U.S. GOVERNMENT PUBLISHING OFFICE

31–287 PDF WASHINGTON : 2018

LEGISLATIVE PROPOSALS TO COUNTER 

TERRORISM AND ILLICIT FINANCE 

JOINT HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

AND THE

SUBCOMMITTEE ON TERRORISM 

AND ILLICIT FINANCE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

NOVEMBER 29, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–60 

( 

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(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 

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(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 

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(IV) 

SUBCOMMITTEE ON TERRORISM AND ILLICIT FINANCE

STEVAN PEARCE, New Mexico Chairman 

ROBERT PITTENGER, North Carolina, Vice 

Chairman 

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 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

ED PERLMUTTER, Colorado, Ranking 

Member 

CAROLYN B. MALONEY, New York 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

RUBEN KIHUEN, Nevada 

STEPHEN F. LYNCH, Massachusetts 

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C O N T E N T S 

Page 

Hearing held on: 

November 29, 2017 ........................................................................................... 1 

Appendix: 

November 29, 2017 ........................................................................................... 45 

WITNESSES 

WEDNESDAY, NOVEMBER 29, 2017 

Bley, Daniel H., Executive Vice President and Chief Risk Officer, Webster 

Bank, on behalf of the Mid-Size Bank Coalition of America ............................ 6 

Byrne, John J., President, Condor Consulting, LLC ............................................ 7 

Fox, William J., Managing Director, Global Head of Financial Crimes Compliance, Bank of America, on behalf of The Clearing House ................................ 9 

Ostfeld, Stefanie, Deputy Head of U.S. Office, Global Witness ........................... 11 

Poncy, Chip, President and Co-Founder, Financial Integrity Network .............. 13 

APPENDIX 

Prepared statements: 

Bley, Daniel H. ................................................................................................. 46 

Byrne, John J. ................................................................................................... 50 

Fox, William J. .................................................................................................. 58 

Ostfeld, Stefanie ............................................................................................... 69 

Poncy, Chip ....................................................................................................... 88 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Perlmutter, Hon. Ed: 

Letter from Dr. Louise Shelley, Director, Terrorism, Transnational Crime 

and Corruption Center ................................................................................. 118 

Letter from Chuck Canterbury, National President, National Fraternal 

Order of Police ............................................................................................... 121 

Letter from John Cassara, former U.S. Intelligence Officer and Treasury 

Special Agent ................................................................................................. 123 

Letter from Amanda Ballantine, National Director, Main Street Alliance . 125 

Letter from Michael Freeman, President, National District Attorneys Association ......................................................................................................... 127 

Letter from Abby Maxman, CEO, Oxfam America ........................................ 128 

Letter from John Arensmeyer, Founder and CEO, Small Business Majority ................................................................................................................... 131 

Letter from Gary Kalman, Executive Director, FACT Coalition .................. 133 

Letter from Eric LeCompte, Executive Director, Jubilee USA Network ..... 137 

Letter from Shruti Shah, Vice President of Programs and Operations, 

Coalition for Integrity ................................................................................... 139 

Letter from Ian Schwab, Director of Advocacy and Impact Strategy, The 

Enough Project .............................................................................................. 142 

Letter from Amol Mehra, Executive Director, International Corporate 

Accountability Roundtable ........................................................................... 144 

Byrne, Hon. Bradley: 

ACAMS report—The Way Forward ................................................................ 147 

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LEGISLATIVE PROPOSALS TO COUNTER 

TERRORISM AND ILLICIT FINANCE 

Wednesday, November 29, 2017 

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

AND CONSUMER CREDIT, AND

SUBCOMMITTEE ON TERRORISM AND ILLICIT FINANCE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittees met, pursuant to notice, at 2:26 p.m., in room 

2128, Rayburn House Office Building, Hon. Stevan Pearce [Chairman of the Subcommittee on Terrorism and Illicit Finance] presiding. 

Present: Representatives Pearce, Pittenger, Rothfus, Royce, Tipton, Williams, Poliquin, Love, Hill, Zeldin, Trott, Loudermilk, 

Davison, Budd, Kustoff, Tenney, Hensarling, Perlmutter, Maloney, 

Velazquez, Lynch, Scott, Green, Himes, Foster, Kildee, Delaney, 

Sinema, Heck, Vargas, Gottheimer, and Waters. 

Chairman PEARCE. The subcommittees will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittees at any time. Members of the full committee who 

are not members of the Subcommittees on Financial Institutions 

and Consumer Credit, or Terrorism and Illicit Finance may participate in today’s hearing. 

All members will have 5 legislative days within which to submit 

extraneous materials to the Chair for inclusion in the record. 

This joint hearing is entitled ‘‘Legislative Proposals to Counter 

Terrorism and Illicit Finance.’’ I now recognize myself for 2–1/2 

minutes to give an opening statement. 

I want to thank everyone for joining us today. Today’s joint hearing will examine legislative proposals to combat money laundering, 

terrorist financing, human trafficking, and other illicit activities 

within our financial system. 

Nearly 50 years old, the Bank Secrecy Act (BSA) was designed 

and passed before the emergence of the common technology we 

take advantage of today. From the very basic, like how a currency 

transaction report (CTR) is filed, to the extremely complex, including what information is most useful to the U.S. Financial Intelligence Unit, the BSA framework needs modernization. 

The Office of National Drug Control Policy estimates that Americans spend over $65 billion per year on illegal drugs, yet seizures 

by law enforcement are less than $1 billion a year. Overwhelmingly, the proceeds from drug trafficking escape detection in the 

U.S. financial system. 

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To be clear, this issue is not created by a lack of effort from law 

enforcement or financial institutions. In fact, we spend billions of 

dollars annually on AML/CFT (anti-money laundering/combating 

the financing of terrorism) efforts. Illicit finance is ever changing 

and ever evolving, which requires financial institutions and law enforcement to detect new methods in a fluid environment where 

every action from law enforcement is countered by criminals. 

The solution is providing these entities with the tools they need 

to better detect, report, and pursue illicit activity. This includes 

modernizing the current framework to ensure that emerging forms 

of financial technology can be secure and accountable and that 

Treasury’s Financial Crimes Enforcement Network (FinCEN) can 

utilize the same technology to streamline regulatory and intelligence work. 

As it stands today, the current AML/CFT compliance regime is 

a practice and procedures whose policy, goals, supervision, and enforcement need more clarification and coordination to prevent 

undue regulatory burden on financial institutions while strengthening national security interests and enhancing law enforcement 

investigations. Reporting under the BSA was meant to provide information to law enforcement that is of a high degree of usefulness. 

However, in 2016 alone, over 15 million currency transaction reports and over 1.5 million suspicious activity reports were filed 

with the Federal Government. This influx of reports drowns out the 

actionable information with white noise, allowing criminal activity 

to go undetected. 

Without a serious review and modernization of anti-money laundering, the AML/CFT, combatting the financing of terrorism framework, the United States will continue to be deficient in its ability 

to combat terrorism, terror, and illicit financing. 

The Counter Terrorism and Illicit Finance Act is a legislative 

proposal compiled after over 10 months of hearings, briefings, and 

feedback from stakeholders, academics, and Administration officials from two subcommittees of jurisdiction. It identifies the current weaknesses in how the AML system operates and includes reforms designed to promote innovation and detection strategies, establish AML and counterterrorism financing priorities, identify 

ownership of shell companies, and streamline reporting requirements. 

The consequences of money laundering are significant to financial systems, economic development, and governments worldwide. 

As criminals invent new methods of moving illicit funds through 

our financial system, settling for the status quo is unacceptable. 

Delaying these reforms puts American lives at risk from drug 

cartels, human traffickers, organized crime, and terrorism. In today’s hearing, I hope our witnesses can discuss how we are currently combatting terrorism and illicit finance and how the legislation before us will improve the existing system. 

I would also welcome any feedback on how to improve the reforms proposed in Counter Terrorism and Illicit Finance Act. Inhibiting criminal activity isn’t a new problem, but I hope that today 

we can help inform the subcommittees on the importance of reforming the current law. 

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Again, I would like to thank our witnesses for being here today, 

and I look forward to their expert testimony on this important 

issue. 

I now recognize the Ranking Member of the Terrorism and Illicit 

Finance Committee, the gentleman from Colorado, Mr. Perlmutter, 

for 2–1/2 minutes for an opening statement. 

Mr. PERLMUTTER. Thanks, Mr. Chair, and thanks for having this 

hearing. 

And to our panelists, thanks for being here today. 

This is a subject we have been studying pretty thoroughly. I 

think we all understand that we need to make some changes and 

to modernize some statutes that have been in place since the ’70s 

and the ’80s. We don’t want the financial institutions to make 

work, go through certain routines that really don’t help us as a Nation stop crime, stop terrorism. There are benefits to it, but we can 

be much more effective with a lot less routine work. And that is 

really what this committee would like to see done, and that is why 

we are going to be taking up the bill at some point that Mr. Pearce 

just mentioned, Counter Terrorism and Illicit Finance Act. 

So I’m very interested in your testimony today. A belief by both 

sides of the aisle that we have steps that need to be taken. I would 

encourage the panel, and I ask you to take a look at a couple of 

sections that I am going to want information about, which is the 

expansion of the crimes for which there would be information-sharing. 

We have a letter from the Defense Bar, which I would ask to 

enter into the record, complaining about— 

Chairman PEARCE. Without objection. 

Mr. PERLMUTTER. —the pretty dramatic expansion of the crimes 

covered, as well as the section that Mrs. Maloney has been suggesting on beneficial ownership. And we have a couple of letters 

that I would ask to be entered into the record: One by Angel Capital Association, which is joined in by the National Association of 

Manufacturers, NFIB, National Venture Capital, and Real Estate 

Roundtable, and the Chamber of Commerce as one of the letters. 

The other being the letter from the Bar Association— 

Chairman PEARCE. Without objection. 

Mr. PERLMUTTER. —complaining about what they believe are a 

lot of limitations, a lot of confusion in terms of definitions, and also 

changing the risks from the banking community to the legal community. 

But I appreciate all of you being here today; look forward to your 

testimony. 

And, with that, I would yield back to the Chair. 

Chairman PEARCE. The gentleman yields back. 

The Chair now recognizes the Vice Chairman of the Financial Institutions and Consumer Credit Subcommittee, the gentleman from 

Pennsylvania, Mr. Rothfus, for 2–1/2 minutes, for an opening statement. 

Mr. ROTHFUS. Thank you, Chairman. 

I want to commend my colleagues on this committee for their efforts on the bills that we are going to discuss today. 

Strengthening and modernizing our Bank Secrecy Act antimoney laundering framework is essential if we want to counter the 

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very real security threats that we face and disrupt the heartbreaking human trafficking and drug trades that destroy so many 

lives. 

Just before we went home to spend time with our families this 

Thanksgiving, I traveled through Afghanistan and Iraq to visit our 

troops and get a firsthand update on the challenges we face in that 

part of the world. The flow of illicit cash, whether generated 

through the sale of drugs or weapons, bogus trade transactions, or 

through human trafficking, continues to provide a lifeline for terrorist groups and rogue actors. This fuels instability throughout the 

Middle East, and it makes the jobs of the brave men and women 

of our military much harder. 

Of course, as many of us know, this problem extends far beyond 

that part of the world. Bad actors, like Hezbollah, are involved in 

illicit finance and trafficking all over the world, including in Africa 

and closer to home in Latin America. The violence and corruption 

that they support in the countries in which they operate is unacceptable. And the drugs they pump into our communities, which 

ruin so many lives, need to be stopped. 

I am more convinced than ever that this committee’s efforts to 

interrupt the finances of these bad actors will ultimately save lives. 

These bills, and especially the Counter Terrorism and Illicit Finance Act, represent a promising start as we begin this process. 

I am looking forward to hearing from our witnesses today about 

how we can build on 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. This imposes a significant cost on financial institutions and takes resources away from other important functions. 

We need to be looking at how technology, innovation, and greater 

cooperation can be employed to yield better results in this fight. 

I thank the Chairman. I yield back. 

Chairman PEARCE. The gentleman yields back. 

The Chair now turns to the introduction of our witnesses. We 

welcome the testimony of, first of all, Mr. Daniel Bley. Since 2010, 

Mr. Bley has been Executive Vice President and Chief Risk Officer 

at Webster Bank Financial Corp. and Webster Bank, based in Waterbury, Connecticut. 

Prior to joining Webster, Mr. Bley worked at ABN AMRO and 

the Royal Bank of Scotland from 1990 to 2010, having served as 

managing director of financial institutions, credit risk, and group 

senior vice president, head of financial institutions and trading 

credit risk management. 

Mr. Bley earned a B.A. from the University of Michigan in Ann 

Arbor and an MBA from London Business School in London, England. Mr. Bley also served on the board of directors of Junior 

Achievement of Western Connecticut. 

Mr. John Byrne. Mr. Byrne is the President of Condor Consulting in Centreville, Virginia, the financial services regulatory 

firm handling due diligence issues and training for Government 

and the private sector in anti-money laundering, financial crime, 

and regulatory oversight. From 2010 to October 2017, Mr. Byrne 

was the Executive Vice President of the Association of Certified 

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Anti-Money Laundering Specialists, the largest and most prominent global AML Trade Association. Mr. Byrne has also held several senior positions at Bank of America in Washington, D.C., with 

responsibilities in AML strategies and regulatory relations. Mr. 

Byrne earned a B.A. degree from Marquette University in Milwaukee and his law degree from George Mason University. 

Mr. William J. Fox serves as Managing Director of Global Financial Crimes, Corruption, and Sanctions at Bank of America Corporation. Mr. Fox has served at Bank of America since 2006. Mr. 

Fox joined Bank of America from Financial Crimes Enforcement 

Network, FinCEN, where he served as the FinCEN Director. Prior 

to his of appointment as FinCEN Director, he served as the Treasury’s associate deputy general counsel, acting deputy general counsel. After September 11, 2001, he also served as the principal assistant and senior advisor to the Treasury’s general counsel on 

issues relating to terrorist financing and financial crime. He was 

recognized for his work on those issues with a meritorious rank 

award in 2003. Mr. Fox joined the Department of the Treasury in 

December 2000 as the acting deputy assistant general counsel for 

enforcement. From 1988 to December 2000, he served at the Bureau of Alcohol, Tobacco, and Firearms. Mr. Fox received his bachelor’s degree in history and a law degree from Creighton University 

in Oklahoma. 

Stephanie Ostfeld is the Deputy Head of the U.S. Office of Global 

Witness. Global Witness is an international nonprofit established 

in 1993 that examines corruption, poverty, and human rights. During her time at Global Witness, Ms. Ostfeld has focused on corporate transparency, anti-money laundering law, and the effective 

enforcement of antibribery and AML law in the oil, gas, and mining sectors. Ms. Ostfeld also served on the executive committee of 

the Financial Accountability and Corporate Transaction Coalition. 

Ms. Ostfeld has also served as senior policy adviser at the Global 

AIDS Alliance and the American Jewish World Service. Ms. Ostfeld 

earned a bachelor of science degree in engineering from the University of Pennsylvania and a master’s degree in human rights from 

the University of Denver. 

Mr. Chip Poncy is the President and Cofounder of the Financial 

Integrity Network. FIN is a strategic and technical advisory firm 

dedicated to assisting its clients around the world achieve and 

maintain the financial integrity needed to succeed in today’s global 

economy and security environment. Chip Poncy also serves as senior adviser of the Center on Sanctions and Illicit Finance, CSIF, at 

the Foundation for Defense of Democracies. From 2002 to 2013, 

Mr. Poncy served as the inaugural director of the Office of Strategic Policy for Terrorist Financing and Financial Crimes, OSP, 

and a senior adviser at the U.S. Department of the Treasury. As 

a senior adviser from 2002 to 2006, Mr. Poncy assisted Treasury 

leadership in developing the U.S. Government’s post-9/11 strategy 

to combat terrorist financing. 

Mr. Poncy graduated with honors from Harvard University and 

Johns Hopkins School of Advanced International Studies, and he 

holds a juris doctor from the Georgetown University Law Center. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. 

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Without objection, each of your written statements will be made 

a part of the record. 

And, Mr. Bley, you are recognized for 5 minutes. 

STATEMENT OF DANIEL H. BLEY 

Mr. BLEY. Chairmen Luetkemeyer and Pearce, and members of 

the subcommittees, thank you for the opportunity to present testimony on the need to modernize and improve the Bank Secrecy Act. 

I am Daniel Bley, Chief Risk Officer of Webster Bank, founded in 

1935 and headquartered in Waterbury, Connecticut. Webster has 

$26 billion in assets and serves communities throughout New York 

and New England. 

Today, I am representing the Mid-Size Bank Coalition of America, the voice of 83 banks with headquarters in 34 States. MBCA 

banks are primarily between $10 billion and $50 billion in assets 

and support customers through more than 10,000 branches in all 

50 States. MBCA members maintain combined deposits in excess 

of $1.2 trillion and are typically the largest local banks serving the 

basic banking needs of communities. 

The Bank Secrecy Act is amongst the most complicated and costly requirements with which a bank must comply, and it is one of 

the highest priorities for mid-size banks. MBCA banks deeply appreciate the importance of this regulation and our role in helping 

law enforcement identify and shut down illicit financial activity. 

We are committed to ensuring a successful program that reduces 

financial crime and protects our customers and our banks. To this 

end, MBCA banks have collectively invested well over a half a billion dollars in technology and are on average estimated to each 

spend upwards of $8 million annually on staff and support. 

Nearly all of the larger MBCA banks are using or are moving 

into more sophisticated technology for detecting suspicious activity 

well beyond the previous tools. 

The high cost is particularly concerning for mid-size banks that 

have significantly less scale than the large banks against which to 

spread these costs. MBCA applauds the idea as introduced with 

this bill and believes it will improve the program, benefiting businesses, consumers, law enforcement, and banks. 

And I would like to share our perspectives on four key components. Reporting thresholds, the proposed review of efficiency and 

effectiveness; changes to beneficial ownership; data collection; and 

the role of Treasury. 

The proposed change in reporting thresholds would be immediately and positively impactful for increasing information usefulness and reducing burden. 

We estimate, if implemented, the SAR (suspicious activity report) 

filings at mid-size banks would reduce by 8 to 10 percent, and CTR 

filings by 50 to 80 percent. Together, this translates to an estimated 8 to 10 percent of BSA’s staffing costs that are working solely on the half a million small dollar reports that are estimated to 

be filed by mid-size banks annually. 

Section 3 focuses on improving the process. And we believe all of 

the ideas included would achieve the objective. MBCA members are 

happy to share other specific ideas as well. 

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One such idea is to establish a more structured or automated 

template with limited free text format. This would reduce complexity and could lower preparation time by potentially half or 

more without sacrificing usefulness. Another idea is to create a 

shorter form automated filing approach for small dollar reports. 

One concerning fact to be considered with this review is that the 

false positive alert rate for mid-size banks is estimated at over 90 

percent, meaning detailed reviews of an excessively high number of 

transactions that are ultimately deemed to be unimportant. The 

proposed change to the beneficial ownership data gathering model 

is necessary as the existing regulation effective in May 2018 is suboptimal in many ways. It allows for uneven application. It creates 

data integrity risks, and it puts unnecessary burden on businesses 

to supply data to multiple institutions. The proposed public-sectorled approach efficiently solves for these challenges. 

MBCA banks appreciate the introduction of the expanded role of 

Treasury in steering supervision and support for innovation. This 

could increase transparency and consistency, elements that are 

critically needed. We hope this will also help reintroduce the riskbased approach to supervision that has been missing in recent 

years, even though it is captured in the existing act. 

We believe better solutions can be built if there was more coordination between Treasury, law enforcement, regulators, and the financial institutions. 

In summary, MBCA members appreciate and support this 

thoughtful bill. It successfully addresses the most important challenges in the current act, and it makes it better. It will benefit individuals and businesses, will strengthen law enforcement efforts 

with better information, and will reduce burden for banks so we 

can better serve our customers. 

Thank you again for the opportunity to testify, and I am happy 

to address any questions or concerns of the committee’s interest. 

[The prepared statement of Mr. Bley can be found on page 46 of 

the Appendix.] 

Chairman PEARCE. Thank you. 

Mr. Byrne, you are recognized for 5 minutes. 

STATEMENT OF JOHN J. BYRNE 

Mr. BYRNE. Chairman Pearce and members of the subcommittees, I am John Byrne, and I have been part of the AML community for over 30 years. It is clear to me that the private and public 

professionals who have financial crime prevention functions are all 

dedicated to stopping the flow of illicit funds. 

We may disagree with how to achieve this collective goal, but no 

one can challenge the commitment of all of those involved. It is, 

therefore, so important that, as improvements are considered to 

what constitutes the AML infrastructure, all participants be actively consulted. 

I have seen all too often that the focus of the Bank Secrecy Act 

appears to be mainly regulatory compliance and not getting immediate access to law enforcement, information they need for investigations and deterrence of criminal abuse of our financial system. 

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I have covered many of the provisions in today’s proposal in my 

testimony, but I will highlight only a few. 

Sections 2 and 3. CTRs have been part of the AML fabric since 

1972 and SARS since 1996. There was certainly value for law enforcement in both reporting regimes, but I feel that SARS are, 

without a doubt, more essential to successful investigations, prosecutions, and overall detection of financial crime. The subcommittee should be commended for attempting to review and improve these requirements. 

I would respectfully recommend, however, that there are elements in both reporting regimes beyond the dollar thresholds that 

should be considered for improvement, and they are identified in 

my testimony. 

While I respect Mr. Bley’s views that he just espoused, in discussing the ideas of raising the threshold on CTRs, I talked to a 

number of institutions who said that, for them, it may have little 

impact on burden because automated systems have been implemented to assist in the identification of reportable transactions. 

I do not have enough data on all impacted filers to assess the 

pros and cons of raising the thresholds. So, if the subcommittees 

intend to propose such a plan, I would encourage that all participants in the filing process, especially law enforcement stakeholders, be included in discussions around any potential change. 

However, to both simplify and ensure law enforcement utility, I 

would submit there is a need for a new call to dramatically change 

cash reporting, and that is, eliminate all CTRs and have impacted 

financial institutions report cash activity directly to FinCEN. With 

this change, law enforcement would get direct access to cash activity at the levels decided by Congress with input, obviously, from 

law enforcement, and they could develop metrics on what activities, 

types, and other factors are important to the detection of all aspects of financial crime. It is clear to me that a change this massive 

couldn’t be done overnight. So creating several pilot programs may 

be the best option. 

The subcommittees are also looking at suspicious activity reporting thresholds and adjusting those. I will leave to current members 

of the financial sector to comment, but I will say this: Many banks 

file SARS in the hopes that law enforcement will actually start an 

investigation. If the dollar amounts are raised, will there be less 

consideration to lower dollar frauds and financial crime? Also, as 

we know from our law enforcement partners, terrorist financing 

models have often occurred at extremely low dollar amounts, and 

so will we be losing valuable financial intelligence? 

Section 4. The subcommittees are also to be commended for the 

inclusion of section 4 that fixes a long-held barrier to enhancing information sharing. This is a welcome expansion and should result 

in more effective reporting and eventual detection of many forms 

of financial crime. 

Sections 5 through 7, on the no-action process, I think that will 

go a long way, if you create that, to prevent what I would call ‘‘policy as rule’’ that I talk about in my testimony. So that section, I 

think, deserves a lot of support. 

Section 7 highlights the use of technology. And several members 

have referenced that already today. One of the common complaints 

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I have heard is that, all too often, regulators make it difficult for 

financial institutions to experiment with new tools for the fear of 

regulatory criticism during transitionary periods. This section may 

alleviate those problems. 

Section 9. One of the major recent challenges to the financial sector is the impending CDD (Customer Due Diligence) Rule that is 

required to be implemented next May. With the focus from FATF 

(Financial Action Task Force) and the media outcry from the Panama and Paradise Papers, we know that there is universal focus 

on the mechanisms used to obscure beneficial ownership of corporate vehicles. A direct obligation to file with FinCEN is indeed 

a welcome proposal. 

And then, last, I would be remiss if I did not also reference the 

collateral damage that can and does occur with confusion regarding 

risks in today’s AML regime. When the financial sector receives 

limited advice and counsel regarding how best to manage risk, the 

logical response by some institutions is to exit or not onboard certain classes of customers. This concept, ‘‘derisking,’’ impacts access 

to the traditional banking sector and has harmed victims in conflict 

zones from receiving funding for water, utilities, and other resources. 

These subcommittees can provide a valuable service to the AML 

and global communities by adding to the studies and reports in the 

bill an update to the challenges regarding financial access. 

In conclusion, I would thank the subcommittee for this opportunity to offer my views on the need to change after 30 years of 

AML. The key to going forward is to, whatever changes are made, 

ensure that improvements occur through private/public partnerships. 

Thank you for this opportunity, and I am also happy to answer 

any questions. 

[The prepared statement of Mr. Byrne can be found on page 50 

of the Appendix.] 

Chairman PEARCE. Thank you. 

Mr. Fox, you are recognized for 5 minutes. 

STATEMENT OF WILLIAM J. FOX 

Mr. FOX. Thank you, Mr. Chairman, and Ranking Member 

Perlmutter, thank you very much, and distinguished members of 

the subcommittee. I really am proud to be here today on behalf of 

The Clearing House, where I serve as the Chair of its AML Summit Committee. I have a few remarks that I would like to make 

to the subcommittees this afternoon. 

First of all, we would like to commend the House Financial Services Committee and the subcommittees that you chair on your leadership regarding our Nation’s anti-money laundering and counter 

financing of terrorism regime, a regime that we believe is critical 

to our national security. 

The enactment of the USA PATRIOT Act more than 16 years ago 

was the last time that the Congress conducted a broad review or 

adopted significant amendments to our national regime. The current suspicious activity reporting regime remains largely unchanged since it was developed in the mid 90s. Similarly, large 

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10 

cash reporting regime remains largely unchanged, if not unchanged 

at all, since the Bank Secrecy Act was originally passed or enacted 

in 1970. 

Just think of what’s happened since that time. Today, most 

banking business can be conducted from your mobile phone. Both 

money and information move in nanoseconds. 

It is very simple and common to move money across borders in 

ways never seen before. Even the concept of what money is, is 

changing. Today, anonymous cryptocurrencies are traded outside 

the formal financial system in a way that makes it increasingly difficult to know the source and purpose of the funds that have been 

moved. 

The Clearing House believes that the mechanisms through which 

our member institutions discharge their responsibilities under the 

regime are highly inefficient and outdated. We believe it is time to 

take a fresh look. A core problem with the current regime is that 

it is geared toward compliance expectations that bear little relationship to the actual goal of preventing or detecting financial 

crime. These activities require different skill sets, tools, and work. 

All of this begs a question: What is the ultimate desired outcome 

of our Nation’s AML/CFT regime in a post-September 11th–2017 

world? The Clearing House believes we should start by defining 

clear and specific measurable outcomes or goals for each component 

of our national regime, including the anti-money laundering programs that exist in financial institutions. 

Progress toward achievement of these goals should be measured 

and reported. From these outcomes or goals, priorities should be 

set for the components of the regime, similar to the prioritization 

that occurs in our intelligence community. We believe defining and 

measuring desired outcomes would change the focus in financial institutions from one that is focused on technical compliance to one 

that is focused on achieving desired and measurable outcomes of 

the regime. In other words, the programs will be effective. 

To that end, in early 2017, The Clearing House issued a report 

offering recommendations on redesigning our national regime to 

make it more effective and efficient. Many of the concepts found in 

the report are reflected in the Counter Terrorism and Illicit Finance Act before the subcommittees today. 

I will quickly go through a couple of the recommendations that 

The Clearing House is making. 

First, relating to prioritization. The Clearing House believes that 

the Treasury should take a preeminent role in setting policy, measurable outcomes, coordinating and setting priorities, as well as in 

examining institutions’ compliance with and enforcing our national 

regime. 

Treasury is uniquely positioned to balance the sometimes conflicting interests relating to national security, the transparency and 

efficacy of our global financial system, the provision of highly valuable financial intelligence to the right authorities, financial privacy, 

financial inclusion, and international development. 

Second, regarding rationalization, The Clearing House supports 

the draft legislation study of current BSA reporting requirements. 

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11 

picious activity information sharing, as well as the exclusion of a 

Federal beneficial ownership recordkeeping requirement. 

Due to our size and geographic footprint, at Bank of America, we 

are one of the largest filers of currency transaction reports and suspicious activity reports in the United States. Other than anecdotes 

about the usefulness of our reporting, we do not receive direct feedback from the Government on whether the bulk of our reporting is 

useful or not. At Bank of America, in order to try to measure the 

usefulness of our reporting, we have developed a metric tracking 

when we get follow-up requests from law enforcement or regulatory 

agencies for backup documentation relating to our reports. 

Today, we receive such requests in connection with roughly 7 

percent of the suspicious activity reports that we file. From my 

time in the Government, I know that these reports are used in 

many different ways. Most of which do not require the backup documentation that you can get through the SAR process. Accordingly, 

I think our reporting is far more effective than the metric would 

say. However, I do not know that for sure. 

Measuring the usefulness of suspicious activity reporting would 

also help the Government rationalize whether the reporting, which 

may be technically required under the law, is ultimately useful in 

achieving the goals of our AML/CFT regime. We are pleased to see 

the draft legislation would require a Treasury-led study to review 

the current reporting regimes under our AML/CFT regime, and we 

believe that that is really important. 

The third area we would like to cover is innovation. The Clearing 

House supports the language in the draft bill encouraging innovation. We have some ideas in our testimony, and we have covered 

that pretty well there. 

With that, Mr. Chairman, we are ready to take questions. 

[The prepared statement of Mr. Fox can be found on page 58 of 

the Appendix.] 

Chairman PEARCE. Thank you, Mr. Fox. 

Ms. Ostfeld, you are recognized for 5 minutes. 

STATEMENT OF STEFANIE OSTFELD 

Ms. OSTFELD. Thank you. Good afternoon, Chairman Pearce, 

Ranking Member Perlmutter, and the distinguished members of 

the subcommittees. Thank you for holding this important hearing 

and inviting Global Witness to testify. 

We are an investigations and advocacy organization that seeks to 

expose and break the links between natural resources and corruption and conflict. For the last 6 years, with Global Witness, I have 

been looking at how illicit funds flow through the system. And 

there are three things that have really struck me. 

Now, the first is that, in basically every case of corruption we 

have ever investigated, anonymously owned companies have been 

used to move and hide money. The second thing I have noticed is 

it is not just corruption. Anonymously owned companies are what 

unite all crimes that generate money. But perhaps what is most 

striking is how easy and common it is to set up an anonymously 

owned company right here in the United States. We are at the 

heart of this problem. 

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Global Witness is very encouraged that the committee is interested in advancing beneficial ownership legislation and strengthening U.S. anti-money laundering laws. A bill that is fit for purpose needs to collect the right information, make it accessible to 

the stakeholders who need it, and ensure that the beneficial ownership information is kept up to date. 

The discussion draft did some of this, but we have a number of 

concerns. So my written testimony concerns 14 detailed recommendations of how you could strengthen the proposed legislation, but I am going to use the remainder of my time to briefly discuss seven of them. 

So, first, with respect to section 9, the discussion draft favors 

bank’s access to beneficial ownership information while severely 

limiting domestic law enforcement’s access, because it only allows 

Federal law enforcement to access beneficial ownership through a 

criminal subpoena. This means State and local law enforcement do 

not have direct access to it, even though the bulk of U.S. criminal 

investigations happen at the State and local level. It also means 

that Federal agencies that only have civil and administrative subpoenas aren’t able to access it either. 

Law enforcement officers need to be able to acquire company 

ownership information quickly and easily without alerting the subjects of the investigation. 

The bill needs to ensure domestic law enforcement has access, 

and this includes Federal, State, and local, to FinCEN’s database 

of beneficial ownership information. At a minimum, the language 

in the discussion draft needs to be amended to allow civil, criminal, 

or administrative subpoenas or summons or the equivalent at the 

State, local, and Federal level. 

Second, the discussion draft also severely limits foreign governments access to beneficial ownership information. It excludes cases 

that involve civil misconduct, like securities violations, business 

misconduct, patent and copyright violations, cybersecurity violations, but it also goes a step further, that there is language in the 

discussion draft that will severely limit its utility to foreign governments when they are trying to access beneficial ownership information. It means they can only access it for an intelligence purpose 

and not for a law enforcement purpose. For it to serve the law enforcement purposes of foreign governments, beneficial ownership 

information needs to be able to be introduced in court. This means 

it could be discoverable at a later date. As written, it appears to 

prevent this. It has little utility to a foreign prosecution. 

Third, the discussion draft appears to favor foreign owners over 

U.S. applicants. It must require foreign nationals to file their beneficial ownership information with FinCEN, and this needs to include submitting a scanned copy of the relevant pages of their nonexpired passport to FinCEN. 

Fourth, an enforcement mechanism should be added to the discussion draft to ensure that applicants file beneficial ownership information with FinCEN. As written, it doesn’t have one. 

Fifth, banks should implement the customer due diligence rule 

on time in May 2018. There is a clearly identified need for banks 

to be collecting beneficial ownership information for their customers so that they can assess risk. If this proposed legislation benshattuck on FSR297 with DISTILLER

13 

comes law, regardless of how long Congress gives FinCEN to set 

up the database, it is going to take a significant amount of time 

to get it up and running and populated with the required beneficial 

ownership information. Adequate customer due diligence within 

banks, which is what the regulation requires, cannot stop in the interim because the banks need to know its customer does not stop. 

Sixth, the CTR and SAR reporting threshold shouldn’t be raised 

as proposed in the legislation as it would create a record-free zone 

for a much larger number of transactions. It would lift the burden 

on wrongdoers, like drug traffickers and terrorists, who must deal 

in cash, while doing very little or nothing to relieve any burden on 

legitimate commerce. 

And, seventh, finally, while banks play an important role in 

keeping dirty money and terrorist finance from entering the U.S. 

financial system, they shouldn’t be alone in bearing that responsibility. Those seeking to move suspect funds utilize the services of 

a wide range of professional gatekeepers to the financial system 

who handle large sums of money. Company formation agents, the 

real estate sector, and transactional lawyers should also be required to know with whom they are doing business and engage in 

efforts to prevent their services from being used to launder dirty 

money. 

So thank you for inviting me to testify today and share my views 

on this important issue. Global Witness looks forward to working 

with you and your colleagues on the subcommittees to strengthen 

U.S. anti-money laundering framework so we can stop the U.S. 

from being a safe haven for illicit money and terrorist financing 

from around the world. Thank you. 

[The prepared statement of Ms. Ostfeld can be found on page 69 

of the Appendix.] 

Chairman PEARCE. Thank you. 

Mr. Poncy, you are recognized for 5 minutes. 

STATEMENT OF CHIP PONCY 

Mr. PONCY. Thank you, Chairman Pearce, Ranking Member 

Perlmutter, and distinguished subcommittee members. I am honored to testify before you today. 

We are confronting a pivotal moment in our 48 years of combatting illicit finance under the Bank Secrecy Act, more commonly 

known as the BSA. As our counter illicit financing efforts have become more important, they have also become increasingly challenged. This is provoking fundamental questions, including about 

effectiveness, efficiency, costs, roles, and responsibilities. The combination of these developments necessitate significant reform of the 

BSA and the expanded AML/CFT regime it supports. 

This hearing marks an important and welcome opportunity to 

discuss how best to pursue such reform. I am grateful for the leadership of these subcommittees in addressing these issues for the 

reasons that my colleagues here have spoken. 

The draft Counter Terrorism and Illicit Finance Act proposes 

bold and necessary changes required to address many of the urgent 

challenges we face, challenges in combatting all forms of illicit financing, and in protecting the integrity of our financial system and 

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14 

our national security. Such proposed legislation also reflects the 

congressional leadership required to take action to secure these 

vital interests. 

However, Congress should amend this proposed legislation to further strengthen the effectiveness and to further promote the efficiency of our AML/CFT regime. My recommendations for such 

amendments are explained at length in my written testimony and 

may be summarized as follows. 

One, incorporate into the proposed legislation a new section expanding the objectives of the BSA to explicitly include protecting 

the integrity of the financial system and protecting our national security. Such clarification of purpose will recognize the heightened 

importance of what we do through our AML/CFT regime and will 

help guide our efforts moving forward. 

Two, incorporate into the proposed legislation a new section, 

first, to restructure and enhance financial investigative expertise at 

the Department of the Treasury and, second, to provide protected 

resources to law enforcement, the intelligence community, and 

counter illicit financing targeting authorities. Such action is required to more effectively and consistently pursue illicit financing 

networks. It is also necessary to fully capitalize on the investments 

that our financial institutions are taking to support these efforts. 

Three, strengthen section 3 of the proposed legislation to direct 

a more aggressive approach for Treasury to enhance financial 

transparency. Such action is required to address longstanding and 

substantial vulnerabilities in our financial system. Such actions are 

also necessary to fully leverage new technologies and providing 

more information at a lower cost to our financial institutions. 

Four, strengthen and expand the information-sharing provisions 

in sections 4 and 7 of the proposed legislation. This action will enable our best financial investigators from the Government to work 

directly with our best analysts in the industry to attack illicit financing networks. 

Five, strengthen section 6 of the proposed legislation by directing 

Treasury to develop and expand initiatives and consultations with 

industry. Such initiatives and consultations should inform priorities for U.S. policies across the full spectrum of combatting illicit 

finance, money laundering, terrorism financing, sanctions compliance, bribery, and corruption. 

Such consultation should also stimulate operational pilots to capitalize on expanded information-sharing authorities and capabilities. 

Six, amend section 9 of the proposed legislation to support urgent 

implementation of the Treasury CDD Rule while supporting urgently the adoption of company information reform. Both of these 

actions are essential to our national security. This has been discussed at length through two decades of testimony, including in 

front of this committee. It is not an option to pursue company information reform or customer due diligence by financial institutions. 

For reasons that have been elaborated at length in my testimony 

and from testimony from others for decades, both of those actions 

are necessary. I am very happy to take questions on that issue. 

I would like to close with a word of thanks to all of you, to my 

friends, partners, colleagues across the AML/CFT community, and 

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to my family. My family has given me the freedom to contribute to 

this mission, both in Government and in private practice. Finally, 

I would like to recognize and welcome Maddy Poncy, an 11-year old 

reporter from the Hunters Wood Elementary School, and urge her 

to continue to educate the next generation about the importance of 

public service. 

Thank you. 

[The prepared statement of Mr. Poncy can be found on page 88 

of the Appendix.] 

Chairman PEARCE. Thank you. The Chair now recognizes the 

Ranking Member of the full committee, the gentlelady from California, for 2–1/2 minutes for comment, opening statement. 

Ms. WATERS. Thank you very much for convening today’s hearing 

and for the opportunity to discuss two proposals. One that sharpens the Nation’s focus in countering human trafficking, and another that would make broad reforms in an effort to modernize the 

Bank Secrecy Act. This latter proposal aims to achieve two important objectives: One, strengthen the efficacy of our current antimoney laundering framework and, two, reduce any undue compliance burdens. 

These are worthy objectives and are reflected in a number of important provisions in the bill, including sections that would address 

vulnerabilities associated with anonymous shell companies and 

provide financial institutions with greater feedback. Nonetheless, a 

number of other provisions in the discussion draft fail to strike the 

appropriate balance and warrant additional scrutiny. 

In particular, while compliance issues that community banks and 

credit unions face is an important consideration, we should, for example, be careful not to lift SAR and CTR reporting thresholds if 

doing so undermines law enforcement’s ability to stop bad actors. 

Similarly, while the no-action letter concept and encouragement of 

the use of technology may provide welcome clarity for institutions, 

these provisions need to be more carefully scoped to minimize potential harm. Additional care must also be given to address privacy 

and civil liberties concerns before altering the information-sharing 

powers under the PATRIOT Act. Finally, more must be done to 

close other known vulnerabilities and our anti-money laundering 

rules, especially in the real estate sector. 

So I look forward to the opportunity to working collaboratively to 

perfect these missions. And I thank you so much, Mr. Chairman. 

And I yield back my time. 

Chairman PEARCE. The gentlelady yields back. 

We turn now to questions, and the Chair now recognizes himself 

for 5 minutes for questions. 

Mr. Byrne, in the testimony before the Senate Judiciary Committee yesterday, the Assistant Attorney General Kenneth Blanco 

stated that ‘‘the pervasive use of front companies, shell companies, 

nominees, and other means to conceal the true beneficial owners of 

assets is one of the greatest loopholes in this country’s AML regime.’’ The Financial Action Task Force in its December 2016 evaluation of the United States anti-money laundering efforts identified 

the lack of requirement for the collection of beneficial ownership information as the most critical vulnerability in our efforts to combat 

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16 

nals to hide their identities and abuse our financial system through 

anonymous shell companies. So the rest of the world is addressing 

the question far more thoroughly than we are. Is our country, the 

United States, at risk of becoming the haven for criminals? 

Mr. BYRNE. I don’t think there is any question, Mr. Chairman, 

that the lack of information gathering that currently exists is more 

than problematic. 

I think we have always talked about—and Chip alluded to this 

in his testimony—we have talked about this in terms of the CDD 

Rule being one part of this and beneficial ownership part of that 

being separate. The fact that we have States in this country where 

corporate formation information is so limiting I think does make it 

much easier to create these shell organizations and these front 

companies. So I do think—and I think the FATF is focused on that 

as well. So I think the fact that this subcommittee—these subcommittees are looking at making those adjustments, that there is 

a rule that is pending, will go a long way toward helping that, but 

it does, as an AML professional, it does concern me about the ease 

in which corporate formations issues can occur in the States to be 

fronts for illegal activity. Absolutely. 

Chairman PEARCE. How is the information used by law enforcement if this beneficial ownership information is provided? 

Mr. BYRNE. How is? 

Chairman PEARCE. How is that information used by law enforcement? What are the processes? What do they use it for? 

Mr. BYRNE. Well, for investigative purposes, to follow up. I would 

certainly defer to some of my other panelists. But I think there is 

a long history of law enforcement saying they need that information. And I know that the FBI and other organizations have come 

before this subcommittee and others to say how important it is to 

get access, more access to that information. 

Chairman PEARCE. All right. 

Mr. Bley, in your testimony, you mentioned the CDD Rule that 

goes into effect next May. And you comment that it is going to 

place unnecessary burden on our businesses, would slow the account-opening process, and would increase maintenance costs. 

Can you explain some of the negative impacts on businesses from 

a CDD Rule and describe how our proposal would help alleviate 

those burdens while still ensuring law enforcement has the information they need? 

Mr. BLEY. Absolutely. There is an agreement amongst all the 

mid-size banks that collection of this data could add value from a 

law enforcement perspective. And the real question is just what is 

the most efficient way in which that information should be gathered, most efficient, not just for banks but also for all the businesses throughout the country. And we believe the public sector approach is the most efficient because it allows for better data integrity, a more efficient process where businesses only have to submit 

the information one time in a consistent way, and it is not impacting their ability to work with their various financial institutions. 

