-money-laundering framework, and I think it is 

a serious report that deserves our consideration and support. 

I would like to highlight one section of the Clearing House report 

in particular. Section 2 of the report recommends that Congress 

pass the Beneficial Ownership bill, which is bipartisan, introduced 

today by Chairman Ed Royce, former Chairman King, and myself. 

The bill, called the Corporate Transparency Act, will require companies to disclose their true beneficial owners when a company is 

formed. States would have the option to collect this information 

themselves under our bill. But if the State isn’t doing it, then the 

Treasury Department would collect beneficial ownership information as a backup. 

This information would be available to law enforcement and, importantly, to financial institutions as well with customer consent. 

This is important because it helps financial institutions comply 

with their know-your-customer obligation. If the customer is a company, financial institutions can’t know who their customers really 

are unless they know who the beneficial owners of the company 

are. 

This would also reduce the regulatory burden on financial institutions, because they wouldn’t have to spend an enormous amount 

of resources investigating their own customers and trying to figure 

out their beneficial owners. Instead, they could just refer to the 

Treasury database to figure out who the owners of these companies 

are. 

So this bill is a win-win. It is good for our financial institutions, 

good for law enforcement, and good for our national security. 

Thank you. 

4 

Chairman LUETKEMEYER. With that, we yield 2 minutes to the 

gentleman from Pennsylvania, the vice chairman of this subcommittee, Mr. Rothfus. 

Mr. ROTHFUS. I thank the chairman for yielding, and I want to 

thank him for having this hearing today. 

Getting our Bank Secrecy Act and anti-money-laundering policies 

right is a very important issue for me and my district. In fact, it 

is a life-or-death issue. 

Just a few days ago, we marked the International Day Against 

Drug Abuse and Illicit Trafficking. It was a time to reflect on the 

drug epidemic that has destroyed so many lives and continues to 

ravage our hometowns. It was also an opportunity to take stock of 

how our current policy framework fails to achieve its objectives. 

This committee’s effort to interrupt the finances of the 

transnational criminal organizations and gangs that pump the heroine and fentanyl poison into our communities can ultimately save 

lives. If we can cut off the flow of cash, we can greatly hinder the 

ability of these groups to do us harm. 

I am looking forward to hearing from stakeholders today as to 

how we can create a more potent BSA/AML regime that makes the 

best use of scarce public and private sector resources. It is clear to 

me that our existing framework puts heavy burdens on financial 

institutions and appears to emphasize compliance with rigid standards over efficacy. We need to be looking at how technology, innovation, and greater cooperation can be employed to yield better results in this fight. 

President Trump wrote in his letter marking the International 

Day Against Drug Abuse and Illicit Trafficking, ‘‘We will not stand 

idle as our families are devastated, our communities are hollowed 

out, and our Nation’s future is diminished.’’ I could not agree more 

with that sentiment. And the work that we are doing here today 

is an example of Congress taking action to bolster our defenses 

against illicit financing and to bring down the criminals who cause 

so much pain in communities across this country. We have a moral 

obligation to achieve these ends. 

I thank the chairman, and I yield back. 

Chairman LUETKEMEYER. The gentleman yields back. 

The Chair recognizes the gentleman from North Carolina, the 

vice chairman of our Subcommittee on Terrorism and Illicit Finance, Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. And I appreciate you 

holding this important examination of the Bank Secrecy Act and 

our AML/CFT compliance regime. 

In addition to serving on this subcommittee, as you stated, I do 

serve as vice chairman of our Subcommittee on Terrorism and Illicit Finance, which is also strongly engaged in this topic. I am also 

encouraged that both subcommittees are taking a hard look at BSA 

modernization. We will need both subcommittees’ expertise if we 

are to establish a streamlined and effective regime to protect our 

financial system from illicit use. 

As we examine the BSA, this committee should explore innovative technologies and policies that can facilitate compliance and 

targeted information sharing. The goal should be getting the most 

relevant, timely, and actionable information into the hands of our 

5 

financial regulators and law enforcement while providing targeted 

data sharing from the government to financial institutions with 

privacy and civil liberty protections that will limit the focus and 

oversight of financial institutions. 

We have a great opportunity to achieve this goal, and I look forward to the testimony of our witnesses and their suggestions for 

where we can improve and modernize our current system. 

Thank you, and I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

Today, we welcome the testimony of Ms. Faith Lleva Anderson, 

senior vice president and general counsel for American Airlines 

Federal Credit Union, on behalf of the Credit Union National Association; Mr. Greg Baer, president, The Clearing House Association; 

Mr. Lloyd DeVaux, president and CEO of Sunstate Bank, on behalf 

of the Florida Bankers Association; and Ms. Heather Lowe, legal 

counsel and director of government affairs, Global Financial Integrity. 

Before we recognize the witnesses, I would like to ask unanimous 

consent that the gentleman from Florida, Mr. Ross, be recognized 

for the purpose of making a brief introduction. Without objection, 

the gentleman from Florida is recognized. 

Mr. ROSS. Thank you, Mr. Chairman. And it is my pleasure to 

introduce one of our witnesses today, Mr. Lloyd DeVaux, president 

and CEO of Sunstate Bank in Miami, Florida. 

In addition to his position with Sunstate, Mr. DeVaux serves on 

the Board of Directors and Executive Committee of the Florida 

Bankers Association (FBA), and he is testifying today on behalf of 

more than 100 Florida banks represented by the FBA. 

Mr. DeVaux brings over 25 years of experience in the banking industry to today’s hearing, including 12 years as chief operating officer with BankAtlantic and City National Bank of Florida prior to 

joining Sunstate Bank in July of 2014. 

Founded in 1999, Sunstate Bank is one of Florida’s most vibrant 

community banks—and we want to see you continue to be a vibrant community bank—with 3 locations and 45 employees serving 

the Miami-Dade County region. 

We are fortunate to have Mr. DeVaux here today to provide us 

with insight into the role of community banks in Florida and across 

the Nation in the fight against money laundering and terrorist financing. I want to thank the chairman for calling upon Mr. 

DeVaux to share with us the community and the Florida bank perspective on this important issue. 

And thank you to Mr. DeVaux and the rest of the witnesses 

today. We look forward to your testimony. 

I yield back. 

Chairman LUETKEMEYER. Thank you, Mr. Ross. That is such 

compelling testimony there, I might want to make a deposit to Mr. 

DeVaux’s bank. Thank you. 

Each of the witnesses will be recognized shortly here for 5 minutes to give an oral presentation of your testimony. And without 

objection, each of your written statements will be made a part of 

the record. Briefly, the lighting system, for those of you haven’t 

been here before, green means go. When the yellow light comes on, 

6 

it means you have a minute. So be ready to start wrapping up. And 

when you hit the red, that means we need to stop and move on. 

A couple of quick notes. We may be interrupted by votes—we are 

looking at votes sometime around 4:00, 4:15. If we do, and we are 

not done, we may ask the witnesses to please return or stay put 

here, and then we will return as quickly as we can. If not, we will 

hopefully be able to wrap up shortly. 

The other thing is, for those Members who are asking questions, 

we have a large turnout today, so if you can keep it within the 5 

minutes, that would be great. 

Ms. Anderson, you are recognized for 5 minutes. 

STATEMENTS OF FAITH LLEVA ANDERSON, SENIOR VICE 

PRESIDENT AND GENERAL COUNSEL, AMERICAN AIRLINES 

FEDERAL CREDIT UNION, ON BEHALF OF THE CREDIT 

UNION NATIONAL ASSOCIATION (CUNA) 

Ms. ANDERSON. Thank you, Chairman Luetkemeyer, Ranking 

Member Clay, and members of the subcommittee. Thank you for 

the opportunity to testify on this important topic. 

I am Faith Lleva Anderson, the senior vice president and general 

counsel for American Airlines Federal Credit Union, headquartered 

in Fort Worth, Texas. I am also the Vice Chair of the Consumer 

Protection Subcommittee of the Credit Union National Association, 

on whose behalf I am testifying today. 

American Airlines Federal Credit Union proudly serves over 

274,000 members. We began as a single-sponsor credit union for 

American Airlines over 80 years ago. Following 9/11, we extended 

our membership beyond American Airlines employees to include air 

transportation groups, such as TSA and FAA employees. 

My credit union’s asset size is $6.5 billion, which is quite small 

compared to regional or national banks. Like all credit unions, we 

are a not-for-profit institution owned by the very members we serve 

and are established to promote thrift and provide access to credit 

for provident purposes. 

American Airlines Federal Credit Union is committed to financial 

security compliance and applies whatever resources necessary to 

ensure our operations are solid and our members are protected. 

However, since the 2008 economic crisis, credit unions have been 

subject to more than 200 regulatory changes totaling nearly 8,000 

Federal Register pages. The new regulatory regime makes Bank 

Secrecy Act and anti-money-laundering regulatory compliance even 

more daunting. 

Nevertheless, my credit union has a staff dedicated to ensure we 

fully comply with BSA/AML requirements. We conduct detailed recordkeeping and spend thousands of hours and dollars on due diligence. In fact, due to increasing BSA requirements, we have split 

our BSA department into two separate sections, one to work on the 

investigative side and one to work on the risk side. This adjustment was made so my credit union could efficiently keep up with 

the many filing and recordkeeping requirements. 

Of all the requirements on BSA/AML, the most burdensome and 

time-consuming are investigating open suspicious activity report 

cases, monitoring the members’ accounts and transaction activity 

for unusual behavior, conducting the exhaustive research on an avVerDate Nov 24 2008 18:16 May 04, 2018 Jkt 028223 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\28223.TXT TERI
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erage of 600 potential suspicious activity scenarios per month, and 

filing these reports, as well as currency transaction reports. 

It generally takes my credit union 3 to 5 days to process an average suspicious activity report for one case, and we have about 30 

to 40 filings per month. 

In addition, quality control is costly and time-consuming. Preparing for our annual exam on BSA/AML compliance requires the 

work of 3 full-time professional staff members and takes about 2 

full months. This time is dedicated to ensuring reports are filed accurately, the risk assessments are completed, and there have been 

no mistakes made to the process and filings. 

My credit union dedicates a great amount of time, staff, resources, and money to BSA/AML requirements. The median size of 

a credit union is less than $30 million in assets with a total staff 

of just 8 employees. The reality is the cost of technology for monitoring and ensuring compliance with BSA/AML regulations is disproportionately burdensome on smaller and less complex institutions. 

Nevertheless, with the changes outlined in my written testimony, 

the Federal Government can ease the compliance burden for financial institutions while maintaining the protections needed. We urge 

legislative and regulatory changes to address the redundancies, unnecessary burdens, and opportunities for efficiencies within the 

BSA/AML statutory framework. 

In particular, we support changes to minimize the duplication of 

the same or similar information, provide additional flexibility based 

on the reporting institution type or level of transactions, curtail the 

continually enhanced customer due diligence requirements, increase the currency transaction reporting threshold, reduce defensive filings, simplify the reporting requirements of suspicious activity reports, and allow for greater regulatory and examination consistency among regulators. 

My written testimony provides details on issues that credit 

unions face regarding BSA/AML compliance and also outlines common-sense changes. Credit unions are committed to the fight 

against terrorism and related crimes. I hope my testimony will help 

this subcommittee find the balance between protection and undue 

burden. 

Thank you. 

[The prepared statement of Ms. Anderson can be found on page 

46 of the appendix.] 

Chairman LUETKEMEYER. Thank you, Ms. Anderson. 

Mr. Baer, you are recognized for 5 minutes. 

STATEMENT OF GREG BAER, PRESIDENT, THE CLEARING 

HOUSE ASSOCIATION 

Mr. BAER. Thank you, Chairman Luetkemeyer, and members of 

the subcommittee. 

Over the past year, The Clearing House has devoted substantial 

resources to analyzing the current system for anti-money-laundering and countering the financing of terrorism. Today, I will 

present some of the conclusions that we have reached. 

Our current AML/CFT system is broken. It is extraordinarily inefficient and outdated and driven by perverse incentives. FundaVerDate Nov 24 2008 18:16 May 04, 2018 Jkt 028223 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\28223.TXT TERI
8 

mental change is required to make that system an effective law enforcement and national security tool and reduce collateral damage 

it is doing to global development, financial inclusion, and other 

U.S. policy interests. 

I will begin with an analogy. Imagine an army where officers are 

evaluated based not on how their units behave in battle, but rather 

based on the accuracy and punctuality of their expense reports and 

the casualties suffered by the unit. The auditors do not have sufficient security clearance to be briefed on the battles that have occurred or read any after-action report. Thus their audits reflect 

only the losses suffered by the unit itself, not the casualties inflicted by the enemy. 

What sort of an army would this system produce? One led by officers averse to outside-the-box thinking and risky advances and 

more inclined to entrench their positions and excel at paperwork. 

This army inevitably would be led by a George McClellan, not an 

Eisenhower or a Patton. 