And so the combination of all those affects means it is just a 

more efficient and effective program. It also allows all the information to be centrally captured in one way and accessible by all those 

that need it in order to perform their activities. 

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17 

Chairman PEARCE. Mr. Fox, as the Office of Comptroller of the 

Currency releases on an annual basis its bank supervision plan 

that sets forth the agency’s supervision priorities and objectives for 

the upcoming fiscal year, I am interested in how this process helps 

financial institutions prepare for their exams. And then, similarly, 

would a similar process work for AML/CFT priorities if the Treasury Department released those annually? Is that helpful for compliance obligations? Give us some input on that. 

Mr. FOX. Sure. 

Mr. Chairman, actually, we study that quite closely because 

knowing the priorities of our supervisor, our principal supervisor in 

the United States, helps us plan and make sure that we know what 

the agency is going to care about, and what they are likely to come 

and examine and ask us about, right? So it causes a focus in the 

institution and that prioritization actually becomes, in many ways, 

the institution’s prioritizations. So that is, it is very helpful for 

planning. 

I think it would be helpful in the AML space. As you know, one 

of the OCC’s (Office of the Comptroller of the Currency) principal 

priorities for the last few years has been BSA AML exams. 

Chairman PEARCE. Thank you all. My time has expired. 

The Chair now recognizes the gentlelady from Arizona, Ms. 

Sinema, for 5 minutes. 

Ms. SINEMA. Thank you, Mr. Chairman, and thank you to our 

witnesses for being here today. Human trafficking is a growing 

multibillion dollar problem that demands action by the Federal 

Government and Congress. Terrorist organizations like ISIS employ human trafficking as a means of funding their operations 

while terrorizing and tormenting local communities. There have 

also been over 36,000 reported cases of human trafficking in the 

U.S. since 2007. And nearly 7 in 10 of those cases involve sexual 

exploitation. 

The rise of the Internet changed the human trafficking landscape 

in the United States. Prostitution has expanded from the streets to 

the online marketplace where victims, many of whom are children, 

are traded to the world. 

According to the Department of Justice, traffickers make on average $150,000 to $200,000 dollars per child. I believe we have a 

moral obligation to protect victims of human trafficking and a national security responsibility to cut off the financial means used by 

traffickers and terrorists. 

I am grateful to Congressmen Royce and Keating, Congresswomen Maloney and Love for introducing H.R. 2219, the End 

Banking for Human Traffickers Act of 2017, and I am proud to be 

a co-sponsor of this bipartisan legislation. 

The bill includes the Secretary of the Treasury and the President’s interagency task force to monitor and combat trafficking. It 

requires the task force to recommend revisions to anti-money laundering programs to specifically target money laundering linked to 

human trafficking. And I appreciate the committee’s work to improve and advance the bill. 

My question for you, Mr. Byrne, and thank you again for being 

here today, your testimony has cited the need for greater private 

sector expertise and the President’s interagency task force to monnshattuck on FSR297 with DISTILLER

18 

itor and combat human trafficking. Can you expand on some of the 

concerns you have about current practices and tell us what Government might be missing? 

Mr. BYRNE. Sure. And we do appreciate the drafting of the legislation. 

I think, as I said in my testimony, one of the things that perhaps 

the private sector hasn’t done well is explained how much has actually gone on proactively against human trafficking. In my previous 

role with the ACAMS organization, we began a relationship with 

Polaris, as I think the committee is aware. It is a well-respected 

international anti-human trafficking organization. And what we 

have been able to do with Polaris—and just met with them 10 days 

ago—is sit down with a number of bankers that do analytics and 

with Polaris’ staff—they have just recently come out with a study 

on new typologies on human trafficking—and to try to put those 

two groups together to create more red flag indicators, more examples where banks could be—and financial institutions in general— 

can be on the lookout to report human trafficking activity, whether 

it is forced labor, sex trafficking, all the different categories. So 

that relationship with Polaris occurs outside of any regulatory requirements. 

Previous to that, the number of large financial institutions, including Mr. Fox’s Bank of America, worked closely with Homeland 

Security to do something similar 3 to 4 years ago. They created a 

number of, again, red flags and indicators. And we published 

that—‘‘we,’’ meaning the trade association—we published that to 

the broader AML community so they could be better prepared to 

look for activity that could be indicators and file suspicious activity 

reports. 

So Homeland Security has done a tremendous amount of work 

here. They have been with Operation Blue and all the other things 

that—the Blue Campaign and everything else that they have 

done—have been tremendous partners. But there is a lot of private 

sector expertise that we are beginning to share with the public sector that I think can enhance how we look for, report, and detect 

this. And so there is a lot of information out there. 

What we are doing with Polaris will be available probably early 

next year and certainly can make the committee—make that information available. But you should feel somewhat comforted, as horrific as this crime is and has challenged the world for so long, that 

the private sector is working very diligently with both the public 

sector and groups like Polaris to deal with this. 

I would only say this about the legislation. Whatever gets, quote, 

‘‘required,’’ if you consult with the private sector in terms of training and other issues, I think it would make it a better piece of legislation. But the theme makes a lot of sense and I think would go 

a long way to continue to help in this very challenging space. 

Ms. SINEMA. Thank you, Mr. Byrne. 

Mr. Chairman, I yield back. 

Chairman PEARCE. The gentlelady yields back. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman, and excuse my voice. 

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I would like to thank each of you for being here today. Your 

input, advice, is very important for this committee. I would like to 

particularly thank Mr. Fox and Mr. Poncy for the extraordinary 

role that you played in building a stronger collaboration with our 

partners throughout the world, and over 60 countries have benefited from your input and your direction. 

To that end, I would like to ask you, Mr. Fox, that, in your opinion, what do financial institutions—what type of difficulty do they 

have in sharing information with our law enforcement and as it relates to similar investigations with other countries around the 

world? Can you speak to those challenges? 

Mr. FOX. Sure. Congressman, thank you very much. And thank 

you for your comments. 

I think that the sharing of information, both vertically, if I can 

call it that, from the Government to the private sector, and then 

among the private sector themselves is one of the most important 

ways that we can attack illicit finance. And some of the really serious problems that Ms. Sinema—was speaking about with human 

trafficking and things like that. I think one of the challenges that 

we have is that we have authority here in this country through the 

U.S. PATRIOT Act provisions to be able to do that. It is done 

aboveboard. It is done with care. But at the same time, it is done 

robustly. 

And we, you are aware, Congressman, about our consortium of 

banks that has really made a difference in some of these areas, like 

human trafficking and other more sensitive areas. 

So that is a great, great thing. The difficulty is sharing with 

other governments, and that sort of thing. The U.K. itself has developed a little bit different system. They are using a committee 

format, something that they call the Joint Money Laundering Investigations Task Force, the JMLIT. And that has worked well in 

the U.K. We participate in the U.K. because we are there. And we 

think that that works. And in fact, in some ways, it is nice because 

you always have to come to the committee and you have to come 

with something. So there is always a topic to talk about. 

But other jurisdictions, it is not as easy to share information, either with financial institutions themselves or vertically with the 

Government without some extraordinary process. 

Mr. PITTENGER. Does law enforcement provide you with a request 

for information through a 314(a) request or some other matter? 

Mr. FOX. Well, Congressman, we get the routine requests that we 

get from FinCEN every 2 weeks. But I think, more importantly, 

law enforcement has really stepped up over the last year, year and 

a half, I would say, maybe 2 years, with requests and with work, 

kind of almost joint work with 314(a) information. And that has 

made a huge difference for those investigations and those law enforcement agencies when they have done that. 

Mr. PITTENGER. Thank you. 

Mr. Poncy, currently it is difficult for financial institutions to 

share information across borders with other branches of the same 

institution. How does this actually create more risk in the financial 

system? 

Mr. PONCY. Thank you, Representative Pittenger. And thank you 

for your leadership on the Task Force to Combat Terrorism Financnshattuck on FSR297 with DISTILLER

20 

ing. You guys have done terrific work over the last several years, 

both here and abroad. I want to recognize that and thank you for 

it. 

The cross-border information-sharing issue is central to our efforts to understand risk. When you look at how the international 

financial system works and the bad guys that we are chasing 

through it, anybody worth chasing is in several different places, 

different institutions, different countries. And if we are not able to 

connect those dots, we are in a very difficult position, whether in 

industry or in Government, trying to figure this out. 

The idea of allowing a financial institution to share information 

with its branches, its affiliates abroad, which is captured in the 

proposed legislation, is overdue and will be very helpful. 

As I argue in my recommendations, I think there is more that 

we can do. Part of this challenge is cross border. Part of this is the 

way that we share information and who is in the room, what kind 

of information we are sharing. Think of it this way: The way that 

the BSA was developed was transactional and reactive. We were 

looking for specific individuals and actors and specific institutions 

based on specific transactions or vice versa. The way the system 

works now, we have the ability to turn the lights on. We have the 

ability to look at risk more systemically with more information to 

identify patterns of activity proactively. The more that we can do 

to allow our institutions and our authorities to work together with 

more information using the latest technologies to understand what 

risk looks like and then pursue it, the more effective and more efficient we will be. Those principles are clear. The real question is, 

how do we get from here to there? 

I think what you have done in this proposed legislation, to put 

Treasury in a position to manage this, is exactly the right way to 

go. And there are more details in my specific recommendations, but 

that is the general thrust. 

Mr. PITTENGER. Thank you. 

Chairman PEARCE. The gentleman’s time is expired. 

The Chair will now recognize the gentlelady from California for 

5 minutes for questions. 

Mr. PERLMUTTER. She is not here. 

Chairman PEARCE. I will recognize the Ranking Member for 5 

minutes, Mr. Perlmutter. 

Mr. PERLMUTTER. Thanks, Mr. Chairman, and thank you to our 

panelists. 

I appreciate your testimony. 

So, Mr. Poncy, you are talking about exactly the purpose of this 

bill, that we are trying to be more effective, more efficient bring 

ourselves into this century with the legislation, with the innovation, that is possible. And I think both sides of the aisle are supportive of this. 

We have seen that there are just a lot of ineffective kinds of requirements of the financial industry to try to prevent bad guys 

from doing bad things. We want to be better at that. One of the 

big expansions, however, is in section 4, page 5, of the proposed 

legislation, lines 8 through 16. And it is a very innocuous section, 

but it is a pretty big expansion. So it says, in this, we change the 

PATRIOT Act—and I would open this to all panelists—by striking 

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‘‘terrorists or money laundering activities’’ and inserting ‘‘terrorist 

activities, money laundering activities, or a specified unlawful activity as defined in section 1956(c)(7),’’ which seems pretty limited 

on its face, except, if you go to that section, there are a couple hundred crimes, from endangered species to pollution to nutrition to 

housing to mail theft. 

Can somebody explain to me why we want to expand it in this 

fashion? Because this is a hot button spot for privacy advocates and 

others. 

Mr. PONCY. Thank you so much, Congressman Perlmutter. That 

it is a great question. 

The frustration is, when you look at the expansion of money 

laundering and money laundering predicates over the past 30 

years, it is astounding. We started in the BSA looking for cash, 

looking for drug money, looking for tax compliance. It is now clear 

under global standards and under U.S. law, under 1956, that all 

forms of serious criminal activity create proceeds that then are subject to money laundering prosecution, confiscation, and pursuit. We 

need those authorities. They exist now in 1956. 

The question is, if you are trying to understand risk in the financial system, you may see something that doesn’t look right, you 

may think it is suspicious, you may not know if it is money laundering, terrorism financing, you may not know if it is fraud. If you 

have to tie that information-sharing request to a specific understanding of money laundering, you are going to put a chilling effect 

on information sharing. 

If you expand it to say we already have money laundering covering everything in 1956 for a reason, enabling our financial institutions to share information even where they are not sure whether 

it is a predicate offense or money laundering—is it an act of money 

laundering? Is it an act of crime? 

There have been rulings and administrative rulings from 

FinCEN on this that are fairly narrowly interpreted, because it 

concerns the way 314, the PATRIOT Act, was written. What is very 

clear in the debates over the last 16 years is that that expansion 

that you have read is going to enable more sharing of information 

around what everyone agrees is suspicious or criminal activity but 

might not qualify under the narrow constriction of 314. That is the 

intent. 

Mr. PERLMUTTER. I think the concern that was raised by the defense bar was that it is just a very big expansion and that, potentially, whether it is the banking institutions or some others are 

now really detectives all the time and a fear that, instead of we get 

more limited in SARs, we are now expanding SARs. So just a general concern for those of you to think about. 

The second area I would like to talk about is really Mrs. 

Maloney’s section of the bill on beneficial ownership. And the complaint that I have received is initially, should the financial institutions be the police or the initial detectives, should the lawyers be 

that, or should it be somebody else? 

I would just open it up to the panel, why this burden should be 

shifted at all and whether or not the IRS ought to play a role. Mr. 

Hill has mentioned to me, everybody sends their tax return into 

the IRS; why don’t we just use them as, in effect, a clearinghouse? 

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22 

And I would just open it up in my last 12 seconds to anybody 

who can answer it—in now 8 seconds. 

Mr. FOX. Thank you, Mr. Ranking Member. 

Listen, I think we all just recognize that the information is highly valuable to law enforcement. We think that by the financial institutions collecting—we want the information, frankly, ourselves. 

We can use it to do our work. Right? But the fact is law enforcement is not going to have ready access to our data unless they have 

a reason to suspect that some entity is doing something untoward 

and they could subpoena. 

So we actually support that. I think Mr. Hill has a really interesting idea where some recipient gets this. I think it should be 

studied and thought about a little bit, but we at The Clearing 

House support it. Because we think the information should be gotten, and it shouldn’t be the institutions just to get it. 

The other thing to remember is that the institutions are going 

to collect to the rule, which is 25 percent. If it is less than that— 

Mr. PERLMUTTER. You won’t. 

Chairman PEARCE. The gentleman’s time has expired. 

The Chair would now recognize the gentleman from Pennsylvania, Mr. Rothfus, for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. Bley, section 2 of the Counterterrorism and Illicit Finance 

Act addresses threshold updates to currency transaction reports 

and suspicious activity reports. 

Can you describe to us how increasing the CTR/SAR thresholds 

would reduce regulatory burdens on financial institutions and their 

customers? 

Mr. BLEY. Certainly. Thank you for the question. And I have, actually, two answers to that. 

I can give you the exact numbers. We do our analysis, and we 

can see that increasing the thresholds is going to reduce the number of filings. It is a pretty straightforward calculation. And it is 

impactful, because there are a significant number of large—a large 

volume of small-dollar reporting and filing that takes place. 

But, frankly, the MBCA’s view on this is not that the actual 

threshold level exactly or precisely is what is at stake here; it is 

really part of a holistic solution to improving the efficiency of the 

program. Having an excessive number of false positives, an excessive number of filings on small-dollar cash transactions is just not 

going to deliver valuable information that is going to be of significance. 

But, ultimately, what we believe is best is the combination of everything. And one idea that we put out is the possibility of some 

form of—a different form of reporting that would be more efficient 

and effective for smaller-dollar reports. 

And so it doesn’t, per se, matter whether it is a $30,000 limit or 

a $25,000. What matters is that it is an efficient and effective delivery of small-dollar information. But we also believe that, fundamentally, the sheer volume that is being submitted could not 

possibly be used effectively for investigations. It might ultimately 

connect to a financial crime, but we are talking about numbers that 

are so extreme, it is hard to believe that it could be as valuable. 

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23 

Mr. ROTHFUS. If I could move over to Mr. Fox, could you give us 

a little more background on the SARs? Can you please describe 

how a SAR is triggered and why certain activities, regardless of the 

transaction amount, trigger them? 

Mr. FOX. Sure. 

So what we do and what I think most institutions do is that we 

have sophisticated systems or processes, if you are not big enough 

for systems, to really try to detect what could be unusual activity, 

right, for our customers. So it all starts with your customer, knowing your customer, knowing what is normal for them, and really 

understanding what could be. 

If you see activity that just doesn’t make sense for either that 

type of customer or you see activity that really does look bad, then 

that gets escalated to an investigation, where an analyst actually 

looks at that material and will make a judgment about whether or 

not it is suspicious. 

Suspicion is a pretty low threshold. Actually, it is one of the lowest, I think, in the Federal system. But it still is a threshold. So 

if we think that the facts—these are fact-based judgments—demonstrate that there is something that is suspicious, we will then 

move to file a report on it. 

Mr. ROTHFUS. And, to be clear, increasing SAR thresholds should 

not deter filings of suspicious reports of any amount, correct? 

Mr. FOX. I don’t know that for sure, sir. I don’t think it would 

with us. I think we would continue to file suspicious reports. 

The danger of increasing a threshold, I think, is that you could 

say that—right now, we do not file SARs unless it is extraordinary 

under the $5,000 threshold that exists today. Right? So what we 

take that rule to mean is that the Government has told us that 

they are not interested if it is below $5,000, with some exceptions. 

But if we see something that is odd at $100 or $25 that we think 

could be related to something serious, we are going to file that 

SAR. 

Mr. ROTHFUS. Mr. Poncy, as you know, the Counterterrorism and 

Illicit Finance Act details a no-action letter policy that is meant to 

increase certainty for institutions. 

How important is it that we allow financial institutions to experiment with their AML programs for the purposes of improving their 

efforts to identify money laundering and terrorist financing? 

Mr. PONCY. Thank you, Congressman. 

I think such experimentation is incredibly opportunistic. The 

compliance officers and the risk managers we have in our financial 

institutions are increasingly entrepreneurial, and the more that we 

can encourage them to think with us on how to assess and manage 

risk, the more effective our system will be. 

Giving them the latitude to do that involves two things. One, 

they have to be protected from downside exposure. If there is any 

exposure—as a general counsel for a financial institution, it is very 

difficult to say, I want to go play in that game where we can find 

bad guys if it is going to expose me to regulatory risk or to enforcement risk. It is very hard to responsibly allow that. So we have to 

cover the downside risk for well-intentioned and legitimate efforts 

to pilot new innovation. We have to do that. 

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Second, there has to be upside for that to say, I am going to now 

put resources out of where I know I need them because my examiner and others are telling me and put them in a place where I can 

experiment and try to be better. What is my upside in that? There 

are ideas that Treasury or ideas that these folks have that we have 

talked about for literally a decade. 

Again, the structure of management in the BSA here is critical. 

And putting Treasury in a position where it could aggressively cooperate with industry in stimulating these sorts of operational pilots, I think, will create a market on how better to assess and manage all the risks that we care about, from terrorism financing to 

money laundering, to human trafficking, to tax evasion, to bribery 

and corruption. 

Mr. ROTHFUS. I thank you. And my time has expired. 

Chairman PEARCE. The gentleman’s time has expired. 

The Chair would now recognize Mr. Lynch for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman and also the Ranking 

Member, for arranging this hearing. You have been doing great 

work. I really appreciate it. 

And I want to thank the witnesses for helping the committee 

with its work, as well. Thank you. 

I have to say that I think there are a lot of good things that are 

being raised in this discussion draft. There are one or two things 

that concern me on the negative side. And that is raising the cash 

transaction, the reportable amount from $10,000 to $30,000. 

So, right now, if you have a transaction $10,000 or over the bank 

will take identification, a license, a Social Security number, and 

make that whole report. The draft discussion wants to raise that 

to $30,000. Now, this is a per-day limit. So, under the discussion 

draft, if we went to $30,000 in cash, you could literally take 

$179,000 in cash, in transactions—and that includes deposits, withdrawals, and currency exchange, so if we are changing from dollars 

to rubles or rubles to dollars—you can basically do $180,000 or just 

$179,000 in cash per week and not trip the wire for reporting if 

this discussion draft passes unamended. 

So I have a great concern about that. I think that the $10,000 

was there for a reason. And I know it is a 1972 standard, I think, 

so we need to change that. But I don’t think going to $30,000 in 

cash per day is really warranted. I think we might want to take 

a little bit more cautious approach. 

The other thing is I would love to have the Financial Crimes Enforcement Network personnel here at this hearing, because I have 

had discussions with them, the same issue. I have said, do we really need all these CTRs? We have got tens of millions of cash transaction reports and suspicious activity reports; can you even look at 

these? And they say they need them all. And I know they are looking for a needle in a haystack, I said, but now you have this huge 

haystack. 

So I asked the folks at FinCEN, I said, do you need this? And 

they said, yes, this helps us catch the bad guy. We need context. 

We need all those reports. That is what they tell me. 

But I would really like to hear—maybe in a future hearing we 

have the folks whose job it is to catch the bad guys, have them 

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come in and tell us why they need this stuff and demand of them 

some accountability. 

Because I think you are on the right track; I don’t think we need 

all of these reports. As a matter of fact, it can bog us down, by getting too much information. But I think we need to right-size it 

rather than blow the lid off, as might happen under this discussion 

draft. 

So, Ms. Ostfeld, thank you very much again. I know we worked 

before on some of the anti-money-laundering stuff. 

The report by The Clearing House starts with the premise that, 

quote, ‘‘the current anti-money-laundering and combating the financing of terrorism statutory and regulatory framework in the 

United States is outdated and, thus, ill-suited for apprehending 

criminals and countering terrorism in the 21st century.’’ 

Is that really true? I mean, we deal with FATF, right? A hundred 

and eighty countries. And they review each country at least year 

to year, some of them more often. Are we really doing that poorly 

that we have to throw out this system? Could we undermine some 

good things that we are doing by changing everything? 

Ms. OSTFELD. Thank you, Congressman Lynch. 

I can’t speak for The Clearing House report, but what I can say 

is that we haven’t updated these laws in a very long time, and investigation after investigation continues to reveal dirty money getting into our system. So, while I wouldn’t say we want to throw out 

all of our money-laundering protections, there are concrete steps 

we could take to strengthen it. 

And so some of that is putting this customer due diligence rule 

into play in May of next year, as the regulation stands. Another 

piece is ensuring that it is no longer possible to set up an anonymously owned company in the United States. 

Mr. LYNCH. Right. 

Ms. OSTFELD. The rest of the world is moving on this. And while 

we used to be the leader—we were the first country really talking 

about this, all the way back in 2008, but, since then, the U.S. 

hasn’t moved forward. 

FATF told us in 2006 we are not compliant. They told us again 

in December 2016 we are not compliant. And the United States 

was part of developing those rules and pushing them around the 

world. 

And so you have now every EU member state has to put into 

practice a central beneficial ownership registry. They are all doing 

this. They are all in the process of— 

Mr. LYNCH. But we are not, right? 

Ms. OSTFELD. And we are not. 

Mr. LYNCH. Right. Well, I appreciate that. 

Mr. Chairman, I yield back the balance of my time. 

Chairman PEARCE. The gentleman yields back. 

And the Chair now recognizes the gentleman from California, 

Mr. Royce, for 5 minutes. 

Mr. ROYCE. Thank you, Mr. Chairman. 

And I will start again with Stefanie Ostfeld. Thank you very 

much. Let me ask you a question on human trafficking and the fact 

that traffickers are increasingly using the financial system in order 

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to fund their illicit activities. And, clearly, many countries are lagging behind our system here. 

But do you think you would be supportive of a new standard 

here in the State Department’s Trafficking in Persons Report to include whether foreign governments have a framework in place to 

prevent financial transactions involving the proceeds? And we are 

talking about severe cases here, trafficking underage girls, things 

like that. But what would be your position on that? 

Ms. OSTFELD. Well, thank you, Mr. Royce. I would obviously have 

to look at it to put forward a clear position, but, yes, that makes 

sense to me, that the State Department would report on that. 

Mr. ROYCE. If you could take a look at my legislation on this, I 

would appreciate it very much. 

And the next question I was going to ask, maybe of Mr. Bill Fox 

or anybody else that wanted to comment, but the Counterterrorism 

and Illicit Finance Act requires Treasury to issue rules permitting 

a financial institution to share suspicious activity reports with 

their foreign branches. 

And so here is the conundrum. I support this concept, which 

would improve enterprise-wide management, but my own introduced bill would expand similar SAR sharing under two conditions. 

The first condition would be the foreign branch or affiliate must be 

located in a country that is a member of the Financial Action Task 

Force or is part of a FATF-style regional body. And, second, such 

country must have adequate privacy and data security protections 

in place. 

So, Mr. Fox, if you would like to begin to opine on that, and then 

I would like to hear other members of the panel. 

Mr. FOX. Thank you, Mr. Royce. I agree. The Clearing House 

supports the language that is in the draft bill to be able to share. 

I think one of the challenges, if you just take a look at the 

J.P.Morgan enforcement action involving the Bernie Madoff matter, 

it is a classic example of what happens when information can’t be 

shared across border for a financial institution. And so— 

Mr. ROYCE. I understand that part of the problem. But look at 

it from the standpoint of the risks to allowing SAR sharing, on the 

other hand, with foreign branches or affiliates in certain countries. 

And you have to get an appropriate way here to ensure that widespread information sharing between institutions within the same 

family still protects sensitive information, given some of these governments, because you can have foreign access. 

So that is the balance I am looking for here, and that is why 

these provisions are out there in the legislation we are pushing. 

Mr. FOX. I think it is a sound issue to raise. I really do. I think 

we would, of course, manage the sharing of any information 

throughout our program in the way that we would do things. And 

there may be information—if we had the authority to share our actual SARs or SAR information across border, we would take a look 

at that and determine whether or not we were comfortable in a 

particular jurisdiction that that information was safe and secure. 

Because, again, these are reports about our customers, right? We 

don’t want that out. We don’t want it leveraged in the wrong way. 

So I think we would do that anyway, but I think you have raised 

a very good issue that should be thought about pretty heavily. 

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Mr. ROYCE. Any other perspectives on my legislation on this? 

Yes? 

Mr. BYRNE. Congressman Royce, I think those standards that 

you have articulated make a lot of sense. I think, historically, the 

reason why they could not share in the past has been because regulators and enforcement lawyers have said what you just alluded to: 

You can go to some countries where the controls are not that 

strong. 

So having it at a FATF or a FATF regional organizational jurisdiction I think would give both comfort and structure to this and 

could get us to a place of enterprise risk management, which we 

desperately need. 

Mr. ROYCE. And leverage them into similar arrangements. 

Mr. BYRNE. Absolutely. 

Mr. ROYCE. Thanks, John. 

Any other input there? 

Mr. PONCY. Just very quickly, Congressman. Those are great interests. 

I would just again point to the need for ownership at a tactical 

level of these issues. We have members in FATF—I was the head 

of the U.S. delegation to FATF for a number of years. There are 

members of that whole body that we are not very friendly with and 

that we have real concerns with. It is a good marker. Another good 

marker is reciprocity. You have to give to get. We need information 

from others as well. 

There are a set of factors that I would be happy to work through 

with your staff to look at, these are factors of consideration that 

Treasury should be considering when certifying this kind of information sharing. I think that is smart. And it is going to be impossible to legislate that on a country-by-country basis. I think you 

need to delegate that to Treasury underneath criteria that I would 

be happy to work with your staff on. 

Mr. ROYCE. Thanks, Chip. 

Thanks, Chairman. 

Chairman PEARCE. The gentleman’s time has expired. 

The Chair now recognizes Ms. Velazquez for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Ms. Ostfeld, I share Mr. Royce’s concern about developing methods for financial institutions to share information on SARs with 

their foreign affiliates and branches. However, I am worried about 

the civil liberty and privacy concerns that arise with the expansion 

of information sharing, particularly in the overseas conflicts. 

What safeguards would you recommend to ensure that civil liberties and privacy safeguards are not eroded? 

Ms. OSTFELD. Thank you, Congresswoman. 

So, right now, as has been said by others, there is information 

that banks can’t share with other parts of the bank, much less its 

foreign counterparts, without risking a lawsuit. This doesn’t make 

sense. And so that is what I think this part of the bill is trying to 

get at. 

For that reason, we support the effort to expand that. However, 

it is definitely worth taking into account civil liberties concerns and 

scrutinizing them further. It definitely should be something that is 

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looked at, to make sure that safeguards are put into the bill, that 

it doesn’t have any other kind of effects that weren’t intended. 

Ms. VELAZQUEZ. Yes. 

Mr. Fox, would you like to comment? 

Mr. FOX. Sure. I think that there is always going to be a balance 

between privacy and information sharing. And I think that the way 

we view it at Bank of America—and I think member institutions 

at The Clearing House feel the same way—is that we are stewards 

of that, right? We have a responsibility to our clients and our customers to keep their financial data safe and secure. 

Ms. VELAZQUEZ. Thank you. 

And, Ms. Ostfeld, in your testimony, you indicate that we should 

be encouraging banks to incorporate new technologies into their 

compliance activities but warn that it must be done responsively. 

What technological innovations should we be encouraging, and 

what safeguards would you recommend? 

Ms. OSTFELD. Well, I think it is important to either task Treasury or Treasury and the regulators to incentivize these innovations. 

Because I think the concern is, how will banks move forward with 

this? And the point is for them to look into this, to work with the 

banks on this, so banks at an early stage can be checking with the 

regulators to see what they think works for any particular process. 

Ms. VELAZQUEZ. Thank you. 

Mr. Fox or Mr. Bley, in our letter to Secretary Mnuchin, Representative Royce and I also raised the need for law enforcement 

to provide feedback to financial institutions on the effectiveness of 

their SARs. 

How would you implement a process to provide financial institutions with feedback to improve law enforcement outcomes? 

Mr. FOX. Thank you, Congresswoman. That is a really important 

issue. I really enjoyed that letter, by the way. 

Let me tell you, I think that this is why this is important. We 

get feedback from law enforcement and from FinCEN anecdotally, 

and that is always good to hear, right? It is always good to hear 

that you are actually helping. But to be honest with you, we don’t 

get bulk feedback on our filings. 

The reason it is important is that we tune our systems based on 

our own decisions of whether to file, mainly for other factors, too, 

but mainly for those decisions. So if we have those decisions wrong, 

we could be creating an echo chamber that just causes worse filing, 

right? You know what I mean? So if they could just give us a 

thumbs up or a thumbs down. 

It is a little bit like, if you have ever been through Heathrow and 

you hit the smiley face at the end of the security. It is either a 

smile or a frown. If we could just get that kind of feedback about 

our filings, we could do wonders with tuning our filings to make 

them better, more focused. And then you would separate the wheat 

from the chaff, if you will, and leave innocent customers out of that 

reporting. It would actually make us better that way. 

So we think that is a really important point that you raised 

and— 

Ms. VELAZQUEZ. Thank you. 

Mr. Bley, what is your take? 

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Mr. BLEY. I concur wholeheartedly with Mr. Fox. It is exactly the 

scenario we have. If we can get information back, we can tune better and we can deliver more meaningful information. That is the 

end of the story. 

Ms. VELAZQUEZ. Very good. Thank you. 

I yield back, Mr. Chairman. 

Chairman PEARCE. The gentlelady yields back. 

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

Mr. WILLIAMS. Thank you, Mr. Chairman and also Ranking 

Member, for your work on this issue. 

I believe that the legislative proposals before us today largely 

represent steps in the right direction toward combating the abuse 

of our financial system by bad actors. Our framework is in need of 

an update, and I look forward to the testimony provided by all of 

you today. And thank all of you for being here. Appreciate it. 

My first question, Mr. Bley—and thank you for being here today 

as a representative of the Mid-Size Bank Coalition of America. I 

appreciate your testimony and look forward to your knowledgeable 

answers to my questions. 

Now, when considering a reform of this nature or any legislation, 

for that matter, the impacts a proposal will have on consumers and 

small businesses are a foremost concern of mine since I am a 

small-business owner of 44 years and understand the need to help 

Main Street. And I am Main Street, still own my business. 

As you rightly point out in your testimony, community financial 

institutions are already struggling under the Dodd-Frank Act, and 

the need for them to provide BSA and AML compliance can sometimes mean the difference between profitability and operating at a 

loss and even job loss. 

Further in your testimony, you mention that all of the ideas in 

the bill have merit. However, one specific idea I would like to discuss with you is the proposed CTR threshold change. This committee should strive to provide regulatory relief for institutions 

while at the same time increasing the usefulness of information 

that you refer to. 

So what current resources do MBCA institutions devote to CRT 

filings, and what relief will the proposed ruling’s threshold change 

to $30,000 provide? And then what—and we have talked about 

this—and then what relief will this provide to community financial 

institutions? 

Mr. BLEY. Thank you for that question. And I will give you information on the impact, directly to your question, but I also want to 

emphasize that just changing the thresholds isn’t the solution to 

this problem. It is part of a holistic package of making the information more meaningful and more significant. And we really applaud 

the broader solution that is on the table. 

But it is important to recognize that just changing a threshold 

itself reduces the size of that haystack of information that is out 

there. And for midsize banks, we estimate CTR filings would drop 

by 50 to 80 percent, and that was with the original $25,000 limit 

that was in the bill earlier. And SAR filings would probably drop 

by 8 to 10 percent, structuring filings would drop. 

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There are just so many—and that, together, represents about 10 

percent, 8 to 10 percent, of the staff within the BSA organizations 

that are just looking at the hundreds of thousands of CTR and 

small-dollar report filings every year. 

Mr. WILLIAMS. OK. 

Another question for you. One of the problems you identify in 

your testimony is the high rate of false positives that are generated 

by transaction monitoring systems. One way the proposal before us 

seeks to lower that rate is by allowing for increased adoption and 

innovation in artificial intelligence software used by financial institutions in reporting. 

So how have midsize banks benefited from the innovative machine learning pilot programs? And how can artificial intelligence 

in reporting benefit financial institutions across the spectrum, from 

large to small? 

Mr. BLEY. This is particularly impactful for midsize banks, because we just don’t have the scale and scope to be able to spread 

the cost of analyzing the information that is just ultimately proved 

to be unuseful. Generously, a 90-percent false-positive rate is really 

an unacceptable outcome for a successful program. 

We have been investing in the same kinds of tools that the large 

banks have been using, very high-cost, sophisticated tools. And 

they are generating more meaningful alerts to us, but, at the same 

time, the tuning process and the regulatory environment that will 

analyze your tuning process to ensure that you are calibrating appropriately is just not working. It doesn’t get you to a lower falsepositive rate. 

And there are a number of ideas that have been put out with the 

midsize banks. In fact, we have worked very closely with the OCC 

to try and identify techniques that we could use. So it is both the 

tools and also intelligent ways of applying the tools. And the regulators have worked productively with us on ideas, but, ultimately, 

we don’t know and they don’t know what is acceptable without 

good collaboration with Treasury, with FinCEN, to make sure that 

this is an acceptable application of the rule. 

So I think the moral of my story is that they were investing in 

the tools but we need more collaboration in order to put that into 

practice and make the information that much more meaningful. 

Mr. WILLIAMS. Thank you for your testimony. 

And I yield my time back. 

Chairman PEARCE. The gentleman yields back. 

And the Chair now recognizes the gentleman from Georgia, Mr. 

Scott, for 5 minutes. 

Mr. SCOTT. Thank you, Mr. Chairman. 

This has been a very informative panel. And I would like to let 

you know that I am Co-chairman of the Congressional FinTech 

Caucus. And I truly believe that both our anti-money-laundering 

and the Bank Secrecy Act, they offer great opportunities for our 

FinTech companies to come together, partner with our banks, and 

come up with some innovative solutions to this. And I think that 

if it is done right, it can both ease the burden on banks struggling 

to meet their requirements while also improving the job banks are 

doing at threat detection and risk management. It is a win-win situation. 

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So, Ms. Ostfeld, let me start with you. And as one graduate of 

the University of Pennsylvania to another, let me welcome you to 

your testimony to the Financial Services Committee. But after 

reading your testimony, I find that you agree with me about the 

use of technology. 

Now, in a couple of pages in your testimony, you say this, on 

page 3: ‘‘Use of new technology should be encouraged, but must be 

done responsibly. A section of Treasury should be created or tasked 

with reviewing, approving, and monitoring the use of new technology by financial institutions. There should not be a safe harbor 

provision.’’ And you say that in two parts of your report. 

And then you also say that you are ‘‘supportive of banks incorporating new technology into their compliance activity. However, 

we are not supportive of the sweeping nature of safe harbor positions.’’ And, quite honestly, I couldn’t agree with you more on that. 

However, in section 7 of this legislation we are taking, in the 

Counterterrorism and Illicit Finance Act, my Republican friends 

want to provide an explicit safe harbor for financial institutions 

that use technological innovation to fulfill the bank secrecy minimum and the anti-money-laundering program requirements. 

So, when you look at your testimony there—and let me just ask 

you this, Ms. Ostfeld. Do you think that without the safe harbor 

that banks would have an incentive to invest in these new technologies and partner with fintechs? 

Ms. OSTFELD. Thank you, Congressman Scott. 

Yes. I think something that could happen is Congress could direct the regulators to create innovation programs. This is something that could happen which would include consultations with 

the banks so that everybody is actually working together to come 

up with these new ideas, and it makes it clear to banks that banks 

are working with regulators early on in this process, what they 

think will actually work to help them with their compliance obligations. I think it is something that could absolutely happen without 

a blanket safe harbor. 

Mr. SCOTT. Well, thank you very much for that. 

Mr. Chip Poncy, can you comment on what actions Congress or 

the White House could take outside of the safe harbor that would 

ensure that financial institutions are implementing the latest advances in threat detection as they fulfill their Bank Secrecy Act 

and the anti-money-laundering obligations? 

Mr. PONCY. Thank you, Congressman. 

I do think that there are steps that both Congress and the Administration should take, and I have elaborated on those in my testimony. 

But I think the easiest way to understand this is, technology is 

used in a lot of different ways in compliance. Think about this from 

the perspective of a customer experience. You walk into a bank, 

you are identified, you are verified. We use pieces of paper, we use 

independent databases to do that. There is a whole range of biometric technologies that are going to facilitate the easier 

verification that somebody is who they say they are. This is particularly important when you are dealing with communities that 

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fication documentation isn’t the greatest. There is that use of technology. 

There is the use of technology to collect, manage, and protect 

bulk data. That technology is exploding, the ability to manage that 

data in a way that drives analytics to identify patterns of interest. 

There are ways that we should be working to enhance that capability. 

And then there are technologies that can encrypt and protect 

that data, to address some of the civil liberty concerns that Congresswoman Velazquez was talking about, that would allow you to 

access and analyze that data without necessarily getting into the 

personal identifier information that people are rightfully concerned 

about. 

So there are lots of different ways that technology can assist in 

compliance and risk management. To do this well, to do it strategically and methodically, I would argue you need two principals. You 

need somebody to captain the ship. And I think what you have 

done with the proposed legislation to start to put Treasury in a position to manage this and make them accountable, with the authority to manage it and with the support of the Administration, from 

Justice to the regulators, is one approach, is one factor— 

Mr. SCOTT. Thank you, Mr. Poncy. 

Chairman PEARCE. Thank you. 

The Chair would recognize Mr. Davidson, from Ohio, now for 5 

minutes. 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

Thank you to our witnesses. I really appreciate your testimony 

and your expertise in the field. 

I want to share Mr. Perlmutter’s concerns about privacy and, 

frankly, the burden on small businesses—unintended, perhaps, 

consequences, perhaps unavoidable consequences. But it seems 

that there are a number of ideas that could make this an easier 

way to accomplish the mission of securing our country in, frankly, 

a more constitutional way. I am very concerned about the information-sharing apparatus. Frankly, the whole premise of BSA/AML is, 

in some ways, deputizing a large swath of the private sector. 

I am also concerned about cybersecurity and a number of other 

provisions here. So I know in a few short minutes you can’t cover 

all that. But, Mr. Bley, we have seen consequences of data breaches 

at Uber and Equifax and, of course, the SEC (U.S. Securities and 

Exchange Commission), but Government databases are compromised just like the SEC’s was. What additional safeguards 

would be included in this bill to ensure that personally identifiable 

information of millions of American citizens are not compromised? 

Mr. BLEY. I think this is a critically important question for banks 

in general, not just regulated to BSA. We are collecting an intense 

amount of information from all our customers, and there is no 

doubt that cybersecurity and the ability to protect that data remains of the highest priority for midsize banks and, I am sure, all 

banks across the country. 

It is our belief that we are going to continue to invest in the tools 

that we need to protect our customers’ data whether this bill 

passes or not and whether or not we modernize the BSA act. 

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But that was one of the main reasons that I believe the beneficial 

ownership rule should be done at a public-sector level, because, as 

it is currently structured, businesses are supplying information to 

multiple institutions stored in multiple environments, and it is 

really, in some ways, creating a privacy risk as opposed to reducing 

it. And so a central public-sector model should allow for the ability 

to protect that more carefully. 

Mr. DAVIDSON. What would someone’s remedy be if they feel the 

ownership structure of their company has been improperly released 

or made public from this database? 

Mr. BLEY. From the central database? 

Mr. DAVIDSON. Correct. 

Mr. BLEY. I think this is something we would have to manage 

and that would have to be managed through the central infrastructure. 

Mr. DAVIDSON. What would be the consequences? Is there anything in the bill where authorities at Treasury would contain— 

there are certainly criminal fines and penalties for businesses that 

don’t disclose things. What about people who misuse the database? 

Law enforcement, banks, whomever has access. Are there penalties 

or fines for people that misuse the data? 

Mr. BLEY. I certainly didn’t see that in the bill itself. 

Mr. DAVIDSON. Is there recordkeeping to say who has misused it, 

whether they have been provided retraining or perhaps terminated, 

perhaps prosecuted? Is there anything that would keep records of 

that for people that have abused the access to this information? 

Mr. BLEY. I am probably not the best person to respond to that 

question. 

Mr. DAVIDSON. I haven’t seen it in there. 

And then there are the concerns about the nature of beneficial 

ownership. If you were asking who is the beneficial owner, most 

people would say, who has control of the company? But that is not 

the narrow definition here. It is an incredibly broad definition 

which doesn’t even make it clear that it has to be an actual owner. 

‘‘Someone who might exert influence.’’ It could be a lender. It could 

be someone on the board. It is so undefined, it is hard to fathom 

that we would launch this as an actual law. 

How could we possibly narrow this definition and still accomplish 

our mission? To the panel. 

Mr. Poncy? 

Mr. PONCY. Thank you, Congressman. 

And I certainly want to leave room for Ms. Ostfeld, but I just 

want to say very quickly: Treasury engaged in a 6-year rulemaking 

process; had unprecedented public hearings in New York, Chicago, 

Los Angeles, Miami, Washington, D.C.—unprecedented in the 40- 

year history of the BSA—to get to understand what kind of a definition for ‘‘beneficial ownership’’ would work for customer due diligence for financial institutions. 

Is it perfect? I don’t know that anyone says it is perfect, but— 

Mr. DAVIDSON. Could they make it more broad? You said they 

spent 6 years. In 6 years, they have come up with a definition that 

would be hard to imagine finding a way to write it so that it is 

more broad than it is today. Surely we can narrowly tailor this. 

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The Fourth Amendment was very narrow. If there is probable 

cause, then you go get a warrant. 

Mr. PONCY. So the definition— 

Mr. DAVIDSON. My time has expired, and, Mr. Chairman, I yield 

back. 

Chairman PEARCE. The gentleman yields back. 

The Chair would now recognize the gentlelady from New York, 

Mrs. Maloney, for 5 minutes. 

Mrs. MALONEY. Thank you. Thank you, Mr. Chairman and Ranking Member Perlmutter. 

This hearing is very important to me because I have been working on legislation to require disclosure of beneficial ownership information for almost 10 years, and this is the first legislative hearing we have had on a beneficial ownership bill. So I deeply want 

to thank the Chairman, as well as Chairman Luetkemeyer, for 

working with me and Mr. Perlmutter all year long on this beneficial ownership issue. 

At the beginning of the year, I offered an amendment to the committee’s oversight plan that said the committee should address this 

beneficial ownership issue, and Chairman Pearce spoke in favor of 

my amendment and said he would work with me on this issue. And 

he has been true to his word and has worked very productively on 

this issue, and I want to publicly thank him. 

Of course, the legislation package that we are considering today 

is just a discussion draft, and there are still some changes that I 

would like to see made to the beneficial ownership piece of the 

package, but I am really encouraged by the progress we have 

made. 

The issue was first brought to me by a really legendary district 

attorney, District Attorney Morgenthau in Manhattan, who was 

very famous for cracking a lot of difficult cases. And he said they 

could be tracking suspected terrorism financing, drug money, gun 

money, sex trafficking money, and they would hit a wall when they 

hit the beneficial ownership and no one knew who they were. 

Likewise, we have had problems with the CFIUS process, where 

they want to protect ownership in the United States from any element that might hinder our national security, and they haven’t 

been able to find out who is buying or trying to buy sensitive information of the United States because it is in a beneficial ownership 

package. 

So I think that this is a very important tool for law enforcement. 

And it has been endorsed by many levels of law enforcement. And 

it would help us to protect our citizens and to help law enforcement 

do their job. So I hope that we will continue to build support of it. 

So the very first question that I want to ask, and I want to ask 

it of everybody on the panel, just yes or no, and just go right down 

the panel, I just want to know: Do you support this legislation, or 

the concept of it, requiring companies to disclose their beneficial 

owners to Treasury at the time that the company is formed? Just 

a yes or no answer. 

Mr. Bley? 

Mr. BLEY. Yes. 

Mrs. MALONEY. OK. 

And Mr. Byrne? 

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Mr. BYRNE. Yes. 

Mrs. MALONEY. Mr. Fox? 

Mr. FOX. Yes. 

Mrs. MALONEY. Ms. Ostfeld? 

Ms. OSTFELD. Yes, we support your bill, H.R. 3089, and we think 

that the discussion draft is a good first step but it needs some 

amendments. 

Mrs. MALONEY. Yes. I do too. 

Mr. Poncy, president and cofounder? 

Mr. PONCY. Thank you, Congresswoman. I agree entirely with 

what Ms. Ostfeld just said. 

Mrs. MALONEY. OK. Thank you. That is a positive step forward. 

I would like to ask Ms. Ostfeld: You and I have worked together 

on this issue for many years now, and your organization, Global 

Witness, did a fantastic undercover investigation that was featured 

on ‘‘60 Minutes’’ last year, where you had undercover investigators 

posing as corrupt dictators, and you had them approach 13 lawyers 

asking for help hiding money. ‘‘We don’t want anyone to know who 

we are, but we want to be able to have access, easy access, to our 

money.’’ And, amazingly, 12 of the 13 lawyers agreed to do it, using 

anonymous shell companies. 

And I encourage everyone to watch this clip. It is a very important one. And you would hear on it that they said, ‘‘Don’t go to 

banks, because they will find out who you are. Go to the LLC. No 

one will know who you are.’’ 

So my question for you is, what are the most important improvements that you think should be made to the beneficial ownership 

section? 

Ms. OSTFELD. Sure. For the bill to be fit for purpose, it needs to 

do three things. It needs to collect the right information, it needs 

to be accessible to the right stakeholders, and it needs to keep it 

up to date. Right now, it is not accessible to the right stakeholders. 

But because the definition has been asked a few times, any 

strong definition of ‘‘beneficial ownership,’’ for it to work, needs to 

have two prongs. You need to understand who actually owns it, as 

in shareholders, legal ownership; and you have to understand who 

owns the entity, as in effective control. So this is control by other 

means. This could be by a trust, power of attorney, some other kind 

of way for controlling it, because you want to understand who is 

benefiting economically from this and who essentially pulls the 

strings, which isn’t always the shareholder. 

So any definition needs to encompass both of those prongs, which 

both your bill and the discussion draft do that. The discussion draft 

was negotiated that it is not quite as strong as your bill, but it still 

does that. So we support the definition in the bill. 

However, it makes it very difficult for law enforcement to access 

this, both domestic law enforcement—it says only Federal law enforcement with a criminal subpoena. So this means State and local 

law enforcement does not have access to it, and it means parts of 

the Federal Government and Federal law enforcement that doesn’t 

have access to criminal subpoenas, that only have civil and administrative subpoenas, don’t have access to this. So that is something 

that needs to change. It needs to be available for civil, criminal, 

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and administrative subpoenas or State, local, and Federal law enforcement. 

But it also makes it really hard for foreign law enforcement— 

Chairman PEARCE. If I could get you to wrap up your answer, 

please. 

Ms. OSTFELD. It makes it very difficult for foreign law enforcement to access it. And you need to make sure that what we are 

sharing with foreign law enforcement is what we are asking foreign 

law enforcement, in return, to share with us. And it needs to be 

able to be entered in court. 

The other piece is there seems to be a loophole that makes it 

easier for foreign owners to— 

Chairman PEARCE. The gentlelady’s time has expired. 

The Chair would now recognize Mr. Budd for 5 minutes. 

Mr. BUDD. Thank you, Mr. Chairman. 

And thank you to all our witnesses for joining us here today and 

for your time. 

I want to use my time to continue to discuss the Counterterrorism and Illicit Financing Act. There is no doubt that the Bank 

Secrecy Act needs an upgrade, where efficiency, along with safety, 

is our ultimate end goal. And while there are provisions in this bill 

that need addressing, like the new beneficial ownership requirement found in section 9, I am hopeful that we can get to a good 

final product. 

So I want to talk through about section 7 of the PearceLuetkemeyer legislation that deals with technological innovation. 

And, Mr. Bley, you stated in your testimony that the BSA is 

among the most complicated and costly requirements with which a 

bank must comply. And I agree this bill gives them some freedom 

to innovate in this space. But does this provision do enough to help 

with the community banks or the smaller, midsize banks that you 

represent and the credit unions, who don’t have the same financial 

resources as the larger institutions, to keep pace with the technological advancements that frequently change? 

Mr. BLEY. Thank you for that question. 

And I do think it does actually create the framework for supporting innovation. And there are ideas out there that do provide 

support for small and midsize banks that may be different than 

what some of the larger banks need to do. 

And one such idea that I discussed in my written testimony is 

a utility that we have been developing that allows for more collaboration and consolidation of BSA work and information amongst the 

banks with an independent utility. And we have developed such a 

thing, and banks are starting to look at how they can engage with 

it. 

In order to use a collaborative, independent utility, we are going 

to need support from the regulators from Treasury to say this 

works. And what that does is it allows you to benefit from the scale 

that you don’t have as a small bank by using a central source to 

manage many of the aspects of the BSA program. 

So that is an example that I believe is in the spirit of what this 

legislation produces. 

Mr. BUDD. Good. Thank you. 

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So the development of AI, or artificial intelligence, is huge for 

AML and CFT. But—and this is to all the witnesses—are there any 

technologies or advanced programs—or maybe it is even this utility 

that you mentioned—outside of AI that could be added to financial 

institutions’ AML/CFT compliance program that would enhance the 

detection capabilities of that institution? 

Mr. FOX. Mr. Budd, thank you for that question. I think the answer is yes. In fact, I know it is yes. 

The key thing to remember about some of these advanced technologies and what we have learned after piloting a number of them 

is that you have to have experts right along with them, right? You 

can’t just—back to Mr. Scott’s point earlier about fintech. Fintech 

is great, but you have to have the AML expertise along with 

fintech in order to be able to make this stuff come alive. 

We think the biggest challenge for us presently to innovate is, 

frankly, that the amount of verification and process we have to go 

through to validate what we are doing on a step-by-step basis 

under the current regulatory guidance—which was designed, by the 

way, for large, complex economic models, not BSA/AML—has really, really hampered us. 

So I can tell you, for example, in just adjusting our current 

thresholds in the innovation that we have done today, we used to 

be able to do that in a matter of weeks. Today, that takes 9 months 

to a year because of the process of having to go through and prove 

the negative, if you will, that everything is working perfectly. 

I think there is a balance there that has to be drawn in order 

to be able to—well, let me put it this way: It is very, very hard to 

innovate in a context like that. 

Mr. BUDD. Good. Thank you, Mr. Fox. 

Anybody else on the panel? 

Mr. BYRNE. Congressman, the thing that we have talked a little 

bit about but not enough, in my opinion, is the regulators in this 

space. I think a lot of the problem in terms of burden and challenge 

has been the moving goalposts. 

So, to Bill’s point, with technology, a lot of times, you will get 

second- and third-guessed by the regulators when you want to 

make a change. They talk a good game about wanting to support 

innovation. We need to call them out on that. They need to actually 

be in these institutions and working with the institutions. And I 

can tell you, at least anecdotally, it doesn’t happen as often as it 

should. 

So I think a lot of what happens in the BSA space is banks not 

understanding what the rules are, and rules are being made up, in 

terms of different exams, you have different requirements. So I 

think in technology, specifically, this would be a good place for this 

committee and other subcommittees to push the regulators to say 

and do what they have expressed in other hearings. But this is a 

real problem. 

Mr. BUDD. Thank you. 

And I believe my time has expired, and I will yield back. 

Chairman PEARCE. The gentleman yields back. 

And the Chair now recognizes the gentleman from Georgia, Mr. 

Loudermilk, for 5 minutes. 

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Mr. LOUDERMILK. Well, thank you, Mr. Chairman. Thank you for 

this hearing. And I appreciate the panelists being here. 

Mr. Bley, I wanted to dig a little deeper into a subject that many 

have talked about here, the Bank Secrecy Act, especially the currency transaction reporting. 

Back when I had a real life before I came here, I owned a small 

IT business. And because of the unbelievable complexity of our tax 

laws, I was unwilling to handle my own payroll, because I figured 

it would be better to pay somebody else to be responsible than go 

to jail myself, right? So, fortunately, now we are, hopefully, addressing the complexity through our tax reform. 

But during that time period, the way we processed our payroll, 

which was twice a month, is I would actually do a wire transfer 

to the payroll processing company, which always exceeded $10,000. 

Quite often, I was also purchasing equipment that I didn’t have an 

account with or credit with an equipment manufacturer, and so 

sometimes we were wire-transferring $20,000 or $30,000 to buy a 

piece of network equipment. 

The point being is I generated a lot of transfers of cash in the 

normal operation of business. And since 1970—and it was set at 

$10,000—we haven’t adjusted that. And we began looking at this 

early on in the year. And, of course, if you look at the rate of inflation, we should be at about $60,000 today, which I have been 

strongly advocating for. However, I understand we need to strike 

a balance between what is a reasonable amount to not overburden 

our financial institutions and what doesn’t handcuff law enforcement. And I understand that the Chairman’s bill has that set at 

$30,000. 

Now, I spoke with some of the community banks in my district, 

and they really support this approach, especially the $30,000 level. 

So I think I am going to be able to be OK with that. One of them 

said that 78 percent of their cash transactions are below $30,000. 

Another said 92 percent of their cash transactions are below 

$30,000. A third, a community banker in Georgia, said they had 21 

employees devoted solely to BSA compliance—21. That is a lot for 

a small community bank. They file 67 CTRs a day, but they almost 

never receive requests for information from law enforcement based 

on a CTR. 

So my question for you is, do you think that this $30,000 does 

strike that balance, to give regulatory relief and provide the law 

enforcement the tools they need? 

Mr. BLEY. We believe it does. We don’t get the information back 

to know how useful it is, so it is very difficult for us to put a hard 

statement on that. But what we think is important is, whatever 

number we choose here, it has to be accompanied with logical adjustments to the way in which this process works. 

One of the facts that we learned from midsize banks is it takes 

over 4 hours to file a SAR, to create the work, on each individual 

one, with 150 a month in one small bank. The amount of time to 

deliver the information is so difficult, is so time-consuming. And 

moving to a structured and maybe even fully automated approach 

for delivering data, rather than free text format and a story about 

the local company that is moving money totally legitimately, would 

really be a benefit. 

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So I think most important is—$30,000, $25,000, they all seem 

like very reasonable numbers in today’s dollars, but most important is that the program efficiency and effectiveness accompanies 

that. And there is a difference between the larger dollar and the 

smaller dollar. 

Mr. LOUDERMILK. What are the typical transactions we see that 

are below $30,000? 

Mr. BLEY. They are essentially the same types of transactions, 

but they could be ice cream parlors that are open in the summertime moving money back and forth between branches— 

Mr. LOUDERMILK. Similar things I experienced in my business. 

Mr. BLEY. It is all the same kind of local businesses that are 

wondering why this is a question for them. 

Mr. LOUDERMILK. Another area that I have really been focused 

on here is when it comes to a cybersecurity concern, which is of 

grave concern right now. And when I was in the military, I worked 

in intelligence, and we lived by an adage, which is: You don’t have 

to secure what you don’t have. 

Would this actually lessen the amount of data that banks are 

keeping on customers, reducing their risk in the cyber—and even 

passing on to the Federal Government, which is, of course, a grave 

cybersecurity risk, in my opinion. 

Mr. BLEY. It may reduce the number of detailed investigations, 

but all the data is still there. The systems are still there, and it 

is delivering alerts. It is just a difference of how much time is spent 

on the lower value added information. And the goal of all of us is 

to focus the maximum attention on the things that matter most. 

But under the current program, we spend the same amount of time 

on everything. 

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

Chairman PEARCE. The Chair now recognizes the gentleman 

from Arkansas, Mr. Hill, for 5 minutes. 

Mr. HILL. I thank the Chairman. I thank the Ranking Member 

for this good hearing. And it is good to see that the committee is 

considering a complete rewrite of our bank secrecy and money 

laundering. We don’t want to rush into it since 1970. So it is good 

that we are taking it up now. And Mrs. Maloney had her decade 

of work on the topic, which I appreciate. And going on 3 years, I 

feel her pain three times over, I guess. 

I want to go back to my favorite subject with Mr. Poncy and Mr. 

Fox, already know what it is, which is my feelings on the beneficial 

ownership provisions in this bill. I am not a fan of yet this different 

approach. And I understand and I appreciate the efforts to move 

away from the financial institution burden and try to, again, 

streamline it and take a different approach, but I still find it concerning. I just want to have some dialog on that. And since I am 

toward the end of the questioning, you are well rehearsed on it. 

I still say the same comment I made about the Treasury’s rulemaking that is proposed, which is 25 percent standard, as a former 

banker for 30 years, is too high. It is ridiculous. If I am going to 

now structure a transaction to avoid you, it will be under 25 percent. Thanks for telling me what the road map is. 

I think this definition is better in the sense that it has this 

broader definitional context on control, and yet that then becomes 

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hard to measure and hard to define and makes the definition more 

murky, which I share the concerns, I think Mr. Perlmutter mentioned at the top of the hearing, that it is overly broad, hard to get 

our arms around. And it also has these new exceptions, nominee, 

custodian, agent exception. And yet, of course, that is the prime 

way that people use to structure an LLC to avoid detection, is 

through an agent process. And yet you do catch them, maybe with 

substantial control, but that, again, adds a lot of burden to the 

process. 

And then you have this exception on if they have an operating 

premise, a physical office in the United States, they are excepted. 

So now we will just quickly form—buy a pizza company and run 

everything through the LLC with this, quote, ‘‘physical presence’’ 

exception. 

So I just want to challenge our creative process on this. I do like 

the idea of the filing concept and the sharing of the data, and I 

want to go back to my idea again. We are smarter. We have to be 

able to figure this out. We have all this data on the 1065 that every 

entity in this country files, and we ought to figure out a way to use 

the existing tax filing as a way to meet this test. 

So I would ask everybody, would you—if my filing, my 1065 with 

FinCEN, would that comply with this information? Forget the definition for the moment. Would you find that an adequate disclosure? 

Mr. Poncy, you are the great author on this, so I yield. 

Mr. PONCY. Congressman Hill, you are being too kind. Look, you 

have been one of the most provocative thinkers on this. And you 

made, when I was at Treasury, you made us better, and I really 

appreciated it. 

I can tell you what I was trying to say to Congressman Davidson 

about the rulemaking process, for exactly the points that you have 

raised, a lot of this requires the type of dialog and the type of expertise that a rulemaking is designed to do, right? And so—and the 

flexibility that that affords and the ability to make adjustments 

that do not require congressional legislation is critical. So delegation of some authority to Treasury is going to be key, whether on 

CDD, which we have done, or whether it is on company information, as the legislation proposes. That delegation is a starting point. 

Second, when you look at definitions of beneficial ownership, for 

exactly the reasons that you have explained, we have this challenge of clarity versus structuring around that clarity. And one of 

the key issues in that 6-year rulemaking process that may attend 

how this definition ultimately is formed with the notion of 25 percent is a floor, not a ceiling. There are higher risk scenarios where 

financial institutions will be expected to go below it, and they do. 

FATCA is a good example. So 10 percent floor on FATCA. That is 

a whole separate conversation, but it is a floor. It is not a ceiling. 

Second, no matter what the ownership is, you always get a controlling officer for precisely the reason of you can structure under 

any threshold. So law enforcement was very clear in saying, not 

just in the United States but globally, we want to make sure that 

there’s a natural person at the end of the investigation that we can 

squeeze and say, ‘‘You need to start answering questions.’’ The 

rulemaking from Treasury is designed to do exactly that. It is not 

necessarily— 

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Mr. HILL. Let me reclaim my time because I want to cover—and 

Mr. Chairman, Mrs. Maloney had 1 minute 25 over. May I continue? 

Mr. PERLMUTTER. Ask Mr. Tipton. You are delaying him. 

Chairman PEARCE. Yes, go ahead. 

Mr. HILL. Thank you for that. So I hear you on that. But I also 

want to get one other topic in here, which is the issue of the impact 

on our secretaries of States on all these exceptions. I know there 

is a 2-year period for implementation here which isn’t satisfactory 

to Ms. Ostfeld for very good reasons, I think. But, this is shifting 

burden also to our secretaries of State, our forms in Arkansas, we 

don’t take into account all these exceptions; there is no place for 

that. And I would really urge you, as you work with our staff, to 

think through, how can we take the existing data that we have in 

a secure format that is already machine-readable, to use the IT 

term, in the 1065 form, where we have K–1’s, we know the ownership, we know the name, we have a responsible person, we have 

a tax filer, we don’t have an agent, we have principals, and find 

a way to let FinCEN access that data. 

And thank you, Mr. Chairman. I yield back. 

Chairman PEARCE. The gentleman yields back. 

The Chair now recognizes Mr. Tipton, from Colorado, for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

And I thank the panel. I guess maybe everything has been asked 

but not by the same person each time. So I do appreciate the comments that you have made. 

This has been, I think, a very interesting conversation. I come 

from a rural district, and a lot of the issues that we face are faced 

by our community banks. And we have had testimony from Chair 

Yellen on down in terms of some of the impact, in terms of actual 

compliance. 

I think we also face, in rural areas like mine, the real issue that 

we are having actually with illicit finance going on, with drug trafficking, cartel activity that is going on. Certainly want to be able 

to address it but also to be respectful of the burden that is put on 

our financial institutions. 

Mr. Bley, in your testimony, you have spoken to the CDD Rule, 

which is going to be coming effective, I think, in May of this coming 

year. Would you speak to how that is going to have some real impact on some of our smaller community banks? I am very cognizant—a small rural bank in my town, just visited with the president of it, and he said: ‘‘Hey, good news, we have made three hires. 

Bad news, they are all compliance.’’ And it is not to certainly diminish the importance of this issue. My home county is one that 

they are now looking to be able to designate. And we are trying to 

encourage this just from a law enforcement standpoint, high drug 

trafficking area; it is a corridor, moving through. But can you 

speak to the proposed rule and then maybe section 9 of the draft 

bill to be able to get your thoughts on it? 

Mr. BLEY. I think that, when you think of it from a community 

bank’s perspective, it really points to the challenges of the current 

model because it really applies the cost and the burden on everybody exactly the same way, on every institution the same way. All 

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42 

want to collect whatever information is necessary, and they will do 

it. But the reality is they are going to be asking questions of their 

customers, not only on day 1 in opening an account—their customers will be new process; those customers will be asked at any 

institution that they are going to, and then they will be need to be 

asked and refreshed and constantly updated throughout the course 

of time. And then that will support the investigation analysis down 

the road, where needed. 

And the idea of a centralized structure basically eliminates the 

burden on the individual smaller institutions and levels the playing 

field, allows everybody to have the right information available at 

all times. And so it is just a better model. It affects the smaller institutions more than the bigger ones. 

Mr. TIPTON. Mr. Fox, do you have any comments on that? 

Mr. FOX. Yes, sir, Congressman. Thank you. I have a lot to say, 

I guess. I think you are right. One of the things The Clearing 

House supports is the notion that a Treasury study on the BSA 

writ large and how it is actually being implemented, part of that 

is, Does it really make sense to treat community banks in the same 

way that you would treat a gatekeeping bank like Bank of America? And, today, while the regulatory efforts are different—certainly I can probably attest to that—it is not—in a lot of the ways, 

the same rules apply, right? And so we ought to think about that. 

We ought to really think freshly about this: Do these things have 

to be filed on forms, whether they are electronic forms or not? Can 

we just get data? It is a lot easier for banks to do that sort of thing. 

I think on the beneficial ownership, I really agree with Mr. Hill. 

Look, we all agree—or at least, I think most agree—that this information is really important for law enforcement purposes. We think 

that this is how organized crime and transnational crime organizations game the system and even State actors, I think, probably 

game the system through these entities. 

So it seems to me that the best way to do that is we already have 

a structure that is working in the Code. The problem is we can’t 

share it with anybody because of the Code provisions that prohibit 

sharing tax information. So could that go to FinCEN? Actually, the 

Treasury rule, while we supported it, when it was going—and we 

are happy to comply with it and get the information we have to 

get—the reality is that we actually are chasing the innocent a bit 

here because, to be honest with you, if I am a criminal, there is 

no way I am going to have an ownership structure that is going 

to get caught in that net. 

So we really have to kind of rethink this a little bit, I think. And 

I think one way to do it is to make that repository at the Treasury 

or FinCEN so that law enforcement can access that data. By the 

way, law enforcement can’t get at this data without a subpoena 

right now. I can’t just give this beneficial ownership data to law enforcement wholesale. That is customer information that GrammLeach-Bliley protects, and there is no Bank Secrecy Act exemption 

for that, unless it is suspicious or law enforcement has a subpoena 

to get it. 

So we think there is a lot of thinking that could go on in that 

where you could probably weave a way to take some of that burden 

off and actually make this a lot more efficient and for not only the 

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43 

banks or the financial institutions, not only the community banks, 

but for the entire panoply across the entire regime, which is in, 

2017, is what you want, right? Think about it: We are filing narrative reports on terrorism. It doesn’t make sense. 

I think you really need to think about how the regime itself is 

set up and how it is working, right? And that, I know that The 

Clearing House is, stands ready, and Bank of America stands ready 

to do anything we can to work with the staff to do that. 

Chairman PEARCE. The gentleman’s time has expired. 

I would like to thank all of our witnesses for your testimony 

today. You have been very gracious with your time and with your 

answers. We thank you for that. 

Miss Poncy, I hope that you have gotten sufficient information 

for your article today, so thank you for joining us today. 

Without objection, all members will have 5 legislative days within which to submit additional written questions for the witnesses 

to the Chair, which will be forwarded to the witnesses for their response. I will ask our witnesses to please respond as promptly as 

you are able. 

This hearing is adjourned. 

[Whereupon, at 4:40 p.m., the subcommittees were adjourned.] 

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(45) 

A P P E N D I X 

November 29, 2017 

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Testimony of 

Daniel H. Bley, 

Executive Vice President and Chief Risk Officer of 

Webster Financial Corporation and Webster Bank, National Association 

On beha{f of the 

Mid-Size Bank Coalition of America 

before the joint meeting of 

Committee on Financial Institutions and Consumer Credit 

and 

Committee on Terrorism and Illicit Finance 

of the 

United States House of Representatives 

November 29, 2017 

Chairmen Luetkemeyer and Pearce and Ranking Members Clay and Perlmutter and 

members of the Subcommittees, thank you for the opportunity to present testimony on the need 

for modernization and improvement of the Bank Secrecy Act and Anti-Money Laundering Laws 

and Regulations. I am Daniel Bley, Chief Risk Officer of Webster Financial Corporation, the 

holding company of Webster Bank National Association. Webster was founded in 1935 and is 

headquartered in Waterbury, Connecticut, serving communities throughout New York and New 

England. Webster has $26 billion in assets and our primary regulator is the OCC. 

I am here today representing the Mid-Size Bank Coalition of America, the voice of 83 

Mid-size banks in the United States with headquarters in 34 states. MBCA member banks are 

primarily between $10 billion and $50 billion in asset size, averaging less than $20 billion, and 

serving customers through more than 10,000 branches in all 50 states, the District of Columbia 

and three U.S. territories. When combined, the MBCA members maintain in excess of$1.2 

trillion in deposits. Mid-size banks most often are the largest local bank serving the basic 

banking needs of communities, many for more than a century. 

Compliance with the Bank Secrecy Act and implementing its regulations is among the most 

complicated and costly requirements with which a bank must comply and one of the highest 

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priorities for mid-size banks. MBCA bank members have a deep appreciation for the importance 

of this regulation and the role of banks in helping the government and law enforcement identify 

and shut down illicit financial activity in the US and globally. We are committed to ensuring a 

successful program that effectively reduces financial crime, catches criminals, and protects our 

customers and our banks. To this end, MBCA banks have collectively invested well over half a 

billion dollars in technology to manage this effort and are on average estimated to each spend 

upwards of $8 million per year on staff and support to ensure comprehensive and continuous 

controls. As mid-sized banks grow, they arc investing in more sophisticated technology to 

ensure continued compliance. In fact, as of today, nearly all of the larger MBCA banks are using 

or moving to increasingly sophisticated and expensive technology that can detect suspicious 

activity well beyond the tools of the past. The very high cost of these programs is particularly 

concerning for mid-size banks, as we have significantly less scale than the large banks against 

which to spread the costs. 

MBCA applauds the ideas introduced with this Bill and believe that its key elements will support 

improved effectiveness of the programs, benefiting businesses and consumers, law enforcement, 

and banks. All of the ideas in the Bill have merit. I would like to share MBCA perspectives 

about three key components of the Bill: the new reporting thresholds, the proposed review of 

changes aimed at reducing reporting burdens and maximizing information usefulness, and the 

changes to the Beneficial Ownership data collection. 

First, the proposed change in reporting thresholds would be the most immediately and positively 

impactful in terms of increasing information usefulness and reducing burden. We estimate based 

on a sample ofMBCA banks that the changes would reduce Currency Transaction Report filings 

at mid-size banks in the range of 50-80% and Suspicious Activity filings by 8-10%. This 

translates to on average 2-4 full time staff or approximately I 0% of BSA staffing, per mid-sized 

bank, that are working solely on small dollar investigations. In terms of volume submitted to law 

enforcement, we estimate mid-sized banks file in aggregate upwards of a half a million small 

dollar reports per year. The proposed threshold levels are still modest if we accounted for 

inflation since the initial thresholds were established. 

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Second, I would like to comment on sections 3 and 7 of the Bill, which emphasizes the 

importance of improving the process and technical innovation. Several good ideas are included, 

all of which we believe would achieve the objectives: consolidating reporting, providing 

additional time for filing, tying the thresholds to inflation, analyzing fields for criticality, 

increasing the use of exemptions, and the application of technological innovations. MBCA 

members would be happy to share specific ideas from the practitioner's perspective. One such 

idea is to reduce or eliminate free text format from the reports and move to a more structured 

and/or automated template. This would reduce preparation time and complexity and normalize 

reporting. It could lower preparation time by potentially half or more while still ensuring the 

information provided met the needed requirements. Another idea would be to create a shorter 

form automated filing approach for the smaller dollar reports. One concerning fact that should 

be taken into consideration with this efficiency review is that mid-sized bank's false positive 

alert rate (as generated from transaction monitoring systems) is estimated at over 90%. In other 

words, we are performing detailed reviews of an excessively high number of transactions that 

tum out to be unimportant. 

To solve for these inefficiencies, we would support the incorporation of an alternative reporting 

format via an independent, collaborative analyiics utility that would allow participating 

institutions to efliciently expand intelligence and learn from shared data sets about emerging 

threats and changes in risk profiles. The utility approach can apply advanced machine learning 

techniques to identify unusual behavior, support more effective use of bank resources, and 

provide valuable intelligence to the end-users in the law enforcement community. Such a utility 

is already being deployed on a bank specific basis. 

Third, we believe that the proposed change to the Beneficial Ownership data gathering model is 

very much the right thing to do and it solves multiple issues at several levels. The existing 

regulation, which goes into effect in May 2018, with financial institutions gathering the 

Beneficial Ownership data from business customers, is suboptimal in many ways. It allows for 

uneven application of the standards, creates data integrity risk, puts unnecessary burden on 

businesses to supply data to multiple institutions, slows the account opening process, and is more 

costly to maintain. The proposed solution included in this Bill would appropriately address all of 

those challenges. We appreciate the need for the partnership between public sector and private 

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sector for addressing illegal financial activities and recognize that there are times when the 

specific challenge is best solved at the private sector level. We believe strongly that this 

particular data gathering process will best achieve its intended objective if supported by the 

proposed centralized public sector led approach. 

MBCA banks appreciate the introduction of an expanded role of Treasury in steering the 

supervision of the Bank Secrecy Act and the support for innovation. The expanded role could 

support a more transparent and consistent approach to supervision. This is critically needed to 

ensure common application across the industry. We would hope that this could help reintroduce 

the risk based approach to supervision that has been missing in recent years, even though it is in 

the existing Act. With regards to innovation, we believe that banks can build better solutions if 

there was more coordination between, Treasury, law enforcement agencies, regulators, and 

financial institutions. Such a forum does not exist today, leaving bankers unaware or uncertain 

as to what solutions would be acceptable and leaving each regulator to form different 

approaches. Many MBCA banks have been working constructively with the OCC in recent 

years to generate thoughtful risk-based, ideas and solutions. Those efforts would be greatly 

enhanced with a forum that included all key stakeholders. The MBCA supports the use of a 

collaborative utility that leverages advancements in technology that facilitates productive 

interaction between banks and regulators to support a unique public-private sector partnership. 

In summary, the members of the MBCA appreciate and support the thoughtful Bill and believe 

that it successfully addresses many of the most important challenges in the current Act. We 

believe it will benefit individuals and businesses throughout the country, will strengthen law 

enforcements efforts with higher quality information, and will reduce burden for banks so we can 

better serve our customers. 

Thank you again tor this opportunity to testify on behalf of the mid-size banks. I would be 

happy to address any questions or concerns of the Committees' interest. 

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Statement of 

John J. Byrne, Esq., CAMS 

President 

Condor Consulting, LLC 

Before 

The House Subcommittee on Terrorism and Illicit Finance 

And the 

House Subcommittee on Financial Institutions and Consumer Credit 

November 29,2017 

To the Chairmen and members of the subcommittees, I am John Byrne, President of Condor 

Consulting LLC and the previous Executive Vice President of ACAMS (Association of Certified 

Anti-Money Specialists). I am extremely fortunate to have been part of the AML (anti-money 

laundering) community for over thirty years. Whether it has been with the financial sector, or 

representing the entire community with A CAMS \it is clear to me that the private and public 

professionals who comprise compliance, risk, legal, advisory or regulatory oversight in financial 

crime prevention functions are all dedicated to stopping the flow of illicit funds. We may 

disagree with how to achieve this collective goal, but no one can challenge the commitment of 

all of those involved. It is therefore so important that as improvements are considered to what 

constitutes the AML infrastructure, all participants are actively consulted. The subcommittees 

deserve credit for reaching out on your proposal to modernize a series of requirements that are in 

need for revision and enhancement. 

As we all are aware, the statement of purpose to the Bank Secrecy Act (BSA) in 1970 and as 

amended in 2001 is: 

"to require certain reports or records where they have a high degree of usefulness in criminal, tax, or 

regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence 

activities, including analysis, to protect against international terrorism." 

The key is a "high degree of usefulness" a concept that needs this serious review. I have seen, all 

too often, that the focus under these laws appears to be mainly regulatory compliance and NOT 

getting immediate access to law enforcement information for investigations and deterrence of 

criminal abuse of our financial system. As I cover the provisions of the proposal on "Counter 

Terrorism and Illicit Finance Act" and the "End Banking for Human Traffickers Act of2017," it 

is important to note the following: 
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• Any changes in reporting or recordkeeping will impact current resources, systems and 

operations 

• Information sharing, not only among financial institutions but active sharing between the 

government and financial institutions is the most essential method of succeeding in 

attacking all aspects of money laundering and financial crime 

• With the vast array of crimes that depend on utilizing the financial sector, any 

modifications or eliminations of requirements MUST involve active and ongoing 

consultation with the private sector and their public sector counterparts 

• Regulatory uncertainly can result in confusion on priorities, risk aversion that harms 

legitimate commerce, and loss of critical data to law enforcement, and 

• The banking industry has already been a private sector leader in human trafficking 

detection and prevention, so any proposed regulatory changes need to recognize that clear 

fact 

Modernization of CTRs and SARs (Section 2) and a formal review of both reporting 

requirements (Section 3) 

There can be no question of the importance of data and other information for an effective AML 

program and environment. As we know, the financial sector is obligated, among many other 

things, to report cash transactions (CTRs) over $10,000 and file suspicious activity reports 

(SARS) on certain activities that a financial institution knows or suspects may be a violation of 

Jaw or has no lawful purpose. CTRs have been part of the AML fabric since 1972, and SARS 

from 1996 (and prior to SARS, Criminal Referrals since 1984). There is certainly value for law 

enforcement in both reporting regimes, but I feel that SARS are, without a doubt, more essential 

to successful investigations, prosecutions and overall detection of financial crime. The 

subcommittees should be commended for attempting to review and improve these requirements. 

I would respectfully recommend, however, that there are elements in both reporting regimes 

beyond the dollar thresholds that should also be considered for improvement. 

For example, the financial sector did aggressively advocate for raising the threshold for cash 

reporting due to the stagnant nature (over thirty years) of the over $10,000 reporting amount. For 

the various reasons that these subcommittee have identified, such as inflation and the many 

CTRs that clearly have no law enforcement value, the filing community sought a careful 

consideration of adjusting the thresholds. At the time, the law enforcement community reacted 

vehemently against such a move, claiming major loss of investigative data. I believed then, as I 

do now, that evidence does not support a broad position of all CTRs being valuable. During the 

previous debate, it was too difficult for the financial sector to continue the advocacy of change 

and now since there are so many system options for reporting cash activity, the question of how 

useful it will be to raise the dollar threshold is a valid consideration. 

In discussing the idea of raising the reporting threshold for CTRs with a number of my industry 

colleagues, the recurring theme for a good number of institutions is that raising the threshold will 
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have little impact on burden because automated systems have been implemented to assist with 

the identification of reportable cash transactions and the filing of CTRs. I do not have enough 

data from all impacted filers to assess the pros and cons of raising the CTR filing thresholds in 

2017, so if the subcommittees intend to pursue such a plan, I would encourage that all 

participants in the filing process, especially law enforcement stakeholders, be included in 

discussions around any potential change. 

As for what causes the most difficulty for CTR filers in 2017, I would submit it is the 

"exemption" process that section 3 contemplates reviewing. 

Returning to my thesis that regulatory uncertainty and changing expectations impact the financial 

sector more than any other portion of AML, exemptions from CTR reporting were first crafted as 

a sincere effort to eliminate reports that did not have a "high degree of usefulness" in detection 

of financial crime. Despite a concerted effort to improve the reporting infrastructure, as with 

other regulatory requirements, there are many examples of financial institutions being fined for 

administrative failings such as late registration, renewal of exemptions or lack of clarity as to 

what constitutes an exempted entity. As a result, it is considerably easier to simply file a CTR 

and avoid regulatory criticism. As numerous enforcement actions against financial institutions 

will attest to over the years, in many instances, institutions were not penalized for failure to file 

CTRs, but rather they were penalized for failure to file CTRs resulting from defective 

implementation of exemptions, leading to the failure to file CTRs. 

To both simplify and ensure law enforcement utility, there has been a new call for dramatically 

changing cash reporting: 

Eliminate All CTRS and have impacted financial institutions report cash activity directly 

to the Financial Crimes Enforcement Network (FinCEN). 

With this change, law enforcement would get direct access to cash activity at the level decided 

by Congress, or by law enforcement with authority provided by Congress, and could develop 

metrics on what activities, types and other factors are important to the detection of all aspects of 

financial crime. Such a change quite possibly might eliminate one of the leading industry 

complaints that has persisted for many years specific feedback from the government on the 

usefulness of the millions ofCTRS filed annually. It is clear that a change this massive could 

not be commenced overnight, so creating several "pilot" programs may be the best option. 

The subcommittees are also looking at suspicious activity reports (SARs) and propose an 

adjustment to the reporting thresholds there as well. Section 3 supplements the threshold increase 

with a direction to review many aspects of SAR reporting and utility. As with CTRs, I have a 

few comments on what parts of the SAR regime have caused much consternation to the filers. 

I completely support the part of section 3 that looks at the continued tiling of SARs. As with 

other issues that have occurred since the creation of SARs, ongoing activity reviews and 

reporting began with financial institutions innocently questioning the regulatory agencies and 

FinCEN as to their thoughts on filing SARS on activity that has already been reported. These 

innocent questions turned into regulation by fiat, based on current guidance and expectations 
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from regulators and FinCEN. Specifically, the financial sector sought guidance from FinCEN on 

the question of what to do if a SAR has been filed and there has been no follow-up from law 

enforcement. Here is the response from October 2000 from the SAR Activity Review: 

"Repeated SAR Filings on the Same Activity 

One of the purposes of filing SARs is to identify violations or potential violations of law to the 

appropriate law enforcement authorities for criminal investigation. This is accomplished by the filing of a 

SAR that identifies the activity of concern. Should this activity continue over a period of time, it is useful 

for such information to be made known to law enforcement (and the bank supervisors). As a general 

rule of thumb. organizations should report continuing suspicious activity with a report being filed at 

least every 90 days. This will serve the purposes of notifying law enforcement of the continuing nature 

of the activity, as well as provide a reminder to the organization that it must continue to review the 

suspicious activity to determine if other actions may be appropriate, such as terminating its relationship 

with the customer or employee that is the subject of the filing." (underline emphasis added) 

This response was never created as an obligation but rather as guidance to institutions trying to 

be proactive in reporting possible illegal activity. What happened? This "rule of thumb" became 

the so-called "90-day rule" and many filers have been formally criticized for not filing a SAR on 

continuing activity on Day 90. 

Another equally frustrating "rule" that really takes the focus away from why SARS are valuable 

is how to handle the decision NOT to file a SAR. Here is language from the interagency FFIEC 

AMLIBSA Examination Manual: 

"The decision to file a SAR is an inherently subjective judgment. Examiners should focus on 

whether the bank has an effective SAR decision-making process, not individual SAR decisions. 

Examiners may review individual SAR decisions as a means to test the effectiveness of the SAR 

monitoring, reporting, and decision-making process. In those instances where the bank has an 

established SAR decision-making process, has followed existing policies, procedures, and 

processes, and has determined not to file a SAR, the bank should not be criticized for the failure 

to file a SAR unless the failure is significant or accompanied by evidence of bad faith ... 

This coverage is a fair and a rationale view of the difficulty in determining when or if to file a 

SAR. However,later in the manual, you find this as a directive to examiners: 

"SAR Decision Making 

Determine whether the bank's policies, procedures, and processes include procedures for: 

• Documenting decisions not to file a SAR. 

• Escalating issues identified as the result of repeat SAR filings on accounts. 

• Considering closing accounts as a result of continuous suspicious activity." 
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The first bullet has now tumed into a "requirement" to have a "no-SAR SAR." Many financial 

institutions have openly complained about this created obligation and, once again, goes far 

beyond what the SAR regime is designed to cover. 

As for the increase in SAR reporting thresholds, I will leave to current members of financial 

institutions to comment but will say that many banks file SARs in the hopes that law 

enforcement will start an investigation. If the dollar amounts are raised, will there be Jess 

consideration to lower dollar frauds and financial crime? Also, as we know from our law 

enforcement partners, terrorist financing models have often occurred at extremely low dollar 

amounts so will we be losing valuable financial intelligence? 

The remaining directives in the bill to the Secretary of the Treasury is an eventual report on SAR 

related actions and do appear valuable, but I would remind the subcommittees that one topic--the 

placing ofSARs and CTRs on the same form was already tried in the early 1990's and found to 

not be helpful in data gathering or reporting and did not create any less of a burden on filers. On 

one more point, I would strongly encourage the subcommittees that it is important that the 

language of who should be the participants in the reports (Treasury, law enforcement and the 

affected private sector) have equal input to these studies, along with the regulatory community. 

Information Sharing- The Key to Effective Money Laundering Deterrence (Section 4) 

The subcommittees are also to be commended for the inclusion of section 4 that fixes a long-held 

barrier to enhancing information sharing. The provision expands 314 (b) of the USA Patriot Act 

to ensure that financial institutions can now share information on actions that could be indicative 

of the many financial crimes (specified unlawful activities) in the money laundering statutes. The 

previous reading of 314 (b) was unneccssari ly limiting and contrary to the original intent behind 

the legislation. As one who was intimately involved in numerous discussions around information 

sharing at the time the provision was being drafted into the USA Patriot Act, I was extremely 

disappointed with the final regulation that, in my opinion, severely limited institutions' abilities 

to share relevant and meaningful information. This is a welcome expansion and will result in 

more ctTective reporting and eventual detection of many forms of financial crime. 

The additional portion of this section that requires regulations on expanded information sharing 

within the same multi-national institution will finally eliminate the barriers to effective risk 

response of activities throughout an enterprise. 