The U.S. AML/CFT regulatory regime circa 2017 is not dissimilar. Law enforcement and national security officials are the 

end users of the information that banks produce. They value a riskbased approach to AML/CFT with banks using innovative approaches that detect the most dangerous crimes. But compliance 

with AML/CFT rules is not examined or enforced by law enforcement or national security officials, but rather by bank examiners. 

These examiners are in a no-win position. On the one hand, they 

are excluded when the bank they examine is pursuing real cases 

with law enforcement and national security and receive no credit 

for those cases. But if something goes wrong, if a corrupt official 

or organization turns out to be a client of the bank they examine, 

the examiner takes the blame. 

Thus the rational response is to focus on what they know and 

control, extremely detailed policies and procedures and simple 

metrics, for example, the number of computer alerts generated, the 

number of suspicious activity reports filed, and the number of compliance employees hired. 

What gets measured gets done, and providing valuable intelligence to law enforcement or national security agencies does not 

get measured. Writing policies and procedures and filing a lot of 

SARs does. 

So almost 2 million SARs are filed per year now. The largest 

banks file one SAR per minute. Even then, the value of those SARs 

to their end users is not measured, so the measure of success is 

generally volume alone. 

The greatest cost of this dysfunction is an opportunity cost. 

Emerging technology has the potential to make the AML/CFT regime dramatically more effective. Artificial intelligence and machine learning could revolutionize this area, and banks continue to 

discuss ways to utilize those technologies. 

But those strategies require feedback loops which do not exist in 

the current SARs system. They also require a mandate from government to shift resources from investigating and filing SARs on 

low-dollar crimes and instead investing in modern methods for detecting high-impact crimes and terrorist activity. Law enforcement 

9 

and national security currently have no authority to provide that 

mandate. 

Another cost to the current system comes as banks are pushed 

to eliminate clients in countries or industries that end up creating 

political risk, so-called derisking. Here, a whole other group of government stakeholders has concerns: global development officials 

concerned about human suffering in countries cut off from correspondent banking and remittances; trade officials worried that 

American business will have to retreat along with American banks; 

and diplomatic officials concerned about a lack of influence when 

U.S. companies leave. 

Again, though, these agencies play no role in the current system, 

and Federal prosecutors seeking record fines when a problem does 

develop do not internalize those costs. 

In 2016, the Clearing House convened at two symposia a remarkable group of stakeholders, including foreign policy, development, 

and technology experts. Their goal was not to save banks money, 

but to do what is right for this country. The resulting report is attached to your testimony. 

You will see numerous recommendations in that report. The most 

important one, though, is for the Department of the Treasury to 

play a strong leadership role in setting priorities for the system. 

This should include reclaiming, through FinCEN, supervisory authority over the largest internationally active banks which filed a 

majority of SARs and present the toughest issues. A dedicated 

FinCEN examination team for this group of firms could receive appropriate security clearances, meet regularly with law enforcement, 

and work to develop metrics in this area. Most importantly, it could 

establish priorities and stick to them. 

Finally, one important change to the current regime does require 

legislation: ending the use of shell companies with anonymous ownership. I was pleased to appear this morning with Congresswoman 

Maloney to endorse the Corporate Transparency Act that she is cosponsoring with Congressman King and a bipartisan group of 

Members. I hope to discuss it further this afternoon. 

Thank you very much for your time, and I look forward to your 

questions. 

[The prepared statement of Mr. Baer can be found on page 59 of 

the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. Baer. 

Mr. DeVaux, you are recognized for 5 minutes. 

STATEMENT OF LLOYD DEVAUX, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SUNSTATE BANK, ON BEHALF OF THE 

FLORIDA BANKERS ASSOCIATION 

Mr. DEVAUX. Chairman Luetkemeyer, Ranking Member Clay, 

and members of the subcommittee, my name is Lloyd DeVaux. I 

am president and CEO of Sunstate Bank, a community bank 

founded in 1999 with $200 million in assets and 3 locations in 

Miami-Dade County in south Florida. Sunstate Bank has 45 employees and focuses on the needs of small businesses, consumers, 

and real estate investors, including nonresident aliens. 

I appreciate the opportunity to be here today to discuss the challenges in complying with the Bank Secrecy Act. Clearly, BSA comVerDate Nov 24 2008 18:16 May 04, 2018 Jkt 028223 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\28223.TXT TERI
10 

pliance is an important building block for our national security. 

But the world has drastically changed since it was first adopted in 

1970. As the United States takes steps to combat terrorism and financial crime, now is the time to update BSA compliance in order 

to develop a system suited for the 21st Century. 

The resources devoted to compliance, especially BSA compliance, 

are significant for a bank our size. Sunstate Bank has seven people 

in compliance, six of whom are just in BSA. BSA is our largest department. We have only four full-time lenders. That means we 

have fewer staff devoted to making loans that benefit the community than we have devoted to compliance. 

Our experience is not unique. In 2007, 14 percent of the Florida 

banks had 5 or more BSA officers. Today, 38 percent have 5 or 

more. While some of this increase is due to acquisitions, much has 

been driven by regulatory pressure and the heightened regulatory 

risk of enforcement actions. 

This is not a recipe for success. Direct BSA expenses were more 

than 10 percent of the bank’s total expenses in 2016. The more we 

spend on compliance, the less we spend on services for our communities. Every $100,000 spent on compliance translates to a million 

dollars less that we can lend. 

The added cost of BSA compliance on top of the significant cost 

of the Dodd-Frank Act has led to the disappearance of many smaller banks in Florida. For example, 111 banks merged or sold after 

Dodd-Frank was enacted. That is a consolidation of 50 percent of 

all Florida banks in just 7 years. 

Even more important than the direct cost of BSA compliance is 

the impact on our customers. For example, many legal businesses 

are labeled high risk by the regulators. This means banks must collect more data, do more analysis, provide more oversight, and engage in more site visits, all of which translates to higher costs for 

us and our customers. 

The best option in many cases is not to bank certain industries 

and certain customers and to even ask existing customers to close 

their accounts. From the bank’s perspective, the economics of compliance make it unprofitable to maintain certain accounts. 

This has serious drawbacks. First, it makes no sense to create a 

system that drives legitimate customers outside the formal banking 

system to less regulated or even unregulated providers. Second, it 

creates a series of financial transactions that may not be reported 

or available to law enforcement. Third, it can create a shadow financial system that is readily available for criminals and terrorists. 

We need to modernize our approach. Banks should not be serving 

as undeputized law enforcement agents. For example, rather than 

doing a full-blown investigation on a suspicious transaction, banks 

should file a short suspicious activity report and let law enforcement agents do what they are trained and qualified to do. 

Moreover, the partnership between law enforcement and the private sector needs to be a two-way street to succeed. Banks produce 

a huge amount of information but seldom get any feedback on its 

use or its effectiveness. More communication from law enforcement 

is needed to help banks focus resources in more useful ways. We 

also need to eliminate red tape that restricts bank from sharing information with each other. 

11 

Finally, we need to focus on real risk appropriate to the institution. For example, many of the 5 to 10 percent of our customers 

who are considered high risk by the regulators would not even be 

on the radar of very large banks. Our customers complain all the 

time that small banks are asking questions that larger banks never 

ask. 

We all want to fight money laundering and terrorist financing. 

We only asked that regulation be sensible so that resources are 

used in a wise and efficient manner to combat the crime. 

Thank you for holding this hearing today. I look forward to answering your questions. 

[The prepared statement of Mr. DeVaux can be found on page 

102 of the appendix.] 

Chairman LUETKEMEYER. Thank you, Mr. DeVaux. 

Ms. Lowe, you are recognized for 5 minutes. 

STATEMENT OF HEATHER A. LOWE, LEGAL COUNSEL AND DIRECTOR OF GOVERNMENTAL AFFAIRS, GLOBAL FINANCIAL 

INTEGRITY 

Ms. LOWE. Chairman Luetkemeyer, Ranking Member Clay, and 

members of the subcommittee, thank you very much for the opportunity to address you here today. You have my biographical details 

in front of you, so I won’t belabor that. 

I hope my contributions to today’s hearing will help you make 

measured and informed decisions that are really in the public’s interest as well with respect to the U.S.’s AML regime. In my written 

testimony, which is about 17 pages, I provide information and opinions regarding trends in compliance, suspicious activity reports, 

know your customer (KYC) and customer due diligence, and balance of activity and obligations between FinCEN, the regulators, 

and the private sector. 

And I would stress balance. I do think that is really important 

here, and that is something that has been mentioned by other panelists today. Some of my remarks also directly address some of the 

proposals by The Clearing House. 

So to summarize some of my key points in my testimony, the 

first point is that money laundering and the technology that can 

help us combat both are evolving. And in light of this, it is appropriate to consider whether changes to our regulatory structure 

should be made. 

Equally, however, it is critical that Congress understands and 

carefully weighs the potential benefits against the potential ramifications that may be negative before making decisions in this area. 

Regulation and enforcement are primarily dissuasive measures because they can carry potential liability and we should be very careful when we decrease those dissuasive measures. 

The second point I really wanted to stress here is that AML compliance and reporting is undertaken by a really wide range of entities and persons going far beyond the banking sector. You have 

bankers in front of you today. But any proposed changes being considered should really be looked at in light of that wide range of actors, those types of entities and persons. 

Third, some types of entities and persons should be required to 

have AML programs in place but currently don’t, such as those inVerDate Nov 24 2008 18:16 May 04, 2018 Jkt 028223 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\28223.TXT TERI
12 

volved in real estate closings, lawyers, and others. The banking 

sector cannot and should not carry this responsibility alone, especially where these persons act as proxies to open the door to the 

U.S. financial system for criminals and their money. 

Fourth, Congress should request from the various regulators 

data regarding formal and informal enforcement actions pertaining 

specifically to AML/BSA violations and deficiencies so that they are 

better able to independently assess the appropriateness of the enforcement regime currently in place. 

Fifth, I wanted to point out as well that both small banks and 

large banks have been the subject of major money laundering 

cases. You don’t often see the smaller banks in the news and hitting the national news, because they tend to be considered a local 

matter. 

Sixth, enforcement against money laundering is primarily 

through the identification of regulatory infractions as opposed to 

through criminal charges of actual money laundering. This may be 

because it is easier to find the evidence of regulatory infractions, 

the burden of proof is lower, the cost of doing so is far less than 

pursuing criminal money laundering charges. But the dissuasive 

effect is just as great. 

However, when one looks at the cases where enforcement was 

merely through identification of deficiencies of AML systems and 

filing requirements, the hallmarks of serious criminal money laundering are in those cases. As a result, decreasing the ability to enforce using the regulatory approach may have serious negative repercussions on compliance and ultimately criminal access to the 

U.S. system. 

My seventh point is that suspicious activity reports are meant to 

be just that, reports of suspicious activity. Requiring bank employees to determine if activity is, in fact, illegal before filing a SAR, 

as has been recommended by The Clearing House, would actually 

be counterproductive, I think, in a lot of ways, including increasing 

the burden on bankers who would have to then actually make a 

legal determination that they didn’t previously have to make. 

I do think that there are some issues with respect to how much 

information needs to be provided on SARs and how much background work banks need to do before filing those, and I think that 

is something that we should really seriously discuss. But that 

bright line, illegal/legal line, I think, is very counterproductive. 

Eighth, The Clearing House also recommends that greater information-sharing take place among banks and with the government 

in a number of ways. We generally support that greater sharing of 

information in the AML area, but it has to be done with appropriate privacy safeguards. Where it may result in people being, essentially, debanked, there has to be some sort of system for redress 

for people to be able to prove that what they are doing is legitimate 

activity, and we need to be taking that into account. 

Ninth, it is critical that information about the natural persons 

who own and control companies, otherwise known as the beneficial 

owners, is finally collected by either the State or the Federal Governments and that it is made available to so both law enforcement 

and to the financial institutions. Companies with unknown or hidden ownership are the number one problem in the AML world, and 

13 

the U.S. cannot continue to allow our failure to act here to put the 

U.S. and the global financial system at risk. 

I am really pleased that this morning a bipartisan bill was introduced in both the House and the Senate to do just that. We wholeheartedly support the Corporate Transparency Act and thank Representatives Maloney, King, and Royce for introducing the House 

bill. 

Tenth, I would strongly caution against transferring responsibility for setting AML priorities for individual banks from those 

banks to FinCEN. Banks really are best placed to understand their 

business and their systems and the money laundering risks that 

are inherent in those things. They really need to be able to create— 

Chairman LUETKEMEYER. Can you wrap up pretty quickly? 

Ms. LOWE. Don’t I have another minute? No? 

Chairman LUETKEMEYER. You had 5 minutes. 

Ms. LOWE. Oh, I’m sorry. 

Chairman LUETKEMEYER. Everybody else had 5 minutes. 

Ms. LOWE. Am I— 

Chairman LUETKEMEYER. You are way over. 