Creation of a process for opinions, priorities and to encourage innovation (Sections 5-7) 

With the plethora of questions on application of the various AML laws and regulations, it would 

be extremely useful for a process to be developed for impacted entities to seek formal opinions 

on how to traverse guidance, rules and laws. The banking industry has a long history of seeking 

clarity and I can recall asking that a "BSA Staff Commentary" be developed as far back as 2003 

and most likely even earlier. A "no action" process with active consultation of the banking 

agencies could go a long way to prevent the "policy as rule" issues that I raised earlier in this 

testimony. 
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Section 6 on the creation of a priorities list would also be a welcome change to how the financial 

sector attempts to deal with all of the many financial crimes that can be reported on a SAR. I 

would again urge that law enforcement and of course, the impacted private sector, be active 

partners of any consultation on priorities. 

Section 7 highlights the subcommittees recognition of the needed focus on the importance of 

technology to AML detection and prevention. Whether a multi-national company or a 

community bank, it is important that financial institutions be permitted to utilize technology to 

become more efficient. One of the common complaints I have heard is that all too often 

regulators make it difficult for financial institutions to experiment with new tools for fear of 

regulatory criticism during transitionary periods. This coupled with regulatory criticism for 

perceived failures because the "new technology" is not operating in the same way as the current, 

or old, technology, stymies innovation by the financial sector. This section should alleviate 

those problems. 

Assessing Reporting Usefulness (Section 8) 

Since the very beginning of the AML regime in 1986, all partners have struggled with how to 

prove usefulness in order to focus the laws and regulations on the shared ultimate goal---getting 

critical information into the hands oflaw enforcement and effectively managing actual risks 

within financial institutions. This section combines the need for measurements of effectiveness 

with improving feedback to the financial sector, a mission that will enhance and focus reporting. 

Currently, FinCEN docs an admirable job of feedback with the previously mentioned SAR 

Activity Reviews and other SAR statistics. The hope is that the section 8 reports will provide 

data that will continue the collective goal of attacking financial crime in its many facets. 

Beneficial Ownership and the CDD Rule (Section 9) 

One of the major recent challenges to the financial sector in the AML area has been the 

impending CDD rule that is required to be implemented by May 2018. With the focus from the 

Financial Action Task Force (FA TF) and the media outcry from the Panama and Paradise 

Papers, we know that there is universal focus on the mechanisms used to ob~cure beneficial 

ownership of corporate vehicles. The CDD rule is in response to the issue of transparency and 

FATF's critique of US law from the mutual evaluation process, but many have argued with the 

ease of corporate formation that the rule will not be enough. In addition, because even with the 

new rule, validation that the identified individuals are actually the beneficial owners is not 

required, and cannot be performed because of the lack of critical data necessary to perfonn such 

a validation, questions have been asked as to the usefulness of these new requirements. Section 

9 responds both to the incomplete nature of the Rule and the need for increased transparency by 

requiring FinCEN to collect this information rather than financial institutions. According to the 

proposal, the CDD rule would be delayed until Financial Institutions could utilize the 

information for the purposes of complying with their CDD requirements. For background of 

concerns regarding the current rule, see the report from a June 2017 meeting of financial 

institutions hosted by A CAMS. filc:///C:/Uscrs/Owner/Desktop!The-Wav-Forward-White-

.P.i!pg%~J.Hl.:XL:ll.Jl.t:!.f A direct obligation to file with FinCEN is a welcomed proposal. 
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AML Impact on Financial Access 

I would be remiss if! did not also reference the collateral damage that can and does occur with 

confusion regarding risk in today's AML regime. When the financial sector receives limited 

advice and counsel regarding how best to manage risk, the logical response by some financial 

institutions is to exit or not onboard certain classes of customers. The concept, euphemistically 

known as "de-risking", impacts access to the traditional banking sector and has harmed victims 

in conflict zones from receiving funding for water, utilities and other resources. Make no mistake 

that banks and other financial institutions should be free to decide if they can ultimately manage 

risk, but they shouldn't be forced to exit account relationships because of confusing and 

conflicting oversight and, unfortunately, the opinions of some examiners examining specific 

financial institutions that the institution should not bank a type of customer or a specific 

customer. These subcommittees can provide a valuable service to the AML and the broader 

global community by adding to the studies and reports an update to the challenges regarding 

financial access. I spoke on this topic in June in London, referencing the joint work between 

A CAMS members and the World Bank and have included my comments for consideration here. 

flle:///C:/Users/Owner/Documents/Kevnote%20Address .lohnJByrne.pdf 

H.R. 2219 (End Banking for Human Trafficking Act of2017) 

Another critical part of the financial sector's proactive work in combatting financial crime is 

their work addressing the scourge of human trafficking. Perhaps it is partially the lack of public 

coverage ofthc financial sector, but the clear fact is that the men and women of the banking 

industry (and related financial institutions) have a long history of success of responding to 

human trafflcking here in the United States and abroad. At A CAMS alone, the association has 

awarded recognition to financial institutions such as JPMorgan Chase and financial institutions 

in Canada such as BMO for working closely with law enforcement on various projects to create 

and enhance "red flags" and other indicators to assist in looking for and reporting possible 

human trafficking. ii Therefore, I would humbly suggest that the premise regarding financial 

institutions in this bill is flawed, and that the government could actually learn from their private 

sector partners how to improve due diligence regarding detecting this crime. If the 

subcommittees continue to move on HR 2219, I would respectfully ask that they be directed to 

work with the private sector on language and strategies regarding any new training or reporting. 

Conclusion 

While not specifically addressed in any of the proposed provisions, I would like to conclude by 

expanding on a point that I have made in my testimony today. Somewhere between the 

beginning days of the Bank Secrecy Act and where we sit currently, a good number of 

requirements from regulators have been imposed through the use of"guidance" and "regulatory 

expectations." The FFIEC (Federal Financial Institution Examination Council) BSNAML 

Examination Manual is the most prominent example of this trend. 
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The Examination Manual, which was originally designed to provide direction to examiners while 

conducting BSNAML examinations AND provide some indication to regulated financial 

institutions as to what should be expected during the course of such examinations has developed 

into requirements for regulated entities. In examination after examination, bank examiners cite 

the Examination Manual as the basis for requirements that banks act in a certain way. 

Examination reporting, including MRAs, MRIAs and MRBAs (Matters Requiring Attention, 

Matters Requiring Immediate Attention and Matters Requiring Board Attention) routinely cite 

provisions of the Examination Manual as the basis for required actions being imposed by the 

regulators. I would urge the subcommittees to consider whether regulatory agencies should be 

allowed to continue imposing "requirements" based on what was designed to provide guidance 

to both examiners and the industry. 

I would like to thank the subcommittees for this opportunity to offer mine and my AML 

colleagues views on the thirty years of AML. The key going forward is to retain and support the 

concept of private-public partnerships. If all parts ofAML work collaboratively, there is no 

doubt we will be successfully at pursuing and prosecuting financial criminals. 

'The Association of Certified Anti-Money Laundering Specialists (ACAMS) is the largest international membership 

organization dedicated to enhancing the knowledge, skills and expertise of AML/CTF and financial crime detection 

and prevention professionals. Their members include representatives from a wide range of financiat institutions, 

regulatory bodies, law enforcement agencies and industry sectors. http:/!wwlo\'&\:.ams.org/ 

"Here is a small snippet of resources offered by ACAMS on this issue. http:f/www.acams.org/amlresou rces/hu man-trafficking/ 
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.,....., 

.) ,.--.~(" 'The Clearing House' 

At the Center of Banking Since 1853" 

Testimony ofWilliam J. Fox 

Managing Director 

Global Head of Financial Crimes Compliance 

Bank of America, on behalf of The Clearing House 

Before the U.S. House Financial Services Subcommittees on 

Financial Institutions and Consumer Credit and Terrorism and 

Illicit Finance 

At the Hearing Legislative Proposals to Counter Terrorism and Illicit 

Finance 

November 29, 2017 
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Chairmen Luetkemeyer and Pearce, Ranking Members Clay and Perlmutter, and 

distinguished members of the Subcommittees, thank you for the opportunity to testify before you 

today. My name is William J. Fox and I am the Global Financial Crimes Compliance 

executive for Bank of America where I am responsible for overseeing from a compliance 

perspective the bank's efforts to comply with the Bank Secrecy Act and laws and administrative 

programs that establish and implement our nation's economic sanctions. I have served in that 

position since 2006. I also serve as Chair of the AML Summit group of The Clearing House, on 

whose behalf! am testifying today. Prior to joining Bank of America, I served eighteen years at 

the U.S. Treasury Department. In my last five years at the Treasury, I had the privilege of 

serving in roles directly relevant to the issues we are discussing today. I served as the principal 

assistant to General Counsel David Aufhauser, who was a lead point on coordinating the Bush 

Administration's terrorist financing efforts after September 11th. I finished my career at the 

Treasury by accepting an appointment from Secretary John Snow as the Director of the Financial 

Crimes Enforcement Network (FinCEN) where I served from December 2003 to February 2006. 

The Clearing House commends the House Financial Services Committee and these two 

Subcommittees on their leadership regarding our nation's anti-money laundering and countering 

the financing of terrorism regime (AMLICFT regime). In a post-September lith world, we 

believe it is critical to the overall health of our financial system, as well as our national security, 

to have a robust and effective national anti-money laundering regime that delivers a more 

transparent financial system and that is designed to help protect that system from abuse here in 

the United States and around the world. At The Clearing House we are proud of the fact that the 

financial information provided by our member institutions to law enforcement agencies is a 

source of highly valuable intelligence in their critical efforts to keep our nation safe from 

terrorism and criminal organizations. Financial intelligence is among the most valuable sources 

of information for law enforcement because money doesn't lie, money leaves a trail, and money 

establishes connections. It is not an overstatement to say that the intelligence provided by 

financial institutions under our AMLICFT regime is critically important to our national security. 

The United States AMLICFT regime is primarily codified in a collection of laws 

commonly known as the Bank Secrecy Act (BSA). A majority of these laws were enacted in 

1970. They require financial institutions to keep certain records and make certain reports to the 

government, including reports on cash transactions greater than $10,000.00. The stated purpose 

for the establishment of the regime was to provide highly useful information to regulatory, tax 

and law enforcement authorities relating to the investigation of tinancial crime. 1 The Congress 

1 See 31 U.S.C. § 5311, which states that "[i]t is the purpose of this subchapter [the BSA] to require certain 

reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or 

proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against 

international terrorism." Note that the last clause was added by the USA PATRIOT Act in 2001. 
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gave the authority to implement the regime to the Secretary of the Treasury and not to other 

agencies, thereby designating an agency with both financial and law enforcement expertise as its 

administrator. In the 1990s, the law was amended to require financial institutions to detect and 

report their customers' "suspicious" transactions. In addition, the Bank Secrecy Act gave the 

Treasury examination authority over financial institutions to assess their compliance with the 

law, which Treasury has since delegated to the various regulatory authorities according to 

institution type.2 The Clearing House's member institutions can be subject to no fewer than five 

different regulatory authorities under the Bank Secrecy Act: the Federal Reserve Board, the 

Oflice of the Comptroller of the Currency, the Federal Deposit and Insurance Corporation, the 

Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the 

Commodities and Futures Trading Commission. 

Following the tragic events of September II th, the Congress passed and President Bush 

signed the USA PATRIOT Act of2001. Title III of that Act was devoted to the financial aspects 

of the challenges oftraeking and combating terrorism and terrorist organizations. The USA 

PATRIOT Act amended the Bank Secrecy Act by providing additional tools to meet those 

challenges, such as the authority to designate jurisdictions, persons, entities and products and 

services as being of primary money laundering concern. The Act also imposed additional 

requirements on financial institutions to, among other things, verify and record information 

relating to the identity of their customers; conduct enhanced due diligence on correspondent 

banks, private banking clients and foreign senior political figures; and to develop anti-money 

laundering programs with minimum requirements designed to guard against money laundering. 

The enactment of the USA PATRIOT Act, more than 16 years ago, was the last time the 

Congress conducted a broad review or adopted significant amendments to our national 

AML/CFT regime. The current suspicious activity reporting regime remains largely unchanged 

since it was developed in the mid-1990s. Similarly, the large cash reporting regime remains 

largely unchanged since the Bank Secrecy Act was originally enacted in 1970. Just think of 

what has happened since that time. Today, most banking business can be conducted from your 

mobile phone. Both money and inforn1ation move in nano seconds, and it is simple and common 

to move money across borders in a way never seen before. The suspicious reporting regime, 

which was originally based on a concept of providing law enforcement a narrative analytical 

lead, is today used as a data source for data mining by FinCEN and law enforcement. Even the 

concept of what constitutes money is evolving; today anonymous crypto-currencies are traded 

outside the formal financial system in a way that makes it increasingly difficult to know the 

source or purpose of the funds being moved. TI1e Clearing House believes it is time to take a 

fresh look at our AMLICFT regime. We are fully committed to helping the Congress and 

varions government agency stakeholders undertake this reassessment. We believe we are in a 

2 See3! CFR § 1010.810(b). 

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moment where we can collectively make this regime more effective, efficient and relevant to the 

challenges we face in 2017. 

While no official figures have been calculated, it can safely be estimated that The 

Clearing House's member institutions collectively spend billions of dollars annually discharging 

our responsibilities under our nation's AMLICFT regime. While financial institutions are 

committed to this work, we have come to believe that the mechanisms through which we 

discharge our responsibilities under our national AMLICFT regime are highly inefficient, and 

that a significant portion of what we do and what we report ultimately as effective as they could 

be in achieving the desired outcomes of the regime? 

To illustrate, let me give you some insight into our work at Bank of America. The goals 

of our financial crimes program can be articulated pretty clearly and succinctly: 1) First, be 

effective. That is, do all we can to protect our company by preventing the abuse of its products 

and services by criminals and terrorists and, at the same time make sure we get actionable 

information about suspected criminals and terrorists into the hands of officials who can do 

something about it. 2) Be efficient. Do this work in the most efficient way we can to fulfill our 

responsibilities to our shareholders. 3) Reduce the administrative impact these rules have on our 

customers who depend on financial institutions for their daily business. 

To achieve these goals, I have a team of over 800 employees world-wide fully dedicated 

to anti-money laundering compliance, detection and investigation work, as well as economic 

sanctions compliance, filtering, blocking and rejecting4 Today, a little over half of these people 

are dedicated to finding customers or activity that is suspicious. These employees train our 

customer-facing employees so they can escalate unusual activity; tune our detection systems to 

generate investigative cases; assess and analyze the financial crimes risks inherent in and the 

controls placed over our products and services; resolve investigative cases; and, when 

appropriate, report suspicious activity to the government. They also work on strategic initiatives 

aimed at understanding and reporting on significant financial crimes threats, such as foreign 

terrorist fighters; human trafficking, drug trafficking and other trans-national crime; and nuclear 

proliferation. The tools provided by the USA PATRIOT Act, particularly tools relating to 

3 See supra Footnote 1. See also the FFIEC Bank Secrecy Act I Anti-Money Laundering Examination 

Manual-2014, Introduction on p. 7, which states that "lt]he BSA is intended to safeguard the US financial system 

and the financial institutions that make up that system fTom the abuses of financial crime, including money 

laundering, terrorist financing, and other illicit financial transactions. . a sound BSNAML compliance program is 

critical in deterring and preventing these types of activities at or through banks and other financial institutions." 

4 This number does not include other employees dedicated to anti-money laundering or economic sanctions 

compliance in Bank of America's lines of businesses, operations or technology teams. The over 800 employees in 

Global Financial Crimes Compliance at Bank of America is greater than the combined authorized full-time 

employees in Treasury's Office of Terrorism and Financial Intelligence (TFI) and the Financial Crimes Enforcement 

Network (FinCEN). 

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information sharing under Section 314(b), have been extremely valuable in these efforts. We 

have been told anecdotally by various policy and Jaw enforcement agencies that the reporting we 

provide on these issues has been highly useful. 

The remaining employees on my team and the vast majority of employees dedicated to 

these efforts in the business and operations teams that support our program are devoted to 

perfecting policies and procedures; conducting quality assurance over data and processes; 

documenting, explaining and governing decisions taken relating to our program; and managing 

the testing, auditing, and examinations of our program and systems. Our focus on these 

processes has had positive effects; it has brought discipline and rigor to our work. We spend 

significant time collecting defined enhanced due diligence on broad categories of customers that 

have been deemed high risk in regulatory guidance manuals, while we know from our own 

activity monitoring of their actual behavior that many of our customers that fall into those 

categories do not present high risk. Today compliance requires enhanced efforts relating to these 

broad categories that increase compliance costs and distract from those customers that present 

real risk. The danger, which this testimony delves into further below, is that at some point it 

becomes easier to exit certain businesses, or decline to serve legitimate customers, because the 

benefits of serving such markets or customers are outweighed by the cost. When legitimate 

businesses or individuals cannot be served by mainstream financial institutions, it harms 

economic growth and job creation. Indeed, the Federal Financial Institutions Examination 

Council's (FFIEC) BSA/AML Examination Manual, which provides the blueprint for federal 

banking examiners to examine our programs, focuses on banks' programs, not on providing 

actionable, timely intelligence to law enforcement, as the critical means to deter and prevent 

money laundering and terrorist financing. 5 

A core problem is that today's regime is geared towards compliance expectations that 

bear little relationship to the actual goal of preventing or detecting financial crime. This means 

that one can have a technically compliant program, but that program may very well still not be 

effective at preventing or detecting- and reporting- suspected financial crime. These activities 

require different skill sets, tools, and work. All of this begs the question: what is the ultimate 

desired outcome for our nation's AMLICFT regime in a post-September lith world in 201 7? 

What does our government want from the anti-money laundering programs required by the Bank 

Secrecy Act in financial institutions? What does it mean to have an effective anti-money 

laundering program in a financial institution? 

5 See the FFIEC Bank Secrecy Act I Anti-Money Laundering Examination Manual - 2014, Introduction on 

p. 7, which states that "[bjanking organizations must develop, implement. and maintain effective AML programs 

that address the ever-changing strategies of money launderers and terrorists who attempt to gain access to the U.S. 

financial system. A sound BSAI AML compliance program is critical in deterring and preventing these types of 

activities at, or through, banks and other financial institutions." 

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The Clearing House believes there is much work to do to improve our framework and 

make it both more effective and more efficient. We believe that measurable outcomes or goals 

should be clearly and specifically defined for each component of our nation's AMLICFT regime 

(including the anti-money laundering programs in financial institutions), and then agreed upon 

ways to measure the achievement of those outcomes or goals should be set and reported. From 

these outcomes or goals, priorities should be set for the AML/CFT regime. We believe this is 

the best way to build a regime that is ultimately effective in achieving the desired outcome of a 

robust and dynamic national AMLICFT regime that can efficiently and quickly adapt to address 

new and emerging risks. For financial institutions, we believe that such an exercise would 

change the focus from technical compliance with regulations or guidance, to building anti-money 

laundering programs that achieve the desired and measurable outcomes or goals of the regime. 

And we believe that setting measurable outcomes or goals. and then tracking progress to the 

achievement of these goals, is the best way to build anti-money laundering programs and a 

national AML/CFT regime that arc both effective and efficient. 

To that end, in early 2017, The Clearing House issued a report offering recommendations 

on redesigning our Nation's AMLICFT regime to make it more effective and efficient. This 

report reflects input from a wide range of stakeholders and recommends reform through 

prioritization, rationalization and innovation6 Many of the concepts found in the report are 

reflected in the "Counter Terrorism and Illicit Finance Act," which is one piece of draft 

legislation we are discussing today. Our specific proposals are set forth below. 

Prioritization 

> The Clearing House believes our nation's AML/CFT regime needs a "captain" to lead 

the improvement and enforcement of the regime, define measurable desired outcomes 

and set national priorities. JVe support the concept in the tlraft Counter Terrorism 

and Illicit Finance Act that would require the Treasury Secretary to set national 

priorities for our AMUCFT regime and study Treasury's delegation of examination 

authority for complex, cross-border institutions that file a significant number of BSA 

reports. 

6 See The Clearing House, A New Paradigm: Redesigning the U.S. AMLICFT Framework to Protect 

National Security and Aid Law Enforcement, ("TCH AMLICFT Report"), (Febmary 20 17), available at 

h!tns:ilwww.theclearinghouse.org/·" 1

media!TCH/Documents/TCH%20WEEKLY/20 17/20 I 70216 TCI-l Rep011 A 

b'LL(ET Framework Redesign,pdf. See also TCH press release "The Clearing House Publishes New Anti-Money 

Laundering Report." (February I 6, 20 17). available at https:l/w~Vw.theclearinghouse.org/press-roonlfin-thenc\~~_2Jl02I6%2Q1_ch%)20am l(%2Qcft~'020report. 

5 
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Our national AMLICFT regime suffers trom the absence of an effective "captain" 

empowered to lead improvement and enforcement of the regime and to set national priorities and 

define desired outcomes. As referenced above, there are no fewer than eight (8) different entities 

with delegated responsibility to supervise, examine or audit financial institutions, as that term is 

defined in the Act. Each of the agencies has a different mission and focus. 7 The banking 

agencies understandably tend to supervise and regulate with a view towards the safety and 

soundness of the institutions they regulate. The market regulators, on the other hand, regulate 

with an emphasis on ensuring market integrity. While the three (3) federal banking agencies 

have worked diligently with their counterparts to develop consistent approaches and guidance, 

which has been memorialized in the FFIEC BSA/AML Examination Manual, there are still 

significant differences in approach from each of these entities. Law enforcement authority is no 

less disjointed. There are five principal law enforcement agencies with authority to investigate 

money laundering- the Federal Bureau of Investigation, Homeland Security Investigations, the 

U.S. Secret Service, the Criminal Investigation Division of the Internal Revenue Service and the 

Drug Enforcement Administration. Each of these agencies has different albeit overlapping 

missions, and different priorities relating to our national AMLICFT regime. 

There is evidence of how these competing and conflicting missions and priorities have 

negatively impacted one aspect of our global financial system: global correspondent banking, 

which is a principal way funds flow through the financial system. A recent set of articles in The 

Economist details the unfortunate consequences that the misalignment in AMLICFT expectations 

and standards has created as financial institutions have worked to balance fear of enforcement 

and supervisory expectations with the AML compliance costs of maintaining a global business. 

As the writers note, "[ d]erisking chokes off financial flows that parts of the global economy 

depend on. It undermines development goals such as boosting financial inclusion and 

strengthening fragile states. And it drives some transactions into informal channels, meaning 

that regulators become less able to spot suspicious deals ... The blame for the damage that 

derisking causes lies mainly with policymakers and regulators, who overreacted to past moneylaundering scandals."8 

The Clearing House believes that the Treasury should take a preeminent role in setting 

policy, coordinating and setting priorities, as well as in examining institutions' compliance with, 

7 Agencies with examination or audit authority are the Federal Reserve Board, the Office of the 

Comptroller of the Currency, the Federal Deposit and Insurance Corporation, the National Credit Union 

Administration, the Securities and Exchange Commission, the Financial Industry Regulatory Authority, the 

Commodities Futures Trading Commission and the Internal Revenue Service. 

8 See "The great unbanking: swingeing fines have made banks too risk-averse." The Economist, July 6. 

2017, available at b.t!Q.s:l/www.econom ist.c_g_m'news/leaders/21 724813-it-ti_me-rethink-anti-m9..tJ.£Y-IaunderinQ-rules: 

_?winge}ng-fines-have-made-banks-too-risk-averse. See also "'A crackdown on financial crime means global banks 

are derisking," The Economist. July 8, 2017, available at https://www.economist.com!ne~>siintemational/21724803-

charilies-and-poor-migrants-are-among-hardcst-hit-crackdown-financial-crime-means. 

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and enforcing, our national AMLICFT regime. Treasury is uniquely positioned to balance the 

sometimes conflicting interests relating to national security, the transparency and efficacy of the 

global financial system, the provision of highly valuable information to regulatory, tax and law 

enforcement authorities, financial privacy, financial inclusion, and international development 

Accordingly, The Clearing House supports the provision in the proposed Counter Terrorism and 

Illicit Finance Act that requires the Treasury Secretary, in consultation with law enforcement, 

national security, and others as deemed appropriate, to establish priorities for the U.S. AMLICFT 

regime, presumably in much the same way as our intelligence agencies establish priorities. 

These priorities would in tum be used to form the basis for the supervision and examination 

of financial institutions' AML programs. The priorities would also position financial institutions 

to detect and analyze the matters that are most important to the government In addition, one of 

the key recommendations in The Clearing House report is that FinCEN should reclaim sole 

supervisory authority for certain large, multinational financial institutions. Accordingly, we 

support the provision in the bill that requires a report on the Secretary of the Treasury's 

delegation of examination authority for financial institutions that pose complex cross-border 

policy issues and file a substantial number of Bank Secrecy Act reports, which is a useful first 

step in this regard. 

Rationalization 

? The current regime needs to be rationalized in order to ensure information tif a high 

degree of usefulness is reported to law enforcement and barriers to information 

sharing are removed. In addition,feedbackfrom the government regarding tlte 

usefulness of tlte BSA reports financial institutions file would enable them to better 

tune their systems and help ensure they are focused on matters that are important to 

our national AML/CFT regime. The Clearing House supports the draft legislation's 

study of current BSA reporting requirements, enhancements to enterprise-wide 

suspicious activity information sharing, and inclusion of a federal beneficial 

ownership recortlkeeping requirement. 

The Clearing House is proud that financial institutions' reporting under the Bank Secrecy 

Act has been highly useful to agencies that are focused on terrorism and financial crime. We 

also take pride in ensuring that our members' customers can conduct their financial transactions 

in a safe, secure and private manner. At Bank of America, we endeavor to report only when we 

truly believe that a customer's transactions or activity is suspicious, or when otherwise required 

by law. We have sophisticated systems and processes in place that assist us in 

identifying potentially suspicious transactions or activity. Due to our size and geographic 

footprint, we are among the largest filers of currency transaction reports and suspicious activity 

reports in the United States. Other than anecdotes about the usefulness of our reporting in 

particular cases (which are very much appreciated), we do not receive direct feedback from the 

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government on whether the bulk of our reporting is useful. At Bank of America, in order to try 

to measure the usefulness of our reporting, we have developed a metric tracking when we get 

follow-up requests from law enforcement or regulatory agencies for back-up documentation 

relating to our reports. Today we receive such requests in connection with roughly 7% of the 

suspicious activity reports we tile. From my time in the government, I know that these reports 

are used in many different ways, some of which do not require back-up documentation requests. 

Based on that knowledge, I believe our reporting is far more etiective than the metric noted 

seems to indicate. However, I do not know that for sure. This is important because we tune our 

systems based upon the decision to file a report. The danger of tuning systems without some 

validation from the ultimate users of the report is that we could be creating an echo chamber. 

The sharing of the general usefulness of the reporting we provide would significantly help us 

tune our systems more effectively. This docs not have to be a complicated metric; just a simple 

thumbs up or down on whether a particular report was useful or not would provide meaningful 

assistance to financial institutions. 

Measuring the usefulness of suspicious activity reporting would also help the government 

rationalize whether the reporting- which may be technically required under the law- is 

ultimately useful in achieving the goals of our AMLICFT regime. We are pleased to see the 

draft legislation would require a Treasury-led study to review the current reporting requirements 

under our AMLICFT regime. 

The authorized and appropriate sharing of information between the government and the 

private sector as well as the sharing of information between and among financial institutions is 

critical to efforts to address terrorism and financial crime. We commend the Treasury, FinCEN, 

and other law enforcement agencies that have supported and facilitated innovative initiatives 

taken by financial institutions, including ours, to address problems like terrorism, human 

trafficking and other transnational crime. Such infom1ation sharing not only makes our 

programs more effective and efficient, it focuses our resources on what we believe are the most 

important matters. This sharing also helps us focus on people and entities that are attempting to 

abuse the products and services of our institutions, which is where our focus should be. We 

support the efforts to remove unnecessary barriers to information sharing, including those in the 

proposed legislation that would remove barriers to the sharing of information related to 

suspicious activity across financial institutions and within financial institutions on an enterprisewide basis. 

Relatedly, there are interesting public-private sector partnerships forming in various 

countries around the world. One such program is the UK's Joint Money Laundering and 

Intelligence Task Force (JMLIT), which brings together the private sector and financial Jaw 

enforcement to address significant matters relating to financial crimes. Bank of America, and 

other major U.S. banks operating in the United Kingdom participate in the JMLIT, and we can 

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attest to its effectiveness. This program, and others like it, could be instructive as the United 

States works toward enhancing the effectiveness of its AMLICFT regime. 

Finally, we support Congressional efforts to enact legislation that establishes a beneficial 

ownership reporting requirement on closely held, non-transparent legal entities. Financial 

institutions will soon be required to collect such information from their customers, yet the 

Federal Government, and importantly law enforcement, still does not have ready access to such 

information to assist them with their investigations. Financial institutions could utilize copies of 

their customers' filing documents to assist them with their customer due diligence efforts. 

Ultimately, this gap must be filled in order to address the flaws in the current regime- something 

The Clearing House is pleased to see has been incorporated into the draft AMLICFT legislation. 

We also support the inclusion of access to reported information for financial institutions to assist 

them with their customer due diligence compliance efforts. 

Innovation 

~ One oftlte most pressing needs related to our national AMLICFT regime is to enable 

financial institutions to innovate their anti-money laundering programs. To tltat end, 

Tlte Clearing House supports language in tlte draft bill encouraging innovation wit/tin 

an AML program as well as tlte provision requiring FinCE'N to institute a no-action 

letter like process. 

One of the most pressing needs we face in enhancing our national AMLICFT regime is to 

enable financial institutions to innovate their anti-money laundering programs and coordinate 

that innovation with their peers. Let me give you an example, at Bank of America we have 

implemented robust transaction monitoring, sophisticated screening and filtering, and 

intelligence systems and processes all of which assists us in detecting suspicious activity and 

complying with our nation's economic sanctions. In 2010-11, we developed an innovative way 

to process and connect the disparate "events" that are produced by these systems, as opposed to 

reviewing each "alert" from these systems and resolving them in the order in which they were 

generated. This enabled us to create investigative cases that contained more holistic information 

about potentially suspicious activity and connect parties that were previously unconnected. This 

innovation allowed us to push more information through our systems that could be efficiently 

processed by machines. We also kept the "events" live for a much longer period of time, 

understanding that money laundering generally involves patterns of behavior, not single events. 

Since 20 I 0-11, we have taken steps to significantly improve the stability and performance of our 

systems; however, we have found further innovation challenging to achieve. One reason for this 

is that changes to the parameters of our systems are now subject to the same validation rigor 

employed against complex economic models. These changes to our systems, which used to take 

weeks, now take anywhere from nine months to a year to implement. The same employees 

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whose expertise is needed to innovate are the employees who are now required to validate the 

changes we would like to make to our parameters. Like most financial institutions, we have 

begun to pilot innovative technologies commonly referred to as artificial intelligence. But in 

order to make AI work, you need the substantive expertise to develop the innovative processes. 

We think Christopher Mims aptly described the limitations oftoday's sophisticated algorithms in 

his article titled "Without Humans, Artificial Intelligence is still Pretty Stupid" in the Wall Street 

Journal. 

The Clearing House supports language in the draft bill encouraging innovation within an 

AML program. We also support the bill's efforts to require FinCEN to institute a no-action letter 

like process, similar to the process instituted by the Securities and Exchange Commission. 

While rulemaking and the issuance of guidance are cumbersome processes that do not always 

promote innovation or dialogue with the industry, a no-action letter process could be more 

effective. It would allow individual financial institutions to ask particular questions about 

actions they plan to take, thereby spurring innovation; provide quick answers, thereby nurturing 

innovation; and increase the flow of information from industry to FinCEN. 

Financial institutions need to be able to innovate alone or in concert with their peers as 

new technologies emerge that allow for both efficiency gains and improved threat assessments. 

Advances in technology have the potential to truly change the way in which institutions approach 

illicit finance threats, which c.an only enhance our nation's AML/CFT regime. It will be 

important for the government to encourage this innovation and provide responsible yet sufficient 

leeway to test and utilize these new systems and processes. 

A focus on achieving measurable outcomes established for financial institutions' antimoney laundering programs will only encourage and enable this innovation. Another way to say 

it is that the government should define WHAT needs to be accomplished. The financial 

institutions should be given the freedom to figure out HOW to accomplish the WH.A Tin the 

most effective and efficient way that focuses on the people and entities attempting to abuse the 

system, and protecting their innocent customers. 

I thank you for the opportunity to testify before you today on these important issues. The 

Clearing House stands ready to assist your efforts to modernize and enhance the effectiveness 

and efficiency of our nation's AML/CFT regime. We look forward to working with you on this 

important endeavor. I am happy to answer any questions you may have. 

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House Financial Services Subcommittee on Terrorism and Illicit Finance 

and Subcommittee on Financial Institutions and Consumer Credit 

Hearing entitled: 

A Legislative Proposal to Counter Terrorism and Illicit Finance 

November 29,2017 

Testimony of Stefanie Ostfeld, Deputy Head of US Office, Global Witness 

Good afternoon Chairman Pearce, Chairman Luetkemeyer, Ranking Member Perlmutter and Ranking 

Member Clay. Thank you for holding this important hearing and inviting Global Witness to testify. 

My name is Stefanie Ostfeld and I am the Deputy Head of Global Witness' US office. We are an 

international non-governmental organization with offices in Washington, DC, London and Brussels. For 

almost twenty five years Global Witness has uncovered corruption in some of the poorest countries in 

the world, focusing on the role of natural resources in driving state looting and conflict. Through hardhitting reports and investigations we have exposed how timber, diamonds, minerals, oil and other 

natural resources in some countries have incentivized corruption, destabilized governments and led to 

war. 

Our experience shows corruption isn't something that just happens in developing countries. Corruption 

on the scale that we see in our investigations could not happen without the actions of global facilitators. 

What enables corruption is a financial system that makes it easy to hide and move suspect funds around 

the world. Our research shows that corruption simply cannot take place without the willingness of the 

financial system to accept corrupt funds; provide secrecy that allows corrupt individuals to hide their 

identities and their money; and finance corrupt deals. By 'financial system' we mean not only banks, but 

those who provide 'professional services': the trust and company service providers, accountants and 

lawyers whose basic business is to set up the corporate and trust structures behind which the corrupt 

hide. We also mean the regulatory structure in which they all operate: one which not just permits but 

encourages secrecy, whether onshore in major financial centers or offshore in the island havens. 

This secrecy isn't only utilized by the corrupt; it is what enables the proceeds of all types of crimes-from 
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drug smuggling to human trafficking to organized crime-to move through the financial system. It is the 

same secrecy in the financial system that allows money to be funneled to terrorist organizations. 

Global Witness welcomes the Committee's interest in requiring transparency around the beneficial owners 

of American companies and strengthening US anti-money laundering laws to counter terrorism and illicit 

finance. We believe this is a necessary step to stop the US from being a safe haven for the world's dirty 

money. 

I offer the following testimony today to provide Global Witness' views on how to strengthen the US antimoney laundering framework and offer specific recommendations on how to strengthen the Committee's 

draft legislative proposal titled "Counter Terrorism and Illicit Finance Act" dated November 14, 2017. 

Recommendations on the Discussion Draft Dated November 14, 2017 

Increase transparency of corporate formation procedures 

1. Ensure that domestic law enforcement has access, including federal, state and local, to FinCEN's 

database of beneficial ownership information. This shouldn't require a subpoena. 

2. Ensure that foreign law enforcement has access to beneficial ownership information so that it 

can be used in criminal and civil prosecutions. 

3. Require foreign nationals to file their beneficial ownership information with FinCEN, including 

submitting a scanned copy of the relevant pages of their non-expired passport to FinCEN and 

define the term "applicant." 

4. Add an enforcement mechanism to the discussion draft. This could be done by making the state 

incorporation process dependent on beneficial ownership information being provided to 

FinCEN. It could potentially be done by ensuring FinCEN has the authority to regulate in this area 

in order to have current listings from the states about all of the corporations and LLCs that are 

active. 

5. Allow identification for beneficial owners to include non-expired state issued identification to 

meet the requirement if they do not have a non-expired us driver's license or passport. 

6. Banks should begin to implement the customer due diligence (COD) regulation on time, in May 

2018. 

Reporting requirements 

7. Do not raise the CTR and SAR reporting thresholds as it would make it easier for drug traffickers 

and terrorists to move cash without alerting authorities. 

8. It is not appropriate for Treasury to assess the utility of SARs and CTRs for law enforcement and 

the requirement should be removed from the bill. 

Treasury's role in coordinating AMUCFT policy and examinations across government 

9. FinCEN should not be setting AML/CFT priorities for banks on an annual basis or otherwise. 

Improve information sharing efforts among financial institutions 

10. Permit banks to share SARs with any branch or affiliate, but only insofar as the prohibition on 

banks disclosing the existence of a SARto clients is a legal requirement applicable to any branch 

or affiliate with whom SAR information is shared. 

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Encourage the use of technical innovation 

11. Use of new technology should be encouraged, but must be done responsibly. A section of 

Treasury should be created or tasked with reviewing, approving and monitoring the use of new 

technology by financial institutions. There should not be a safe harbor provision. 

Additional opportunities to reform the current BSA regime and anti-money laundering requirements 

12. Formation agents and others who are paid to set up corporations, trusts or other legal entities 

should have anti-money laundering obligations. 

13. Congress should lift the "temporary" exemption created in 2002 excusing certain categories of 

persons from complying with the 20011aw requiring them to establish anti-money laundering 

programs, including "persons involved in real estate closings and settlements." A deadline 

should be established to bring everyone into compliance with the law, which is now 16 years 

old. As a part of this effort, the Treasury Department should also require public disclosure of the 

beneficial owners who ultimately own companies purchasing real estate throughout the US. 

14. Congress should require transactional lawyers to have customer due diligence and record 

keeping requirements. The law must specify what due diligence lawyers have to carry out before 

accepting a client, require lawyers to identify higher risk clients and require them to report 

suspicious transactions to the authorities. 

Kleptocrats, drug traffickers and other criminals regularly exploit gaps in US law to hide behind 

anonymously-owned American companies to access the US financial system and property market 

Last year's Panama Papers and this year's Paradise Papers have shown the world that anonymouslyowned companies are a large problem and provide unprecedented insight into the shadowy system of 

tax havens, lawyers, company service providers and anonymous companies. It is common for the 

corrupt and other criminals to layer anonymously-owned companies, with one owning another and so 

on, often across jurisdictions, in order to further distance the bad actor from the act and to make it 

harder for law enforcement to figure out who is ultimately behind the company. 

This isn't a new problem. Global Witness first exposed it in our 2009 report, Undue Diligence,' and in 

2011 the World Bank found that opaque company structures were used in 70% of the grand corruption 

cases they studied over the last 30 years. Furthermore, contrary to the common misperception that this 

type of secrecy is mainly provided by sunny tax havens in the Caribbean, the US is at the heart of the 

problem2 A 2014 academic study found that many US states are among the easiest places in the world 

to set up an untraceable company-even for inquiries that sounded like a front for terrorism or that 

should have raised a corruption risk3 

' https:/lwww.globalwitness.org/en/campaigns/corruption-and-money-laundering/banks/undue-diligence/ 

2 Halter, E. M., Harrison, R. A., Park, J. W., Does de Willebois, E. v., & Sharman, J. (2011). The Pupper Masters: How 

the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About ft. Washington DC: Stolen Asset 

Recovery Initiative- The World Bank and UNODC. 

https://star.worldbank.org/star/sites/star/files/puppetmastersvl.pdf 

3 Findley, M., Nielson, D., & Sharman, J. (2014). Global Shell Games: Experiments in Transnational Relations, Crime 

and Terrorism. Cambridge: Cambridge University Press. http://www.globalshellgames.com/ 

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Importantly, the ability of criminals to hide and move money does not just fuel corruption overseas-it 

hurts people here in the United States as well. Global Witness' report The Great Rip Off has looked at a 

whole host of criminals who the authorities are trying to stop, from drug gangs to terrorists to tax 

evaders to credit card scammers. They had two things in common-they were all anonymous company 

owners, and they were all hurting US citizens. For example, an Ohio school district employee used a web 

of fake companies to abuse his position and bill for millions of dollars' worth of services that school kids 

never received. And Texas lawyers used sham companies from Delaware and Nevada to trick elderly 

people into investing their life savings in worthless enterprises.• 

Anonymously-owned companies have been used to further human trafficking schemes too. A gang used 

anonymous companies from Kansas, Missouri and Ohio to trick victims from countries overseas into a $6 

million dollar human trafficking scheme throughout the US5 According to Polaris, a leader in the global 

fight to eradicate modern slavery: 

"In 2016, [we] analyzed public information to identify human trafficking occurring in businesses 

fronting as massage parlors in Tampa, Honolulu, Houston, San Francisco, Albany, Columbus, 

Oklahoma City, and Fairfax County, VA. The inability to identify beneficial ownership was a 

recurring challenge in every location ... ln order to ensure accountability for human trafficking, 

Congress must pass legislation that requires corporations and LLCs to disclose their beneficial 

owners, thereby guaranteeing that law enforcement has access to this information. Until police 

and prosecutors can identify the individuals operating illicit massage businesses, criminals 

engaged in human trafficking will continue acting with impunity across the United States."6 

Anonymously-owned American companies have also been used to threaten our national security. A USAfghan contractor funneled at least $3.3 million of US taxpayer dollars to notorious Afghan 

powerbrokers, who deliberately hid their ownership interests in companies within the contractor's 

network to avoid association with the insurgency. These individuals in turn funded the purchase of 

weapons for the Taliban and insurgents.7 The Iranian government hid behind an anonymous New York 

company to conceal its ownership of a 5th Avenue skyscraper, in direct breach of sanctions• In a recent 

report, the Government Accountability Office (GAO) revealed it was unable to identify ownership 

information for about one-third of the government's 1,406 high-security leases as of March 2016 

because ownership information was not readily available for all buildings. 9 

4 https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/great-rip-off/ 

5 https:l/www.globalwitness.org/en/campaigns/corruption-and-money-laundering/great-rip-off/ 

• Fact sheet, Polaris, 2017 https:l/thefactcoalition.org/wp-content/uploads/2017 /08/PolarisAnonymousCompanies-Fact-Sheet-10-17-2016-FINAL.pdf 

7 https://www.globalwitness.org/en/reports/hidden-menace/ 

'https://www.globalwitness.org/en/campaigns/corruption-and-money-laundering/great-rip-off/ 

9 !ill.o://www.gao.gov/products/GA0-17-195 

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In 2016, Global Witness published an undercover investigation into the role of anonymously-owned 

companies in money laundering that aired on 60 Minutes. 10 We sent an undercover investigator into 13 

New York law firms. He posed as an adviser to an unnamed African minister of mines who wanted to 

secretly bring suspect funds into the US to buy a mansion, a yacht, and a jet. The results were shocking: 

12 of the 13 lawyers provided suggestions on how to move the money using anonymous shell 

companies and trusts. Eleven of them suggested using American shell companies as part of the structure 

to hide the fictitious minister's identity. 

Many of the lawyers indicated that they would have to do further checks before agreeing to take our 

investigator on as a "client," no money was exchanged and nobody broke the law. But what is really 

remarkable about our findings is how consistent the lawyer's suggestions were during the meetings with 

our investigator. It goes to show you that -from the Panama Papers to our investigation - it is not 

about the behavior of individuals, however odious. It's about what is wrong with the law, which makes it 

far too easy for corrupt officials and other crooks to hide behind the secrecy of anonymously-owned 

companies. 

The Financial Action Task Force (FATF), which the US helped to set up and sets the global anti-money 

laundering standards, issued an evaluation of the US in 2006 that criticized the US for failing to collect 

beneficial ownership11 1n December of last year, FATF issued another evaluation of the US that 

demonstrates that little progress has been made over the last ten years to address this problem. It 

identified the "lack of timely access to adequate, accurate and current beneficial ownership 

information" as the Achilles heel in US efforts to combat money laundering and terrorist finance." 

Currently, there is not one state that collects beneficial ownership information for the companies it 

incorporates. Since incorporation happens at the state-level, it varies from state to state what is 

collected. Some states collect shareholder information, but many do not even collect this. However, the 

problem with shareholder information is shareholders can be other companies with hidden owners or 

nominees, which are people who essentially rent out their name, legally, so that the real owner's 

identity can be kept hidden. 

States didn't set out to permit the creation of anonymous companies. Rather, criminals have figured out 

how to take advantage of gaps in the law. But states have been aware of this problem for many years 

and have done nothing to address this problem on their own. 

The US has fallen behind as action is taken around the world 

Momentum has been building globally to deal with this problem. In 2013, the then-G8 endorsed broad 

principles about beneficial ownership disclosure and created national action plans for how to address 

10 https:l/www.globalwitness.org/shadyinc/ 11 http:l/www.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20US%20full.pdf 12 http://www .fatf -gafi.org/media/fatf I documents/ reports/ mer4/M E R -United-States-2016. pdf 

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the problem domestically. In 2014, the G20 agreed to high level principles on beneficial ownership 

transparency. 

There has been significant progress in Europe. In 2015, EU countries finalized a measure requiring all 

Member States to create central registries of beneficial ownership information for companies 

established in their countries. As of June 2017, all 28 Member States are now required to make the 

information available to law enforcement, tax inspectors, lawyers, banks, accountants, as well as those 

with a "legitimate interest" in the information-such as civil society and journalists. The EU is currently 

in negotiations to strengthen its Anti-Money Laundering Directive to make this information public. There 

are a number of countries that have gone further than the directive. Two EU Member States have 

already set up registers of beneficial owners for companies and made them accessible to the public (UK 

and Denmark), and six other EU countries are in the process of creating public registries of beneficial 

ownership- having already changed their laws or in the process of doing so (Estonia, Finland, the 

Netherlands, Poland, Portugal, and Slovenia). 

Outside of the EU, Ukraine has set up a similar public register of company beneficial owners and 

Afghanistan, Ghana, Nigeria and South Africa have committed to doing so. A further 20 countries 

engaged in the Extractive Industries Transparency Initiative (EITI) are in the process of setting up public 

registers of beneficial owners for companies in oil, gas and mining. 13 

Comments on the Discussion Draft Dated November 14, 2017 

Increase transparency of corporate formation procedures (Section 9} 

We are very encouraged that the committee is interested in moving beneficial ownership legislation, but 

we have several concerns with the language in the discussion draft to increase transparency of 

corporate formation procedures. 

The discussion draft favors bank access to beneficial ownership information over law enforcement 

access by imposing greater limits on domestic and foreign law enforcement access to the information. 

Law enforcement is our first line of defense against criminal and terrorist activities, and law 

enforcement officers need to be able to acquire company ownership information quickly and easily 

without alerting the subjects of the investigation. Accessing the company ownership records at FinCEN, 

a federal agency, is critical to that mission. 

Common terrorist and criminal scenarios might require law enforcement to obtain company ownership 

information in connection with suspect wire transfers, real estate transactions, aircraft used to transport 

illegal persons or substances, business transactions, and more. 

13 https://eiti.org/beneficial-ownership 

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The discussion draft enables banks to access beneficial ownership information from FinCEN by making a 

request, whereas federal and foreign law enforcement must produce formal subpoenas and state and 

local law enforcement can't access it at all. While we are supportive of banks and other stakeholders 

being able to easily access beneficial ownership information to safeguard the US financial system, it 

doesn't make sense to allow banks to access it by a simple request and then to make it difficult for law 

enforcement to do the same, especially given the purpose of the bill and the reason that FinCEN is listed 

as the sole collector of company beneficial ownership information. 

1. Ensure that domestic law enforcement, including federal, state and local, has full access to FinCEN's 

database of beneficial ownership information. 

Law enforcement, including federal, state and local, should have complete access to the database that 

FinCEN creates to collect beneficial ownership information. The discussion draft severely limits domestic 

law enforcement's access to beneficial ownership information by only allowing federal law enforcement 

to access the information through a criminal subpoena. This means state and local law enforcement 

cannot get access to beneficial ownership for their investigations and federal agencies that only use civil 

or administrative subpoenas won't be able to access it. At a minimum, the following federal agencies 

would not have access: Treasury, OCC, FDIC, FinCEN, SEC, OFAC, DOJ Civil Frauds division, DOJ Civil Tax, 

DEA, CFTC, FTC, FCC, FAA and the IRS. 

In addition, no state agency under any circumstance would be given access to the information, even 

though the bulk of US criminal investigations are performed by state law enforcement agencies. States 

also do enormous work on civil fraud, securities violations, patent and copyright violations, business 

misconduct, tax dodging, other types of civil law enforcement where corporate ownership is critical to 

holding wrongdoers accountable. 

Typically, if a law enforcement agency is working with a prosecutor's office, they obtain records through 

the service of a grand jury subpoena. If the investigation is in an early stage, however, and the agency 

has not yet brought a case to a prosecutor or teamed up with the prosecutor's office, the agency may 

seek the same evidence via an administrative subpoena. The most well-known examples include 

subpoenas issued pursuant to 18 U.S.C. § 3486 in cases involving health care fraud, the sexual 

exploitation of children, and threats against the President, and DEA subpoenas issued under 21 U.S. C. § 

876 in cases involving the distribution of controlled substances. See Doe v. United States, 253 F.3d 256, 

265-66 (6th Cir. 2001) (administrative subpoena issued under 18 u.s.c. § 3486 may request financial 

records relevant to a federal health care offense, including records that may lead to the forfeiture of the 

proceeds of the offense); United States v. Zadeh, 820 F.3d 746 (5th Cir. 2016) (affirming use of DEA 

subpoena under§ 876 to obtain patient records from physician in investigation of the distribution of 

controlled substances via prescription). The DEA, for example, makes frequent use of administrative 

subpoenas in cases involving the illegal distribution of opioids and analogue drugs. 

Administrative subpoenas are used in both criminal and civil investigations. They are distinguished from 

grand jury subpoenas in that they are issued by the law enforcement agency and not by the grand jury 

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via the prosecutor's office. Administrative subpoenas are invaluable in cases where it is not possible to 

use a grand jury subpoena. For example, because it is not proper to use a grand jury subpoena if there 

is no possibility of bringing criminal charges, administrative subpoenas may be used to obtain evidence 

in furtherance of a civil investigation when a related criminal case has already concluded. 

Recommendation: 

Ensure domestic law enforcement, including federal, state and local, has full access to FinCEN's 

database of beneficial ownership information. This shouldn't require a subpoena. 

If the committee chooses not to do the above, than at a minimum, the language in the 

discussion draft needs to change from: "(i) a criminal subpoena from a Federal agency;" 

to: "(i) a civil, criminal or administrative subpoena or summons, or an equivalent of such a 

subpoena or summons, from a local, State, or Federal agency;" 

2. Ensure that foreign law enforcement has access to beneficial ownership information so that it can 

be used in criminal and civil prosecutions. 

It is quite common for foreigners to use US shell companies as part of a global organized crime network 

as they are easy to create, anonymous and give the appearance of legitimacy. However, the discussion 

draft severely limits foreign governments' access to beneficial ownership information through mutual 

legal assistance (MLA) requests, which leaves a giant loophole that will lead to the continued use of US 

anonymous vehicles in criminal enterprises originating abroad. 

First, the discussion draft requires the MLA request to be in connection with a terrorism or criminal 

investigation. There is no reason to qualify the type of investigation by including "terrorism or criminal" 

before the word investigation. Cases involving civil misconduct, including securities violations, business 

misconduct, tax dodging, patent and copyright violations, cybersecurity violations, privacy violations, 

and more would not be able to get access to the information. 

Second, the discussion draft limits law enforcement access even further in a way that severely limits its 

utility. By including "subject to the requirement that such country agrees to prevent the public 

disclosure of such beneficial ownership information ... " it only enables foreign governments to access 

beneficial ownership information that serves an intelligence purpose and not a law enforcement 

purpose. To serve a law enforcement purpose it needs it be able to be introduced in court, which could 

mean it is discoverable at a later date. As written it appears to prevent this and therefore has little utility 

to a foreign prosecution. 

Recommendation: 

Ensure that foreign law enforcement has access to beneficial ownership so that it can be used in 

criminal and civil prosecutions. Specifically, change the discussion draft language from: 

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"(ii) a written request made by a Federal agency on behalf of a law enforcement agency of 

another country under an international treaty, agreement, or convention, or an order under 

section 3512 oftitle 18, United States Code, or section 1782 of title 28, United States Code, 

issued in response to a request for assistance in a terrorism or criminal investigation by such 

foreign country, subject to the requirement that such other country agrees to prevent the public 

disclosure of such beneficial ownership information or to use it for any purpose other than the 

specified terrorism or criminal investigation;" 

To: 

"(ii) a written request made by a Federal agency on behalf of another country under an 

international treaty, agreement, or convention, or an order under section 3512 of title 18, 

United States Code, or section 1782 of title 28, United States Code, issued in response to a 

request for assistance in an investigation by such foreign country;" 

3. Require foreign nationals to file their beneficial ownership information with FinCEN, including 

submitting a scanned copy of the relevant pages of their non~expired passport to FinCEN and define 

the term "applicant." 

The discussion draft appears to favor foreign owners over US applicants. It requires applicants that form 

entities to submit beneficial ownership information to FinCEN for each beneficial owner with a non~ 

expired US passport or US drivers' license. If the beneficial owner doesn't have one, the applicant 

appears to have no obligation to give the beneficial ownership information to FinCEN unless FinCEN 

requests it. In other words, the bill treats foreigners better than US persons -giving them more secrecy 

upfront. Given existing AML risks, giving foreigners more secrecy than US persons would be unwise. 

Both foreign owners and US person owners should be required to file beneficial ownership information 

with FinCEN. 

The original reason for this language being included in previous legislation was opposition from the 

states that had concerns about their ability to process passport information from foreign countries. 

Given that it has been almost a decade since this was first included in legislation and now only FinCEN is 

collecting the information, this language should be updated and a process created that enables scanned 

passport information for beneficial owners with foreign passports to be submitted to FinCEN directly. 

Applicants could also be required to take an extra step and verify all foreign beneficial owners' 

information submitted to FinCEN. FinCEN is our financial intelligence unit and it already has the capacity 

to set up a system that accepts foreign passport information and to be familiar with foreign passport 

credentials. 

Furthermore, other beneficial ownership legislation, including H.R. 3089, would impose anti~money 

laundering obligations on formation agents since they are gatekeepers to the US financial system, and 

would likely be the key persons collecting beneficial ownership information for foreign-owned American 

corporations or LLCs. By dropping that section, the bill eliminates an important anti-money laundering 

safeguard mandated under international standards and creates an undeserved loophole for foreignowned entities. 

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Additionally, "applicant" is not defined in this section or in any other part of the bill. One could assume it 

means the person filing an application with a state to form a corporation or LLC, but that is never spelled 

out. It should include formation agents and company service providers who file applications on behalf of 

their clients, but it is unclear. If the obligation does apply to formation agents and company service 

providers providing beneficial ownership information to FinCEN, it seems reasonable to require them 

also to file any scanned identifying information from a foreign passport with FinCEN. 

Recommendations: 

Require foreign nationals to file their beneficial ownership information with FinCEN, including 

submitting a scanned copy of the relevant pages of their passport to FinCEN. 

Define the term "applicant" and if an applicant can be a company formation agent, you should 

include the section of H.R. 3089 that was deleted, which would have required AML obligations 

for individuals whose job it is to set up companies, which includes company formation agents. 

4. Add an enforcement mechanism to the discussion draft. 

The bill doesn't contain an enforcement mechanism to ensure "applicants" file beneficial ownership 

information with FinCEN. In addition, as currently drafted, there is no way to ensure that FinCEN knows 

a company was formed in a state and didn't file with FinCEN, or for FinCEN to know all of the existing 

companies that will need to file after this is passed into law. For example, there is no provision that says 

that an application to form a corporation or LLC is not valid until the state forming the entity receives 

written notice from FinCEN that the necessary beneficial ownership information has been filed. Earlier 

bills were thought to involve the IRS, which has its own enforcement division and ways to do this, but 

FinCEN doesn't have a way to ensure the bill is enforced. The bill requires new entities as well as existing 

entities to file this information so it needs a mechanism for enabling FinCEN to know about their 

existence so it can cross check filers with active entities to determine which entities did not file with 

FinCEN. 

Recommendation: 

Add an enforcement mechanism to the bill. This could be done by barring a state from forming a 

new entity until it receives notice from FinCEN that FinCEN has received the necessary beneficial 

ownership information. It could also potentially be done by ensuring FinCEN has the authority to 

regulate in this area, perhaps by requiring states to provide current listings of all of their 

corporations and LLCs that are active. 

5. Allow identification for beneficial owners to include non-expired state issued identification to meet 

the requirement if they do not have a non-expired US driver's license or US passport. 

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The discussion draft requires "(Ill) a unique identifying number from a non-expired passport issued by 

the United States or a non-expired driver's license issued by a State; and." This appears to be an 

oversight as it doesn't allow other state issued identification to be used for individuals without a license 

or passport. 

Recommendation: 

Amend the discussion draft to include "or identification card issued by a State" as follows: "(Ill) 

a unique identifying number from a non-expired passport issued by the United States or a nonexpired driver's license issued by a State or identification card issued by a State; and ... " 

6. Banks should begin to implement the customer due diligence (COD) regulation on time, in May 

2018. 

Prior to the publication of the CDD rule in May 2016, which is set to be implemented in May 2018, there 

has been a longstanding, clearly identified need for banks to explicitly collect beneficial ownership 

information for their customers in order to create a risk profile and assess risk. When the bank doesn't 

know with whom it is doing business, it is not possible to adequately assess risk. Prior to this rule, US 

banks, with few exceptions, were not required to identify the real people or beneficial owners behind 

the companies that open accounts. This massive hole in US regulations was noted in the Financial Action 

Task Force's (FATF) Third Mutual Evaluation Report on Anti-Money Laundering and Combating Financing 

of Terrorism: United States of America (2006), when it stated the US Customer Identification Program 

(CIP) rules "do not require a financial institution to look through a customer that is an entity to its 

beneficial owners," 14 and again in the 4" Mutual Evaluation of the United States (Dec 2016) which again 

rated the US non-compliant and identified the lack of customer due diligence requirements to ascertain 

and verify the identity of beneficial owners, except in very limited cases, as a significant shortcoming. 15 

Once this discussion draft is introduced as legislation and passed into law, regardless of how long 

Congress gives FinCEN to set up this entirely new database of beneficial ownership information, it will 

take a significant amount of time to get it up and running and populated with the required beneficial 

ownership information. Adequate customer due diligence within banks, which is what the regulation 

requires, cannot stop in the interim because the banks need to know its customers does not stop. Banks 

have been working to put the necessary processes in place to collect this information for at least the last 

18 months, so those that are not already doing so should start collecting it on schedule, in May 2018. 

Recommendation: 

Do not suspend the COD regulations from going into force in May 2018. 

14 http:/lwww.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20US%20full.pdf p98. 15 http:/lwww.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf p205 

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Reporting requirements 

7. Do not raise the CTR and SAR reporting thresholds as it would make it easier for drug traffickers and 

terrorists to move cash without alerting authorities. 

We support Treasury undertaking a formal review of current financial reporting requirements, however 

we do not support raising the CTR and SAR thresholds (Section 2 (a)(2), Section 2 (b) and Section 3 

(b)(3)). 

Raising the reporting thresholds would make it easier for drug traffickers and terrorists to move cash 

without alerting authorities. The $10,000 CTR threshold, in particular, has made it very difficult for drug 

traffickers to operate. This is why they use smurf operations and multiple deposits to avoid the 

thresholds, and it is this structuring that makes it more likely that they will get caught. 

The committee should not raise the reporting threshold from $10,000 to $30,000. While I understand 

you are considering this to adjust for inflation and the reduced value of the dollar since the threshold 

was enacted in the 1970s, this doesn't take into account that with respect to individuals, depositing 

large amounts of cash has actually become more unusual. The way the world works has changed. Unlike 

in 1970, it is rare for a person conducting a legitimate business to need any significant amount of 

currency. With certain well-known exceptions, such as grocery stores, amusement parks, and other 

cash-intensive businesses that are already exempt from the currency-reporting laws, payments of 

significant sums of money are made electronically. Those carrying more than $10,000 in cash are, by and 

large, doing so expressly for the purpose of avoiding the creation of a paper trail- because their 

business is not legitimate, or because they intend to evade the payment of taxes. This is why there are a 

large number of structuring transactions reported by financial institutions on SARs. Raising the reporting 

limit to $30,000 would simply create a record-free zone for a much larger number of transactions, and 

lift the burden on wrongdoers who must deal in cash, while doing little or nothing to relieve any burden 

on legitimate commerce. 

CTRs are often scrutinized to see if suspicious activity is taking place. Raising the CTR reporting threshold 

would likely lead to fewer SARs, even though as explained above, in today's world it is more unusual for 

individuals to be carrying, say, $25,000 in cash. Furthermore, CTR reporting is automated at the majority 

of banks, so there would be minimal savings by raising the CTR reporting thresholds. 

Recommendation: 

Do not raise the CTR and SAR reporting thresholds. 

8. Treasury should not assess the utility of SARs and CTRs for law enforcement (Section 3 (b)(6)). 

Treasury cannot accurately assess the categories, types and characteristics of SARs and CTRs that are of 

greatest value to, and best support, investigative priorities of law enforcement. First, Treasury is not 

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familiar with state and local law enforcement which handles the bulk of criminal investigations and 

prosecutions across the country. Nor is it familiar with the many federal law enforcement efforts that 

might make use of SAR or CTR data including such varied issues as health care fraud, opiates and illegal 

drugs, wildlife trafficking, securities and accounting fraud, patent and copyright infringement, 

immigration violations, food safety violations, antitrust violations, and much more. Second, the utility of 

SAR and CTR data may depend on what other information happens to be in the hands of law 

enforcement at any given time when they are investigating. This is situational and varies in ways that 

would make a Treasury analysis difficult or impossible without extensive and expensive surveys and data 

collection. Third, law enforcement priorities are different throughout the country and change over 

time. A Treasury review would only be a snap-shot of one point in time and would therefore be of 

extremely limited value. 

Recommendation: 

Treasury should not assess the utility of SARs and CTRs for law enforcement. 

Treasury's role in coordinating AML/CFT policy and examinations across government 

9. FinCEN should not be setting AML/CFT priorities for banks on an annual basis or otherwise. 

We have concerns with Section 6 (a) and (b) of the discussion draft. FinCEN should not be setting 

AML/CFT priorities for banks on an annual basis or otherwise. Banks set their AML/CFT priorities based 

on their assessment of the unique risks their business model poses after factoring in their unique 

clientele, the jurisdictions in which they have correspondent relationships, the risks posed by their 

various business lines and how much of their business is in those riskier lines, etc. This can be informed 

by information provided by FinCEN in what it is seeing as far as trends in SARs and emerging threats, but 

FinCEN should not be setting a one-size fits all approach. Subsection (a) will completely eviscerate the 

idea that banks need to understand the risks their business activities pose and address them effectively. 

Subsection (b) says that once FinCEN sets those priorities, banks can only be examined for their 

compliance program in relation to those priorities, which would create a tick box approach to 

compliance and send the message that banks don't need to worry about anything that falls outside of 

FinCEN's AML/CFT priorities, regardless of the risk profile of the bank's activities. 

Recommendation: 

FinCEN should not be setting AML/CFT priorities for banks on an annual basis or otherwise as 

banks need to understand and address the risks their business activities pose, and it would lead 

to a tick box approach to compliance. 

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Improve information sharing efforts among financial institutions 

10. Permit banks to share SARs with any branch or affiliate, but only insofar as the prohibition on banks 

disclosing the existence of a SARto clients is a legal requirement applicable to any branch or affiliate 

with whom SAR information is shared. 

We are supportive of efforts to improve information sharing among financial institutions. However, the 

discussion draft should extend the prohibition on banks disclosing to clients about the existence of a SAR 

to any branch or affiliate with whom SAR information is shared. 

Recommendation: 

Extend the prohibition on banks disclosing to clients about the existence of a SARto any branch 

or affiliate with whom SAR information is shared. 

Encourage the use o(technical innovation 

11. Use of new technology should be encouraged, but must be done responsibly. A section of Treasury 

should be created or tasked with reviewing, approving and monitoring the use of new technology by 

financial institutions. There should not be a safe harbor provision. 

We are supportive of banks incorporating new technology into their compliance activities. However, we 

are not supportive of the sweeping nature of the safe harbor provision. The discussion draft could create 

a new section of Treasury, or task an existing section, with reviewing, approving and monitoring the use 

of new technology. 

Recommendation: 

A section of Treasury could be created or tasked with reviewing, approving and monitoring the 

use of new technology. There should not be a safe harbor. 

Additional ooportunities to reform the current BSA regime and anti-money laundering requirements 

While banks serve as the frontline of defense and must continue to play a primary role and bear 

significant responsibility against dirty money and terrorist finance entering the US financial system, they 

shouldn't be alone in bearing that responsibility. Those seeking to move suspect funds utilize the 

services of a wide range of professional gatekeepers to the financial system who handle large sums of 

money. Company service providers, the real estate sector, lawyers and accountants should also take 

responsibility for knowing with whom they are doing business and engage in efforts to prevent their 

services from being used to launder dirty money. 

Requiring these sectors to have anti-money laundering compliance programs would finally bring the US 

in line with the international anti-money laundering standards that the US was instrumental in creating 

as a leading member of the Financial Action Task Force (FATF). In its 2016 assessment of the US, FATF 

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noted that the US regulatory framework "has some significant gaps, including minimal coverage of 

certain institutions and businesses (investment advisers (lAs), lawyers, accountants, real estate agents, 

trust and company service providers (other than trust companies)," and that, "the vulnerability of these 

minimally covered designated non-financial businesses and profession (DNFBP) sectors is significant, 

considering the many examples identified by the national risk assessment process."16 Regulating these 

sectors would go a long way in preventing the US from being a safe haven for dirty finance from around 

the world. 

12. Formation agents and others who are paid to set up corporations, trusts or other legal entities 

should have anti-money laundering obligations. 

The US should comply with the international anti-money laundering standards that it has already agreed 

to implement. This means that US law should be aligned with the global standard about which 

professions should be subject to customer due diligence and record keeping requirements. Congress 

should ensure that anyone who is paid to form a legal entity with the imprimatur of the United States 

takes reasonable steps to know their customers, monitor their actions, and report suspicious activity to 

law enforcement. 

Recommendation: 

Formation agents and others who are paid to form corporations, trusts, or other legal entities 

should be made subject to anti-money laundering obligations. 

13. Lift the 2002 "temporary" exemption on persons who were required by a 200llaw to have an antimoney laundering program, including persons involved in real estate closings and settlements. 

In 2001, the PATRIOT Act required covered financial institutions to establish anti-money laundering 

programs, but in 2002, the Treasury Department granted what it called a "temporary" exemption to 

several categories of persons, including persons involved in real estate closings and settlements. Sixteen 

years later, that temporary exemption is still in place. It is time to eliminate the exemption and set a 

deadline for those persons to come into compliance with the law. Treasury could also be directed to 

issue any necessary regulations. 

Aside from the fact that the legal requirement has been on the books since 2001, the US should comply 

with the international anti-money laundering standards that it has already agreed to implement, which 

require some of the exempted categories of persons to have anti-money laundering programs. 

In the case of real estate, it is all too easy for bad actors to use real estate purchases as a vehicle for 

money laundering. High-end real estate purchases are prone to money laundering risks, according to 

FATF and the US Treasury. That's why, since 1988, Congress has made "persons involved in real estate 

closings and settlements" subject to anti-money laundering obligations. FATF has also issued global 

16 http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf, p3. 

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guidance for countries on how to adopt measures that would ensure real estate professionals and 

others who are involved in real estate transactions are conducting anti-money laundering due diligence 

properly. 

After the New York Times published its Towers of Secrecy series, 17 the Department of the Treasury 

issued a 6 month geographic targeting order for all cash, high end residential real estate purchases in a 

handful of locations, and has renewed and expanded it several times. Further illustrating the importance 

of regulating in this area, Treasury recently found that approximately 30 percent of high end, all cash 

real estate purchases in six major metropolitan areas involved a "beneficial owner or purchaser 

representative that is also the subject of a previous suspicious activity report." 18 While a welcome step, 

the current GTOs are a poor substitute for the 15-year-old requirement that persons involved with real 

estate closings and settlements must establish an anti-money laundering program. 

Recommendation: 

Congress should lift the "temporary" exemption created in 2002 excusing certain categories of 

persons from complying with the 200llaw requiring them to establish anti-money laundering 

programs, including "persons involved in real estate closings and settlements." A deadline 

should be established to bring everyone into compliance with the law, which is now 16 years 

old. As a part of this effort, the Treasury Department should also require public disclosure of 

the beneficial owners who ultimately own companies purchasing real estate throughout the US. 

14. Require transactional lawyers to have customer due diligence and record keeping requirements. 

The US should ensure that it complies with the international anti-money laundering standards that it has 

already agreed to implement. This means that the US should pass legislation requiring transactional 

lawyers, and anyone else who creates companies, to carry out anti-money laundering checks. The 

American Bar Association (ABA) should also update its Model Rules of Professional Conduct to require 

lawyers to carry out anti-money laundering checks along the lines of the voluntary guidance provided by 

the ABA in 2010 on the subject. 

Laundering money is, of course, illegal in the US for anyone, including lawyers. In addition, the ABA's 

Model Rules of Professional Conduct prohibit lawyers from counseling a client to engage in conduct that 

the lawyer knows is illegal, 19 and in order to carry out that requirement lawyers need to do some due 

diligence. However, American lawyers appear to take a "head in the sand" approach where they try not 

17 The New York Times series "Towers of Secrecy" available at https:!/www.nytimes.com/news-event/shellseven~ major 

19 American Bar Association, Rule 1.2: Scope of representation & allocation of authority between client & lawyer 

(d), 

http://www.americanbar.org/groups/professional responsibility/publications/model rules of professional cond 

uct/rute 1 2 scope of representation allocation of authority between client lawyer.html 

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to ask too many questions so they cannot be deemed to have knowledge. This is the same approach 

that the banks took for years before it was understood that they played a vital role as gatekeepers to 

the financial system, which is a very similar role that transactional lawyers play. 

These risks have been highlighted by the Financial Action Task Force. Its 2016 assessment of the US 

found that lawyers were not applying basic or enhanced due diligence processes, describing this as a 

"serious gap."20 It went on to note that it also was not clear whether lawyers were complying with the 

ABA's voluntary guidelines, as they are not enforceable, and recommended that anti-money laundering 

rules be imposed on lawyers "as a matter of priority."21'

22 

The following are a few examples that illustrate how attorney-client accounts are open to abuse. 

Court documents in the recent Department of Justice indictment in the 1M DB scandal allege that $1 

billion was laundered in the US, and much of that $1 billion was also spent in the US. 23 According to the 

court documents, approximately one-third of it ($368 million) moved through the client account of a 

single Manhattan law firm, Shearman & Sterling LLP24 Money from this account was then used to buy 

luxury real estate, a Beverley Hills hotel and a private jet, and to fund the Wolf of Wall Street motion 

picture.25 It is important to note that there are no allegations of wrong-doing against Shearman & 

Sterling and the firm has stated that it "had no reason to believe that any funds transferred to Shearman 

& Sterling were the proceeds of unlawful activity."26 

This wasn't the first time that US attorney-client accounts have been used to shift corrupt funds into the 

US. Teodorin Obiang, son of the President of Equatorial Guinea, shifted millions of dollars of suspect 

funds into the US. Two lawyers helped Obiang circumvent US anti-money laundering controls by 

allowing him to use attorney-client, law office, and shell company accounts as conduits for his funds and 

without alerting the bank to his use of those accounts.27 

These examples are particularly interesting to Global Witness as it highlights a major weakness in the 

US' anti-money laundering controls. For our recent report, Lowering the Bar, 28 which was covered on 60 

Minutes, a Global Witness investigator, posing as an adviser to a foreign government official, asked 

thirteen New York law firms (not including Shearman and Sterling) how to anonymously move large 

sums of money that should have raised suspicions of corruption. In all but one case, the lawyers 

20 http:l/www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf plO, 120 21 http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United States-2016.pdf p123 22 http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf p118 23 https://www.justice.gov/opa/pr/unlted-states-seeks-recover-more-1-billion-obtained-corruption-involvingmalaysian-sovereign 

24 http://www.wsj.com/articles/law-firm-account-held-lmdb-funds-1469141647 25 https://www.justice.gov/opa/file/877166/download paragraph 106. 26 http://westlakelegal.com/law-firms-use-of-trust-accounts-under-scrutiny/ 27 https://www.hsgac.senate.gov/download/report-psi-staff-report-keeping-foreign-corruption-out-of-the-unitedstates-four-case-histories 

28 https://www.globalwitness.org/en/reports/loweringthebar/ 

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provided suggestions on how to get the money into the US without detection, which included the use of 

anonymously-owned companies and trusts. At least two suggested using the lawyers' escrow account. 

The meetings were all preliminary; none of the law firms took the investigator on as a client. Nor did 

they break the law. 

In one interview, a lawyer described a method that could enable the minister to reduce the chances of a 

US bank performing anti-money laundering checks when wiring money into the country. They suggested 

that the minster could use their law firm's pooled client, or escrow, account to bring the money into the 

us. 

Investigator: And you don't have to declare to bank authorities where the money comes from, 

because you said you even don't know who they are? 

Lawyer: Well, they've asked me twice at [name of bank redacted], I use [name of bank 

redacted]. They've asked me 'so you have a lot of money coming in'. I said yes, it's real estate 

deals. 'Oh thank you very much' [said the bank]. 

Investigator: No other question asked? Even if it's foreign money? 

Lawyer: The money came in; they can tell it's from an offshore bank. I said: 'I did a real estate 

deal'. The money came in day one, it went out on day five, that's the way it works. 

Investigator: And the only question asked was? 

Lawyer: What's it there for? I did a deal. That's it29 

These examples demonstrate how attorney-client escrow accounts can be used to bypass checks at 

financial institutions and move suspect money into the US. 

Recommendation: 

Congress should require transactional lawyers to have customer due diligence and record 

keeping requirements. The law must specify what due diligence transactional lawyers have to 

carry out before accepting a client, require transactional lawyers to identify higher risk clients 

and require them to report suspicious transactions to the authorities. 

Conclusion 

It is great to see momentum building in the new Terrorism and illicit Finance Subcommittee and in the 

Financial Institutions and Consumer Credit Subcommittee to introduce a bill to help keep terrorist 

finance and other forms of dirty money out of the US. 

29 https://www.globalwitness.org/en/reports/loweringthebar/. p. 8 

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There have been many voices calling on Congress to take action on these issues and increase beneficial 

ownership transparency. Approximately forty-five NGOs and ten national law enforcement associations, 

as well as appointed and elected law enforcement leaders at the state and federal level, have expressed 

support for legislation aimed at tackling anonymous companies. The Clearing House Association, the 

Independent Community Bankers of America (ICBA), the Credit Union National Association (CUNA) and 

the National Association of Federally-Insured Credit Unions (NAFCU) have all expressed support for 

legislation to end anonymous companies in the US. Scholars from think tanks across the political 

spectrum, including Hudson's Kleptocracy Initiative; Brookings Institution; American Enterprise Institute; 

Council on Foreign Relations; the Terrorism, Transnational Crime and Corruption Center (TraCCC) at 

George Mason University; Foundation for Defense of Democracies and the Carnegie Endowment for 

International Peace have also called for beneficial ownership disclosure. CEOs from multiple companies, 

including Allianz, Virgin Group, Salesforce, Dow Chemical Group, Kering Group and Unilever have all 

endorsed legislation that would increase beneficial ownership transparency, as have investors 

representing more than $855 billion in assets. 

Requiring the disclosure of the real owners of American companies will stop criminals using companies 

to cover their tracks. This is a problem Congress can stop and we look forward to working with you and 

your colleagues on legislation to strengthen the US anti-money laundering framework so that we can 

stop the US from being a safe haven for illicit money and terrorist financing from around the world. 

Thank you for inviting me to testify today and share my views on this important issue. 

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Chip Poncy 

President and Co-Founder 

Financial Integrity Network 

Senior Advisor 

Center on Sanctions and Illicit Finance 

Testimony before the 

House Financial Services Subcommittee on Terrorism and 

Illicit Finance 

House Financial Services Subcommittee on Financial 

Institutions and Consumer Credit 

"A Legislative Proposal to Counter Terrorism and Illicit 

Finance" 

November 29, 2017 
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Chip Poncy Novcmber29,20!7 

Financial Integrity Network 

Chainnen Pearce and Luetkemeyer, Ranking Members Perlmutter and Clay, and distinguished 

members of the House Financial Services Subcommittees on Terrorism and Illicit Finance and 

Financial Institutions and Consumer Credit, I am honored by your invitation to testifY before you 

today. 

We are confronting a pivotal moment in our 48 years of combatting illicit finance under the Bank 

Secrecy Act ("BSA"). As our counter-illicit financing efforts have expanded and become ever 

more important, they are also increasingly challenged - provoking fundamental questions of 

effectiveness, cost, roles and responsibilities, and, ultimately, sustainability. The combination of 

these developments necessitates fundamental reform of the BSA and the expanded anti-money 

laundering I countering the financing of terrorism ("AMLICFT") regime it supports. 

This hearing marks an important and welcome opportunity to discuss how best to pursue such 

fundamental reform in modernizing the BSA and the U.S. AMLICFT regime. I am grateful for 

your leadership in addressing these issues, including through the proposed Counter Terrorism and 

Illicit Finance Act and the proposed End Banking for Human Traffickers Act of 2017 under 

consideration by your Subcommittees. 

Our BSA and broader AMLICFT reform efforts require both immediate action and enduring 

attention by Congress. These efforts must consider: 

L The need for a strategic approach to address mounting frustrations of all AML/CFT 

stakeholders; 

II. The modern evolution of our AMLICFT regime to understand the expanded interests, 

heightened complexity, unprecedented importance, and global reach that it now 

encompasses; and 

III. Legislative action amending the BSA to establish a comprehensive framework for 

guiding and managing our expanded AMLICFT regime in an effective, efficient, and 

enduring manner. 

My testimony below follows this roadmap and concludes hy offering detailed recommendations 

for Congress to expand, amend, and strengthen the proposed Counter Terrorism and Illicit Finance 

Act. 

My recommendations are broadly guided by the following three fundamental principles of 

AMLICFT reform: 

(i) Promote more complete, effective, and efficient financial transparency, including by 

facilitating systemic reporting and sharing of information at a lower cost to financial 

institutions; 

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Chip Poncy November 29, 20!7 

Financial Integrity Network 

(ii) Exploit such financial transparency and information more effectively and consistently 

by investing in targeted financial investigative and analytic capabilities; and 

(iii) Create an inclusive and clear management structure that empowers Treasury to govern 

the ongoing development and application of our expanded AMLICFT regime. 

In accordance with these three fundamental principles of AMLICFT reform, my recommendations 

-detailed in Section III of my testimony below- are summarized as follows: 

1. Incorporate into the proposed Counter Terrorism and Illicit Finance Act a new section 

expanding the objectives of the BSA to explicitly include protecting the integrity of the 

international financial system and our national and collective security. 

2. Incorporate into the proposed Counter Terrorism and Illicit Finance Act a new section to: (i) 

restructure and enhance financial investigative expertise at Treasury; and (ii) provide protected 

resources to law enforcement, the intelligence community, and counter-illicit financing 

targeting authorities to pursue illicit financing activity and networks. 

3. Strengthen Section 3 of the proposed Counter Terrorism and Illicit Finance Act to direct a more 

aggressive approach for Treasury to enhance financial transparency in a methodical, 

systematic, and strategic manner that: (i) addresses longstanding and substantial 

vulnerabilities in our financial system; and (ii) pursues reporting obligations based on straightthrough processing that leverages new technologies, provides more bulk data for counter-illicit 

financing authorities, and ultimately reduces burdens on financial institutions. 

4. Expand, strengthen, and clarify the relationship between Sections 4 and 7 of the proposed 

Counter Terrorism and Illicit Finance Act to encourage the broadest innovation and application 

of technologies to combat illicit financing- including through expanded information-sharing 

between and among financial institutions and governmental authorities under Section 314 of 

the USA PATRIOT Act. 

5. Strengthen and expand Section 6 of the proposed Counter Terrorism and Illicit Finance Act by 

directing Treasury to strengthen, expand, institutionalize, and lead consultations with financial 

sectors and other industries covered by AMLICFT regulation in establishing and implementing 

priorities for U.S. AMLICFT policy. 

6. Amend sub-Section 9(a)(3) and sub-Section 9(a)(l) of the proposed Counter Terrorism and 

Illicit Finance Act to support implementation of Treasury's CDD rule. 

7. Otherwise consider Section 9 of the proposed Counter Terrorism and Illicit Finance Act and 

swiftly enact company formation reform to require the systemic reporting and maintenance of 

beneficial ownership information pursuant to an effective and workable framework. 

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Chip Poncy November 29, 2017 

Financial Integrity Network 

As discussed in detail below, these recommendations are informed by the need for a strategic 

approach to address the current challenges and frustrations confronting our AMLICFT regime. 

They are also based on the modern evolution of the AMLICFT regime, including with respect to 

its expanded scope and objectives, heightened complexity and importance, and global reach. 

Understanding this evolution is critical in providing the clarity of purpose and importance that 

must guide the strategic reform of our AML/CFT regime. Understanding this evolution is also 

essential to achieving the stakeholder cooperation and public support necessary to accept the 

responsibilities, share the costs, and deliver the resources required to modernize our AMLICFT 

regime in a manner that is both effective and sustainable. Finally, understanding this evolutioncoupled with a clear appreciation of the challenges and frustrations confronting our current 

AMLICFT regime- informs the three key principles outlined above that should drive our reform 

efforts. 

In offering this testimony, I am grateful for the incredible dedication of my partners, colleagues, 

and friends at the Financial Integrity Network, the Center on Sanctions and Illicit Finance, the 

Treasury and across the U.S. Government, and in the global AMLICFT community -including 

the other expert witnesses who are testifYing before you today. The primary basis of my testimony 

is the experience that I have gained in working with these experts and stakeholders all over the 

world to help shape and implement AMLICFT policy over the past fifteen years in the U.S. 

Government, the international community, and in the private sector. 

I. Challenges and Frustrations Confronting Our Current AML/CFT Regime and the 

Need for a Strategic Approach to Reform 

The BSA is the foundation of our AMLICFT regime. Over the past five decades, our AMLICFT 

regime has evolved in complex and fundamentally important ways. Beyond enabling traditional 

money laundering investigations against drug trafficking and fraud, our AMLICFT regime has 

become essential to combating the full range of serious criminal activity. Law enforcement now 

relies upon information generated by our AMLICFT regime to support the full range of counterillicit financing efforts from terrorist financing and WMD proliferation, to corruption and tax 

evasion. Even more broadly, this expanded AML/CFT regime has become essential to protecting 

the integrity of the financial system, the global economy it supports, and our national and collective 

security -- including by providing the financial transparency required for effective sanctions 

implementation. These vital interests have driven the necessary expansion of our AMLICFT 

regime at home and have shaped our leadership abroad in developing and implementing a global 

AMLICFT framework in partnership with other financial centers and allies. 

Yet, our expanded AMLICFT regime is increasingly challenged by the heightened complexity and 

globalization of the financial system and the world economy. It is also increasingly challenged by 

the heightened complexity, globalization, and rise of criminal and national security threats that 

prey upon and hide within our financial system and underlying economy. 

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Chip Poncy November 29,2017 

Financial Integrity Network 

The combination of these developments -- underscoring the unprecedented importance of our 

expanded AMLICFT regime and the unprecedented challenges it faces has led to mounting 

frustration from all AMLICFT stakeholders: 

• Law enforcement is increasingly overwhelmed by the complexity and volume of money 

laundering activity that fuels an expanding range of serious organized crime - from 

trafficking in human beings, drugs, and weapons, to fraud and grand scale corruption. The 

growth of such organized crime now threatens our national security, requiring the 

application of sanctions and other national security authorities and resources. 

• Sanctions and other national security authorities and resources are increasingly stretched 

to disrupt evolving and emerging threats - from terrorism, WMD proliferation, and 

malicious cyber activity, to serious human rights abuses and rogue regimes that destabilize 

regions around the world and threaten our collective security. 

• Regulators increasingly struggle to understand how best to prioritize, balance, and translate 

efforts to counter these threats in governing and enforcing effective implementation of an 

ever-expanding compliance regime within and across a highly diversified and complex 

financial system. 

• Banks and other financial institutions are increasingly burdened by the costs of such 

expanding compliance obligations, the threat of enforcement actions for noncompliance, 

and the rise of competitive service providers that may not share their compliance 

obligations. More fundamentally, such financial institutions are increasingly challenged 

in managing unclear or competing expectations associated with protecting the integrity of 

our financial system from illicit financing risks they often cannot assess. 

• Businesses and various segments of the general public are ultimately frustrated by the 

demands of a financial system whose compliance regimes appear increasingly invasive, 

costly, or outright prohibitive to legitimate economic interests. Policies of financial 

exclusion by financial institutions recalibrating their risk tolerances may drive legitimate 

and urgent demand for financial services underground particularly with respect to 

vulnerable sectors and communities that present high risk and low profitability to banks. 

Addressing any one of these stakeholder frustrations in isolation threatens to compound frustration 

from other stakeholders. Relief for financial institutions may heighten challenges for law 

enforcement and national security authorities. Additional demands for financial information and 

financial action by such authorities may lead to even greater costs and regulatory burden for 

financial institutions and their customers. Solving these challenges requires a comprehensive and 

strategic approach. 