Ms. LOWE. I am on the wrong side of 5 minutes. That would explain it. I apologize. I thought I had a minute left. 

Chairman LUETKEMEYER. We thank for your testimony. Hopefully, you can delve into more of your suggestions here as we go 

through the discussion. 

Ms. LOWE. Sure. 

[The prepared statement of Ms. Lowe can be found on page 114 

of the appendix.] 

Chairman LUETKEMEYER. Thank you. 

Without objection, the gentleman from Ohio, Mr. Davidson, is 

permitted to participate in today’s subcommittee hearing. Mr. Davidson is not a member of the subcommittee, but he is a member 

of the full Financial Services Committee, and we appreciate his interest in this topic, and welcome his discussion here when he returns. 

With that, I recognize myself for 5 minutes for questions. 

It was interesting to hear your discussion, and I certainly appreciate everybody’s testimony this afternoon. There were lots of interesting comments from the standpoint of Mr. Baer’s analogy to the 

army with regards to how this whole structure is working, I 

thought that was pretty enlightening, and bankers have become 

law enforcement officers instead of being bankers. I think we need 

to put everybody back in their own pew. 

But I was interested in your discussion, Mr. Baer, when you 

talked about some of the technology that can actually help detect 

some of this stuff. I know with the fintech explosion here it seems 

like there is a lot of ability to go in and assess data. And is there 

a place for that, are we doing that now, or are we not doing that? 

Because it would seem to me that we can figure out what kind 

of magazine I would like to read based on all the things in my 

background here—where I do business, what I eat, where I go— 

and yet, we are not doing that with regards to suspicious activities. 

Mr. BAER. It is a great question. Among the experts we considered or consulted in our work were folks who were experts in big 

data and AI. 

14 

And just as background, I think what is important to understand 

is the SAR database was created 25, 30 years ago for a very different purpose. It was a suspicious activity report where there were 

a sufficiently small number of them that one of them was read by 

an Assistant United States Attorney (AUSA) somewhere in this 

country. So they were actually written to be read, every one read 

by someone. 

Now that we have almost 2 million filed per year, there is no one 

reading them in the first instance. Instead, what law enforcement 

does is word searches against that database. The banks also do 

searches against the database, basically looking for patterns. 

So we have gone from sort of providing leads in a very personal 

way to a prosecutor to basically having a big bunch of data, and 

what do you do with that data? And that is where the system has 

never caught up, because the first thing we heard from the big 

data folks is you have to have a feedback loop. If you want your 

algorithms to get smarter, you have to know for a given SAR, is 

that a good SAR or a bad SAR? 

They have even proposed you should just have law enforcement 

have a green button and a red button for good SAR or bad SAR. 

That would actually make things work a lot better. But there are 

a lot of other concepts like that that you could apply once you start 

thinking about that database in terms of a searchable bunch of 

data as opposed to an individual lead. 

Also, you could think about—and I think Mr. DeVaux was talking about this—the format of it. When it was an individual lead to 

be read, it had to be very carefully written in great syntax and reviewed at three levels. But if it is just going to be searched, do you 

even need a paragraph? Can you just dump in the data from the 

underlying account? 

So those are the kinds of questions that aren’t being faced now. 

Chairman LUETKEMEYER. Okay. Very good. 

Mr. DeVaux, you are in the trenches every day. You deal with 

this every day. So can you explain to me the impact of the rules 

and regulations presently on your—you kind of outlined it with regards to the numbers of people in there. But are you finding problems? Are you finding people who do illicit activities with the process that we have? Or can you give us ideas on how to do something 

different that would actually streamline the process so that you 

don’t have to have more compliance officers than you do loan officers? 

Mr. DEVAUX. Thank you, Mr. Chairman. 

To give you an example, when you set a customer up in your system, you build a profile on that customer. If that customer deviates 

from the profile, the BSA area gets an alert. We got 7,100 alerts 

last year. We filed 29 total SARs, 15 from alerts. We had to go 

through every one of those alerts. And any alert that creates suspicious activity is then turned into an investigation. 

Chairman LUETKEMEYER. Okay. Let me interrupt for just one 

second. Do you the investigating or does law enforcement do the investigating? 

Mr. DEVAUX. The bank. 

Chairman LUETKEMEYER. The bank does the investigating. 

15 

Mr. DEVAUX. The bank’s BSA department does an investigation. 

And it may eventually lead to a SAR. Last year, we filed 29 SARs; 

15 were generated from the alerts. So we did 7,100 alerts turning 

into 15 SARs. That is a lot of work. About 7 or 8 percent of our 

accounts are high risk, and that is what generates a lot of our 

alerts. 

Chairman LUETKEMEYER. Okay. Very good. 

I think you made a comment also with regards to the consistency 

of the rules. I think you made the comment with regards to being 

a small bank, that a lot of times, you are looked at differently than 

larger banks with regards to your client base. Can you expand on 

it for just a second? 

Mr. DEVAUX. Yes, sir. Thanks. 

We run our database to determine how many high-risk accounts 

we have. And we have had regulators come back and tell us that 

number is not high enough, you can’t just have 4 percent high risk, 

you need to have 6 or 8 percent high risk. A high-risk account is 

a high-risk account. It shouldn’t be determined by an arbitrary 

number. 

Chairman LUETKEMEYER. So they are asking you to go in and 

fudge the numbers, then, so you get to a higher number? Because 

I would assume you are giving the actual amount of high-risk business in your book of business. 

Mr. DEVAUX. The way the high risk is built is by parameters associated with the country they are doing business with, the amount 

of money they are running through the account, etc. So if you set 

the level of account transactions at a higher or lower level, you will 

generate more or less alerts. So, they are saying, and I wouldn’t 

use the word ‘‘fudge,’’ but they are basically saying you need to decrease your high-risk account parameters to pick up more alerts. 

Chairman LUETKEMEYER. Okay. Thank you very much. My time 

has expired. 

With that, we will recognize the gentleman from Georgia, Mr. 

Scott, for 5 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

Mr. Baer and Mr. DeVaux, I would like to, first of all, direct this 

to you two to respond. 

Last month, in May, we received a report from the FBI’s Internet 

Crime Complaint Center. And according to this report, attempts at 

cyber wire fraud globally surged in the last several months of 2016. 

Fraudsters sought to steal some $5.3 billion in schemes where they 

pretended to be trusted business associates requiring wire transfers. And this spike in fraud saw a total number of business email 

companies’ cases almost doubled from May to December of last 

year, rising to 40,000, up from just 22,000. 

So, Mr. Baer, I listened to your testimony, and I want you to address the issue of these financial innovation units. It seems to me 

that you are sort of plowing down this road as a possible way of 

dealing with this. And so my understanding is—don’t get me 

wrong—is that we need to provide regulatory safe harbors to these 

financial innovation units or institutions so that these units can operate in a sandbox outside of bank examiners’ sanctions. 

Now, that is a lot. What is the sandbox? How well does this 

work? Is this a pattern we have to follow on? 

16 

And then, Mr. DeVaux, I would like for you to agree or disagree. 

Mr. Baer? 

Mr. BAER. Sure. In some ways it is unfortunate that you actually 

have to request a safe harbor or a sandbox in order to do the right 

thing, which is to innovate and try to find more interesting ways— 

or more effective ways to catch very bad people doing bad things. 

The problem that has arisen, however, and we have heard this 

from multiple banks, is that—and to some extent this gets back to 

Mr. DeVaux, where there is a certain number of alerts that are expected or a certain number of SAR filings—when you are trying out 

a new way of identifying criminal behavior, you don’t have policies 

and procedures for that. You are experimenting. You may not know 

what the yield is supposed to be. If you have a new algorithm, you 

don’t know how many alerts that is supposed to trigger. 

And yet banks do face criticism when they do that. And so what 

they are really saying is, yes, we will comply with all the rules that 

we are complying with currently, but we want to have the chance 

to innovate and find new ways to do this, which I would hope could 

be relatively uncontroversial. 

Mr. SCOTT. Let me tell you a little bit of my concern about this. 

In providing a regulatory sandbox approach to combating terrorism, could we be hurting the very people we are trying to help 

if financial institutions can operate in a sandbox like this? 

Mr. DeVaux? 

And, Mr. Baer, you can chip in too. 

Mr. DEVAUX. I think fighting BSA crime is a team effort acrossthe-board. The question for me is which members of the team 

should be doing what. For banks, we get very little feedback on 

what works and what doesn’t work. 

Mr. SCOTT. You get very little feedback from whom? 

Mr. DEVAUX. From law enforcement, from FinCEN, from the people who actually receive our BSA product, our SARs, any reports, 

our OFAC hits, our 314 hit lists of suspected terrorists. 

So if we get no feedback, it is very hard for us to know what 

works and what doesn’t work. But if we make a mistake, we know 

very quickly what we did wrong. And it may not have been any 

type of transaction or illegal money moving. It could have been just 

that they didn’t like our policy, they didn’t like our program. 

It seems there has to be some kind of safe harbor to say, you 

have a decent program. One of the analogies I use from my old 

farming days is we are looking for a needle in a haystack with 

BSA. If we can make that haystack smaller, we have a better 

chance of finding that needle. 

So why don’t we look at the things that work and do those and 

maybe do more of those, and look at the things that don’t work and 

let’s stop doing that. 

Mr. SCOTT. So one of the things that you are saying that has 

worked are these financial units. You don’t see a problem there? 

Mr. DEVAUX. No, not at all. 

Mr. SCOTT. Okay. And the fact that so many of them are manned 

by former law enforcement people certainly could help with getting 

the communications. 

Is that right, Mr. Baer? 

17 

Mr. BAER. Yes. And I wanted to add too, although there aren’t 

really policies and procedures for it, banks of all sizes are very 

good, I believe, about alerting law enforcement when they actually 

see something that is truly suspicious, as opposed to just an alert 

you have to file because it hit some parameter. There is actually 

a term for this now called ‘‘super SAR.’’ And banks actually walk 

those into the U.S. Attorney’s Office or the FBI, or whomever, and 

say, look, we filed the SAR like we always do, but this one really 

means it. 

Mr. SCOTT. All right. Thank you, sir. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentleman from Pennsylvania, Mr. Rothfus, is recognized for 

5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. Baer, in your testimony, you described the current AML regime as, ‘‘inefficient and outdated and driven by perverse incentives.’’ You described a system where financial institutions face 

broad reporting requirements and file large numbers of SARs, some 

of which are purely defensive in nature. 

I think we can all agree that our BSA/AML regime should seek 

to provide law enforcement with actionable intelligence that they 

can actually use rather than volumes of SARs that waste resources 

and provide minimal value to law enforcement. 

With this in mind, do you believe that the provisions of the Bank 

Secrecy Act with respect to required reports of suspicious activity 

by financial institutions are overly broad and, as a result, produce 

too many reports that are not particularly useful to law enforcement? 

Mr. BAER. It is a great question and it is very difficult to answer. 

There was a time when we used to say there were too many SARs 

and it was adding hay to the haystack and making it more difficult 

to find needles. That was when someone was actually reading 

every SAR. 

You can actually argue now that no one is reading them in the 

first instance and you are just running word searches against 

them. Why not have more SARs? That is just more data to search. 

The real problem there, though, and with a SAR database is— 

again we have heard this from the big data folks—that the SAR 

database is filled with noise because you’re filing a bunch of SARs 

on low-level, low-dollar offenses that no Federal prosecutor would 

ever look at, and then it is really the absence of a feedback loop. 

It is just not a smart database. It is not necessarily more or less, 

it is more, how are you going to search that database and how are 

you going to get feedback so that you are searching it smarter and 

smarter every day? 

Mr. ROTHFUS. Are there any changes you would suggest to the 

reporting requirements, or is it more the feedback loop that you are 

looking at here? 

Mr. BAER. On the reporting requirements, for example, there is 

no dollar limit for insider abuse. So if you think a teller is taking 

some money and decide to let him or her go, you actually have to 

decide whether to file a SAR on that, even though, again, there is 

no Federal law enforcement official in the world who will ever 

bring a case on that. 

18 

The dollar limits have not been raised, I believe, since the BSA 

was originally enacted with regard to other low-level offenses. So 

for a $2,000 theft, you are filing a SAR. 

And I think as both Ms. Anderson and Mr. DeVaux noted, that 

is a lot of resources, because you actually have to investigate those 

like a law enforcement agency. And so you could take massive resources away from those low-product, low-utility efforts and put 

them to much more useful purposes. 

Mr. ROTHFUS. The report that The Clearing House issued, ‘‘Redesigning the U.S. AML/CFT Framework,’’ discusses the possibility of 

setting up a no-action letter procedure at FinCEN. This would 

allow financial institutions to query FinCEN on enforcement 

issues. Could you describe how you would envision no-action letters 

working in this context? 