Such a comprehensive and strategic approach must begin with clarity of purpose. It must embrace 

innovative thinking and the application of new technologies to discover and drive efficiencies in 

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Financial Integrity Network 

advancing the vital interests of our expanded AML/CFT regime. It demands leadership and 

integrated efforts from across the financial services industry and the regulatory, law enforcement, 

national security, and policymaking communities. It requires an inclusive but clear management 

framework. It requires the understanding and support of the general public. And it must be 

grounded in a tirm appreciation of the expansion, complexity, importance, and global reach of our 

AML/CFT regime, as reflected by its modem evolution. 

II. The Modern Evolution of Our AML/CFT Regime 

Since the initial adoption of the BSA almost 50 years ago, and particularly over the past generation 

since the terrorist attacks of9/ll, our AML/CFT regime has evolved dramatically in the following 

interrelated ways: 

(i) Expansion of scope, stakeholder interest, and objectives; 

(ii) Heightened complexity and importance; and 

(iii) Globalization of the AML/CFT regime and the broader financial integrity and 

security mission. 

Understanding this evolution, described in greater detail below, is critical to guiding our BSA and 

broader AML/CFT reform efforts. 

(i) Expanding substantive scope, stakeholder interest, and objectives of the AML/CFT 

regime 

As described in greater detail below, the significant expansion of our AML/CFT regime in scope, 

stakeholder interest, and objectives is reflected by: 

a. The expansion of predicate offenses to money laundering; 

b. The increasing reliance of sanctions compliance and broader risk management on 

effective implementation of our AML/CFT regime; and 

c. The essential role of our AML/CFT regime in protecting the integrity of the 

financial system and our national security. 

a. Expansion o(AML predicate o((enses. Our AML/CFT regime, launched with the introduction 

of the BSA, initially focused on reporting bulk cash movements to assist in tax compliance, 

the criminalization of drug money laundering, and the detection and confiscation of drug 

trafficking proceeds. Through the expansion of predicate offenses, our AML/CFT regime now 

encompasses practically all serious criminal activity including various forms of fraud, 

corruption, terrorist financing, and WMD proliferation achieved through the violation of export 

controls or smuggling. 

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Financial Integrity Network 

This expanded scope has significant consequences for traditional AML risk management 

across our financial system, as these different types of predicates expose additional financial 

products, services, relationships, institutions, markets, and sectors to different kinds and 

degrees of illicit financing risk. It also expands the range of law enforcement agencies that 

rely upon financial information to pursue various criminal networks that launder their proceeds 

through our financial system. 

b. Increasing reliance o( sanctions compliance and broader risk management on effective 

implementation of our AML/CFT regime. The scope of our AMLICFT regime has also 

expanded as sanctions compliance has increasingly relied upon and blended with AMLICFT 

risk management. It is often impossible to know whether any given financial account or 

transaction may involve a sanctioned party, activity, or jurisdiction without performing robust 

due diligence driven by AML regulatory requirements. 

As sanctions programs have become more complex, their effective implementation relics upon 

more sophisticated development, integration, and application of underlying AML programs to 

assess and manage sanctions risk. Consequently, sanctions policy, targeting, compliance, and 

enforcement authorities - as well as sanctions compliance programs and officers in financial 

institutions- have become increasingly reliant upon and integrated into the AMLICFT regime 

and AML compliance programs. 

This reliance presents challenges and opportum!ies for integrating the governance, 

implementation, and enforcement of our AMLICFT regime and sanctions compliance. 

c. Expanding objectives o(our AMLICFT regime. The objectives of our AMLICFT regime have 

also evolved, consistent with the expansion of the regime's scope and stakeholder interests. 

Following the terrorist attacks of9/l I, Congress expanded the purpose of the BSA "to require 

certain reports or records where they have a high degree of usefulness in criminal, tax, or 

regulatory investigations or proceedings, or in the conduct of intelligence or 

counterintelligence activities, including analysis, to protect against international terrorism." 

While this expansive criminal justice, tax compliance, regulatory, intelligence, and counterterrorism set of objectives is more important than ever, it is also incomplete. 

Protecting the integrity of the financial system has also become an essential objective in its 

own right In addition to law enforcement and other investigative and intelligence authorities, 

financial institutions together with the customers, markets, and global economy they service 

- are direct beneficiaries of AMLICFT regimes. Financial institutions arc end users of BSA 

recordkeeping and reporting, relying on such information to identifY and manage all manner 

of illicit financing risk for purposes of protecting the integrity of the financial system. Such 

integrity is fundamental for the financial system to maintain not only the security of the 

customer assets it holds, but also the confidence of markets and the general public. 

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This reality is evident in the way we talk about actions taken under various AMLICFT 

authorities- both under our own AMLICFT regime, and in concert with AMLICFT authorities 

abroad. Such actions are intended in large part to protect the integrity of the financial system. 

Recognizing this expansive objective underscores the primary role of financial institutions in 

both implementing and informing our AMLICFT regime. It also underscores the importance 

of establishing robust public-private partnerships, including at policy and operational levels, 

to effectively implement and inform our AMLICFT regime. 

Perhaps most importantly, our AML/CFT regime has evolved more broadly into a financial 

security regime, essential to protecting our national security. The financial transparency and 

accountability created through our AMLICFT regime enable effective development and 

implementation of sanctions policies and other targeted financial measures to combat a 

growing array of threats to our national security. Such transparency and accountability also 

generates financial information that our intelligence and national security community 

increasingly relics upon to identify and disrupt these threats. 

These concepts associated with the expanding scope, stakeholder interest, and objectives of our 

AMLICFT regime must also inform our AMLICFT reform efforts. 

(ii) Heightened complexity and importance of the AMVCFT regime 

As AML/CFT regimes have expanded across scope, stakeholder interest, and objectives, they also 

have become more complex and important. This is true for public sector authorities, the private 

sector, and the general public. 

a. Heightened complexity o{our AMLICFT regime. The heightened complexity of our AML/CFT 

regime has inevitably followed the globalization and increased sophistication and 

intermediation of the financial system. This includes within and across financial products and 

services; banks, non-bank financial institutions, and designated non-bank financial businesses 

and professions; and countries, sub-national jurisdictions, and supra-national jurisdictions. 

In combating various forms of illicit finance, AMLICFT authorities and financial institutions 

are increasingly challenged to understand and keep pace with these evolving complexities of 

the modem financial system. Such an understanding is required as a baseline for identifying 

and combating illicit financing threats that exploit the vulnerabilities that such a complex 

financial system presents. 

The heightened complexity of our AMLICFT regime has also been driven by the globalization 

of criminal and illicit financing networks and the blending of illicit financing risk including 

across money laundering, terrorist financing, sanctions evasion, bribery and corruption, 

proliferation finance, tax evasion, and state and non-state actors. Such heightened complexity 

of criminal activity challenges AMLICFT and national security authorities - as well as 

compliance regimes in financial institutions to enhance specialization of counter-illicit 

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financing expertise while simultaneously integrating counter-illicit financing strategies, 

policies, and risk management programs. 

Addressing such heightened complexity requires heightened and integrated expertise across 

the core stakeholders of our AMLICFT regime. Such expertise, in turn, demands heightened 

and integrated training about how the financial system works, and how illicit actors abuse it. 

These considerations must also inform the reform of our AML/CFT regime. 

b. Heightened importance o{our AMLICFT regime. As our AMLICFT regime has expanded and 

become more complex, it also has become more important for law enforcement, national 

security, and the integrity of the financial system itself. 

The heightened complexity and globalization of criminal and illicit financing networks has 

made financial information more important than ever before to law enforcement agencies 

pursuing serious criminal activity. Federal law enforcement agencies have repeatedly testified 

that the BSA database is among the most important sources of information they have in 

combating various forms of serious and organized crime, from drug trafficking and fraud to 

tax evasion and terrorist financing. 

In addition, the post-9/11 development and integration of CFT strategies and policies into the 

AML regime and the rise of transnational organized crime have attached clear national security 

importance to our AMLICFT regime. As sanctions and other national security authorities have 

become more reliant upon financial information and disruption in the post-9/1 1 era, the 

AMLICFT regime has become a crucial foundation for applying financial and economic 

pressure as an instrument of national and collective security. This is evident in the financial 

and economic pressure, isolation, and disruption campaigns the U.S. has led against al Qaeda, 

Iran, ISIS, North Korea, and rogue financial institutions such as Banco Delta Asia or Liberty 

Reserve. It is now difficult to think of any response to a national security threat that does not 

involve a significant financial element reliant on implementation of AMLICFT regimes. 

The pervasive rise of transnational organized crime has also emerged as a clear threat to our 

national security. This is most evident in our 2011 National Security Strategy to Combat 

Transnational Organized Crime, including Executive Order 13581. Quite simply, we now need 

national security authorities to complement traditional law enforcement authorities to combat 

this threat. Given the expansion of AML predicates across the full spectrum of transnational 

organized criminal activity, our AMLICFT regime has clearly become an integral part of 

protecting our national security, including through the use of national security authorities to 

attack criminal activities traditionally targeted by AMLICFT regimes. 

Finally, as discussed above, our AMLICFT regime is crucial to protecting the integrity of the 

financial system itself. This importance is underscored by the rise of cybercrime, identity theft, 

and other forms of fraud that increasingly and systematically target our financial institutions 

and our financial system as a whole. 

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Recognizing this heightened complexity and importance of our AMLICFT regime in combating 

the full range of serious criminal activity, protecting our national security, and safeguarding the 

integrity of our financial system is essential in guiding reform of the BSA and our AMLICFT 

regime more broadly. We must be clear-eyed about the resources required to advance and protect 

such complex and important interests. We must also be attentive to the fair distribution of costs 

and responsibilities across the beneficiaries of our AMLICFT regime including AMLICFT and 

national security authorities, financial institutions and other vulnerable industries, the customers 

they service, and the general public. And we must focus on directing our AMLICFT policies and 

resources in a manner that drives efficiency and effectiveness. 

(iii) Globalization of AMVCFT regimes and the broader financial integrity and security 

mission 

For almost three decades, the United States has led the globalization of AMLICFT regimes in 

regions and jurisdictions around the world, including with its partners in the 07, the 020, the 

Financial Action Task Force ("FATF"), eight FA TF-Style Regional Bodies ("FSRBs"), the World 

Bank, the IMF, and the United Nations. This sustained effort and commitment has been grounded 

in the recognition of the growing transnational and ultimately global threat presented by an 

expanding range of illicit financing activity. This effort has also created a truly global framework 

essential for combatting serious criminal activity, protecting our national and collective security, 

and safeguarding the integrity of the international financial system. 

After 9/1 I, the global CFT campaign led by the United States became an instrumental factor in 

accelerating a global understanding of the importance of AMLICFT regimes to our collective 

security. Combating financial crime, protecting the integrity of the financial system, and 

promoting effective implementation of sanctions against threats to our national and collective 

security have since become central to Treasury's mission and to that of finance ministries around 

the world. Together with partner jurisdictions and organizations around the world, the United 

States has led a global commitment to expanding AMLICFT regimes and strengthening their 

implementation to advance these objectives. 

This commitment is evident in the rapid evolution of the global counter-illicit financing 

framework. This framework continues to drive development and implementation of 

comprehensive jurisdictional AMLICFT, counter-proliferation, and financial sanctions regimes. 

This framework, largely led by the work of the FATF, manages jurisdictional participation in 

conducting the following sets of activities: 

• Developing typologies of illicit financing trends and methods; 

• Deliberating counter-illicit financing policies and issuing global counter-illicit financing 

standards; 

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• Conducting and publishing regular peer review assessments of jurisdictional compliance 

with the FATF's global standards; and 

• Managing follow-up processes that both assist jurisdictions and hold them accountable in 

implementing the FA TF standards. 

Through the FATF network of assessor bodies, the overwhelming majority of countries around the 

world are incorporated into this counter-illicit financing framework. 

The global standards issued by the FA TF and assessed through this global framework cover a 

broad range of specific measures to protect the integrity of the financial system from the full 

spectrum of illicit finance including money laundering, terrorist financing, proliferation finance, 

serious tax crimes, and corruption. These global standards create a conceptual and technical 

roadmap for countries and financial institutions to develop the capabilities required to advance and 

secure the integrity of the global financial system. The FA TF standards generally encompass the 

following areas: 

• Jurisdictional and financial institution processes and policies to assess and address illicit 

financing risks; 

• Preventive measures covering the entirety of the financial system; 

• Transparency and beneficial ownership oflegal entities, trusts and similar arrangements; 

• Regulation and supervision; 

• Targeted financial sanctions; 

• Criminalization of money laundering and terrorist financing; 

• Confiscation of criminal proceeds; 

• Financial analysis and investigation; and 

International cooperation. 

Implementing the F ATF global standards within and across these different areas of importance 

requires a whole-of-government approach in collaboration with the private sector, particularly 

financial institutions. It is a massive undertaking. 

And it is essential to combat transnational organized crime, safeguard the integrity of the financial 

system, and protect our national and collective security. 

Peer review assessments over the past several years demonstrate that most countries have taken 

substantial steps towards implementing many if not most of the requirements covered by the FA TF 

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global standards. Collectively, this work represents a tremendous accomplishment in creating a 

firm global foundation for financial integrity and security, based on effective development and 

implementation of comprehensive AMLICFT regimes. 

Nonetheless, these comprehensive jurisdictional assessments also reveal a number of deep-seated, 

systemic challenges to AMLICFT regimes. These challenges are also evident from many of the 

U.S. enforcement actions taken against global financial institutions in recent years, as well as from 

consistent criminal typologies of illicit finance. 

The United States has one of the most effective AMLICFT regimes in the world. Yet many of the 

global and systemic challenges to AMLICFT regimes abroad also confront our own AMLICFT 

regime. Our capability and willingness to address these challenges at home will substantially 

impact our credibility and capability in driving other countries to do the same and in holding 

accountable those countries that fail to meet such standards. Our BSA and broader AMLICFT 

reform efforts must consider these important ramifications. 

III. Recommendations for Reforming the BSA and our AML/CFT Regime 

My recommendations presented below for reforming the BSA and our AMLICFT regime focus on 

expanding, amending, and strengthening the draft Counter Terrorism and Illicit Finance Act. 

These recommendations are driven by the need for both immediate action and strategic reform to 

address the growing frustrations of our AMLICFT stakeholder community and secure the 

effectiveness and sustainability of our AMLICFT regime moving forward. These 

recommendations are also grounded in a clear understanding of the modem evolution of our 

AMLICFT regime, including its expanded scope and objectives, its heightened complexity and 

importance, and its global reach. 

The draft Counter Terrorism and Illicit Finance Act proposes bold and necessary changes to the 

BSA and our AMLICFT regime. Several of these changes are consistent with recommendations 

that I presented before the House Financial Services Committee Task Force to Investigate Terrorist 

Financing in June of 2015. These changes address many of the urgent challenges we face in 

modernizing our AMLICFT regime. They also reflect the Congressional leadership required to 

rcfonn, strengthen, and secure our AMLICFT regime to combat illicit financing, safeguard the 

integrity of our financial system, and protect our national security in an effective, efficient, and 

sustainable manner. 

However, Congress should take additional steps to further promote the efficiency and strengthen 

the effectiveness of our AMLICFT regime. Such steps should leverage new technologies and more 

aggressively advance the following three principles of AMLICFT reform: 

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(i) Promote more complete, effective, and efficient financial transparency, including by 

facilitating systemic reporting and sharing of information at a lower cost to financial 

institutions; 

(ii) Exploit such financial transparency and information more effectively and consistently 

by investing in targeted financial investigative and analytic capabilities; and 

(iii) Create an inclusive and clear management structure that empowers Treasury to govern 

the ongoing development and application of our expanded AMLICFT regime. 

By aggressively advancing these principles, Congressional action can establish a clear framework 

for economizing compliance by financial institutions while validating their efforts with dedicated 

resources to attack money laundering networks and combat threats to our national security. 

Finally, some aspects of the proposed legislation are problematic- particularly with respect to its 

misconstruction of Treasury's customer due diligence rule ("COD rule") and the complementary 

but independent relationship between the COD rule and company formation reform. Such 

misconstruction jeopardizes both the effectiveness and workability of the COD rule, and places 

significant and unnecessary burden on financial institutions and FinCEN. 

My specific recommendations for amending and strengthening the proposed Counter Terrorism 

and Illicit Finance Act elaborate on these general thoughts and are broadly consistent with those I 

presented in 2015. 

1. Incorporate into the proposed Counter Terrorism and Illicit Finance Act a new section 

expanding the objectives of the BSA to explicitly include protecting the integrity of the 

international financial system and our national and collective security. 

As explained above, the scope and objectives of the BSA have continued to expand in 

important ways. This expansion now clearly encompasses safeguarding the integrity of the 

international financial system and protecting our national and collective security more broadly 

including beyond the ongoing threat of terrorism. Recognizing these truths will enable a 

more accurate assessment of the benefits of our AMLICFT regime. It will also underscore the 

importance of the considerable investments that have been made and will be required tn ensure 

our AMLICFT regime's effectiveness in meeting these fundamental interests, in addition to 

the objectives currently reflected in the BSA. 

2. Incorporate into the proposed Counter Terrorism and Illicit Finance Act a new section to: 

(i) restructure and strengthen financial investigative expertise at Treasury; and (ii) provide 

protected resources to law enforcement, the intelligence community, and counter-illicit 

financing targeting authorities to pursue illicit financing activity and networks. 

Despite the expanded coverage and heightened importance of our AML/CFT regime, U.S. law 

enforcement and other authorities responsible for pursuing illicit financing are severely 

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stretched. These authorities are the best in the world at what they do, but they arc not keeping 

up with the pace of illicit financing itself. Various estimates of money laundering, testimony 

from law enforcement, and the official recognition of organized crime as a national security 

threat all demonstrate that we are losing this battle in the criminal justice domain. And we are 

not investing enough in law enforcement to try to reverse this. 

Our law enforcement community also is not structured in a way that develops and focuses 

financial investigative expertise to systemically and relentlessly pursue all manner illicit 

financing as a consistent priority. A fully dedicated law enforcement office anned with our 

most advanced financial investigators and the authority to pursue all forms of illicit financing 

-is required to give teeth to our criminalization of money laundering, terrorist financing, tax 

evasion, and related financial crimes. The blended complexity of these and other illicit 

financing threats we face - and of the international financial system they prey upon - require 

such a focused structure. 

Our most advanced financial investigators sit within the Criminal Investigative Division 

("CID") of the Internal Revenue Service ("IRS") at Treasury. These investigators are uniquely 

trained to lead and provide critical support to the most pressing, complex, and sensitive 

financial investigations in our law enforcement community. All too often, however, their 

leadership and participation in such investigations is constrained by their dominant focus on 

criminal tax enforcement. Congress should discuss with Treasury how best to restructure and 

resource CID in a manner that enables and empowers our best financial investigators to 

consistently focus on all manner of sophisticated illicit finance. Such a restructuring could 

involve moving CID from the IRS to the Office of Terrorism and Financial Intelligence, in 

whole or in part. 

Separate and apart from law enforcement, sanctions authorities and intelligence analysts arc 

also straining to keep up with the expanding and increasingly complex dashboard of national 

security threats they face. In the last four months alone, Congress has passed the most 

sweeping sanctions legislation in history targeting Iran, North Korea, and Russia. At the same 

time, the Administration bas imposed unprecedented Section 311 financial prohibitions against 

a Chinese bank; issued additional sanctions-related executive orders; and launched a novel 

financial sanctions program against the Maduro regime, targeting global bond and energy 

markets doing business in Venezuelan debt or oil. These steps reflect the growing importance 

of counter-illicit financing authorities and actions that leverage the financial transparency and 

legal and operational frameworks of our AMLICFT regime and others worldwide. This also 

affirms our need to invest more in these authorities as their mission continues to expand. 

The critical importance and proven impact of money laundering prosecutions, confiscations, 

and targeted financial measures represent a compelling investment opportunity for Congress 

to achieve a high return with relatively marginal costs. These investments are also essential to 

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exploiting the financial information that our financial institutions continue to provide through 

significant investments of their own. 

In addition to working with Treasury to restructure and resource CID to focus on all manner 

of illicit finance, Congress should provide protected resources to the Money Laundering and 

Asset Forfeiture Section of the Department of Justice and to Treasury's Office of Terrorism 

and Financial Intelligence. Such resources should be specifically protected to support: (i) 

criminal pursuit of money laundering and other illicit financing networks; (ii) targeting of 

primary money laundering concerns under Section 311 of the USA PATRIOT Act; and (iii) 

targeting of illicit financing networks under various sanctions authorities. 

3. Strengthen Section 3 of the proposed Counter Terrorism and Illicit Finance Act to direct a 

more aggressive approach for Treasury to enhance financial transparency in a methodical, 

systematic, and strategic manner that: (i) addresses longstanding and substantial 

vulnerabilities in our financial system; and (ii) pursues reporting obligations based on 

straight-through processing that leverages new technologies, provides more bulk data for 

counter-illicit financing authorities, and ultimately reduces burdens on financial 

institutions. 

Financial transparency is crucial to advancing the objectives of our AMLICFT regime because 

it allows us to identifY, track, and trace the sources, conduits, and uses of all manner of illicit 

finance that transit the financial system. Without financial transparency, financial institutions 

and regulators cannot identity, manage, or avoid risks ranging from financing al Qaeda to 

brokering nuclear proliferation to banking corruption. Law enforcement cannot track or trace 

progressively globalized criminal networks or their illicit proceeds. States cannot identifY or 

recover stolen assets or proceeds of tax evasion. And financial pressure to address gross 

violations of international law by North Korea, Iran, Syria, Russia, or others becomes a hollow 

talking point rather than an operational instrument of global security. 

Section 3 of the proposed legislation, when coupled with Sections 6 and 8, generally presents 

a clear, necessary, and ongoing framework to assist Treasury strategically lead the 

management of the U.S. AMLICFT regime, including with respect to enhancing financial 

transparency. In particular, Sections 3 and 6 enable Treasury to enhance the effectiveness and 

efficiency of AML/CFT regulations under the BSA based on law enforcement and other 

counter-illicit financing needs and priorities, including through the leading participation of the 

Department of Justice under Section 8. 

However, Congress should also direct a more aggressive approach to enhance financial 

transparency in methodical, systematic, and strategic manner. Such an approach should 

include: 

(I) Explicitly supporting Treasury's current rulemaking efforts to address clear, 

outstanding, and substantial counter-illicit financing vulnerabilities; and 

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(2) Directing Treasury to pursue and study reporting obligations based on straight-through 

processing that leverages new technologies, provides more bulk data to counter-illicit 

financing authorities, and ultimately reduces burdens on financial institutions. 

(I) Explicitly support Treasury's current rulemaking efforts to address clear, outstanding, and 

substantial counter-illicit financing vulnerabilities. 

As established through years of outreach, study, and rulemaking, Treasury's specific 

regulatory initiatives outlined below will: 

• Provide highly useful information to law enforcement, national security authorities, and 

financial institutions charged with managing AMLICFT risk under current AML 

regulations; 

• Reduce compliance challenges for banks and other financial institutions currently covered 

by AML regulation; 

• Level tl1e playing field, reduce regulatory arbitrage, and address systemic vulnerabilities in 

the current coverage of our AML regulations across our financial system; and 

• Align our AMLICFT preventive measures with global standards issued under the 

leadership of the United States and other financial centers, thereby strengthening U.S. 

efforts to hold other jurisdictions accountable in combating transnational financial crime 

and protecting the integrity of the intemational financial system. 

To advance these urgent and important interests, Congress should specifically: 

a. Support Treasury's issuance of afinal rule extending AMLICFT preventive measures to 

registered investment advisers, consistent with AMLICFT global standard~. In August 

2015, Treasury issued a proposed rule to include certain registered investment advisors as 

financial institutions under the BSA and requiring them to establish AML programs and 

report suspicious activity to FinCEN. Such action is required to help address the systemic 

challenges created by gaps in the financial system that are not covered by AMLICFT 

preventive measures. As Treasury bas reported in the 2015 National Money Laundering 

Risk Assessment, as of April 2015, investment advisers registered with the SEC have 

reported more than $66 trillion assets under management. The current lack of AMLICFT 

regulation over this sector creates a significant blind spot in our understanding of whose 

interests are represented by this $66 trillion of assets, substantially undermining the 

transparency of our financial system. As stated by the Director of FinCEN at the time, 

"Investment advisors are on the front lines of a multi-trillion dollar sector of our financial 

system. If a client is trying to move or stash dirty money, we need investment advisors to 

be vigilant in protecting the integrity of their sector." 

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This gap also puts banks, broker-dealers, and other financial institutions currently covered 

by AML regulation in the unfair and difficult position of competing with or trying to 

manage illicit financing risks of the investment adviser sector they service. Failure to 

address this multi-trillion dollar vulnerability not only enables corrupt governing elites and 

other national security threats to hide in and profit from our financial system, it also puts 

more pressure on banks and other covered institutions to manage these risks without 

understanding the ownership of assets they hold or represent. As with other uncovered or 

poorly AML/CFT regulated sectors of our financial system, this systemic vulnerability 

forces banks and other covered financial institutions servicing such sectors to either accept 

these unknown and substantial risks, or walk away from the business. In turn, these 

pressures contribute to collateral challenges of financial exclusion or the growth of 

relatively unregulated "shadow banking" systems, particularly as AMLICFT regulatory 

enforcement actions continue to focus squarely on banks. 

Congressional support for Treasury's proposed rulemaking to extend AMLICFT 

preventive measures to certain registered investment advisors may facilitate such necessary 

action by the Administration. 

b. Support Treasury's consideration of lowering the recordkeeping and travel rule thresholds 

for funds transfers from $3000 to $1000, consistent with global standards. Such action is 

required to enhance the transparency of lower value funds transfers consistently abused to 

structure illicit financing transactions. Treasury's 2015 National Money Laundering Risk 

Assessment provides the latest evidence of such continued abuse. Lowering the thresholds 

to $1000 would literally triple the costs and risks for illicit financing networks engaged in 

such structuring. 

Such action is also required to better protect the integrity of the money transmitter sector, 

which has increasingly suffered from financial exclusion associated with the wellestablished, illicit financing risks generally inherent in the cross-border services provided 

by this sector. Lowering the recordkeeping and travel rule thresholds coupled with 

strengthening the consistency and effectiveness of AMLICFT supervision of this sector 

will generate and substantiate greater confidence in the ability of money transmitters to 

assess and manage such illicit financing risk. In turn, such enhanced confidence will help 

address ongoing financial exclusion concerns that have plagued vulnerable corridors of the 

money transmitter sector for several years. 

Maintaining a threshold of $1000 would also preserve a reasonable threshold well above 

the average value of cross-border remittances, thereby minimizing any potential collateral 

and exclusionary impact on legitimate and urgent demand for remittance flows. 

Congressional support for Treasury's long-standing consideration to lower this threshold 

may facilitate such necessary action by the Administration. 

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c. Support Treaswy 's consideration to extend AML/CFT preventive measures to the real 

estate industry, consistent with FATF global standards. The longstanding global 

vulnerability of the real estate industry to money laundering is well-known. For this 

reason, FATF global standards direct countries to extend AML!CFT preventive measures 

to cover the real estate industry. Severdl historical and recent cases and investigative 

reporting by the media demonstrate that this vulnerability continues to be exploited in the 

United States, including most prominently in cities such as New York, Los Angeles, and 

Miami. 

As in the case of investment advisors and money transmitters, failure to address the proven 

and systemic vulnerability of the real estate indnstry to money laundering not only 

undermines our counter-illicit financing efforts, it also places additional burden on banks 

and other AML-covered financial institutions servicing this industry. Such financial 

institutions must now apply heightened due diligence to real estate transactions to manage 

these risks effectively. This task would be much easier if the due diligence efforts of 

covered financial institutions were shared with the real estate industry itself through the 

extension of AML regulation. 

Congress originally required Treasury to enact AML rulemaking to address the money 

laundering vulnerabilities associated with the real estate industry in October 200 l, with the 

adoption of the USA PATRIOT Act Treasury has long considered such rulemaking and 

has gathered important information to guide this effort through the ongoing issuance of 

geographic targeting orders. Congressional support may facilitate such action by the 

Administration to address this longstanding AML vulnerability in an effective, efficient, 

and systematic way. 

(2) Direct Treasury to pursue and study reporting obligations based on straight-through processing 

that leverages new technologies, provides more bulk data to counter-illicit financing 

authorities, and ultimately reduces burdens on financial institutions. 

The clear emergence of new technologies that can collect, protect, and analyze bulk data should 

facilitate AMLICFT refom1 efforts focused on reporting more financial data to counter-illicit 

financing authorities at a lower cost to financial institutions via straight through processing. 

As discussed below with respect to Section 7 of the proposed legislation, counter-illicit 

financing authorities should develop these technologies to exploit such bulk data and find 

patterns and networks of criminal or sanctioned activity operating within our financial system. 

In order to facilitate systemic and low cost financial transparency required for bulk data 

analysis, Congress should support and direct Treasury action as follows: 

a. Support Treasury's issuance of a final rule requiring the reporting of cross border wire 

transfers. Treasury's proposed rule requiring reporting of "Cross-Border Electronic 

Transmittal of funds" was issued in September 2010, following six years of study required 

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by Congress. As anticipated by Congress 13 years ago and confirmed through six years of 

subsequent study by Treasury and ongoing counter-illicit tinancing efforts, such a rule 

would greatly assist relevant authorities in pursuing all manner of illicit finance. Due to 

the standardized, straight-through processing of such reporting, the comparative burden on 

industry in implementing this proposed requirement would be modest. As stated by the 

Director of FinCEN at the time of issuing the proposed rule more than seven years ago, 

"By establishing a centralized database, this regulatory plan will greatly assist law 

enforcement in detecting and ferreting out transnational organized crime, multinational 

drug cartels, terrorist financing, and international tax evasion. FinCEN has examined the 

cross-border reporting issue, taking into account the exceptional benefit to law enforcement 

and the modest cost to industry, and we look forward to working closely with both as this 

rule moves forward through the public comment process." 

Such standardized reporting of cross-border wires should help lead to the development of 

a vastly more effective and efficient approach to AMLICFT reporting, combating illicit 

finance, and protecting our financial integrity and national security. Such reporting would 

also help offset traditional law enforcement concerns about raising reporting thresholds 

under the BSA, particularly with respect to currency transaction reports. Congressional 

support for Treasury's proposed rule issued more than seven years ago may facilitate 

necessary action by the Administration to finalize this rulemaking. 

b. Call upon Treasury to study the feasibility, effectiveness, and ejjiciency of requiring 

reporting of customer on-boarding and exiting pursuant to standardized reporting forms. 

Such standardized and centralized reporting will dramatically enhance financial 

transparency and the effectiveness of the BSA and our AMLICFT regime in combating the 

full range of illicit financing. Standardization and centralization of such a reporting 

requirement should also minimize burden on financial institutions, including by reducing 

the need for various law enforcement requests for information, such as under Section 

314(a) of the USA PATRIOT Act. Developing such a fundamental reporting requirement 

will take considerable time, effort, and study, but as with cross-border wire reporting, the 

benefits of such a requirement should far outweigh the costs. This is particularly true if 

such a requirement enabled relief from other requirements that may prove to be far less 

effective in delivering the financial transparency that counter-illicit financing authorities 

rely upon. 

Congress should direct Treasury to commence such a study now, as it did in 2004 with 

respect to cross border wire reporting. 

4. Expand, strengthen, and clarify the relationship between Sections 4 and 7 of the proposed 

Counter Terrorism and Illicit Finance Act to encourage the broadest innovation and 

application of technologies to combat illicit financing - including through expanded 

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information-sharing between and among financial institutions and governmental 

authorities under Section 314 of the USA PATRIOT Act. 

The highly intermediated and globalized nature oftoday's financial system presents enormous 

challenges for banks and other financial institutions in assessing and managing illicit financing 

risks. Such risks are often spread across and through various financial institutions in a manner 

that is impossible or extremely challenging for individual financial institutions to detect on 

their own. Section 3!4(b) of the USA PATRIOT Act begins to address this challenge by 

enabling financial institutions to share information about these risks under safe harbor 

protections from legal liability. Section 314(a) of the USA PATRIOT Act also helps address 

this challenge by enabling Treasury and law enforcement to request financial institutions to 

search for and report any information they may have about specifically named individuals, 

entities, or organizations suspected of engaging in money laundering or terrorist financing. 

Section 4 of the proposed legislation clarifies and expands information sharing allowances 

under 314(b) of the USA PATRIOT Act in important ways, ultimately assisting individual 

financial institutions meet their AML program requirements and manage illicit financing risks 

in a more effective manner. Section 7 of the proposed legislation encourages the use of 

innovative technologies by financial institutions in meeting their AML program requirements 

by providing legal protection for financial institutions that utilize such technological 

innovation in carrying out their AML programs. 

However, it is not clear that the legal protection for financial institutions to usc technology 

under Section 7 extends to information sharing programs under Section 314(b) of the USA 

PATRIOT Act. Congress should clarifY this extension in a manner that encourages financial 

institutions to apply technological innovations to enhance information sharing with other 

financial institutions - including the technology companies and advisors they employ- under 

the safe harbor protections of 314(b ). 

Moreover, Congress should strengthen, expand, and combine the information sharing 

provisions under Sections 3l4(a) and (b) of the USA PATRIOT Act to clearly enable sharing 

ofbulk information on higher risk customers, transactions, and/or markets between and among 

various combinations of financial institutions, law enforcement, and Treasury. Such action 

will enable common and joint analysis of various illicit financing risks including money 

laundering, terrorist financing, other money laundering predicate offenses, sanctions evasion, 

and tax evasion. Such information sharing should be protected under the current provisions of 

Section 3!4(b) of the USA PATRIOT Act, including safe harbor from legal liability. 

By clearly authorizing such information sharing, Congress will enable financial institutions 

and counter-illicit finance authorities to: 

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• Capitalize on new technologies that can collect, protect, analyze, and exploit various types 

of bulk data to find patterns and networks of criminal or sanctioned activity operating 

within our financial system; 

• Combine and leverage counter-illicit financing expertise across financial institutions and 

counter-illicit finance authorities; 

• Facilitate various pilots that inform all counter-illicit financing stakeholders of how best to 

apply different technologies to financial data in ways that effectively and efficiently 

identify suspicious activity; and 

• Inform the risk-based approach to combating illicit financing by identifying new typologies 

of illicit financing and by facilitating more effective segmentation of illicit financing risk 

across different types of customers, products, services, and markets. 

5. Strengthen and expand Section 6 of the proposed Counter Terrorism and Illicit Finance Act 

by directing Treasury to strengthen, expand, institutionalize, and lead consultations with 

financial sectors and other industries covered by AMVCFT regulation in establishing and 

implementing priorities for U.S. AMVCFT policy. 

As the BSA has expanded in scope and objectives, it has become substantially more complex 

and important. Consequently, policy and regulatory expectations for financial institutions with 

respect to AMLICFT risk management, sanctions compliance, and related matters of financial 

integrity and security have increased dramatically. These expectations greatly surpass 

traditional compliance roles in financial institutions, and now cover the entire enterprise of a 

financial institution or group, including at the board level, senior executive management, lines 

of business, and audit and operational functions. Such "culture of compliance" and 

"enterprise-wise risk management" expectations have purposefully forced financial 

institutions to share ownership in the expanding mission of our AMLICFT regime including 

with respect to combating all forms of financial crime, safeguarding the integrity of our 

financial system, and protecting our national security. 

These increasingly expansive, complex, and important roles and responsibilities of our 

financial institutions and other industries covered by BSA regulation demand a much stronger 

partnership with government. Treasury should substantially expand, elevate, and integrate its 

leadership in consulting with financial institutions and other vulnerable industries on issues of 

financial integrity and national security advanced through our AMLICFT regime. Such 

consultation and partnership should directly inform our AMLICFT policies and priorities. 

6. Amend sub-Section 9(a)(3) and sub-Section 9(a)(J) of the proposed Counter Terrorism and 

Illicit Finance Act to support implementation of Treasury's CDD rule. 

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As explained in greater detail below, Congress should amend sub-Section 9(a)(3) and sub9(a)(l) of the proposed legislation to suppmt implementation of Treasury's COD rule for the 

following reasons: 

(1) The fundamental interests and objectives of the COD rule demand urgent 

implementation as soon as reasonably possible; 

(2) Reopening the COD rule now will: (i) threaten the careful balance of effectiveness and 

workability achieved through an exhaustive and unprecedented process of outreach and 

rulemaking; and (ii) undermine Treasury's credibility and 18 months of compliance 

preparation and investment by covered financial institutions; 

(3) The proposed legislation fundamentally misconstrues Treasury's COD rule; 

( 4) The proposed legislation creates a substantial additional and unnecessary burden on 

financial institutions and FinCEN; 

(5) The proposed legislation discounts the compelling basis for differences in the detailed 

definitions and types of beneficial ownership information that already exist and may 

be required from various U.S. and other legal entities; and 

(6) Treasury already has the authority to amend the COD rule as necessary to enhance its 

effective and workable implementation, including for purposes of aligning COD 

beneficial .ownership requirements to the extent practical with company formation 

requirements. 

(I) The fundamental interests and objectives of the COD rule demand urgent implementation as 

soon as reasonably possible. 

Treasury's COD rule issued on May 11,2016 clarifies, consolidates, and strengthens COD 

requirements for financial institntions currently covered by AML customer identification 

program requirements. The final rule gives such financial institutions two years' time-- until 

May 11, 2018 - to align their COD policies and programs with the requirements set forth in 

the rule. 

As stated and discussed at length in the preamble of the rule, such action is urgently required 

to: 

• Enhance the availability to law enforcement, as well as to the Federal functional regulators 

and self-regulatory organizations, of beneficial ownership information about legal entity 

customers obtained by U.S. financial institutions, which assists law enforcement financial 

investigations and a variety of regulatory examinations and investigations; 

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• Increase the ability of financial institutions, law enforcement, and the intelligence 

community to identifY the assets and accounts of terrorist organizations, corrupt actors, 

money launderers, drug kingpins, prolifcrators of weapons of mass destruction, and other 

national security threats, which strengthens compliance with sanctions programs designed 

to undercut financing and support for such persons; 

• Help financial institutions assess and mitigate risk, and comply with all existing legal 

requirements, including the BSA and related authorities; 

• Facilitate reporting and investigations in support of tax compliance, and advance 

commitment~ made to foreign counterparts in connection with the provisions commonly 

known as the Foreign Account Tax Compliance Act (FA TCA); 

• Promote consistency in implementing and enforcing CDD regulatory expectations across 

and within financial sectors; and 

• Advance Treasury's broad strategy to enhance financial transparency oflegal entities. 

Reopening the CDD rule and delaying its implementation- as proposed by the draft legislation 

-would complicate implementation of a rule that is long overdue and postpone advancement 

of the urgent and fundamental interests and objectives summarized above. 

(2) Reopening the CDD rule now will: (i) threaten the careful balance of effectiveness and 

workability achieved through an exhaustive and unprecedented process of outreach and 

rulemaking; and (ii) undermine Treasury's credibility and 18 months of compliance 

preparation and investment by covered financial institutions. 

Sub-Section 9(a)(3) of the proposed legislation states, 'The Secretary of the Treasury shall, 

simultaneously with issuing the regulations prescribed under paragraph (2) [to carry out the 

company formation reform presented by Section 9 of the proposed legislation], revise thefinal 

rule titled "Customer Due Diligence Requirements/or Financial Institutions" (May II, 2016, 

Fed. Reg. 29397) as necessary to conform with this Act, and the regulations issued under 

paragraph (2)." (Emphasis added). 

As discussed in the preamble, the CDD rule incorporates and benefits from exhaustive 

stakeholder comments collected through an outreach campaign unprecedented in the history 

of BSA rulemakings. Such outreach included six years of intensive consultations with U.S. 

financial institutions, regulators, law enforcement, and national security authorities- including 

through five public hearings hosted by Treasury and the regulators in Washington, DC, New 

York, Los Angeles, Chicago, and Miami. It also included substantial preparation and comment 

on formal guidance issued by FinCEN and the federal financial regulators in 2010; notice and 

comment on a follow-on Advanced Notice of Proposed Rulemaking issued in March 2012; 

and notice and comment on a subsequent Notice of Proposed Rulemaking issued in August 

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2014. It also included substantial discussions with the global AMLICFT community, including 

through several years of CDD standard-setting and follow-up reports by the United States on 

the FATF's peer review assessment of the U.S. AMLICFT regime. As explained in the section 

above summarizing the modem evolution of the BSA, the F ATF is the global policymaking 

body that the U.S. helps lead in developing global standards, policies, and processes governing 

AMLICFT, sanctions, and counter-proliferation finance regimes in countries around the world. 

This exhaustive outreach, consultation, and preparation associated with Treasury's COD rule 

resulted in a carefully balanced rule that is both: (i) effective in advancing the counter-illicit 

financing and other fundamental interests summarized above; and (ii) workable in establishing 

a baseline and level playing field across a highly diversified set of U.S. financial institutions 

and industries. 

Opening the COD rule up to revision now invites opportunism by special interests to upset the 

appropriate balances struck by Treasury after so many years of consultation across all interests. 

Opening the CDD rule up to revision now would also substantially undercut the credibility of 

Treasury with AML/CFT stakeholders across the domestic and international financial system 

and across the global counter-illicit finance community. Opening the COD rule up to revision 

now would also penalize those U.S. financial institutions that have already invested in policies, 

programs, training, and systems and controls to comply with the requirements of the final rule, 

issued over 18 months ago. 

(3) The proposed legislation fundamentally misconstrues Treasury's CDD rule. 

Sub-Sections 9(a)(l) and 9(a)(3) of the proposed legislation delay and jeopardize 

implementation of the COD rule for purposes of conforming beneficial ownership 

requirements between COD and company formation and to assist financial institutions meet 

their compliance obligations under the COD rule. This fundamentally misconstrues the 

objectives, scope, requirements, and integrity of the CDD rule. 

As discussed exhaustively in Treasury's consultations and outreach in developing, proposing, 

and finalizing the COD rule and as explained in the preamble of the rule - Treasury 

specifically, deliberately, and necessarily crafted the COD rule as an essential but independent 

component ofTreasury's three-prong strategy to enhance the transparency oflegal entities. As 

summarized above, this three-prong strategy is also only one of six primary objectives stated 

in the preamble for advancing the purposes of the BSA through the issuance of the COD rule. 

The specific scope, requirements, and integrity of beneficial ownership information in the 

CDD rule were specifically tailored to effectively advance all six of the BSA objectives 

summarized above in a consistent and workable manner for our financial system. The scope, 

objectives, requirements, and integrity of beneficial ownership information may not be the 

same when considering how best to achieve corporate transparency in the U.S. company 

formation process. 

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For example, the scope of the beneficial ownership requirements of the CDD rule equally 

encompasses both U.S. and foreign legal entity customers of covered U.S. financial institutions 

·-subject to qualifications, exceptions, and exemptions carefully drawn through the rulemaking 

and outreach processes described above. The COD rule's coverage of foreign legal entities 

which are not subject to domestic company formation processes - is necessary given the 

proven and systematic abuse of foreign as well as domestic legal entities by all manner of illicit 

financing threats. Yet, necessary company formation reform in the United States- including 

as proposed by Section 9 cannot cover the formation of foreign legal entities. 

Owing in part to such differences in objectives and scope, beneficial ownership requirements 

for CDD purposes may not be the same as for company formation purposes. While the counter 

illicit financing interests in the transparency of legal entities are substantially similar for 

purposes of CDD by financial institutions and company formation reform, there are other 

important objectives and interests relevant for each of these initiatives, including with respect 

to effectiveness and workability. For purposes of COD by financial institutions, these other 

objectives as summarized above were heavily explored and discussed through the CDD 

outreach and rulemaking process. For example, a paramount concern in this process was 

establishing a consistent approach and consistent baseline requirements for CDD across a 

range of different types of domestic and foreign legal entities for a highly diversified and 

intermediated U.S. financial system. This particular concern in establishing beneficial 

ownership requirements for CDD by financial institutions may not be as relevant as other 

concerns or objectives associated with establishing effective and workable beneficial 

ownership requirements for U.S. company formation processes. 

The beneficial ownership requirements of the CDD rule are for covered financial institutions 

to identify and verify the identity of the beneficial ownership of certain legal entity customers. 

Tn meeting these beneficial ownership requirements, Treasury has explicitly and deliberately 

clarified that covered financial institutions can and should apply the systems and controls they 

have already developed and implemented for their customer identification and verification 

programs. By applying such customer identification and verification program requirements to 

the identification and verification of beneficial ownership, the COD rule minimizes burden for 

financial institutions covered by the CDD rule. In part for this reason, Treasury deliberately 

issued the COD rule to cover those financial institutions that have already been subjected to 

customer identification and verification requirements under Section 326 of the USA PATRIOT 

Act by law and regulation for well over a decade. 

As as explained exhaustively in the CDD rulemaking process and the preamble to the rule, 

Treasury did not require covered financial institutions to verify the status of beneficial 

ownership. Rather, as stated by FinCEN in the preamble to the rule: 

... [A] covered financial institution may rely on the information supplied by the legal 

entity customer regarding the identity of its beneficial owner or owners, provided that 

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it has no knowledge of facts that would reasonably call into question the reliability of 

such information. FinCEN anticipates that, in the overwhelming majority of cases, a 

covered financial institution should be able to rely on the accuracy of the beneficial 

owner or owners identified by the legal entity customer, absent the institution's 

knowledge to the contrary .... 

As discussed elsewhere in the preamble and as required by the CDD rule, this general reliance 

by a financial institution on the identification ofthe beneficial owner by the customer does not 

mitigate a financial institution's requirement to then verify the identity of the beneficial owner. 

Similar to the requirements of customer identification and verification programs, such 

verification of a beneficial owner's identity will generally rely on copies of identification 

documents supplied by the financial institution's customer, or accountholder. Importantly, this 

reliance allows the financial institution to avoid the substantial burden of systematically 

verifying the status of the beneficial owner. 1 

This reliance raises potential concern about the integrity of beneficial ownership information 

needed for purposes of effectively advancing the CDD interests and BSA objectives 

summarized above. Again, this concern was exhaustively discussed in the CDD rulemaking 

process. As explained by FinCEN in the preamble to the rule, law enforcement has determined 

that it can effectively use the beneficial ownership information collected and verified (again, 

with respect to the identity of the beneficial owner rather than the status of the beneficial 

owner) under the CDD rule: 

... [W]hile a criminal may well lie regarding a legal entity's beneficial ownership 

information, verification of the identity of the natural person(s) identified as a 

beneficial owner will limit her ability to do so in a meaningful way such that she could 

avoid scrutiny entirely. Furthermore, as the Department of Justice has noted throughout 

this rulemaking process, a falsified beneficial ownership identification would be 

valuable evidence in demonstrating criminal intent Even the verified identity of a 

natural person whose status as a beneficial owner bas not been verified provides law 

1 Tn cases of elevated risk or where the financial institution has reason to suspect the reported 

beneficial ownership of a covered legal entity customer, financial institutions should consider 

verifying the status of the reported beneficial owner, including by obtaining supporting 

documentation of beneficial ownership status from the customer or third parties. In such limited 

instances, there may be some differences between the definition of beneficial ownership in the 

CDD rule and the definition of beneficial ownership by the relevant company formation authority, 

but such differences should be highly manageable in discussions with the customer and I or any 

relevant third parties as appropriate to understand the beneficial ownership structure of the relevant 

legal entity customer. It is certainly more manageable than creating an expectation that financial 

institutions will systematically verify the status of beneficial ownership. And as discussed below, 

such definitional differences in beneficial ownership are inevitable where a financial institution 

maintains accounts for various legal entities subjected to various potential beneficial ownership 

disclosure requirements by different authorities for different purposes. 

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enforcement and regulatory authorities with an investigatory lead from whom they can 

develop an understanding of the legal entity, 

At this point, it is unclear how the specific requirements and integrity of beneficial ownership 

information collected under anticipated and necessary U.S. company formation reform will 

need to be shaped in a mam1er that is both effective for the purpose of combating criminal 

ahuse of U.S. legal entities and workable for U.S. company formation processes. Indeed, for 

this reason, the proposed legislation appropriately delegates rulemaking authority to Treasury 

to develop such detailed requirements. 

It is also unclear what other objectives or interests may be relevant to or may substantially 

inform beneficial ownership requirements in U.S. company formation reform processes. For 

example, such requirements may also consider current beneficial ownership disclosure 

obligations and processes relevant to U.S. legal entities for tax purposes, such as in obtaining 

employer identification numbers from the IRS. It may be that such requirements and the 

associated integrity of the beneficial ownership information to be collected under company 

formation reform necessarily differ in some respects from the beneficial ownership information 

required under the CDD rule. Again, these are detailed issues that Treasury will need to 

address in the rule making process. 

( 4) The proposed legislation creates a substantial additional and unnecessary burden on financial 

institutions and FinCEN. 

The effect of sub-Section 9(a)(3) as drafted will impose substantial additional burden on U.S. 

financial institutions. By opening up the CDD rule to conform beneficial ownership 

requirements with those to be established under company formation reform, the proposed 

legislation creates an expectation that U.S. financial institutions should verifY the status of 

beneficial ownership of their U.S. legal entity customers covered by the CDD rule. As 

explained above and discussed at length in the CDD rulemaking process, such an expectation 

was specifically rejected in the CD mle because of the substantial and unnecessary burden this 

would place on financial institutions. 

Moreover, sub-Section 9(a)(l) creates an expectation that financial institutions should 

independently verifY the status of such customers by obtaining company formation information 

from. FinCEN. Specifically, the proposed Transparent Incorporation Practices presented in 

Sub-Section 9(a)(l) would require FinCEN to provide beneficial ownership information of 

certain U.S. legal entities upon receipt of, inter alia, "a request by a financial institution, with 

customer consent, as part of the institution's compliance with due diligence requirements 

imposed under the Bank Secrecy Act, the USA PATRIOT Act, or other applicable Federal or 

State law." (Emphasis added). 

This verification burden is particularly significant and entirely unnecessary. Again, as 

explained above and discussed exhaustively in Treasury CDD rulemaking process, financial 

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institutions can and should rely on their customers to produce beneficial ownership 

information, including any relevant supporting documentation requested by the financial 

institution. Even in certain high-risk instances where the financial institution should verity the 

status of the beneficial ownership disclosed to them by their legal entity customers, financial 

institutions should generally obtain company formation and other corporate documents from 

their customers, not from company formation authorities or FinCEN. 

This verification requirement would also impose an incredible burden on FinCEN, which 

would have to devote unknown resources to managing potentially thousands of requests for 

company formation documents from any one of tens of thousands of financial institutions 

currently covered by the CDD rule, possibly on a daily basis. 

(5) The proposed legislation discounts the compelling basis for differences in the detailed 

definitions and types of beneficial ownership information that already exist and may be 

required from various U.S. and other legal entities. 

Differences in various definitions of beneficial ownership already exist and inevitably will 

continue to exist for various U.S. legal entities. This is true across the domestic and 

international financial system and global economy, including for U.S. and foreign tax 

compliance purposes, for SEC and other disclosure requirements associated with public 

markets, and for different AMLICFT and sanctions risk management regimes required by 

different jurisdictional authorities and different financial institutions' risk-based policies. 

Even within the CDD rule itself, different beneficial ownership requirements or expectations 

exist for different types of legal entities such as trusts, charities, or certain pooled investment 

vehicles. And different types of legal entities from different jurisdictions will inevitably have 

differences in definitions of beneficial ownership, based on illicit financing and other risk 

factors, legitimate economic interests, and practicality considerations associated with the 

structures and beneficial ownership implications of such legal entities. 

This cursory acknowledgement of the differences in the detailed definitions of beneficial 

ownership for different types of legal entities, from different authorities and different 

financial institutions, for different purposes and different types of risk management, and across 

different jurisdictions -- underscores the importance of the careful, thoughtful, balanced, and 

consistent approach that Treasury has taken to the beneficial ownership requirements in the 

CDD rule. It also underscores the challenges and practical impossibility of aligning all 

definitions and approaches to beneficial ownership that may otherwise apply for various 

legitimate reasons to U.S. and other legal entities subject to the CDD rule. 

(6) Treasury already has the authority to amend the CDD rule as necessary to enhance its effective 

and workable implementation, including for purposes of aligning CDD beneficial ownership 

requirements to the extent practical with company formation requirements. 

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The arguments presented above in support of Treasury's CDD rule and the compelling reasons 

that support detailed differences in current beneficial ownership requirements for various legal 

entities should not discount the obvious benefits of harmonizing beneficial ownership 

requirements and expectations as much as practically reasonable. For this reason, Treasury, 

U.S. regulators, and their counterparts around the world have invested considerable time and 

etTort over the past generation in developing global standards to govern beneficial ownership 

and other fundamental requirements of preventive measures associated with AMLICFT 

regimes. These authorities also coordinate the development and implementation of such 

requirements with other global standards, including those governing tax compliance and 

financial and market safety, soundness, and stability. Nonetheless, the particular interests and 

objectives that drive the need for beneficial ownership disclosure requirements in any given 

scenario require flexibility that often defies uniformity. 

Of course, further guidance for implementing the CDD rule will be necessary. Potential 

revisions to the CDD rule itself may also be necessary. But any such revisions must carefully 

consider how the requirements in the current rule carefully balance the types of complexities 

outlined above. Treasury already has the authority to manage this process. Congress should 

recognize this, including by supporting Treasury's issuance of the CDD rule. 

Moreover, as explained in my recommendation below, giving Treasury the authority to manage 

implementation of the company formation reform process will enable Treasury to harmonize 

the beneficial ownership requirements of this process as much as practically reasonable with 

the beneficial ownership requirements under the CDD rule. And Treasury can always revise 

the CDD rule as needed to enhance its effectiveness and workability across all stakeholder 

interests. 

Managing these kinds of complexities to meet the compelling law enforcement, financial 

integrity, and national security interests summarized in the preamble to the CDD rule should 

be left to the expertise of Treasury, counter-illicit financing authorities, financial regulators, 

and industry, including through knowledge gained in the unprecedented outreach and 

rulemaking process that guided the development of the CDD rule over several years. 

7. Otherwise consider Section 9 of the proposed Counter Terrorism and Illicit Finance Act and 

swiftly enact company formation reform to require the systemic reporting and maintenance 

of beneficial ownership information pursuant to an effective and workable framework. 

Congressional action is urgently required to address a longstanding, well-understood, and 

primary vulnerability in the U.S. AMLICFT regime. The systemic challenges posed by the 

chronic abuse of U.S. legal entities to mask the identities and illicit financing activities of the 

full scope of criminal and illicit actors has been well known for far too long. For several years 

and through at least four consecutive administrations, various arms of the Executive Branch 

including several law enforcement agencies and the Department of the Treasury have called 

for meaningful action on this issue. For an even longer period, the Senate Permanent 

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Subcommittee on Investigations, beginning with the prior leadership of Senator Levin, has 

called for such action. 

Unlike in the case of beneficial ownership and CDD, Treasury currently does not have the 

authority to effectively address this longstanding and fundamental vulnerability in our 

AMLICFT regime. Aside from the amendments to Section 9 of the proposed legislation 

discussed above, the particular company formation reform process presented by Section 9 

provides Treasury with the authority and flexibility to close down this ongoing abuse of U.S. 

legal entities pursuant to an effective and workable framework. 

It is important to recognize that several alternative approaches exist for addressing this core 

vulnerability of abuse of U.S. legal entities. Many such alternative approaches have been 

considered by Congress before, and some of these alternatives also present effective and 

workable solutions. Of course, Congress may consider further amendments to Section 9 based 

on these alternative approaches. However, Congress should swiftly adopt company formation 

reform to require the reporting and maintenance of beneficial ownership information pursuant 

to an effective and workable framework, such as presented in Section 9 of the proposed 

legislation. As discussed above, such company formation reform should proceed as an 

essential but independent complement to Treasury's CDD rule, rather than as an 

interdependent and co-joined requirement. And such company formation reform should 

empower Treasury with both the authorities and resources to manage this process moving 

forward, as reflected by the proposed legislation. 

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d 

MisON 

UNIVERSITY 

Representative Jeb Hensarling 

Schar School of Policy and Government 

3351 Fairfax Drive, MS 381, Arlington, Virginia 22201 

Phone: 703-993-2280; Fax: 703-993-8215 

Chairman, Committee on Financial Services 

2228 Rayburn House Office Building 

Washington, DC 20515 

Representative Maxine Waters 

Ranking Member, Committee on Financial Services 

2221 Rayburn House Office Building 

Washington, DC 20515 

Dear Honorable Hensarling and ·Honorable Waters, 

December 7, 2017 

I am writing to you as a specialist on human trafficking and illicit financial flows that 

has testified and met with your staff on issues of accountability and curtailing threat 

finance. I am the founder and director of the Terrorism, Transnational Crime and 

Corruption Center, the only institution of its kind that addresses different forms of illicit 

activity and their intersection with corruption and terrorism. I am part of the scientific 

committee of the new Homeland Security Center of Excellence at George Mason University 

on network analysis and transnational crime and a member of the Council on Foreign 

Relations. 

I am requesting that this letter be added to the comments on last week's hearing in 

regards to the November 29, 2017 Joint Hearing Entitled "Legislative Proposals to Counter 

Terrorism and lllicit Finance." 

My comments focus on Section 9 of the discussion draft of the "Counter Terrorism 

and Illicit Finance Act."1 In my writings such as my book Dirty Entanglements: Corruption, 

Crime and Terrorism, congressional testimony and research on illicit trade, I have found 

diverse sources that link corruption, transnational crime, and threat finance and money 

laundering to anonymous shell companies both in the have been shown to represent an 

important nexus of corruption, transnational organized crime, and terrorism, and money 

laundering. These linkages, facilitated by non-transparent financial flows have harmed U.S. 

security both domestically and our personnel stationed overseas. Moreover, development 

1 Counter Terrorism and Illicit Finance Act {Discussion Draft), H.R.____. 115th Cong., 1st Sess., {November 

14, 2017), htiJ:!s:/!finandalservices.house.gov/uploadedflles{bills-115hr-pih-ctifa.pdf-
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funds intended to improve the Jived of individuals in post-conflict regions and other 

problematic areas are too frequently diverted into the hands of corrupt officials who do not 

share our political or economic interests. 

Anonymous companies allow crime to pay. As drug traffickers can launder money, 

human traffickers and smugglers can pay safe houses and terrorists can move them money 

unimpeded to offshore havens as seen in the Panama Papers. Anonymous companies, as I 

have testified before your committee are used to purchase real estate that can distort 

housing markets, show that crime does pay, and move individual farther away from their 

jobs. 

There is a growing awareness of these problems and growing bi-partisan support to 

counter anonymous companies and require the beneficial owners of companies to be 

declared. 

The following provisions discussed at the hearing in reference to Section 9 of the draft 

legislation are particularly important in assisting law enforcement go after those seeking to 

obscure the illicit source of their funds. These measures include the following: 

1. Ensure that domestic law enforcement has access, including federal, state, tribal. 

and local, to the Financial Crime Enforcement Network's (FinCEN) database of 

beneficial ownership information. This shouldn't require a subpoena. 

2. Ensure that foreign law enforcement has access to beneficial ownership information 

so that it can be used in criminal and civil prosecutions. There is increasing interest 

in many locales including financial centers overseas to increase available 

information. 

3. Require foreign nationals to file their beneficial ownership information with 

FinCEN, including submitting a scanned copy of the relevant pages of their nonexpired passport to FinCEN and define the term "applicant." 

4. Add an enforcement mechanism to the discussion draft. This could be done by 

making the state incorporation process dependent on beneficial ownership 

information being provided to FinCEN. It could potentially be done by ensuring 

FinCEN has the authority to regulate in this area in order to have current listings 

from the states about all of the corporations and LLCs that are active. 

5. Allow identification for beneficial owners to include non-expired state issued 

identification to meet the requirement if they do not have a non-expired U.S. driver's 

license or passport. 
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Centrality of Beneficial Ownership 

Understanding the linkages between illicit financial flows and insecurity has become 

increasingly clear after the revelations of the Panama and the Paradise Papers. The 

definition of Beneficial Ownership needs to be clarified to ensure that people are not listed 

as beneficial owners to mask the true identity of the holder of the assets. Knowing the 

beneficial owners has proved very helpful in countering human trafficking that acquires on 

property with known owners. Financial pressure can be placed by mortgage holders on the 

hotels where drug trades and human trafficking are going on. With beneficial ownership, it 

is possible to go after key facilitators of this activity as has been done successfully by HSI of 

Homeland Security. 

In conclusion, there are important changes that need to be implemented in the 

proposed legislation to make it more effective in countering transnational crime, diverse 

forms of illicit trade and terrorism. 

Sincerely, 

Dr. Louise Shelley 

Orner L. and Nancy Hirst Endowed Chair 

Director, Terrorism, Transnational Crime and Corruption Center (TraCCC) 

University Professor, Schar School of Policy and Government 

George Mason University 

3351 Fairfax Drive MS3B1, Rm. 712, 

Arlington, VA 22201, USA 
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CHUCK CANTERBURY NATIONAL PRESIDENT 

6 December 2017 

NATIONAL 

FRATERNAL ORDER OF' POLICE® 

328 ~SSACHUSETTS AVE., N.E. 

WASHINGTON, DC 20002 

PHONE 202-547-8189 • FAX 202-547-6190 

JAMES 0. PASCO, JR. 

EXECUTIVE OIRECTOR 

The Honorable Stevan E. Pearce 

Chairman 

The Honorable Edwin G. Perlmutter 

Ranking Member 

Subcommittee on Terrorism and Illicit Finance 

Committee on Financial Services 

U.S. House of Representatives 

Washington, D.C. 20515 

The Honorable W. Blaine Luetkemeyer 

Chairman · 

Subcommittee on Financial Institutions and 

Consumer Credit 

Committee on Financial Services 

U.S. House of Representatives 

Washington, D.C. 20515 

Subcommittee on Terrorism and Illicit Finance 

Committee on Financial Services 

US. House of Representatives 

Washington, D.C. 20515 

The Honorable W. Lacy Clay 

Ranking Member 

Subcommittee on Financial Institutions and 

Consumer Credit 

Committee on Financial Services 

US. House of Representatives 

Washington, D.C. 20515 

Dear Messrs Chairman and Representatives Perlmutter and Clay, 

I am writing on behalf of the members of the Fraternal Order of Police to advise you of our perspective on 

proposed legislation entitled the "Counter Terrorism and Illicit Finance Act," which was the subject of the 

joint subcommittee hearing last week. 

The FOP agrees that it is necessary to update and strengthen the tools law enforcement needs to combat 

criminals who infiltrate our nation's financial system. We are very pleased that the beneficial ownership 

language from H.R. 3089, the "Corporation Transparency Act," is included in the draft. The FOP has 

spent years calling for the collection of this data to investigate and prosecute money launderers and other 

bad actors abusing U.S. financial institutions to conceal or clean profits from illicit activities. 

In order to profit from their unlawful activities, criminals and criminal organizations need the ability to 

launder their proceeds and, regrettably, the U.S. financial system is vulnerable to exploitation. Without 

access to critical information like beneficial ownership, law enforcement does not have the robust tools it 

needs to catch and deter individuals and organized syndicates from using our banking laws to hide or 

launder money from their illegal operations. As this legislation continues to develop, we strongly urge the 

Committee to update and strengthen our anti-money laundering laws. 

First and foremost, the legislation must require that beneficial ownership information be provided to local, 

State or Federal law enforcement officers conducting an investigation upon presentation of a lawful court 

order. The current draft would prevent State and local law enforcement from receiving this data and, with 

more than 90% of U.S. law enforcement operating at the State or local level, it makes no sense to prevent 

-BUILDING ON A PROUD TRADITION-
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them from investigating financial crimes or the criminal use of our financial institutions by criminals or 

criminal organizations. Excluding State and local police and prosecutors from gaining access to this 

information would severely limit the utility of this legislation. 

Similarly, law enforcement should be able to access this information with any valid court order and not 

limit their ability to conduct a full and complete investigation only after the individual has been charged or 

indicted. Investigations in cases involving networks of linked accounts or anonymous shell corporations 

are difficult and time-consuming. Broader access to beneficial ownership information is vital if law 

enforcement is going to protect our financial system. The collection of ownership information will not 

help law enforcement combat money launderers or illicit financiers if our ability to access it is so tightly 

restricted. The FOP supports the language ofH.R. 3089 on this issue. 

We are also concerned that our counterparts overseas may not be allowed if provided beneficial ownership 

information through appropriate international agreements, to use the information in criminal cases. While 

we support law enforcement globally, our specific concern is that we then would be limited in what we can 

expect in return. Since bad foreign actors increasingly seek the safety and stability of the U.S. economy, 

any legislation must be sure not to create any obstacles to information that can help officers follow the 

money and shutdown illegal operations wherever they are located. 

On behalf of the more than 330,000 members ofthe Fraternal Order of Police, I want to thank both of your 

Subcommittees for their work on this important issue. The FOP stands ready to assist these efforts in any 

way we can to ensure that our financial systems are protected and to shut down the money laundering 

operations of these criminal enterprises. If we can provide any additional information or insights on this 

issue, please do not hesitate to contact me or my Senior Advisor, Jim Pasco, in my Washington office. 

CL1Dtt 

Chuck 

National 

Canterbury 

President 

~ cJ 

cc; The Honorable T. Jeb Hensarling, Chaim1an, Committee on Financial Services 

Tite Honorable Maxine M. Waters, Ranking Member, Committee on Financial Services 
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The Honorable Steve Pearce 

Chairman, Subcommittee on Terrorism and Illicit Finance 

U.S. House Financial Services Committee 

2432 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Blaine Luetkemeyer 

4201 Dahlia Court 

Rockingham, VA 22801 

(703) 945-6653 

John@JohnCassara.com 

December 6, 2017 

Chairman, Subcommittee on Financial Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2230 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Ed Perlmutter 

Ranking Member, Subcommittee on Terrorism and Illicit Finance 

U.S. House Financial Services Committee 

1410 Longworth House Office Building 

Washington, DC 20515 

The Honorable lacy Clay 

Ranking Member, Subcommittee on Financial Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2428 Rayburn House Office Building 

Washington, DC 20515 

RE: November 29,2017 Joint Hearing Entitled "Legislative Proposals to Counter Terrorism and Illicit 

Finance" 

Dear Chairmen Pearce and Luetkemeyer and Ranking Members Perlmutter and Clay, 

I am pleased to note the recent hearing on "legislative Proposals to Counter Terrorism and Illicit 

Finance." All of the witnesses recognized the threats posed by anonymous shell companies. They 

endorsed the need to collect and make available to law enforcement beneficial ownership information. 

I am a former U.S. intelligence officer and Treasury Special Agent. My areas of expertise are anti-money 

laundering and counter-terrorist finance (AML/CFT). I have written four books on the subjects and 

numerous articles. I have testified before the Subcommittee on Terrorism and Illicit Finance. Last week, 

I testified before the Senate Judiciary Committee on their hearing on 5.1241: Modernizing AML Laws to 
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Combat Money Laundering and Terrorist Finance., where every single witness similarly endorsed the 

need to collect and make available to law enforcement beneficial ownership information. 

I am very pleased that Congress is moving forward to provide a degree of transparency regarding 

beneficial ownership of U.S. shell companies. This is a very important issue. Criminal organizations, 

kleptocrats, tax cheats, and terrorists have long used the anonymity offered by shell companies to avoid 

scrutiny, launder money, evade taxes and engage in other forms of financial crime. 

Since my "retirement," I have traveled the world training foreign law enforcement, intelligence 

agencies, and customs services in AML/CFT on behalf of the U.S. government. During my discussions 

with foreign counterparts, I am invariably asked by foreign law enforcement about an investigation they 

are conducting with ties to a "Delaware company." They ask if I tan assist them in obtaining beneficial 

ownership information. There is nothing I can do to help. It is quite embarrassing- particularly when 1 

am lecturing them on the need for financial transparency. 

Regarding the draft bill, I support the full testimony presented by Stefanie Ostfeld of Global Witness, a 

member of the FACT Coalition, at the November 29th hearing. In particular, I endorse the following 

points she made regarding beneficial ownership information: 

1. Ensure that domestic law enforcement has access, including federal, state, tribal, and local, to 

the Financial Crime Enforcement Network's (FinCEN) database of beneficial ownership 

information. This shouldn't require a subpoena. 

2. Ensure that foreign law enforcement has access to beneficial ownership information so that it 

can be used in criminal and civil prosecutions. 

3. Require foreign nationals to file their beneficial ownership information with FinCEN, including 

submitting a scanned copy of the relevant pages of their non-expired passport to FinCEN and 

define the term "applicant." 

I appreciate the opportunity to present my views. I commend your continued efforts to improve our 

legislative efforts to combat terrorist financing, money laundering, and other forms of illicit finance. 

Sincerely, 

John A. Cassara 

cc The Honorable Jeb Hensarling, Chairman, U.S. House Financial Services Committee 

The Honorable Maxine Waters, Ranking Member, U.S. House Financial Services Committee 
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December 5, 2017 

The Honorable Steve Pearce 

2432 Rayburn House Office Building 

Washington, D.C. 20515 

The Honorable Ed Perlmutter 

141 0 Longworth House Office Building 

Washington, D.C. 20515 

Re: Discussion draft of the Counter Terrorism and Illicit Finance Act 

Dear Representative Pearce and Representative Perlmutter: 

Main Street Alliance, a network of small business owners throughout the country, writes to 

comment on the hearing of the discussion draft of the Counter Terrorism and Illicit Finance Act. 

Specifically, we write to urge to you keep and strengthen Section 9 of the draft involving the 

collection of beneficial ownership information. Main Street small businesses want to know who 

they arc doing business with, who their competition is for contracts, and who is doing business in 

their communities. 

Requiring secretive businesses to come out from the shadows will benefit small businesses in 

several ways. It will reduce conflicts of interest and cronyism in contracting, as well as curb false 

billing of contractors, and fraudulent certification of small businesses. Furthermore, ownership 

information will help prevent those who previously defrauded taxpayers from establishing a new 

sham operation and winning new contracts. In short, transparency levels the playing field so that 

businesses will engage in open competition based on product or service quality, organizational 

efficiencies, and talent. 

Providing ownership information is not a burden for small businesses. Small business owners 

know who owns and controls their enterprises. The definition of beneficial owner in the bill is 

easy for any small business owner who is not engaged in wrongdoing (and thereby seeking 

anonymity through complexity) to understand. Small businesses do not have complex ownership 

structures, so we do not see among our members the kinds of concerns raised by some during the 

hearing. 

Providing one's name, address and identification is not costly or time consuming. The 

requirements in the draft bill do not unduly complicate the corporate formation process and the 

Main Street Alliance- llOl 17th St. NW, Suite 1220, Washington, DC 20036 

(202) 263-4529 - www .mainstreetalliance.org 
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potential benefits of greater transparency, as detailed above, arc important to our businesses and 

communities. 

If passed, Section 9 of the discussion draft will reduce uncertainty and liability when working 

with subcontractors or other businesses in the supply chain. It will give business owners 

confidence that there is accountability in the system. 

To ensure sham businesses are kept in check, we urge you to keep the penalties and strengthen 

the bill so that there is adequate enforcement The threats posed by unfair competition, stolen 

contracts, and unaccountable damage to local economies are very serious concerns, and we hope 

the Committee members appreciate the consequences of inaction. 

Thank you for the opportunity to comment We look forward to working with you. For 

questions, please contact Sapna Mehta, Legislative Policy Director, at 

sapna@mainstreetalliance.org. 

Signed, 

Amanda Ballantyne 

National Director 

Main Street Alliance 

Main Street Alliance· 110117th St. NW, Suite 1220, Washington, DC 20036 

(202) 263-4529- www .mainstreetalliance.org 
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The Honorable Jeb Hensarling 

Chairman 

House Financial Services Committee 

United States House 

Washington, DC 20515 

National District Attorneys Association 

1400 Crystal Drive, Suite 330, Arlington, VA 22202 

703.549.9222/703.836.3195 Fax 

www.ndaa.org 

December 7, 2017 

The Honorable Maxine Waters 

Ranking Member 

House Financial Services Committee 

United States House 

Washington, DC 20515 

Dear Chairman Hensarling and Ranking Member Waters, 

On behalf of the National District Attorneys Association (NDAA), the largest prosecutor 

organization representing 2,500 elected and appointed District Attorneys across the United States 

as well as 40,000 Assistant District Attorneys, I write regarding the most recent hearing you held 

entitled "Legislative Proposals to Counter Terrorism and Illicit Finance", specifically the Counter 

Terrorism and Illicit Finance Act. 

As part of that legislative proposal, the committee is considering what information is available to 

law enforcement agencies, and through what process that information is obtainable. As end users 

of evidence collected throughout the investigative process, it is imperative that prosecutors have 

as much information as possible in order to determine the best course of action for prosecuting an 

individual or entity that bas committed a crime. Law enforcement and prosecutors must have 

access to that beneficial owner information when legally authorized by the court, including 

through criminal and administrative subpoenas. 

At a somewhat alarming rate, our members are seeing increased use of shell corporations as 

fronts for various criminal activities including money laundering and fraud, often times by 

foreign nationals. Additionally, fraud and other laundering efforts impact local businesses and 

individuals, creating a direct connection to the well-being of the communities we serve. 

Obtaining owner information creates a critical information-sharing tool for law enforcement to 

investigate the real identity of individuals creating fronts for their illicit gains. Unfortunately, the 

legislation would restrict access to the beneficial ownership information to federal law 

enforcement agencies, which demonstrates a fundamental misunderstanding that the majority of 

investigative work and prosecution takes place at the state and local leveL 

We appreciate your efforts on addressing this issue, and hope you will take the above suggestions 

into consideration when marking up the draft legislation. We look forward to working with you 

and. your staff to provide a necessary tool for law enforcement and prosecutors to combat the use 

of shell companies and other nontransparent entities created as a front for criminal activity. 

Michael 0. Freeman 

President 

To Be the Voice of America's Prosecutors and to Support Titeir Efforts to Protect the Rights and Safety of the People 
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December?, 2017 

The Honorable Steve Pearce 

Chairman, Subcommittee on Terrorism and 

Illicit Finance 

U.S. House Financial Services Committee 

2432 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Ed Perlmutter 

Ranking Member, Subcommittee on 

Terrorism and Illicit Finance 

U.S. House Financial Services Committee 

1410 Longworth House Office Building 

Washington, DC 20515 

The Honorable Blaine Luetkemeyer 

Chairman, Subcommittee on Financial 

Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2230 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Lacy Clay 

Ranking Member, Subcommittee on 

Financial Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2428 Rayburn House Office Building 

Washington, DC 20515 

RE: November 29, 2017 Joint Hearing Entitled "Legislative Proposals to Counter Terrorism and 

Illicit Finance" 

Dear Chairrren Pearce and Luetkemeyer and Ranking Members Perlmutter and Clay, 

Thank you for holding the recent hearing on "Legislative Proposals to Counter Terrorism and Illicit 

Finance". We would like to offer comments for the record regarding the discussion draft of the 

"Counter Terrorism and Illicit Finance Act", 1 and more specifically regarding its Section 9: "Transparent 

Incorporation Practices". We urge your sub-committees to preserve the strong definition of "beneficial 

owners" adopted in that draft, and at the same time to strengthen the bill in order to make it more 

effective to fight financial crimes. 

Oxfam is a global organization working to end the injustice of poverty. We work with poor communities 

in over 90 countries to help them build better futures for themselves. stand up for their rights, and save 

lives in disasters. 

1 U.S. House. 115th Congress, 1" Session. H.R. __ , Counter Terrorism and Illicit Finance Act: Discussion Draft 

dated November 14, 2017. https:l/financialservices.house.govluploadedfileslbills-115hr-pih-ctifa.pdf. 

OXFAM AMERICA 

226 CAUSEWAY STREET. STH FLOOR 

BOSTON. MA 02114-2206 

USA 

TEL +1 (800) 77 OXFAM FAX +1 (617) 728 2594 

WoNW.oxfamamerica.org 
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Based on decades of experience in international development, we have concluded that 

incorporation transparency is essential to alleviate poverty in the world. Corruption, tax 

evasion, arms trafficking, and human trafficking are scourges that afflict developing 

countries. These crimes have in common the fact that the trail of investigations into them 

often ends with anonymous shell companies. 

Corruption is one of the principal barriers to economic development and poverty alleviation. 2 

Not only does it waste public resources that could otherwise fund schools, clinics and other 

social services, but it also discourages private investment, and fosters distrust between 

citizens and their government, which makes countries ungovernable and prone to civil strife. 

Almost a third of rich Africans' wealth- about $500 billion- is estimated to be held offshore, 

much of it undeclared, which may cost African governments $14 billion a year.3 That is 

equivalent to the sums needed to pay for healthcare to save the lives of 4 million children 

and to employ teachers and allow every African child to go to school. 

At least $2.2 billion worth of arms and ammunition was illegally imported by countries under 

arms embargoes between 2000 and 2010,4 fueling civil wars that destroy lives and 

livelihoods and set countries decades backward on their development paths. 

Oxfam has documented the horrific stories of migrants fleeing war zones only to fall prey to 

human traffickers.5 Anonymous companies from Kansas, Missouri and Ohio were 

instrumental to trick victims from overseas in a $6 million human trafficking scheme.6 

The United States is a prime location for anonymous companies, providing them with a 

veneer of respectability as well as access to a deep financial system and strong rule of law. 

At their Summit in Lough Erne (United Kingdom) in 2013, G8 members including the United 

States committed to make progress to ensure that both tax and law enforcement authorities 

in all countries where companies operate are able to find out who really owns them. It is high 

time to fulfil that commitment. 

2 Transparency International, "Corruption: Cost for Developing Countries", 

http:/lwww.transparency.org.uklcorruption/corruption-statistics/corruption-cost-for-developingcountries/#.WihesiWnHcs 

3 Oxfam, "Paradise Papers: The Hidden Costs of Tax Dodging". https:llwww.oxfam.org/en/even-itlparadisepapers-hidden-costs-tax-dodginq 

4 Oxfam, "Saving Lives with Common Sense", https:/lwww.oxfamamerica.orglexplore/researchpublications/saving-lives,with-common-sense/ 

5 Oxfam, "You Aren't Human Anymore", https:llwww.oxfam.Q[Q[§jtes/www.oxfam.omlfileslfile attachmentslmbmiqrants-libya-europe-090817 -en .pdf 

6 Global Witness, "The Great Rip-Off'. http:llgreatripoffmap.globalwitness.orq/#!/case/57938 
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We therefore applaud the Sub-Committees' initiative to address the issue of anonymous 

shell companies by requiring the collection of beneficial ownership information for law 

enforcement authorities. 

We urge the sub-committees to strengthen the draft to ensure that the legislation will be truly effective 

for law enforcement authorities to fight the scourges of corruption, tax evasion, arms trafficking and 

human trafficking both in the United States and abroad. That means the bill should: 

1. Ensure that foreign law enforcement has access to beneficial ownership information 

so that it can be used in criminal and civil prosecutions. 

2. Require foreign nationals to file their beneficial ownership information with FinCEN, 

including submitting a scanned copy of the relevant pages of their non-expired 

passport to FinCEN and define the term "applicant." 

3. Add an enforcement mechanism to the discussion draft. This could be done by 

making the state incorporation process dependent on beneficial ownership 

information being provided to FinCEN. It could potentially be done by ensuring 

FinCEN has the authority to regulate in this area in order to have current listings from 

the states about all of the corporations and LLCs that are active. 

4. Ensure that domestic law enforcement has access, including federal, state, tribal, and 

local, to the Financial Crime Enforcement Network's (FinCEN) database of beneficial 

ownership information. This shouldn't require a subpoena. 

5. Allow identification for beneficial owners to include non-expired state issued 

identification to meet the requirement if they do not have a non-expired U.S. driver's 

license or passport. 

At the same time, we urge the sub-committees to preserve the strong definition of "beneficial owners" 

adopted in the discussion draft. 

We thank you for your attention and your commitment to international development. If you would like 

more information, please contact Linda Delgado at linda.delgado@oxfam.org. 

Sincerely, 

Abby Maxman. CEO 

Oxfam America 
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December 6, 2017 

Chairman Steve Pearce 

Ranking Member Ed Perlmutter 

United States House of Representatives Committee on Financial Services 

Subcommittee on Terrorism and Illicit Finance 

2129 Rayburn House Office Building 

Washington, D.C. 20515 

RE: Beneficial Ownership 

Dear Chairman Pearce and Ranking Member Perlmutter: 

As a leading representative of the 28 mil]jon small businesses in America, Small Business Majority 

writes to thank you for this opportunity to comment on the discussion draft of the Counter Terrorism 

and Illicit Finance Act. We offer our appreciation for the recent hearing on updating our anti-money 

laundering laws and, in particular, the recognition of the significant challenges anonymous shell 

companies present for small business. 

Small Business Majority was founded and is run by small business owners to ensure America's 

entrepreneurs are a key part of an inclusive, equitable and diverse economy. We actively engage our 

network of more than 55,000 small business owners in support of public policy solutions and deliver 

information and resources to entrepreneurs that promote small business growth. 

As we have noted in the past, shell companies with hidden owners unfairly compete for contracts, 

they undermine our supply chains, can create difficulties in finding responsible subcontractors, and 

provide cover for fraudsters. They also provide cover for patent trolls that disproportionately target 

small and medium sized businesses, and cost businesses upwards of $29 billion in 2011 alone 

according to a study by Boston University Law School. 

In previous letters, we have listed specific examples of anonymous companies used to undermine 

small business operations inc1uding the misappropriation of government contracts set aside for small 

businesses and individuals using anonymity to falsely bill subcontractors, among others. 

We greatly appreciate the commitment of Chairman Pearce to this issue and his statements during a 

February oversight hearing when he explained how drug cartels have been moving money across the 

border using anonymously o\'\rned trucking companies and weakening the local economy in his home 

county in New Mexico. 

These continuing problems are why we are pleased to submit this letter supporting legislation that 

includes collection of basic information on beneficial ownership. For our members, providing the 

name, address and identification of the true owner of a business is not a burden. They are well aware 

of who controls and who benefits from their proceeds. The definition in the discussion draft is clear, 

easy to follow, and workable for small businesses who have no need to hide their owners' identity. 

Further, knowing that the businesses we work with have given this information provides assurance 

that a real person is behind any contract we sign or bid or we compete against. The beneficial 

ownership provisions also reduce uncertainty and potential liability when dealing with suppliers and 

1101 14th Street, NW, Suite 950 • Washington, DC 20005 • (202) 828-8357 • www.smallbusinessmajority.org 
132 

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subcontractors. While the benefits are significant, the costs of providing a name and address are 

minimal, on a par with obtaining a library card. 

We also appreciate the current language in the bill that protects small business owners from 

inadvertently running afoul of the law by ensuring that any violation needs to be an intentional 

violation. We urge you to keep that language as written. 

Thank you for consideration of our views and we look fonvard to working with you on this important 

legislation. For any questions or additional information, please contact Mohammad Ali, Director of 

Policy and Government Affairs. 

Sincerely, 

John Arensmeyer 

Founder and CEO, Small Business Majority 

CC: 

The Honorable Jeb Hensarling The Honorable Carolyn Maloney 

The Honorable Maxine Waters The Honorable Peter King 

Small Business Majority w•.vw.smallbusinessmajority.org 
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The Honorable Steve Pearce 

Chairman, Subcommittee on Terrorism and 

Illicit Finance 

U.S. House Financial Services Committee 

2432 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Ed Perlmutter 

Ranking Member, Subcommittee on Terrorism 

and Illicit Finance 

U.S. House Financial Services Committee 

1410 Longworth House Office Building 

Washington, DC 20S15 

December 6, 2017 

The Honorable Blaine Luetkemeyer 

Chairman, Subcommittee on Financial 

Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2230 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Lacy Clay 

Ranking Member, Subcommittee on Financial 

Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2428 Rayburn House Office Building 

Washington, DC 20515 

RE: November 29, 2017 Joint Hearing Entitled "Legislative Proposals to Counter Terrorism and Illicit 

Finance" 

Dear Chairmen Pearce and Luetkemeyer and Ranking Members Perlmutter and Clay, 

We write on behalf of the Financial Accountability and Corporate Transparency (FACT) Coalition to thank 

the Committee members for holding the recent hearing on "Legislative Proposals to Counter Terrorism 

and illicit Finance." We were specifically appreciative of the recognition by all the expert witnesses of 

the threats posed by anonymous shell companies and the need to collect and make available to law 

enforcement beneficial ownership information. 

The FACT Coalition is a non-partisan alliance of more than 100 state, national, and international 

organizations working to combat the harmful impacts of corrupt financial practices. 1 

These comments focus on Section 9 of the discussion draft of the "Counter Terrorism and Illicit Finance 

Act." 2 

Anonymous shell companies have been shown to represent an important nexus of corruption, money 

laundering, transnational organized crime, and terrorism, all of which directly harm U.S. foreign policy 

interests. Such companies have been used to divert U.S. security and overseas development funds from 

their intended purposes into the hands of those who seek to do the United States harm, and they can 

help fund the very insurgents and terrorists U.S. troops are fighting. 

1 For a Jist of FACT Coalition members, visit https://thefactcoalitlon.org/about/coalition~members~andsupporters/. 2 U.S. House. !15th Congress, 1st Session. H.R.~ Counter Terrorism and Illicit Finance Act: Discussion Draft 

dated November 14, 2017. https://financialservices.house.gov/up!oadedfiles/bills-115hr-pih-ctifa.pdf. 