Mr. BAER. I will give you one example. With respect to sharing 

of information among firms under 314(b), that is actually permitted 

with respect to two categories of offenses: anti-money-laundering; 

and terrorist financing. 

It is not quite clear what anti-money-laundering means with respect to that exception, because just about any crime involves having to launder the proceeds of it. So, for example, in that area, you 

would be able to write in and say, ‘‘Is this sort of offense the kind 

where I could share information with another financial institution 

to the extent I am investigating that conduct?’’ 

But there are millions of questions like that where firms have a 

very difficult time knowing what the exact right answer is and are 

at great risk if they get it wrong. 

Mr. ROTHFUS. Mr. DeVaux, in your testimony, you suggested 

that there are deficiencies in how Section 314(b) of the USA PATRIOT Act has been implemented. As you know, this section encourages banks to share information with each other. Specifically, 

you wrote, ‘‘The restrictions and red tape surrounding its use make 

it impractical.’’ 

What are some of these restrictions that hinder bank-to-bank cooperation? 

Mr. DEVAUX. There are always privacy issues related to sharing 

information. In order to share information with another bank, you 

have to first file with FinCEN. And before you share, you have to 

also be certain that the other institution has filed with FinCEN. 

And then you can share information. 

And the process is not as smooth as it should be in terms of having to go through that procedure. Many banks do not do it. They 

just don’t share the information. 

Mr. ROTHFUS. Ms. Anderson, in your testimony, you wrote that 

it takes your credit union 3 to 5 days to process an average SAR 

for one case from beginning to end, and American Airlines Federal 

has 30 to 45 filings per month. How has technology helped to mitigate this compliance burden? 

Ms. ANDERSON. We use a system that generates the cases. And 

so what we do to eliminate false positives is once a year, we look 

at the rules that we have established in the system so that we can 

eliminate the false cases, which takes time, because the ones that 

I mentioned where it takes 3 to 5 days to research, it takes that 

long for a true SAR, because you have to look at the deposits, you 

19 

have to look at the lending system, you have to look at what is in 

your imaging system. 

There is a lot of research in the background to truly grasp what 

is going on, especially if a lot of individuals are involved. And then 

you have to look at all those accounts. 

So what we try to do once a year is we do a quality review, and 

we look at our rules to eliminate those that have false positives. 

Mr. ROTHFUS. I yield back. Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman yields. His time has expired. 

The gentlelady from New York, Mrs. Maloney, is recognized for 

5 minutes. 

Mrs. MALONEY. Thank you very much, Mr. Chairman. 

And I thank all the panelists for your testimony. 

Mr. Baer, I would like to ask you about the Beneficial Ownership 

bill. You and your organization, The Clearing House, have been extremely helpful on this bill and we deeply appreciate your support. 

And I want to thank you for that. But we both share a common 

goal, which is to prevent terrorists and criminal organizations from 

using the U.S. financial system to move their money around. 

And as you know, the Corporate Transparency Act will allow financial institutions to have access to the same beneficial ownership 

information that law enforcement has, because we want financial 

institutions to know their customers, and they can’t know their 

customers if they don’t know who owns the corporation. 

Can you talk about why it is important for both law enforcement 

and financial institutions to have accurate beneficial ownership information? 

Mr. BAER. Sure. Thank you, Congresswoman. 

Actually, I think you noted this morning, which I think is a really important point, that the greatest benefit from that legislation 

is actually outside the banking system. As you noted, sophisticated 

criminals, or kleptocrats, know not to use the banking system. So 

they use LLCs to set up—to hold real estate or diamonds or art or 

whatever it is. So even if you left aside the banking system, there 

would be a great reason to enact the bill. 

For banks, they already are under, as we have discussed, a customer due diligence requirement from FinCEN, that they know 

their customers, and if it is a corporate customer, that they know 

the beneficial owners of that corporation. 

Currently, that is a game of hide-and-go-seek where they have to 

ask and then investigate. If they had access to an established database filed under penalty of law where a corporation had to identify 

to the State or to FinCEN who the beneficial owners are, obviously 

that would reduce the burden on the bank, it would reduce the risk 

of getting it wrong, and that is all to the good. 

But I think the primary reason we support the legislation goes 

beyond those marginal reductions in cost and risk and is more just 

to having a much safer system and a much safer country. 

Mrs. MALONEY. But it would be a substantial benefit to financial 

institutions as it would reduce the regulatory burden on those institutions? 

Mr. BAER. No. Absolutely. 

20 

Mrs. MALONEY. It was interesting in the ‘‘60 Minutes’’ show that 

was done on the hiding of money in America, that in that show 

they interviewed 15 lawyers, and all of them were cooperating in 

trying to hide money in America. 

What I thought was very interesting was they all said, don’t go 

to a bank, whatever you do, don’t go to a bank, because they are 

going to know their customer, and that is not a good place to hide 

your money. 

It was disturbing to me to see the American legal system cooperating with an alleged criminal on how to hide money, but it shows 

that the banks have been successful in knowing who is there. But 

every single one of them said, ‘‘Don’t go to a bank, go to these 

LLCs, we will help you set it up.’’ 

How many banks are part of your clearinghouse? 

Mr. BAER. It is basically the 25 largest commercial banks in the 

United States. 

Mrs. MALONEY. And are they all supporting this legislation? 

Mr. BAER. As well as we can determine, yes. We have asked 

them repeatedly, and they are all for it, yes. 

Mrs. MALONEY. I appreciate it. I represent an area that has a lot 

of terrorism financing. And any way we can crack down on it 

makes America safer. So thank you so much. 

I would also like to ask the gentlelady, Ms. Lowe, and you have 

been very supportive of this bill too, which we introduced today 

with your support. And can you talk a little bit about why you 

think it is important? And how will this help crack down on terrorism financing in America? 

Ms. LOWE. The issue of anonymous companies and beneficial 

ownership is not simply a U.S. issue. It is, certainly, a global issue. 

The U.S. started off actually quite strong many years ago, trying 

to push to make it more difficult to create anonymous companies, 

but has actually fallen quite far behind many other countries in actually operationalizing that. 

The U.K. today, for example, has a completely publicly available 

register of beneficial ownership information that, for example, U.S. 

law enforcement could access, U.S. banks could access now as they 

wish. 

So terrorism finance today, as you have heard in many of your 

hearings last year, is not something that is done only by terrorists. 

There are a lot of people working together among the criminal systems around the world, and that is terrorism folks working together with organized crime, working together with human traffickers, because they are all using the same systems. 

And a fundamental vehicle for moving any of this criminal 

money is unanimous companies. Again, that is global. 

The U.S. is particularly important in this area— 

Chairman LUETKEMEYER. Very quickly. 

Ms. LOWE. —because we do incorporate the largest number of 

companies in the world, and the rest of the world thinks that they 

are very legitimate. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

The gentleman from North Carolina, Mr. Pittenger, is recognized 

for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

21 

And I thank each of you for your expert testimony today. 

Previously, I had drafted legislation to strengthen and clarify 

Section 314, information sharing mechanisms that were written in 

the USA PATRIOT Act. 

How important is it for us, in our anti-money-laundering regime, 

that we fully enable vital information-sharing between the government and financial institutions, and between the financial institutions themselves? And in this legislation, part of our objective, of 

course, was to streamline this process, enabling the government to 

focus in on those entities that would be a strategic importance to 

them. 

Yes, sir? 

Mr. BAER. Yes. Congressman, I think it is very important. I 

think it is important, under the current paradigm, where I think 

it is more a matter of banks picking up the phone and calling each 

other to the extent that they share a customer and want to know 

if they are seeing the complete picture. 

I think in a future paradigm, where there was, again, more use 

of data. I have been taught by the data folks that the importance 

is not the algorithm, it is how much data you are running that algorithm against. 

If you have a customer who has four bank accounts, you would 

certainly want to see the behavior in all of those accounts in order 

to determine whether it is truly suspicious or troublesome. So, 

whether it is the informality now and picking up the phone, or 

whether it is a future state where you are actually sharing data 

in real time, I think it is important in both cases. 

Of course, there are privacy concerns here, and we respect those. 

I think those should be addressed, but they seem solvable. 

Mr. PITTENGER. In respect to that, and when you consider—and 

I will get to the privacy issues, if the government was able to identify those particular entities that they wanted you to respond back 

to, that in itself, it seems to me, would provide greater privacy for 

those relieving you of others that you would not have to be engaged 

with. 

Would you concur with that? 

Mr. BAER. Yes. I agree, Congressman. 

Mr. PITTENGER. Ms. Lowe? 

Ms. LOWE. Thank you. Just to add, moving forward and looking 

at this issue, I think you need to be looking at the international 

data privacy regulations in place. The internationally-operating 

banks are very much bound by those, and what they can and cannot share. The European Union, in particular, has had the strictest 

regime, and that is a pretty wide-ranging regime. And they just 

adopted a new directive in May on this that will come into effect 

in May of 2018. 

Around the world, countries generally have adopted either this 

sort of European approach or the American approach, and so it is 

sort of a hodgepodge out there in the world as far as how these 

data policy restrictions interplay with the information-sharing. But 

I think it is something that this committee should look at in that 

sort of much wider context, understand what we can and cannot do 

and how to make that better. 

Mr. PITTENGER. Mr. DeVaux? 

22 

Mr. DEVAUX. Yes. I agree 100 percent. The 314(a) list is a list 

of people of interest, and I would like to get that list. That is a very 

efficient activity. We can just run it against our database. If we get 

a hit, we report it. 

I think about the situation where you may have people who are 

criminals—or doing criminal activity, and they are not banking at 

just one bank. They are banking at four or five banks, and they 

could be moving money around. 

You can imagine the scenario where five banks are writing a 

SAR on the same person. If there were ways to better share this 

information so we could get the information out there, we might 

save a lot of that redundant work. 

Mr. PITTENGER. And part of your objective is to have a safety capacity where you would be protected from litigation sharing information one with another as well. Is that correct? 

Mr. BAER. I probably reaffirm Ms. Lowe’s point, in the sense, 

internationally, there are now currently restrictions on the ability 

of a given bank to share even within the bank to the extent there 

is a foreign affiliate, or even branch involved. So that is a very real 

concern. 

Mr. PITTENGER. Ms. Anderson, do you have a comment? 

Ms. ANDERSON. I just wanted to echo the remarks made by Mr. 

Lloyd DeVaux. We would also like to share information, but as was 

previously mentioned, you are limited to only two instances where 

you can share information. 

And at credit unions, we have what is called shared branching, 

where if they are involved in a system, they could go to another 

credit union and make a deposit or withdrawal. And so it would be 

great if we could openly share that type of information so that we 

are not spending so much time trying to call them, or they are trying to call us so they can file a proper SAR or a CTR. 

Mr. PITTENGER. You have a safe harbor where you are able to 

provide information with each other? 

Ms. ANDERSON. Yes. 

Mr. PITTENGER. Thank you very much. I yield back. 

Chairman LUETKEMEYER. The gentleman yields back his time. 

Ms. Velazquez from New York is recognized for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Ms. Anderson, Mr. Baer, and Mr. DeVaux, I am hearing from 

real estate title and settlement professionals in my district that 

criminals are doctoring up fraudulent wire instructions and sending them to home buyers. They make the instructions look legitimate as if they were coming from the title insurance company. 

The buyer then goes to the bank and sends a wire using the incorrect instructions. These funds, then, get transferred to the criminal before a series of transfers sends the money offshore. So my 

question to you is, can each one of you tell me what you are doing 

to prevent your institutions from being used by these criminals? 

Ms. ANDERSON. I would like to start. Thank you, Congresswoman. 

What we do when a member wants to send a wire is that they 

have to complete a form, and we verify their identity. And so, to 

make sure that we send funds from their account, because funds 

can go so quickly. And so we do authenticate our members, and we 

23 

also contact them. And then depending on the dollar amount, it 

might have a second level of approval. That is what we try to do 

to discourage fraud. But also what we do, is we also have alerts 

that we send our members. If we see a pattern of a type of fraud, 

we try to send newsletters to them. 

Ms. VELAZQUEZ. Thank you. 

Ms. ANDERSON. Thank you. 

Ms. VELAZQUEZ. Mr. Baer? 

Mr. BAER. I think I will defer to the real bankers here, although 

The Clearing House runs a payment system. It is actually a bankto-bank, very large dollar payment system, which I don’t think 

would be relevant. 

Mr. DEVAUX. From our perspective, one of the beauties of being 

a community bank is we know our customers. So when we get a 

wire request, in addition to the comments Ms. Anderson made, we 

call every customer on every wire, and we have a conversation with 

them. They complete a wire authorization form, and the information we call is in that form. And we verify using that form, if we 

don’t recognize the voice, which it would be very rare that we 

wouldn’t recognize the person on the other end. 

Ms. VELAZQUEZ. Does your AML program detect these crimes? 

And if so, how? 

Mr. DEVAUX. Every wire in and out of the organization is run 

through OFAC, first of all. Also, we run OFAC every single night 

on every single customer, and on every transaction that comes in 

and out of the organization. I talked about the 314(a) list, which 

is a list of people of interest to FinCEN. 

I like OFAC. OFAC is easy for us. We run the list against our 

database, so we know the people they are looking at, and the places 

they are trying to avoid sending money to; therefore, it is very, 

very efficient. 

Ms. VELAZQUEZ. Thank you. 

Mr. DeVaux, how can Congress help facilitate greater communication from FinCEN and a better relation between law enforcement and financial institutions? 

Mr. DEVAUX. The first thing, as I said earlier in my paper, would 

be to share information with us, to tell us what is working and 

what is not working. 

It is very difficult for us to know the things we do that are valuable and the things we do that are not valuable. And sometimes, 

everybody gets busy and doesn’t take the time to step back and 

take the bigger view and say, okay, what is working? 

I think if we could focus on the things are working and maybe 

even do more of the things that are working and stop doing the 

things that don’t provide value, I think it would help the entire 

system be better. 

And I mentioned earlier, there is so much redundant work going 

on, so if we had the ability to share through some type of database, 

or some type of sharing agreement where we could not have to repeat all the work that has been done dozens of times by other organizations, it would save us a lot of resources. 

Ms. VELAZQUEZ. Thank you. 

I yield back, Mr. Chairman. 

Chairman LUETKEMEYER. The gentlelady yields back. 

24 

The gentleman from Colorado, Mr. Tipton, is recognized for 5 

minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

I thank the panel for participating today, on a very important 

issue. We appreciate the efforts you all are making on this. 

Mr. DeVaux, you commented that your compliance department 

has grown significantly. In fact, you have the largest compliance 

department when it comes to the AML. Is that accurate? 

Mr. DEVAUX. Yes, Congressman. That is accurate. In fact, it has 

doubled since 2011. But what I am talking about here is the compliance department and the direct expenses related to compliance. 

We have 45 employees, and all 45 employees are in BSA, not just 

the 6 who are in the compliance department. Every customer who 

walks through the door, you have to follow the know-your-customer 

rules in the CIP program. You have to go through an extensive 

process to identify who that customer is. 

The frontline officer who is dealing with that customer has to 

build a profile of that customer to know what type of activity, 

where every dollar is coming from and where every dollar is going 

to go, and the level of dollars and types of transactions. 

And we have to train across the entire organization on the four 

pillars of BSA. You have to train every person in the organization 

specific to their responsibilities in the organization. So when they 

should be out developing business and trying to generate new customers, they are spending a lot of time trying to onboard customers. And if an alert comes up, they are the ones who make that 

phone call back to the customer to get more information. 

If a lender is trying to do a loan, they have a lot of responsibility 

around gathering BSA information. So instead of being able to call 

on five customers that day, they can maybe call on two, because 

the process takes so much longer. 

Mr. TIPTON. Great. 

Ms. Anderson, Mr. DeVaux, maybe you both would like to be able 

to address this. Earlier this month, the Treasury Department released a report on the current state of the financial system. And 

following the release, I wrote a letter, which is currently being circulated among membership or cosigners encouraging Federal regulators to institute policies requiring greater coordination for supervisory exams. 

In your testimony, you recommended that BSA/AML reform include minimizing duplication of some or similar information as well 

as greater regulatory examination consistency among regulators to 

minimize the regulatory overlap. 

Can you expand, perhaps, on why this is an important issue, not 

only for supervised entities, but also for the regulators themselves? 

Ms. ANDERSON. Yes. The reason that it is a burden is because 

from the regulator’s point of view, they usually have agreements 

with FinCEN on the examination process. And there is such a high 

threshold with BSA that if you have one minor inadvertent mistake, you are written up. So what our compliance department does 

is prior to our examiner coming in, we review the whole BSA program from top to bottom, and that is where we have three people 

dedicated to reviewing that we filed all the SARs timely, that we 

didn’t have to file any amendments, that our CTRs look right. We 

25 

look at all our risk assessments. Because, unfortunately, the way 

that it appears that the agreement is between the regulators is 

that BSA has a higher threshold than if you would have, for example, errors in lending. 

In lending, they may make informal comments, the examiner 

will. But if it is something to do with BSA, they will automatically 

make it a finding, or they could raise it to a letter of understanding, or a DOR. So that is where we spend so much time on 

quality control besides doing the day-to-day investigating and filing. 

Mr. TIPTON. Anything to add, Mr. DeVaux? 

Mr. DEVAUX. We are a State-regulated bank, a State-chartered 

bank, which means we are regulated by the State and by the FDIC, 

and by FinCEN—a lot of regulators. 

We just had a CRA compliance exam that started in early April. 

And when it finished, by the end of April, our safety and soundness 

exam started, and it continued until just last week. 

So we have actually had over 60 days of regulators in the bank, 

a $200 million bank, going through everything we do. It was the 

FDIC in both cases, but the exam reports then go to the State, and 

the State may call us up, and want to come in for a visit, and 

relook at some of the things that we did. So we are put through 

a lot of hoops in order to comply with regulation. 

And, we understand as banks, we need to be regulated. We are 

dealing with people’s money. But at the end of the day, we would 

rather be out enabling the dreams of our community, enabling the 

small businesses, creating jobs, revitalizing the economy. So let’s 

eliminate some of the duplication so we can do that. We can spend 

more resources on developing our economy and developing the 

small businesses in our area. 

Mr. TIPTON. Thank you. 

And, Mr. Chairman, I think I have 22 seconds left? 

Chairman LUETKEMEYER. I think you are 22 seconds over. 

Mr. TIPTON. That is okay. Thank you. I yield back. 

Chairman LUETKEMEYER. We are going to have to go back to 

basic 101 math here. Fortunately, we are Congressmen. We don’t 

take education well. 

The gentleman from Texas, Mr. Williams, is recognized for 5 

minutes. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

And thanks to all of our witnesses today for your testimony. 

And, Ms. Anderson, it is good to see you. I always appreciate 

when the committee brings in a Texan, and I am from Fort Worth. 

So thank you for being here. 

Ms. Anderson, let me start with you. Banks, credit unions, are 

in an era of compliance. I have seen this in my own personal life. 

I hear this from small business owners like myself across my district. Every business is worried about making sure they comply 

with whatever regulatory authority oversees them. 

So along those lines, let me start by simply asking this: What is 

involved with preparing for your Federal regulatory agency examination of BSA/AML compliance? 

Ms. ANDERSON. Thank you, Congressman. 

26 

As I mentioned earlier, what we do is we—the three people do 

a top-to-bottom review of the whole program. And so we look at all 

the filings, all of the—we make sure that the risk assessment that 

we have is final and complete. We look to make sure that we don’t 

have—we didn’t have any errors. And if we have to file any amendments, we will file amendments. 

We make sure that everyone has taken their required annual 

training, because when the examiner comes in, they want to make 

sure that besides the employees taking the training, that also the 

board of directors has been given training, and that if someone 

wasn’t there, for example, at a board meeting, that we sent them 

the presentation that was given. We make sure that they don’t 

have questions. 

So, it does take a full 2 months. We get all the documents ready 

for the examiners. And we have a stack this high of the documents 

that we have ready for them. So it is a very time-consuming process, but we do that because we want to be in compliance with BSA. 

Mr. WILLIAMS. Okay. Let me follow up. 

What kind of training—you touched on this—do your employees 

go through on a regular basis to make sure they are up-to-date on 

the most current rules? You kind of touched on that. Go ahead. 

Ms. ANDERSON. We do online training, because we have branches 

in 13 States and the District of Columbia. But what we also do is 

we supplement that training with personal training specific to that 

department, whether it be a loan officer, or the wire department, 

or with the teller. We do a lot of training when we see there may 

be deficiencies. 

So we are always training our folks to make sure they are always 

catching and reporting to us any suspicious activities. 

Mr. WILLIAMS. And every now and then you try to do some business, right? 

Ms. ANDERSON. Yes. Thank you. 

Mr. WILLIAMS. Let me follow up. I have always said that banks, 

credit unions, and small businesses are the first people you turn 

to when you need something in your local community, whether it 

is sponsoring the Little League team or donating an item for charity. And you all are certainly pillars of our community, and people 

know that. 

In your testimony, you said that the American Airlines Credit 

Union was previously able to conduct online training for employees 

spread out over the 13 States. But now you must supplement that 

online training with one-on-one customized training, combined with 

the BSA/AML training every year for all 600 employees. This is, 

obviously, a huge burden to all employees. 

So my question is this: In general, have the increased, BSA/AML 

compliance costs caused your credit union to miss out on opportunities to serve your community like we are talking about? 

Ms. ANDERSON. Yes. I always feel, and I am sure other financial 

institutions do, that you never have enough people who are working in BSA. So I always try to ask for an additional head, or we 

always try to make sure we have the best technology so that we 

can support the BSA regulations. 

27 

Mr. WILLIAMS. My last question would be, how do these burdens 

that we are talking about, BSA/AML compliance and reporting, affect the credit unions, aside from just the training commitment? 

Ms. ANDERSON. It takes resources away from the credit union as 

a whole, because those resources could be spent elsewhere on providing better products and services for our members. 

We could do more. Other types of services, like offering to maybe 

beef up and hire more loan officers, or maybe hire more credit 

counselors, but because of the BSA regulations, we are staffed up 

for BSA, because it is such an important area, and it is looked at 

very closely. 

Mr. WILLIAMS. Thank you. I appreciate you being here, and I 

yield my time back. 

Chairman LUETKEMEYER. The gentleman yields back. With that, 

we go to the gentlelady from California, the ranking member of the 

full Financial Services Committee, Ms. Waters. You are recognized 

for 5 minutes. 

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

And I would like to thank our witnesses who are here today. 

I have wrestled with what we can do to deal with violations of 

the BSA/AML. And at the same time, I share some of the concerns 

about the smaller banks and smaller institutions that are having 

difficulty, for any number of reasons that have been identified 

today. 

But here is what is causing us to be very concerned in this general area. In recent years, we have witnessed a seemingly endless 

stream of money laundering violations by some of the largest global 

banks, with Deutsche Bank being the most recent large global financial institution to disregard the anti-money-laundering requirements contained in the Bank Secrecy Act. Given that large mega 

banks continue to treat our current BSA/AML enforcement penalties as merely the costs of doing business, it is what is driving 

our concern. 

When I take a look at some of the banks, big banks that have 

been involved with the money laundering, or at least disregarding 

any efforts that should be made to do the kind of detection that has 

been discussed here today, for example, in 2014, BNP Paribas, the 

world’s fourth largest bank, agreed to pay $8.9 billion for knowingly and willfully moving over $8.8 billion through the U.S. financial system on behalf of three countries the U.S. had already sanctioned for acts of terrorism and other atrocities. 

In 2012, HSBC agreed to pay $1.9 billion in U.S. fines while allowing itself to be used by money launderers in Mexico and terrorist financiers in the Middle East. HSBC allowed Mexican and 

Colombian drug cartels to launder at least $881 million. And in another case, HSBC instructed a bank in Iran on how to format payment messages so that its transactions would not be identified as 

an Iranian entity, and be blocked or rejected by the United States. 

Again, with Deutsche Bank, it was $41 million for anti-moneylaundering deficiencies. 

So given all of that, and our concerns about the smaller banks, 

what would you recommend that we do that could be helpful to 

smaller banks and credit unions, but at the same time, not interfere with our ability to deal with what I have just described? 

28 

Ms. Lowe? 

Ms. LOWE. Thank you, Congresswoman Waters. There is no 

doubt that there have been some very willful and very egregious 

cases over the past several years that have come down in this area. 

And as I noted in my testimony, they are almost entirely based on 

what are, essentially, violations of the BSA/AML procedures. But 

when you look at the cases, you see so, so many hallmarks of actual money laundering, but there is no criminal prosecution related 

to these, not of the individuals nor of the banks. 

There are a number of reasons for that, as I mentioned, potentially. But what the DOJ tells me is that they don’t have enough 

evidence to actually bring a prosecution against a person. I find 

that very difficult to believe when I read the statement of facts, because those statements very often contain things like emails, where 

people are exchanging emails about exactly what they are doing, 

and they know they shouldn’t be doing it, right? 

So I find that difficult to believe. I want to really understand better why we are not prosecuting the individuals who are actually 

perpetrating these actions. 

I think that when a bank is fined, its bankers say, Oh, that is 

terrible. I think when a banker goes to jail, his fellow bankers say, 

Oh, that is not going to happen to me, and I am not going to do 

that. So I think we need to be focusing a lot more on individuals. 

Sally Yates made a memo in 2015 to this effect. I would like to 

see us, actually, following through on that. 

Ms. WATERS. Ms. Lowe, I understand that some of the drug dealers that these banks were dealing with have gone to prison for long 

periods of time, but their enablers in the banks have not been penalized personally. No head of a bank, no CEO, has been placed in 

prison for knowingly laundering drug money. 

Ms. LOWE. That is correct. With respect to the very large cases, 

that is correct. 

Ms. WATERS. I yield back the balance of my time. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

The gentlelady from Utah, Mrs. Love, is recognized for 5 minutes. 

Mrs. LOVE. Thank you so much for being here today. 

As a former mayor of a growing city, when I first started off at 

the city council, our city had a population of about 7,000 people. 

And it may seem like it is an easy task, because there wasn’t very 

much going on. You tend to learn that all of the decisions you make 

at the very beginning you end up either reaping the benefits of, or 

suffering the consequences of the decisions that you make very 

early on. 

But it is really interesting, as the city grew, the first people who 

were in our cities were our credit unions and the banks. And a lot 

of people kept asking, why do we have so many banks, and why 

do we have so many—they were the ones that were coming. 

And it wasn’t until later that we realized that the small banks 

that were there, and the credit unions that were in our community, 

were the ones that were the lifeblood of our community. They were 

the ones that were helping support all the city events. They were 

the ones that were actually the financial credit. They were the ones 

giving the financial credit to all of our businesses that were there, 

29 

and our city grew from, at that time, 7,000 to, when I left, over 

27,000, a viable, growing city. 

And I am so glad that I didn’t listen to all of the people who were 

saying, we don’t need any more banks, just start getting other businesses, because they were the ones that were a great foundation 

for our city. 

So I want to focus on striking the right balance of oversight and 

regulation. And I guess the question that I have—and, Ms. Anderson, if you can help me answer this, and we can go down the line 

as quickly as we possibly can, what kind of analysis must an institution conduct to provide adequate oversight and monitoring in 

compliance with BSA? I haven’t been here for the whole hearing, 

so if you answered this already, please forgive me. 

Ms. ANDERSON. What we look at, when we look at suspicious activity, is we look at if there is a lot of money being transferred. We 

look to see whether that person has the salary from our records to 

justify that amount of cash in their account. And then we look to 

see does the cash stay—does the money stay in their deposit account, or is it quickly moved out? And then, is there more than one 

individual? Is there more than one individual who has access to the 

accounts? And where is the money going? Is it going overseas? How 

long does it stay there? 

And so that is, for example, when we would file, because the 

funds are unknown. When we determine from our system that they 

are trying to avoid us filing a currency transaction report, when 

they deposit, like, more than $10,000, we also then file suspicious 

activity report, as do others here. 

Sometimes it is more complicated, because you have to look at 

many accounts if there is more than one individual, or the individual may have other accounts where they are joint with other 

people. And so that is why it takes so long to investigate when it 

is a true SAR filing, because it just looks suspicious on our end. 

We don’t know if it is legal, but it doesn’t look right based on what 

we know about our members. 

Mrs. LOVE. Okay. So, obviously, a lot goes into that. And, also, 

what is the result of the failure to comply? 

Ms. ANDERSON. So if you don’t file, then there is no safe harbor. 

You are written up. There could be fines, especially if they find it 

to be willful. And so, I know some institutions, if—sometimes if we 

are not sure whether we should file or not, we will file, because 

there is a safe harbor for filing. 

And then if we decide not to file, we keep a spreadsheet of the 

reasons why we didn’t file so that our examiner can see that we 

have good reasons for not filing. 

Mrs. LOVE. Okay. 

Mr. Baer, Did you have something you wanted to add to that? 

Mr. BAER. I think that was very well-stated. I think the only information I would add, and Mr. DeVaux and I were talking about 

this earlier before the hearing began, is that most of these banks 

are running proprietary systems that they purchase from a vendor, 

that basically generates the alerts, and then it is up to them to investigate. A lot of the burden comes around, where do you set those 

dials? You can set those dials to generate 100 alerts a month, or 

1,000 alerts a month. And I think one of the concerns that banks 

30 

of all sizes have is the regulators will tell you, you know what, you 

only generated 100 alerts. We want you to generate 500. 

But we are not aware of any analysis around why that is. And 

certainly, we are not aware of any analysis about the quality of the 

SARs that are being filed and how many of them are actually leading to prosecutable cases. And that is where, when I talked earlier 

about, sort of, the big data problems here, it is a system that is just 

fundamentally lacking in rigor in terms of the metrics for assessing 

whether it is being successful or not, and that is not a very good 

system. 

Mrs. LOVE. Right. As I look at all of this—my time has expired, 

but as I looked at all of this, striking that right balance is incredibly critical, because again, these institutions in the small communities can make or break that community. 

And, again, thank you for your expertise. I really appreciate it. 

I yield back. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

The gentleman from Washington, Mr. Heck, is recognized for 5 

minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

I would like to preface this by stipulating to the consensus point 

of view that anything we can and should do in this area does not 

compromise our efforts in fighting terrorism. I think that is something on which we all agree. 

That said, I am among those who believe that there is fertile soil 

here to cultivate regulatory modernization, as I would call it. And 

that has been brought about, my point of view that part has been 

brought about by two things. The first is I took it upon myself earlier to go on a tour of all the banks, big and small—not all, but 

many, many credit unions, big and small, in my district, to ask 

about what had happened to their regulatory compliance burden 

over the years. 

As you might imagine, it had increased very substantially, most 

graphically represented by piles of paper. I wish some of you had 

brought the piles of paper in. 

And probably the most common complaint I got, frankly, was 

about SARs and compliance with the Bank Secrecy Act and antimoney-laundering, in fact, the preponderance over majority. And I 

am not trying to pick a fight at all, but I found it interesting that 

in the main regulatory relief bill we passed here, the CHOICE Act, 

there were—count them—exactly zero words related to bank secrecy, or anti-money-laundering, and that was the chief complaint 

that I got. 

And it just seems to me, however—and I will offer this as a 

friendly suggestion to the Chair, because I am grateful for this 

topic being heard, that it would be nice to hear from law enforcement as well. We learn more when we hear from both sides. 

I think about the CTRs. It defies my comprehension that we cannot update that to reflect inflation, but I want to hear what the 

other side says. I think other work product would be better if we 

had had an opportunity for that conversation. 

I also want to suggest, Ms. Anderson, I have asked over and over 

and over again for people to give me concrete examples of how we 

can improve regulatory burdens on financial institutions, and I 

31 

found your testimony to be refreshingly specific and concrete. And 

I thank you for it very sincerely. 

The second reason I got very involved in this was when FinCEN 

published their guidance for banks serving marijuana businesses in 

the State of Washington, which the voters approved, as you know, 

they chose to legalize it and to regulate it; that guidance says that 

banks are required to check to make sure that marijuana businesses aren’t violating any of—yes, count them—14 Federal priorities on marijuana. They are intuitively obvious: Don’t sell to minors, don’t sell across State lines, et cetera. That struck me as an 

incredible compliance burden, frankly, on these organizations. But 

you know what, our State regulators had an unbelievably clever solution. Because the DOJ, the other hand, asked the State regulators to check against the same 14 Federal priorities. 

So here is what happens in our State: The banks are able to look 

directly into the database of the Liquor and Cannabis Board, our 

State regulator, to see if there are any red flags for businesses. 

They are able to largely rely on the State to check for conformance 

with the 14 priorities, and then piggyback on that work instead of 

duplicating it. 

And so my question is, how can that be a model for reform for 

other SARs filings? What statutory changes would be required in 

order implement it if there is a possibility of doing this kind of creative database sharing very efficiently, very quickly? Any of you? 

Mr. BAER. This sort of gets to the questions about AI, at least 

with regard to the largest firms that are my owners. We think 

there is extraordinary potential for—‘‘utility’’ may be the wrong 

word—sharing of expense whether it is around account opening or 

account monitoring. And also, sharing of data in order to make the 

algorithms work better. So, we think that is clearly the future here. 

That is where this database is going to end up going. As I said earlier, you are having 2 million SARs filed a year. So this is no longer 

a personal need law enforcement proceeding. 

Mr. HECK. If I may, sir, on the issue of the number of SARs filed 

per year, when the financial institutions submit SARs, if there are 

multiple financial institutions involved in that SARs, we are required to do duplicate investigations, and if there is a correspondent bank, a triplicate investigation, why doesn’t it make 

sense to just kick it up to the financial institution in that chain 

and say, It is your responsibility to do this? What benefit is there 

to multiple SARs, when it is the same transaction? 

Mr. DEVAUX. Right. There isn’t. And then I think there is another case where you may have somebody who is banking at four 

different banks. None of them file a SAR. But if they all had 

shared the information about that customer, the lights would have 

gone on, and they would have said Oh, yes, we should all be filing 

a SAR. So that is also a potential concern. 

Mr. HECK. Thank you. My time has long expired. 

Thank you for your indulgence, Mr. Chairman. 

Chairman LUETKEMEYER. Thank you. The gentleman’s time has 

expired. 

And to respond to your suggestion, Mr. Heck, the problem with 

bringing in law enforcement to this particular committee, is that it 

actually goes into the purview of the Terrorism and Illicit FinancVerDate Nov 24 2008 18:16 May 04, 2018 Jkt 028223 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\28223.TXT TERI
32 

ing Subcommittee. And so our intention is to work with the bank 

side of the issue here, and then marry this with, perhaps, a bill or 

suggestions or guidelines with the other subcommittee, which is 

doing very similar work. And that is what we want to try to accomplish here. So I appreciate your suggestion. 

Mr. HECK. And I appreciate the explanation very much, Mr. 

Chairman. 

Chairman LUETKEMEYER. The gentleman from Georgia, Mr. 

Loudermilk, is recognized for 5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. 

And I thank the panel for being here. I would like to direct my 

question, really, around the transaction amount, the amount that 

triggers the reporting and the investigation. 

I believe it was 1970 when this was enacted. The first time I 

found out about the BSA was when I left the Air Force in 1992. 

I was living in Alaska, and moving back to my home State of Georgia, so we sold our house. Fortunately, we made a little equity on 

it. I had a truck with a trailer packed full of everything that I 

owned, and I was leaving Alaska to go to Georgia—and, actually, 

I was going to start over, start a new business, open a bank account. So I asked the bank to give me all of my money, and they 

wouldn’t. They said all we can give you is less than $10,000. I 

ended up getting my money through multiple transactions, but that 

is when I found out that they were reporting it. 

And as I was thinking about this, around 1970 I was still in elementary school. My dad bought a house, paid $25,000 for this 

house. When my dad passed away, we sold this house. And it was 

in much worse condition than when he bought it. The neighborhood 

had gone downhill. We sold it for over $100,000. When I am looking at $10,000 in 1970, $10,000 today is not the same thing. It has 

to be that transfer of $10,000 is done multiple times on multiple 

accounts, especially, when you think of somebody who has a sub S 

corporation, or some type of pass-through through the businesses 

has to happen. 

I am a small business owner. Several times in a month, we 

would have transactions of $10,000 or more happen quite often. 

I know two of you, in your statements, mentioned that if you adjust it for the rate of inflation, we are looking at somewhere around 

$60,000 today. Is that correct? 

Mr. DEVAUX. So, $64,009. 

Mr. LOUDERMILK. Okay. I believe the credit union said about 

$58,000 is what you guys calculated. You are using different interest rates now. So you may want to up yours. People invest more 

in credit unions. But let’s start with Mr. DeVaux. 

What do you think the appropriate threshold should be? Is this 

a crux of part of the problem that we are having? 

Mr. DEVAUX. It is a good question. And the issue we have, without knowing how the information is used, what is valuable, what 

is not valuable, it is very tough for us to say that it should be 

$5,000 or it should be $25,000. 

It came about in 1970. And if you run it through CPI, it is 

$64,000 today. Or in other words, as you stated, $10,000 buys 

$1,500 worth of stuff today. 

33 

So without us having feedback, saying, here is how we are using 

the currency transaction reports (CTRs), and here is what works 

and here is what doesn’t work, it is very difficult for banks on their 

side to be able to pick a number that works. 

Mr. LOUDERMILK. Okay. Ms. Anderson, would you like to respond? 

Ms. ANDERSON. Yes, for currency transaction reports, that is 

where we would have to file if there is a deposit or withdrawal or 

$10,000 more in cash. I was looking at a recent month in our activity for what we receive. So if the currency transaction threshold 

was increased just to even $20,000, we filed 27 when it was 

$10,000 and above. But if it was increased to $20,000, our filing 

sort of dropped to just 5. So that would be of great benefit, because 

if you don’t file a CTR within 15 days, there is a large penalty. So 

we are always on the clock to file that. 

From the suspicious activity point of view, from the subpoenas 

that we have received that I am aware of, it seems that law enforcement goes for the larger dollar items. They are not concerned 

with $10,000 or $25,000. It seems like they go for a larger amount. 

So maybe just, in the interim, try doubling it just so see so that 

it is $10,000 minimum instead of the $5,000, where you know who 

the perpetrator is, then maybe instead of $25,000 where you don’t 

know who the bad person is, you increase it to $50,000. 

At least just try it, and we can at least determine if there is anything there. And it would be very helpful if when we respond to 

a subpoena and they finally do go after the bad people, that we do 

receive some validation that, Oh, yes, because of your institution, 

we were able to go after this person or that person or that ring of 

criminals. 

Mr. LOUDERMILK. I’m running out of time here, but you do believe that we definitely need to address what this value is; I think 

that is what I am hearing. But we really don’t know what it is unless we get proper feedback from law enforcement. Is that kind of 

a good summary? 

Mr. Baer, I see you— 

Mr. BAER. Yes. I refer to it in my testimony. It is the last piece 

of the puzzle argument. There will always be a case where an 

$11,000 transaction was the last piece of the puzzle in some investigation. Just the way you can end up arresting somebody for jaywalking, and they turn out to be a horrible criminal, but that 

doesn’t mean you increase your jaywalking arrests. You actually 

have to do a cost-benefit analysis, and think, how much did that 

last piece of the puzzle cost you? And that is where Mr. DeVaux 

has it exactly right, which is we don’t know because there are no 

metrics or analysis around it. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentleman from Michigan, Mr. Trott, is recognized for 5 minutes. 

Mr. TROTT. Thank you, Mr. Chairman. 

Before I begin my questions, I want to allow my good friend from 

Colorado to ask a follow-up question. So I yield to Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Trott, for yielding. 

34 

And, Mr. DeVaux, I just want to be able to follow up a little bit 

on some of your testimony, in terms of some of the examination 

and compliance between smaller banks like yours, and larger 

banks on the reporting. 

Do you basically feel that since you are smaller, some of the activity actually gets magnified, as opposed to a bigger bank, when 

it comes to some of the compliance? 

Mr. DEVAUX. Yes, sir. It is a good question. And I think what 

happens is regulators are trained in a certain way. And they don’t 

really see a lot of times the bank size or the risk of the bank. They 

just know how to do their exam. And so whether they are walking 

into a big bank or a small bank, they are applying all the same 

rules. They are looking for all the same percentages. 

As I mentioned earlier, we had 7,100 alerts generated last year. 

From those alerts, we filed 15 SARs. And we feel like we could 

tune our alerts a little better, and probably still get 14 or 15 SARs 

out of it by not doing so much work. 

A lot of times—and I am not trying to be critical of regulators— 

it comes down to personality or the person who comes through the 

door. What is their specialty? What is their expertise? You can go 

through an exam at a bank 3 years, 3 times. On the fourth time, 

you get a different regulator, and the whole story changes. And 

what was good before is now bad, and what was bad before is now 

good. So it is an issue for us. 

Mr. TIPTON. Thank you. 

I thank the gentleman for yielding to me, and I yield back. 

Mr. TROTT. Thank you. 

Mr. DeVaux, I want continue to follow up on what you just said. 

And one of my concerns is the heavy hand of the regulators. So 

very quickly, I heard stories that examiners tell institutions to file 

a certain number of CTRs and SARs or be written up for having 

a bad audit. Is that happening, to your knowledge? 

Mr. DEVAUX. Yes, sir, it does happen. For clarification, on the 

CTRs, when the transaction is over $10,000, it is clear, you file a 

CTR. You file a currency transaction report. So if they ever come 

back and say, you are not filing enough, it is because you didn’t file 

something that you are required to file. But when it comes to 

SARs, and when it comes to high-risk accounts and high-risk reviews and investigations, that is where the regulators want to see 

a certain number in a lot of cases. 

You can run your database, you would get 3 or 4 percent highrisk accounts, and they can come back and say, you know what, 

this seems a little low. Maybe you should change your parameters 

and rerun your database again. But for me, a high-risk account is 

a high-risk account. It doesn’t matter what your parameters are. It 

doesn’t change just because you change dollar amounts and other 

things like that. 

Mr. TROTT. Thank you, sir. 

Ms. Anderson, on the same lines, do you ever feel that the government uses the complex regulations to set banks and credit 

unions up to fail, or if not to fail, but to find a supposed error and 

then use that error to try and leverage the bank or the credit union 

to make—get some other concessions as part of the audit? 

35 

Ms. ANDERSON. Yes. From just what I have heard from other 

credit unions, it does appear that Bank Secrecy Act exams are 

more—can become a ‘‘gotcha,’’ especially when—if you are looking 

at the whole examination, not just BSA, but lending, the call report 

filing. And we have seen where you have just a minor discrepancy, 

for example, use a P.O. Box instead of the street address. Clearly, 

we had the street address, it was just a minor issue. But you don’t 

fight it, because you don’t want to argue on that. If that is all they 

found, I guess that is great. 

Mr. TROTT. Thank you so much. 

Mr. Baer, you worked with the 25 largest banks, as you mentioned. In my prior life, I represented most of those folks. And our 

biggest concern was reputational risk. If we didn’t do something 

that didn’t reflect well—I used to joke that my number one goal 

when representing Chase was to make sure Jamie Dimon didn’t 

know my name. 

So any concern that maybe reporting a suspicious transaction or 

a mistake could cause reputational risk to a bank, particularly a 

large bank, which would thereafter cause them not to want to report that because of the risk or because of government action. 

I assume it is not happening, but that would be a terrible set of 

circumstances if the oversight caused them not to report something 

they should. 

Mr. BAER. No. I think all of the incentives are to file. There is 

a safe harbor if you file, so you are protected if you file. And it just 

goes into a big database. 

I want to add, though, to some extent, as Ms. Anderson was talking about, the regulators, the examiners here, are in a very difficult 

position, too. And as I highlighted in my testimony, it is not their 

fault that they are in a position where they don’t get to know what 

law enforcement is doing with these SARs or what national security is doing with these SARs. 

What they know is if they don’t have enough people written up, 

or they don’t have enough consent orders, they are going to be 

hauled to Washington and criticized for that. And then, God forbid, 

something goes wrong at the institution they are examining, they 

are going to be held to account. And their only defense can be, I 

have them under a consent order. I wrote them up for 50 MRAs. 

It is not my fault. 

Mr. TROTT. Would an advisory opinion process help? 

Mr. BAER. I’m sorry? 

Mr. TROTT. Would an advisory opinion process help? 

Mr. BAER. I hadn’t thought about that. Yes, I think that could 

be helpful. Yes. 

Mr. TROTT. Thank you. 

I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentleman from Tennessee, Mr. Kustoff, is recognized for 5 

minutes. 

Mr. KUSTOFF. Thank you, Mr. Chairman. 

Ms. Anderson, if I could ask you a question that is along the 

same track, but a little bit different relating to real estate, and real 

estate loans. 

36 

In the last 12 months or so, according to the FBI Internet Crime 

Complaint Center, there have been, supposedly, over 3,000 victims 

who reported the actual attempt or attempted theft of almost $400 

million in assets through fraudulent wire transfers related to real 

estate transactions. That is a big increase over the last several 

years. And my concern is is that these funds represent, often, the 

large majority of savings that are held by families who are being 

victimized. 

And if it is not detected within a few hours or several hours of 

the fraud taking place, as I understand it, it becomes almost impossible to recover that money as it gets laundered and transferred 

through a network of accounts and fraudulent schemes. 

There are sophisticated hackers that mine data to identify the 

victims near the conclusion of these real estate transactions. And 

they often mimic trusted participants, such as a real estate agent, 

a mortgage lender, or a closing agent, to provide transfer information that the victim has little or maybe no reason to suspect. 

With the real estate-related email compromise schemes, is it 

common, in your experience, for the nominal payee who is listed on 

the instructions in the payment order not to match the holder of 

the account at the receiving institution? 

Ms. ANDERSON. Usually for us, when the name and the account 

number doesn’t match, it is a red flag. And so we do more due diligence. And the fraud that you alluded to, where title—the customer 

will receive an email to transfer the funds somewhere else, it has 

just recently come to our attention that that does happen. 

And so we try to be vigilant in informing our members who are 

purchasing houses, to know to be careful when they receive emails 

like that. 

For example, they need to be more vigilant on the side of—with 

their title company. And the title companies need to also be vigilant in telling their customers, we would never send you an email 

telling you to transfer money from this account or to another bank. 

Because we do what we can for our side, for our members on our 

side, but it is hard to also control what is going on on the other 

side, because we don’t know what is going on on that other side. 

We don’t have that information. 

Mr. KUSTOFF. And I appreciate you saying that. 

Would your particular AML program catch that discrepancy? 

Ms. ANDERSON. How that is caught is through the training that 

we would give, for example, to the wire folks. So while it may be 

caught with our system, we get the cases at the beginning of every 

month. It is not a live system. Our fraud system may catch it the 

next day, but really, it is the training that you give to your employees that catches fraud right at the beginning. 

Mr. KUSTOFF. And if I could follow up on that, do you know what 

your credit union does to double-check that both the account number and the payee’s name matches before sending a wire and making the funds available for withdrawal after a wire transfer? 

Ms. ANDERSON. If we are the receiving institution, we make sure 

that the name and the account match, the number, but generally, 

it is the account number that controls. But I know that when there 

is fraud, working with other financial institutions, sometimes when 

you are able to talk to them, if it hasn’t processed yet on the other 

37 

side if we are sending. But we do what we can to make sure our 

members’ money is safe and gets into the right accounts. 

Mr. KUSTOFF. As it relates to these email schemes, I would assume you are seeing more and more of those type of emails and situations relating to your customers? 

Ms. ANDERSON. Actually, I just heard of one just recently, and 

we were able to stop it. 

Mr. KUSTOFF. Very good. 

Thank you, Mr. Chairman. I yield back my time. 

Chairman LUETKEMEYER. The gentleman yields back his time. 

With that, we go to the gentlelady from New York, Ms. Tenney, 

for 5 minutes. 

Ms. TENNEY. Thank you, Mr. Chairman. 

And thank you to the panel. I know this is a very—it has, actually, turned into an interesting discussion. I sort of have even more 

questions than I had before. And I appreciate you being here and 

your expertise on this issue. 

I recently took a trip to the Middle East, to Iraq, Afghanistan, 

and central Asia. And one of the issues that we came across was 

countering the financing of terrorism, which we discussed, and how 

many of these banking institutions end up being financed through 

porous borders in Central and South America getting all the way 

to the Middle East, and how these are happening through banking 

and financial institutions. 

That was a concern to me, and we had a lot of interesting conversations about what to do about that, and international banks, 

how to regulate banks. And what was really interesting is that 

most of—a lot of it is cash. So there is no way, no matter how 

many regulations you put out, you are not going to be able to catch 

the virtual needle in a haystack, which it seems you are describing 

today, that we have been tasked with this enormous burden to try 

to find a needle in a haystack by combing through thousands of 

tiny transactions. As you indicated, a $10,000 transaction may not 

net something that maybe a $500 transaction would net. 

And I might reference that in 2007, we brought a New York Governor down, who ended up resigning over a $4,000 transaction in 

another State. 

So it really isn’t the amount of the transaction. It is all the information that goes into it. And it just raised a lot of questions for 

me, and some of those are—what would be the approach that you 

would recommend? Because, honestly, I am a little leery about the 

idea of having a central network and worrying about a lot of concerns. Are we actually going to have an open case against an individual? Are there constitutional rights there, maybe a privacy 

right? And balancing that with, obviously, our need to find a lot of 

schemes through terrorism. 

I just thought I would start maybe with Ms. Anderson, or the 

Credit Bureau, or any small banking institutions, because many 

rural areas rely on you. 

What would you suggest that is a better way to make it more efficient for the bank, or the credit union, and still have—being 

meaningful into finding cases of illegal illicit money laundering, financial issues? 

What would you suggest, quickly? 

38 

Ms. ANDERSON. I think as we have mentioned before, it would be 

good to know what law enforcement does with our information, because right now we don’t know. So even though we are filing all 

these suspicious activity reports, we don’t know if they are fruitless 

or if it is helping law enforcement. So that would be one step. 

And to the extent that anything can be automated, we need to 

make sure that smaller financial institutions, such as credit 

unions, have access to that, because it can be expensive. 

And then, if there is anything else, I will send in written testimony. Thank you. 

Ms. TENNEY. And, Mr. Baer, I am just curious. It just seems like 

we have this metadata type of idea. I hate to bring that in, but it 

sounds like we are just collecting all this data when we don’t really 

have a defined mission. And you said we could isolate that. If you 

had just a quick comment on that? 

Mr. BAER. Sure. I think it is kind of interesting. On behalf of the 

largest banks, I think I would have pretty much the same observation as Ms. Anderson has on behalf of credit unions. A lot of it is 

about getting better feedback and being smarter about it. 

I think with regard to the international issues you talk about, 

there is another component, which is there needs to be—and we believe it is the Treasury Department—somebody really has to be in 

charge and has to put everyone in a room and decide what is the 

cost-benefit of banks continuing to operate in Somalia, say. That 

may create terrorist risks, development risks on the other side, diplomacy risks. 

But that is a decision that needs to be made by somebody with 

a very heavy title, we think in our government, but right now it 

is being made by default by bank examiners where the push is always to derisk and leave. 

Ms. TENNEY. Right. The pressure on banks and the pressure on 

banks to actually be the law enforcement as opposed to just a tool 

for law enforcement. 

And I thought maybe I could ask Mr. DeVaux, if you could just 

explain—how would you eliminate this idea—how would you enhance what Ms. Anderson had said about whether it is redundant 

or inefficient? And what can we do to eliminate this redundancy on 

banks that isn’t really netting what we hope it would? 

I am going to lose my time in a minute, but if you could answer 

quickly, I would appreciate it. Thank you. 

Mr. DEVAUX. I think it really does come down to sharing of information and working together. I mentioned earlier that this has to 

be a team approach, and there are pieces of this work that need 

to be done in the most efficient place. 

Ms. TENNEY. Can I ask quickly, is there a privacy issue with a 

private citizen, with bank information, that would expose banks to 

liability as well? 

Mr. DEVAUX. There is a privacy issue today. The more you share 

information about customers, the more likely customers are to 

leave the banks. They may want to go underground if the information is being shared too much. 

So we have to balance that. But we do have to share—I think 

we have to share and work together. 

Ms. TENNEY. Excellent point. 

39 

Thank you very much, panel. I appreciate it. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

The gentleman from Florida, Mr. Posey, is recognized for 5 minutes. 

Mr. POSEY. Thank you, very much, Mr. Chairman. 

To the representatives of the banks and credit unions, do you feel 

that the Federal Government initiatives, such as Operation Choke 

Point, that seek to disrupt banking relationships with legal, yet undesirable, according to the Administration, businesses are concerning? 

Mr. DEVAUX. Congressman, that is a good question, and one I 

talked about earlier. When it comes down to banking certain types 

of businesses and certain types of customers, the burden is overwhelming. And in a lot of cases these are legal businesses, and 

these are small businesses. And so if we turn them away, it becomes very difficult for them to do business. 

There are businesses that the regulators have deemed as high 

risk, and it is very tough for us to spend extra time on them when 

we could focus more on our communities and developing the businesses that grow our communities and grow jobs rather than have 

to spend all our time trying to clear BSA issues on a business that 

has been deemed high risk by a regulator. 

Ms. ANDERSON. I would like to add to that that, yes, there are 

certain types of businesses that are deemed high risk. And because 

of that, we know that under the regulations the amount of due diligence that we would need to really get to know that business and 

monitor them, it would be too burdensome and not fair to the rest 

of our members that we are spending so much time on a particular 

type of business. So we actually discourage that type of business 

from having accounts at our credit union. 

Mr. POSEY. Okay. Do you think it is pertinent that financial institutions have due process and know if they are acting in compliance with applicable laws, not ideology or certain examiners who 

may personally disfavor a certain industry? 

Mr. BAER. I will address that. One of the other members alluded 

earlier to the phrase, ‘‘reputational risk,’’ which to me is the most 

troubling in bank supervision currently. Because what that really 

means is, what you are doing is legal, you seem to have the risk 

under control, but I just don’t like it. Therefore, it poses a 

reputational risk to you. Namely, because I am going to say I don’t 

like it as your regulator. 

And so it can become very circular and basically just boils down 

to, I don’t have a legal basis for saying don’t do this, but don’t do 

this. And so whether it is BSA or in other areas, I think what 

banks really want is certainty and due process. 

Mr. POSEY. Anyone else? 

How do you know who you don’t want to do business with per 

the government’s bias against that business? How do you determine? 

Mr. DEVAUX. If we don’t know before the examiners come in, we 

know after they come in, because they spend a lot of time digging 

through the high-risk businesses, such as money services businesses (MSBs). I could name a few, but I won’t. The regulators conVerDate Nov 24 2008 18:16 May 04, 2018 Jkt 028223 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\28223.TXT TERI
40 

tinue to push and ask for more information and more due diligence 

and more oversight. 

We had one customer recently where I actually had a friend who 

used to be at another bank that I knew had banked the business, 

and I was talking to him about it. And he said, ‘‘You know what, 

we even had an outside audit firm come in and do a full risk assessment of this business, and they said there is no risk in this 

business. The regulators never stopped pushing for more information.’’ He said: ‘‘My recommendation is, don’t bank them.’’ 

Ms. ANDERSON. I would like to add to that. 

So, for example, if we file two or three suspicious activity reports 

because we don’t know the sources of the funds, we will reach out 

to our member and ask them, ‘‘Would you please let us know where 

you are getting this money, where is it going?’’ So we have to dig 

into their business. And if they won’t respond to us, we don’t want 

to keep on filing suspicious activity reports, and so we limit services. 

Mr. POSEY. What would you say if I was a manufacturer of pistols, say, and I wanted to open up an account with your bank? 

Would you open an account with me if you know that I was manufacturing pistols? 

Ms. ANDERSON. In theory, if you answered all of our due diligence questions, then we would open the account. We just need to 

make sure that whatever you tell us at the beginning when you 

open an account, what you actually do once you have an account 

with us matches what you told us you would be doing. 

And if it doesn’t match, then we would—we may file a suspicious 

activity report or we may go back to you and ask you what changed 

in your business and how come you are using more cash or sending 

out more wires. 

Mr. POSEY. Okay. I had a manufacturer in my district, and his 

bank told him, ‘‘The government said you can’t bank with us anymore. You have to find somewhere else.’’ And every bank that he 

went to told him the same thing. That creates a life hazard, obviously, even for bad guys who know, if you are in this business or 

this business or that business, you can’t have a bank account, so 

you are going to have to be a target for a large amount of cash. 

Have you ever heard—Mr. Chairman, my time is up. I yield 

back. I’m sorry. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

The gentleman from Ohio, Mr. Davidson, is recognized for 5 minutes. 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

Thank you all for your testimony today. Thank you for your written testimony as well. 

Mr. Baer, in particular, you provided some good position papers. 

And one of the topics that has come up a fair bit is informationsharing. And Mr. Pittenger’s topic that he and I don’t agree on, we 

agree on lots of things, and the safe harbor that a lot of financial 

institutions want. 

And, Ms. Lowe, I believe you were the only one who addressed 

the concern on privacy there. So we have just talked with Ms. 

Tenney and Mr. Posey expressing some concerns. And up until now 

we really hadn’t heard much on the concern of privacy. 

41 

Just kind of an open question, in your assessment, should Americans have any expectation of privacy upon opening a bank account? 

Mr. BAER. Congressman, of course they should. The question is 

how far that privacy extends. Clearly, it is privacy with regard to 

disclosing to non-law-enforcement. And the question is, does it extend to other affiliates of that bank? Does it extend to other banks? 

Does it extend to law enforcement? 

There are clearly very difficult tradeoffs here, and every bit of 

sharing for a law enforcement or national security purpose is incrementally less privacy for the person whose information is being 

shared for sure. 

But we have seen pilot projects. For example, there is one around 

human trafficking with a group of banks getting together and sharing customer information with the approval, I believe, of FinCEN, 

and saying, can we make more cases on human trafficking? 

I think there you would say, ‘‘Yes.’’ The cost-benefit analysis 

there would be, yes, there was incrementally less privacy accorded 

those customers, but they were able to make cases they never 

would have made. And I think the information was cabined among 

the institutions that were doing that sharing. 

So I do think it is a very difficult issue. But I think our lean 

would be towards more sharing rather than less at this point. 

Mr. DAVIDSON. Okay. So let’s say, yes, of course, I am for catching human traffickers, we want to stop all the terrorists, all sorts 

of other things. But we have the constitutional safeguards in place 

because we can see things that happen, as Mr. Posey alluded to, 

disfavored speech, shaming, and not even against the law, just not 

liked by a regulator. I wonder if Bernie Sanders would be okay 

banking Mr. Vought’s church or Wheaton College or something 

after his testimony in the Senate recently. 

So we have these protections in the Bill of Rights for a reason, 

which was wise of our Founders. How do you provide those safeguards today? 

Particularly, Mr. DeVaux, dealing with banks in Florida there, 

very similar to Ohio issues, just a different State, but a lot of the 

same challenges with the size of banks. 

Mr. DEVAUX. Privacy is a big issue. We do not share with other 

banks. There is a mechanism for doing that. But we generally do 

our investigation and we file our suspicious activity report. 

But I think the same question comes to the passport office and 

the driver’s license office, do they share that information? We are 

talking about money, which is an enabler of terrorism. 

So, for me, I think there should be some sharing at some point 

along the way. Why would five banks write a SAR on the same customer or investigate a customer who looks like they are doing illegal activity when maybe they could file, I think, as I mentioned 

earlier, a short SAR, shoot it off to law enforcement, and they have 

a database of the bad guys? 

One of the things I talked about earlier, also, was a list called 

a 314(a) list that is provided by law enforcement to us. Those are 

the bad guys they are interested in. So they are sharing information with us, saying, we are interested in these bad guys. We like 

that list. We can run that list very quickly. And we know immediately if we have any criminals and we can report back to them. 

42 

Mr. DAVIDSON. And if the 314(a) list comes in, does that come in, 

in terms of a subpoena, or is that just regular flow of information 

covered under 314(a)? 

Mr. DEVAUX. It comes in as a list. It comes in as a database multiple times during the year, and we just run our database against 

it. 

Mr. DAVIDSON. Ms. Lowe, since you addressed privacy in your 

written remarks, your thoughts on privacy? 

Ms. LOWE. Thank you. 

Privacy is definitely an issue. I think redress, some sort of way 

to have somebody be able to get their rights restored should there 

be a problem on the other end, is important. 

But I think, actually, the technology today allows us to do a lot 

of different types of encryption and anonymization of data. And I 

think we really need to be looking in those areas as well to see if 

there are solutions, technological solutions, that can be brought to 

bear to really protect privacy while also sharing information in a 

way that is useful for law enforcement 

Mr. DAVIDSON. Distributed ledger is very promising. 

Thank you all. 

My time has expired. Mr. Chairman, I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. And 

with that, we are done with our questions. And we want to thank 

the panel for all of your great testimony and your answers today. 

You were very forthcoming. We certainly appreciate that. 

Just a couple of closing comments and thoughts. 

We appreciate what you have told us from the standpoint that— 

I think Mr. Heck probably said it best, from the standpoint of we 

want to make sure we catch the bad guys and prohibit folks from 

doing illegal, illicit things. At the same time, the laws and rules we 

are talking about haven’t been ‘‘modernized,’’ was his term—I 

thought it was a good term—for a long, long time. And so we need 

to take a look at streamlining, updating. I think we have talked 

about technology is a good way, perhaps, that we need to utilize 

it better, to streamline the process. 

Mr. Davidson brought up some good points with regards to privacy. Somehow we have to thread the needle between what is the 

protection of the privacy of our customers yet be able to find ways 

to ferret out the bad guys’ illicit activities. 

What works, what doesn’t work. I know you mentioned the 

‘‘know your customer’’ program. Maybe we need to take a look at 

fine-tuning that to find some streamlining. I appreciate your 

thoughts on that. 

Again, it was interesting, the discussion that was had by I think 

Mr. Loudermilk with regards to the level at which we decide to set 

the determination for, that $10,000 is really a good spot. And I appreciate it. 

Somebody, I think, Mr. Baer, your testimony was that $10,000 

in 1970 is $64,000 today. Is that what you said? Or Mr. DeVaux. 

There we go. I thought that was an interesting comment, and I appreciate that, because it gives us some perspective. Maybe we need 

to take a look at that and maybe we need to work with law enforcement and see where the sweet spot is there. 

43 

So I think, as Mr. Heck alluded to, we are on one side of this 

issue from the standpoint of the banks and the money folks, the 

financial services industry’s rules and regulations. We need to go 

on the other side to also figure out law enforcement’s perspective 

and how we can interface with them and find ways to come together. 

Reputational risk is something that is frustrating to me as a result of working all of these years with what is going on and the 

different rules and regulations, and now we have examiners doing 

the Operation Choke Point stuff, which is all based on reputational 

risk. And a lot of it is not really on illicit activity. And so we need 

to find ways to curtail that. 

So, again, sincerely thank you for your testimony. You have 

given us a lot of good ideas, a lot of good information. We want to 

continue to work with each of you and your associations to come 

to some solutions and we can take those solutions then, as I said, 

to the law enforcement sector and see how we can find ways to actually make this system better, streamline it for your benefit, while 

also, at the same time, helping them be able to do their job, which 

is to protect our country and our citizens. 

The Chair notes that some Members may have additional questions for this panel, 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 these witnesses and to place their 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. 

And with that, the hearing is adjourned. 

[Whereupon, at 4:25 p.m., the hearing was adjourned.] 

(45) 

A P P E N D I X 

June 28, 2017 

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