1225 Eye St. NW, Suite 600 I Washington, DC 1200051 USA 

+1 (202) 827-6401 I @FACTCoalition 1 www.thefactcoalition.org 
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Page 2 of4 

In addition, anonymous companies are the vehicle of choice to move dirty money for human trafficking 

operations, drug cartels, and tax evaders. As has been noted by Chairman Pearce, these shell companies 

disrupt local business and economies.' Anonymous companies used to purchase real estate have been 

implicated in distorting housing markets, hollowing out neighborhoods, hurting local businesses, and 

pushing families to live farther away from their jobs. 

This is a very important issue and the cost of inaction is high. Thankfully, it is an issue that continues to 

enjoy bipartisan support. 

Notable Changes Needed to the Discussion Draft 

Regarding the discussion draft, we support the full testimony presented by Stefanie Ostfeld of Global 

Witness, a member of the FACT Coalition, at the November 29'h hearing.4 Of particular concern are 

issues in Section 9 of the discussion draft. As she noted: 

1. Ensure that domestic law enforcement has access, including federal, state, tribal, and local, to the 

Financial Crime Enforcement Network's (FinCEN) database of beneficial ownership information. This 

shouldn't require a subpoena. 

2. Ensure that foreign law enforcement has access to beneficial ownership information so that it can 

be used in criminal and civil prosecutions. 

3. Require foreign nationals to file their beneficial ownership information with FinCEN, including 

submitting a scanned copy of the relevant pages of their non-expired passport to FinCEN and define 

the term "applicant." 

4. Add an enforcement mechanism to the discussion draft. This could be done by making the state 

incorporation process dependent on beneficial ownership information being provided to FinCEN. It 

could potentially be done by ensuring FinCEN has the authority to regulate in this area in order to 

have current listings from the states about all of the corporations and LLCs that are active. 

5. Allow identification for beneficial owners to include non-expired state issued identification to meet 

the requirement if they do not have a non-expired U.S. driver's license or passport. 

Important Provisions to Keep in the Discussion Draft 

Definition of Beneficial Owner 

We strongly support the wording of the definition of "beneficial owner" in the discussion draft. This is 

of prime importance. The 2016 revelations in the Panama Papers drew a clear picture of the dangers of 

loopholes in the law. A single staff person working for the Panamanian law firm Mossack Fonseca 

served as the director of more than 10,000 companies.' Her ability to serve as the legal contact for the 

U.S. House. Committee on Financial Services. Legislative Proposals to Counter Terrorism and lllicit Finance: 

Testimony before the Subcommittees on Finonciollnstitutions and Consumer Credit and Terrorism and Illicit 

Finance, 115th Cong. (2017) (Statement of Stefanie Ostfeld, Deputy Head of U.S. Office, Global Witness), 

https://financialservices.house.gov/uploadedfiles/hhrg-115-ba15-wstate-sostfeld-20171129.pdf. 

U.S. House. Committee on Financial Services. Meeting to approve the Authorization and Oversight Plan of the 

Committee on Financial Services for the 115th Congress Hearing, 7 February 2017 (Statement of Rep. Steven 

Pearce), https://financialservices.house.gov/calendar/eventsingle.aspx?EventiD=401456. 

Tim Johnson, "Did this Panama Papers housekeeper really direct a North Korean arms deal?" McClatchy, May 10, 

FACTCOALlT!ON 

1225 Eye St. NW, Suite 600 I Washington, DC 1200051 USA 

+1 (202) 827-6401 I @FACTCoalition I www.thefactcoalition.org 
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Page 3 of 4 

corporations demonstrates the lack of accountability if the law allows managers or other stand-ins to be 

named on behalf of the true, natural person(s) who own and control the company. 

For these reasons, we continue to voice concerns about the definition in the Customer Due Diligence 

rule issued last year by the U.S. Department of the Treasury." Prong one of the definition only requires 

identification of beneficial owners with a 25 percent or greater ownership interest; if no person meets 

this threshold, no one is named. This means that bad actors need only find four strawmen to avoid 

disclosures. Prong two allows for the identification of a manager. Managers may exercise day-to-day 

control over a business, but it is the beneficial owners who can ultimately control the business. 

Managers can be fired; beneficial owners cannot. 

Also of concern is the use of the "responsible party" definition for the IRS Form SS-4. A responsible 

party is someone who can answer questions about the tax return. It does not require that the person be 

the beneficial owner of the company. 

Neither of the above definitions ensures that the true, human owner will be listed. Incorporating either 

of those definitions into Section 9 of the "Counter Terrorism and Illicit Finance Act" would render this 

effort into little more than an administrative exercise. 

The definition of beneficial owner in the discussion draft is strong and meaningful. The information will 

prevent bad actors from hiding behind a veil of corporate secrecy. The definition has been slightly 

modified from that in the bipartisan Corporate Transparency Act of 2017 (H.R.3089). While the 

definition in H.R.3089 is preferable, the updated definition in the discussion draft is a comprehensive 

definition that maintains the integrity of the information. 

The definition of beneficial ownership, as it is written in the discussion draft, is also clear and easy to 

follow according to business owners. Small businesses are small; they already know who their owners 

are because they are mostly running the businesses themselves. Larger businesses have been exempted 

because (1) they are already subject to reporting requirements, as in the case of publicly-traded 

companies, or (2) they are large enough to have actual business operations and are at lower risk of 

abuse. The bill is designed to address paper, fly-by-night companies that form on Monday and launder 

money through bank accounts on Tuesday. 

Small Business Majority and Main Street Alliance have both sent letters extending their support for the 

collection of this information and noting that their member businesses see no problems with 

compliance. In fact, both organizations explain the dangers posed by anonymous companies in terms of 

unfair competition, subcontractor fraud, and the security of knowing who is doing business in your 

community. According to their letters, small businesses do not have complex ownership structures. 

There are no examples or evidence to suggest that the definition of beneficial owner is unworkable. To 

the extent that there were legitimate concerns raised by the business community, reasonable 

2016, http://www.mcclatchydc.com/news/nation-world/national/article76635047.html. 

Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397 (May 11, 2016). Federal 

Register: The Daily Journal of the United States. Web. 5 Dec 2017 (accessible at 

https://www.federalregister.gov/d/2016-10567). 

FACTCOALITION 

1225 Eye St. NW, Suite 600 I Washington, DC 120005! USA 

+1 (202) 827-6401 I @FACTCoalition 1 www.thefactcoalition.org 
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Page 4 of 4 

accommodations have been made during a decade of debate over this measure. As mentioned above, 

anyone owning more than 5 percent of a publicly-traded company already files beneficial ownership 

information with the Securities and Exchange Commission. Those companies are exempt from the bill. 

Other accommodations have been made to focus this bill on the shell companies that are used to 

launder illicit finance. 

Intentionality 

Additionally, the discussion draft appropriately ensures that only an intentional violation will trigger a 

penalty. The draft limits liability to those who "knowingly" provide false information or "willfully" fail to 

provide information. Both terms are well understood in case law and will prevent those with no intent 

to violate the law from facing any unwarranted penalties. Those are proper guardrails and should be 

kept in the bill. 

Updating Information 

Concerns about the 60-day requirement to update the information are misplaced. The businesses 

covered by this bill are not complex enterprises; they know their owners and they know when 

ownership changes. The types of ownership changes that this critique contemplates occur in large, 

complex enterprises, not in the companies covered in the legislation. 

We appreciate your consideration of our views and look forward to working with you on this legislation. 

For questions or additional information, please contact Clark Gascoigne at 

cgascoigne@thefactcoalition.org or +1 (202)810-1334. 

Sincerely, 

Gary Kalman 

Executive Director 

The FACT Coalition 

Clark Gascoigne 

Deputy Director 

The FACT Coalition 

cc The Honorable Jeb Hensarling, Chairman, U.S. House Financial Services Committee 

The Honorable Maxine Waters, Ranking Member, U.S. House Financial Services Committee 

FACTCOALITION 

1225 Eye St. NW, Suite 600 I Washington, DC 1200051 USA 

+1 (202) 827-6401 I @FACTCoalition I www.thefactcoalition.org 
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212 Ea:st C:tpltol St NE Tel: {202) 783-3566 

\tv'ashington" DC 20CHJ-3 J';Jbi!eeus<J.org 

December 6, 2017 

Re: The Counter Terrorism and Illicit Finance Act Draft 

Dear Dear Chairman Pearce, Ranking Member Perlmutter, Chairman Hensarling and Ranking 

Member Waters: 

We thank yon for holding the hearing on "Legislative Proposals to Counter Terrorism and Illicit 

Finance." On behalf of Jubilee USA Network, I would like to offer some thought< and concerns on 

the Counter Terrorism and Illicit Finance Act draft. Jubilee USA Network is a religious development 

organization allied with more than 700 national and local faith groups. We are concerned with how 

financial secrecy, corruption and tax evasion are connected to poverty in the United States and abroad. 

In particular, some anonymous shell companies have facilitated exploitation of vulnerable 

communities and supported corrupt regimes in the developing world. Shell companies contribute to 

an estimated one trillion dollars leaving the developing world annually through tax evasion and 

corruption. 

In the U.S., we can prevent anonymous companies from exploiting vulnerable communities. We can 

also prevent money from being illicitly siphoned from the developing world. 

The Counter Terrorism and Illicit Finance Act draft, takes important steps toward ending abuses of 

anonymous companies. Implementing effective transparency measures will make it easier for law 

enforcement to prevent illegal activity and stop activities that exploit the poor. Increasing corporate 

transparency will reduce the flow of corrupt or illegal money. Reducing corrupt behavior helps 

provide vulnerable populations with the means to access resources for building schools, hospitals, and 

the infrastructure necessary for development. Additionally, the collection of beneficial ownership 

information will make it harder for those steaiing from the most vulnerable to use the United States 

financial system as a safe haven to hide their money. 

While we applaud the inclusion of beneficial ownership provisions in the bill, the Committee should 

make certain changes ensuring that the legislation effectively combats the dangers of anonymous 

companies. We must see a strong def'tnition of beneficial ownership and ensure there is adequate access 

to information collected to prevent corrupt, illegal and exploitative activities. 
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I urge you to keep the dermition as written regarding those who control the entity. It is a dear and 

comprehensive deHnition that avoids the pitfalls of other definitions that attempted to gather this 

information allowing for managers, directors or other stand-ins for the true owner(s). The 2016 

release of the Panama Papers was instructive in this regard. Due to lax rules around corporate 

ownership information, a single employee at the Panamanian law flrm, Mossack Fonseca, served as the 

named entity for approximately 20,000 companies. She had little-to-no knowledge of the beneficial 

owners of those 20,000 companies. If we are updating our laws, we must not repeat that mistake and 

therefore need to keep the clear and comprehensive definition as written. 

Another area in the draft of concern is the limited access to information gathered. State and local law 

enforcement do not have direct access and yet most investigations into illegal activity are performed by 

state and local officials in the United States. This omission undermines the reforms and must be 

remedied as the process moves forward. The restriction of access by foreign law enforcement officials 

is another concern. 

The draft also limits access by law enforcement to criminal subpoenas. Financial institutions, whom 

we engage in anti-money laundering activity, would have appropriate access by simple request. Law 

enforcement should have ready access to this information at all stages of the investigative process. Not 

all financial crimes are criminal offenses but they may still pose threats to our communities which is 

why the bill should include civll and administrative subpoenas. 

It is concerning that foreign nationals looking to establish a U.S. company do not have the same 

requirements as U.S. citizens to disclose ownership information. This administrative loophole needs to 

be closed. 

In addition to the issues I shared, at Jubilee USA we concur with the recommendations included in the 

written testimony ofStefanie Ostfeld from Global Witness. 

Thank you for your consideration. We are happy to answer any questions you may have and look 

forward to working with you on enacting these important reforms. 

Sincerely, 

Eric LeCompte 

Executive Director 

cc Rep. Maloney and Rep. King 
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Coalition for Integrity 

December 6, 2017 

The Honorable Jeb Hensarling 

Chairman 

Committee on Financial Services 

U.S. House of Representatives 

Washington, D.C. 20515 

The Honorable Maxine Waters 

Ranking Member 

Committee on Financial Services 

U.S. House of Representatives 

Washington, D.C. 20515 

Re: H.R. _, the "Counter Terrorism and lllicit Finance Act" and Recommendations Regarding Section 

9 ("Transparent Incorporation Practices"). 

Dear Chairman Hensarling and Ranking Member Waters: 

The Coalition for Integrity is a non-profit, non-partisan organization dedicated to strengthening 

accountability and transparency and combating corruption in the United States and internationally. We 

work in coalition with a wide range of individuals and organizations to promote integrity in the public and 

private sectors. 

We commend the Committee on Financial Services' interest in requiring transparency of the beneficial 

owners of companies and strengthening U.S. anti-money laundering laws to counter terrorism and illicit 

finance. Beneficial ownership transparency is also crucial to end safe havens for kleptocrats and their 

stolen assets. 

It is common for money launderers and criminals trying to send or receive funds or assets, while 

concealing their involvement in bribery and other crimes, to hide their identities behind complex webs of 

shell companies. Once the shell company is formed, it can easily open one or more bank accounts, wire 

money, buy property and engage in activities that launder the tainted funds. The World Bank calls the 

U.S.one of the preeminent providers of corporate vehicles, including anonymous shell companies. The 

state of Delaware, known for its user-friendly incorporation rules, is home to thousands of anonymous 

shell companies. Nevada and Wyoming aren't far behind. In fact, it is possible anywhere in the U.S. to set 

up a company without naming the true beneficial owner. Anonymous companies allow corrupt politicians 

and organized crime to transfer and hide illicitly acquired funds worldwide, and fuel an abuse of power 

and a culture of impunity, and endanger U.S. national security interests. 

To achieve its objective of preventing terrorist finance and other forms of illicit money from entering the 

U.S., we respectfully request that the Committee's draft legislative proposal include the following 

recommendations: 

1. Beneficial Ownership Definition. 

We support the strung definition of beneficial ownership currently contained in the proposal. It is 

important to not conflate senior management with the beneficial owner. Often officials named in 

leadership positions for corporate entities are figureheads and control of the entity is exercised 

through other means. The current definition captures people wbo do not have legal ownership but 

ultimately control the entity behind the scenes and it is important that it is retained in the final 

version of the bilL 

102315th Street NW 

Suite300 

Washington, DC ZOIJ05 

Tel: 202-589-1616 

Fax: 202·589-1512 

EMAil coalition@coalitionforintegrity.org 

WEBSITE www.coalitionforintegrity.org 
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Coalition for Integrity 

2. Access to Beneficial Ownership Database by Law Enforcement. 

a. It is crucial that federal, state, and local law enforcement have complete access to the beneficial 

ownership database and that access does not require a subpoena. 

Law enforcement may require company ownership information to support a wide range of 

criminal and civil investigations, including securities fraud, business misconduct, health care 

fraud, human trafficking, drug trafficking, etc., and therefore it is crucial for domestic law 

enforcement to have access to beneficial ownership information. 

b. Foreign law enforcement should also have access to beneficial ownership transparency 

information to be used in criminal and civil prosecutions. 

Every large international corruption story in recent times, including IMDB, Petrobras, FIFA, and 

Vimpe!Com, has featured anonymous companies. It is therefore important that any legislation to 

counter illicit finance support foreign governments' access to beneficial ownership information. 

3. Financial institutions should implement the Customer Due-Diligence Rule on schedule in May 

2018. 

Financial institutions have a crucial role to play as the first line of defense against the transfer of 

corrupt funds. Requiring frnancial institutions tu obtain and verify beneficial ownership 

information for account holders is critical to keep the proceeds of corruption and other crimes 

from being laundered through the U.S. financial system. In May 2016, the U.S. Department of 

the Treasury issued final rules under the Bank Secrecy Act (BSA) to clarify and strengthen 

customer due diligence (CDD) requirements for covered financial institutions and created a new 

separate requirement to identify the beneficial ·owners of legal entity customers .. Treasury also 

provided financial institutions two years (until May lith, 2018) to update their policies, 

procedures and implement their new processes. 

Regardless of how long Financial Crimes Enforcement Network (FinCEN) has to set up an 

entirely new database of beneficial ownership information, financial institutions need to know 

their customers and they have already been working to put the necessary procedures in place to 

comply with the CDD rule for the last 18 months, therefore the Committee should not issue any 

requirement that suspends the CDD regulations from going into force in May 2018. 

4. Requirement for foreign nationals to file with FinCEN their beneficial ownership in connection 

with company formation. 

The discussion draft does not appear to require applicants that form entities to submit beneficial 

ownership information to FinCEN if they don't have an unexpired U.S. passport or U.S. drivers' 

license, thus favoring foreign owners over U.S. applicants. Both foreign owners and U.S. owners 

should be required to file beneficial ownership information with FinCEN. 

II 1023151h Street NW 

Suite 300 

Washington. DC Z0005 

Tel: 202-589-1616 

Fax: 202-589-1512 

EMAIL coalition@coalitionforintegrity.org 

WEBSITE www.coalitionforintegrity.org 
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Coalition for Integrity 

5. Enforcement of the beneficial ownership disclosure requirement. 

It is important that FinCEN has mechanisms in place to ensure that the bill under discussion is 

enforced. The application to form a legal entity should not be valid until the necessary beneficial 

ownership information has been received by FinCEN. 

6. Extending anti-money laundering program requirements to gatekeepers. 

The proposal could be strengthened by requiring lawyers who carry out real estate transactions 

for their clients or serve as company service providers to conduct due diligence and screenings of 

their clients and to alert the authorities to suspicious transactions. Similarly, the real estate 

industry should carry out background checks to determine where the money used to purchase 

luxury property comes from and to conduct adequate due diligence. Congress should lift the 

"temporary" exemption created in 2002 that excuses certain categories of persons from 

complying with the 200 l law requiring them to establish anti-money laundering programs, 

including "persons involved in real estate closings and settlements." A deadline should be 

established to bring everyone into compliance with the law, which is now 16 years old. As a part 

of this effort, the Treasury Department should also require disclosure of tbe beneficial owners 

who ultimately own companies purchasing real estate throughout the U.S. 

We ask that you please consider our comments as you discuss the "Legislative Proposals to Counter 

Terrorism and lllicit Finance". 

Over the years, the United States has committed to implementing beneficial ownership transparency in a 

number of different fora. Robust rules requiring transparency of beneficial ownership of companies 

would send a strong signal that the U.S. is taking the necessary steps to uphold its commitments. We 

thank you in advance for your continued action to ensure a strong and effective rule. 

1023 15th Street NW 

Suite3!JO 

Washington. DC 20005 

Sincerely, 

?~.fi5~ 

Shruti Shah 

Vice President 

Programs and Operations 

Tel: 202-589-1616 

Fax: 202-589-1512 

EMAIL coalition®coalitionforintegnty.org 

WEBSITE www.coalirionlorintegrity.org 
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0 enough 

n..,pr<>j ... ~ , ....... ~-~~-c..., ... , ..... og~"'" .......... ,u, 

The Honorable Steve Pearce 

Chairman, Subcommittee on Terrorism and Illicit Finance 

U.S. House Financial Services Committee 

2432 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Ed Perlmutter 

Ranking Member, Subcommittee on Terrorism and Illicit Finance 

U.S. House Financial Services Committee 

1410 Longworth House Office Building 

Washington, DC 20515 

The Honorable Blaine Luetkemeyer 

l4N4S.'blH:'ti\l\M,l''FI<IIlr,W~i:!l:m,OCl!X!Q!il'lle<W: .W<!:.SlllU't,"" • _,., '""""!V'.-'""l~a..~ 

Chairman, Subcommittee on Financial Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2230 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Lacy Clay 

Ranking Member, Subcommittee on Financial Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2428 Rayburn House Office Building 

Washington, DC 20515 

RE: November 29, 2017 Joint Hearing Entitled "Legislative Proposals to Counter Terrorism and Illicit 

Finance" 

Dear Chairmen Pearce and Luetkemeyer and Ranking Members Perlmutter and Clay, 

We write on behalf of the Enough Project to thank the Committee members for their recent hearing 

titled "legislative Proposals to Counter Terrorism and Illicit Finance." We appreciated how the panel of 

experts outlined the threat posed by anonymous shell companies and the need to collect and make 

available to law enforcement beneficial ownership information. 

The Enough Project supports peace and an end to mass atrocities in Africa's deadliest conflict zones. 

Together with its investigative initiative The Sentry, Enough counters armed groups, violent kleptocratic 

regimes, and their commercial partners that are sustained and enriched by corruption, criminal activity, 

and the trafficking of natural resources. Enough seeks to build leverage in support of peace and good 

governance and conducts research in conflict zones, engages governments and the private sector on 

potential policy solutions, and mobilizes public campaigns focused on peace, human rights, and breaking 

the links between war and illicit profit, helping create consequences for the major perpetrators and 

facilitators of atrocities and corruption. 

In East and Central Africa, key officials responsible for ongoing conflict and atrocities reap significant 

financial benefits from their business dealings in multiple economic sectors and through work with 

facilitators and enablers within the region and across the globe, many of whom use anonymous shell 

companies. These officials work through interconnected business networks involving dozens of 
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companies, in some instances, they, their family members, and busim 

and owners. 

In other cases, they rely on anonymous shell companies; these companies and their business sectors 

operate largely in the U.S. dollar, which provides the U.S. government with jurisdiction over many of the 

transactions and enabling action on issues such as anonymous shell companies. The United States 

possess leverage against those who commit atrocities, and should act and have a direct impact through 

anti-money laundering measures. We believe clear and strong legislation is needed. 

Additionally, we support the wording of the definition of "beneficial owner" in the discussion draft as it is 

robust and meaningful. The information will prevent bad actors from hiding behind a veil of corporate 

secrecy. The definition has been slightly modified from that in the bipartisan Corporate Transparency Act 

of 2017 {H.R.3089). While the definition in H.R.3089 is preferable, the updated definition in the 

discussion draft is a comprehensive definition that maintains the integrity of the information. 

Regarding the discussion draft, we want to highlight a few elements from the testimony presented by 

Stefanie Ostfeld of Global Witness that we support and believe are important: 

1. Ensuring that domestic law enforcement has access, including federal, state, tribal, and local, to 

the Financial Crime Enforcement Network's {FinCEN) database of beneficial ownership 

information. This shouldn't require a subpoena. 

2. Ensuring that foreign law enforcement has access to beneficial ownership information so that it 

can be used in criminal and civil prosecutions. 

3. Requiring foreign nationals to file their beneficial ownership information with FinCEN, including 

submitting a scanned copy of the relevant pages of their non-expired passport to FinCEN and 

define the term "applicant." 

4. Adding an enforcement mechanism to the discussion draft. This could be done by making the 

state incorporation process dependent on beneficial ownership information being provided to 

FinCEN. It could potentially be done by ensuring FinCEN has the authority to regulate in this area 

in order to have current listings from the states about all of the corporations and LlCs that are 

active. 

5. Allowing identification for beneficial owners to include non-expired state issued identification to 

meet the requirement if they do not have a non-expired U.S. driver's license or passport. 

We appreciate your consideration of our views and look forward to working with you on this legislation. 

For questions or additional information, please contact lan Schwab at lschwab@enoughproject.org. 

Sin ly~ --""1'1/'v--~.~ nSchwa · -· 

Director of Advocacy and Impact Strategy, 

The Enough Project 

cc The Honorable Jeb Hensarling, Chairman, U.S. House Financial Services Committee 

The Honorable Maxine Waters, Ranking Member, U.S. House Financial Services Comm 
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ICAR ~ 

December 12, 2017 

The Honorable Steve Pearce 

INTERNATIONAL CORPORATE 

ACCOUNTABILITY ROUNDTABLE 

Chairman, Subcommittee on Terrorism and Illicit Finance 

U.S. House Financial Services Committee 

2432 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Ed Perlmutter 

Ranking Member, Subcommittee on Terrorism and Illicit Finance 

U.S. House Financial Services Committee 

1410 Longworth House Office Building 

Washington, DC 20515 

The Honorable Blaine Luetkemeyer 

Chairman, Subcommittee on Financial Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2230 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Lacy Clay 

Ranking Member, Subcommittee on Financial Institutions and Consumer Credit 

U.S. House Financial Services Committee 

2428 Rayburn House Office Building 

Washington, DC 20515 

Re: House Financial Services Subcommittee on Terrorism and Illicit Finance and 

Subcommittee on Financial Institutions and Consumer Credit, Joint Hearing Entitled 

"legislative Proposals to Counter Terrorism and Illicit Finance," November 29, 2017 

Dear Chairmen Pearce and Luetkemeyer and Ranking Members Perlmutter and Clay: 

The International Corporate Accountability Roundtable (!CAR) is a civil society organization that 

believes in the need for an economy that respects the rights of all people, not just powerful 

corporations. We welcome the November 29 hearing on "Legislative Proposals to Counter 

Terrorism and Illicit Finance" and the Committee's interest in tackling money laundering and 

mandating transparency regarding the beneficial owners of American companies. 
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The lack of transparency in corporate structures and ownership can lead to real and significant 

human rights impacts. For example, individuals and multinational corporations use anonymous 

companies to avoid paying their fair share in taxes, robbing governments of income for 

essential services such as health, infrastructure, and education. As United Nations Independent 

Expert Juan Pablo Bohoslavky1 said upon release of the Paradise Papers, such corporate tax 

abuse "undermines social justice and human rights worldwide." 2 

Corporate secrecy around beneficial ownership has allowed human traffickers to operate front 

businesses and profit from human rights abuses with impunity. For example, research 

conducted by Polaris found that there are over 6,500 illicit massage businesses operating in the 

United States, and that human trafficking has occurred in many of these businesses in Tampa, 

Honolulu, Houston, San Francisco, Albany, Columbus, Oklahoma City, and Fairfax County, VA. 

However, as no U.S. states require corporations to disclose their beneficial owner, it is 

extremely difficult to identify and hold accountable the criminals who are controlling or 

profiting from human trafficking by using the massage parlors as a disguise. 3 

Ultimately, anonymous companies undermine the ability of governments, including the United 

States, to enforce laws, provide essential public services, and reduce poverty. The ability to 

know the true persons behind legal entities enables the law enforcement to more effectively 

investigate and prosecute those who break laws such as tax evasion, money laundering, and 

human trafficking. 

We therefore welcome the draft legislative proposal entitled "Counter Terrorism and Illicit 

Finance Act." We particularly commend the Committee on the strong definition of beneficial 

owner. By specifying that the term "beneficial owner" applies to natural persons, this bill allows 

for the true identity of an entity's owner to be uncovered and will reduce the ability for 

wrongdoers to hide behind corporate secrecy. 

To further strengthen the draft legislation and ensure that it can effectively achieve the 

intended results, we encourage the Committee to implement the following recommendations, 

which were highlighted in the testimony presented by Stefanie Ostfeld of Global Witness, a 

member of !CAR, at the November 29'h hearing.' 

1 Juan Pablo Bohoslavky is the United Nations Independent Expert on the effects of foreign debt and other related 

international financial obligations of States on the full enjoyment of all human rights, particularly economic, social 

and cultural rights. 2 United Nations Human Rights Office of the High Commissioner, Paradise Papers: State must act against "abusive 

tax conduct of corporations- UN human rights experts, Nov. 9, 2017, 

hlli!J/www.ohchr.org/EN/NewsEvents/Pages/DisplayNew~x?NewsiD=22377&la~giD=E. 

3 Polaris, Business Transparency to Combat Human Trafficking, 

!lt:!J:>s ://thefactcoalition.org/wp-content/uploads/2017/08/Polaris-Ano nymous-Companies-Fact -Sheet -10-17-2016-

E!IIJ.ALP.Qf (last visited Dec. 11, 2017). ·---- ·--

4 Hearing on A Legislative Proposal to Counter Terrorism and 11/icit Finance Before the House Subcomm. on Fin. 

Services on Terrorism and Illicit Fin. and Subcomm. on Fin. Institutions and Consumer Credit, llSth Congress (2017) 
146 

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Specifically, the "Counter Terrorism and Illicit Finance Act" should: 

1. Ensure that domestic law enforcement has access, including federal, state, tribal, and 

local, to the Financial Crime Enforcement Network's (FinCEN) database of beneficial 

ownership information. This should not require a subpoena. 

2. Ensure that foreign law enforcement has access to beneficial ownership information so 

that it can be used in both criminal prosecutions and administrative actions. 

3. Require foreign nationals to file their beneficial ownership information with FinCEN, 

including submitting a scanned copy of the relevant pages of their non-expired passport 

to FinCEN. 

4. Add an enforcement mechanism to the draft legislation. This could be done by requiring 

that beneficial ownership information be disclosed to FinCEN prior to being able to 

incorporate under state law. More specifically, FinCEN should be provided authority to 

regulate on matters related to beneficial ownership. 

S. Allow beneficial ownership identification to include non-expired state issued 

identification documents, in addition to a U.S. driver's license or passport. 

We are thankful for your consideration and look to you to safeguard human rights by ensuring 

wrongdoers can no longer use the United States as a safe haven and hide behind anonymously 

held companies. 

Sincerely, 

Amol Mehra 

Executive Director 

International Corporate Accountability Roundtable 

(testimony of Stefanie Ostfeld, Deupty Head of U.S. Office, Global Witness), available at 

https://financia !services. house.gov /uploadedfiles/hhrg-115-ba 15-wstate-sostfeld-20171129. pdf. 
147 

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@2017 ACAMS 

80 SW 8th St #2300, Miami, FL 33130 

Telephone: (305) 373·0020; Internet: www.acams.org. 

Rights and Permissions 

to info@acams.org. 
149 

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Introduction 

names appear in this paper.) legal entity customer. 

These discussions-and this paper-should not be currently do not collect this lnformation. 

Nor 

3 
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mformat10n, currently and m the future. Some use a mstance, it applws a 20% mall or creates a 

15% staqqered of thresholds below concern 

cnts once the rule 1s implemented 

is that risk criteria for adopting lower thresholds could 

themselves be scrutinized or second-guessed 

Other attendees felt ln.st.it1ltions wtth tbresholds tmder 

25% could create a de facto standard, leadjng exa:rruners 

to view 25% as comparatively lax. Some attendees 

expressed frustration that exaJnination guid:mce 

yet published. What became clear tl'uoughout this dla · 

loguo is that some F1's are already being told by examThere was also discussion as to whether instiLutions iners to no below 25%, a position contrary to aU public 

may attmct regulatory attention and/or criticism 1L for corrt..'Uents on the rule from the govenuuent 

Trigger Warnings: instance, if a client <1dds a product or service, is that 

Event-Based Account 

refreshment 

examples, some institutions limit triggering primarily 

to new account opening But gray areas remain. For 

4 

was flled. 
151 

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Takeaways 

.. Trlgg~r' eve~t~ re$ulti,ng frorrH>npolq~, ffi9'0itotiht:! carl: -~eJp, B(lsur~ beneficial ownership 

information is curre,nt, but fnstitutions are: cor:rCerned about an ovetaburHiance,of th,~t:n 

• Att~deesJeft no~ an tr!gger: ev~n~s, reqUite retr$Shln9 b~)1ef~Ciai own~tsh~P ~nf~fmtltipn,bUt, rath~r;Jtlay be calls~ to'investigat'e whet}1er a tisk ptofil~ ~outd befupdat'ed 

~ l,n~tiWtions sho,utd ct6vetop, ~ri~te? ,P5'licies and pro~~ct~t~?'Jor everlt~triggered J.if),d~ti'n~; train bank P,ersonnet on thE:?(n,' g~nd ensure staffing. 4s suffide~t to me~~ the demand 

Getting On Board: The CDD Final 

Rule's Impact on Account Opening 

Practices 

The CDD Final Rule is not retroactive. It applies to 

accounts opened after the May 2018 deadline. Covered 

fmancial institutions will be required to obtain, verify 

and record beneficial owners of legal entity 

customers. 

However, some attendees are grappling with new~ac" 

count regulatory framework. 

One issue is the explicit requirement to maintain riskbased procedures to understand tile nature and purpose of an account. Standardizing systems for 

determmmg this could be difficult, given the innumerable purposes for accounts. Some institutions plan to 

offer a drop-down menu of account description options, 

such as payroll, operations, etc. Others may ask clients 

for thetr NorthAmencan Industry Classlficat10n System 

(NAICS) code, used by federal statistical agencies to 

classify business establishments. 

Some said defining a new account may prove problematic. For instance, should a second account opened 

by an existing client be treated as new--and therefore 

require beneficial ownership collection? If a client 

adds a product or service, does this constitute a new 

account? Another issue is whether relying on previously collected information is acceptable. Some felt it 

was acceptable to rely on existing information if the 

beneficial owner or controllmg person had an existing 

account. Others disagreed. 

There was a similar divergence of views about 

account opening processes. Many attendees would 

not open accounts without determining beneficial 

ownership. Others, however, said they would consider a risk-based decision to permit opening an 

on there being a firm deadlineto 60 days-for determinmg beneficial 

{NOTE: Guidance received from the Department of 

the Treasury, Financial Crimes Enforcement 

dated 5/11116 in the Federal Register, 

states: the risk·based verification proce· 

dures must contain the same elements as required 

by the applicable CIP rule to verify the identity of 

indlVidual customers, veriflcation must be completed within a reasonable time after the account is 

opened.' Therefore, if under the written CIP rules at 

several fmancial institutions, a 30-day window (or 

other) may incorporate this requirement and permit 

account opening, and general transactions.) 

Several group discussions centered on when, 

cisely, an account is considered open. With loans, 

example, the issue might hinge on when it is approved 

versus when the funds are released. For business 

Attendees also discussed establishing risk-based 

procedures to verify the identity of each beneficial 

owner "to the extent reasonable and practicable." 

There were split opinions on what that will mean in 

practice. One attendee's institution plans to verify 

by phone. The employees will attest they obtained 

the information, which the institution will consider 

a venftcation document 

The Way Forward: The Financial Sector Addresses the 20181mplementation of FinCEN's COD Final Rule 5 
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T:akeaways 

·'There is wJdeSpr,eBd, agf~e~~hh~~ princi'ple~,:of ben,~fiC~~! ,0\.vri~ps,hip,~O~t~~~iqn fp: Oe~ t;tct~unts be ,do~w:n~n~~d,in ,poltcies ,an~ proced~~e~, but\r~e\'1('~ di!f~r on,,tlPeratfonalJirie\~ J),olnts such as relylftg on previous I'{ r:on~cteq 'client inforf11at!on 

" , Approache~,yary un ope£1!o9,~~':9utits withOut ~It oWher~hip tde':tltic~ti,Qn aOd~~eri~~?~i9~: with, some financial institutions tF{s), q.Uawjng a wtndqW tp ~lfhSiH:tuentty coJJ~ctth~ 

hifprmatiort 

",M~nY ftttend~es felt,t:he ,de~i~l~iorr of'~, ne~ a~co~n~ Ca~ ,b~ a ,flray ar~a:- such 'as eXiSti~g ct~ents who open multiple a9counts fn the regular c~urse of buSif'!~~s; 

A Heartbeat Away? Drilling Down, 

Certification and Appendix A 

The CDD Final Rule will impact onboarding, but some 

attendees were unclear on how the new rule might 

affect client screening. 

Virtually all attendees routinely conduct OFAC screening on beneficial owners, and that will continue under 

the new rule. 

However, many do not routinely perform 314(a} 

screenings and attendees split on whether they would 

do so once the new ru1e takes effect. (Some said 314(a) 

screenings might take place in other contexts, such as 

part of risk-based reviews.) 

Attendees expressed confusion about what the regulation requires in terms of reporting a 314(a) match 

with a beneficial owner. 

At many tables, there were discussions of "drilling 

down" in cases where beneficial ownership could not 

be readily identified. Most attendees smd they intend 

"to drill down to a heartbeat." However, some acJmowledged that tlus could prove difficult m practJcc. 

There was divergence among attendees on whether, 

and to what extent, banks could rely on representations made by the the 

investia<tte tc> find 

"beating heart." 

Others said drilling down efforts must be supported 

institutionally with formalized escalation processes. 

One approach might be to work in conjunction with 

existing AML committees, and institutions 

tic concern, 

Views diverged on whether to collect information on 

intermediary entities while drilling down to natural 

persons. Some said yes, others no, and others said 

only with high-risk clients. A key component of drilling down is documenting investigative steps taken. 

Views were mixed on whether to use the certification 

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Tech Tools: Developing IT to 

Address New Systemic Needs 

The COD Final Rule creates new challenges in terms 

of technology and data management, which many 

attendees said are unresolved. 

There was widespread agreement that vendors are 

generally not yet providing products tailored for the 

COD Final Rule. While most attendees have automated processes to assist compliance workflow, they 

are still evaluating whether these systems can be 

adapted to ensure beneficial ownership information 

flows through filters such as screening for currency 

transaction reporting (CTR) aggregations and sanctions risks. 

Several attendees are in the process of engaging with 

vendors, to jointly develop systems, timetables and 

budgets. But several said vendors do not seem to have 

a firm grasp of the rule and its requirements. The 

T:akeaways 

ultimate liability falls with the FI, so proper and inten~ 

sive due diligence is a must. If you disagree with your 

vendor, you may have to ask them to change tl:leir 

process or handle the issue in another manner 

Many believe the process should begin with a gap 

analysis, to determine the performance of current systems versus the desired performance after the rule is 

implemented. This gap analysis, they said, will enable 

them to craft systems to better serve their needs, and 

identify expected costs and hiring needs. 

There were varied approaches to how beneficial ownership data will be stored. For smaller institutions, it 

will often conform to current document management 

systems. However, as institutions increase in size, 

there was a greater likelihood of creating an internal 

data warehouse dedicated to beneficial ownership 

information. Some said managing that data may require 

revisiting policies on client privacy protection. 

·• ·Technology. is.cn.J\'ial to successful!y ltDplementing jhe .<;;r:ib final Rul!'.~utrillinv M~t>d~rs.· • 

are not ye~_offeri.ng prtu;fuctS.specificaUy- tailored·tp- thls regu~~ti.ort 

. _lnsli~~!~?~~ ~nduid con~i~~~ c~~Ju~un.~-a sap an~tySt~ t9 id~htt~-thi; ,~~~~-e~ect~ct:i~P~~t:~ ;· on workffows and:pinpOlnt e}(peqted ¢6Sts such as staffing J1eeds ', 

i --~~~-ll)~ry~Qen:l-~h~- ptaOs 1rtqtUa.e '~~~~-g--e~-i~~i~~ t~o?ume_~t_lJ:{ln~!ing svs~eth~ ancf~~die~\~ct:::~· · . if'\t~rt:tat war~Qt?!Jses, and eli~!)~ pr~~acy · protecti~ru:: ~rea c~ncefn: 

Spread the Word: Conducting 

Training from the Front Line to the 

G-Suite 

Attendees said one of their top challenges is generating awareness of the CDD Final Rule internally and 

incorporating it into the existing culture of 

compliance. 

There was a consensus that buy-in by senior management is vital. This support should include funding for 

IT and staffing (see above.) Equally important, senior 

management must clearly signal that the rule is an 

enterprise-wide responsibility. 

Many attendees have formed-or plan to form~implementation teams, comprising various internal constit· 

uencies and relevant third parties such as vendors. 

The goal, as one attendee put it, is to "socialize" the 

rule, or build broad awareness of it. 

Some implementation teams might develop a decision 

tree, with clearly defined responsibilities and deadlines for each team member. 

Effective staff training, attendees said, requires assess· 

ing the rule's impacts on speclfic lines of busmess 

{LOBs) because the impact will vary among units. This 

will allow for tailored training that addresses discrete 

risks of each LOB. Attendees plan to use computer-based training as well as targeted in-person sessions, particularly for senior management. 

For front-line staff, most attendees plan a ''train the 

trainer" approach, or training team leaders who then 

school fellow staffers. 

One potential hurdle is that few standardized training 

materials are available at present. Some attendees 

plan to develop such materials internally; others may 

look for third-party instructors to ensure training 

deadlines are met. 

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A number of attendees said training for front~line 

workers should include explaining the rule itself and 

defmmg its obhgations. Staff will also be trained to 

handle situations where information is either incom~ 

plete or inaccurate. 

Many institutions will utilize scenario training, which 

simulates real-life cases and provides appropriate 

responses. As one attendee put it, however, there are 

almost certainly unknown scenarios that will arise 

post-implementation. 

Free and Clear? Tips on Managing 

Exclusions and Exemptions 

The CDD Final Rule includes a number of exclusions 

and exemptions. Exclusions are for certain types of 

entities, such as regulated financial institutiOns and 

publicly traded companies. Trusts are also excluded 

(except for statutory trusts created by a filing with 

a secretary of state or similar office). Nonprofits that 

have filed organizational documents with appropriate state authorities are subject only to the 

control prong. 

Certain types of accounts are exempted. An example 

1s an account financing insurance premiums, where 

payments are remitted duectly to an insurer or broker. 

There was discussion, though no consensus, on 

whether to incentivize employees by methods such as 

making CDD Final Rule compliance a component of 

performance reviews, though some plan to reference 

the rule in job descriptions. 

Due to the newness of the rule for both institutions 

and examiners, some attendees plan to regularly document and discuss their strategies with examiners. 

They will outline the steps they are taking, and the 

anticipated benefits. This documentation should 

enhance project analysis during implementation and 

potentially reveal systemic weaknesses. 

For attendees, a key issue, in some cases, is verifying 

eligibility. 

In many cases, eligibility documentation will be provided by the client. Some institutions are developing 

drop-down options in new account applications that 

ask why the applicant is eligible. Opinions were 

mixed on requiring clients to certify eligibility on a 

form. Some felt exclusion forms should be required for 

new accounts. Some will make a risk-based decision. 

Others said gray areas remain. For instance, equipment financing is exempted if it involves direct payment from the bank to the vendor or lessor. But 

"equipment" is not specifically defined; whether it 

applies to things such as automobiles used for business is unclear. 

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A Clear Message: Managing Client 

Communication and the Customer 

Experience 

Many attendees said a challenge posed by the CDD 

Final Rule is communicating it to clients and explaining how it may affect them, 

Attendees want to make the customer experience 

pleasant and understandable. Several plan to emphasize the rule is a regulatory requirement, not a unilateral decision by the institution. Nevertheless, some 

feared clients might object or shop for an institution 

with less stringent policies. 

There was a general consensus that communication 

will require repeat messaging, on different communi· 

All Systems Go: Shared Ideas on 

Launching (and Completing) 

Implementation 

With the COD Final Rule deadline of May 11, 2018, 

attendees debated implementation strategies that 

minimize disruption to operations and clients. 

The majority of attendees intend to roll out their new 

regime in the first quarter of 2018, although a handful 

plan to initiate it in the fourth quarter of 2017. 

Most are doing so incrementally. Many plan to design 

new workflow processes to attain standardized com~ 

pliance practices across the institution. Initially, they 

will operationalize new workflows with pilot projects 

or beta testing in conjunction with vendors. These 

small-scale tests will then be subjected to quality control reviews to spot systemic deficiencies. One specific area of interest will be identifying where 

increased automation might enhance operational 

efficiencies. 

One group said the implementation process should 

focus on five types of risk: compliance risk; operacation platforms. Some plan a separate mailer outlining the rule and its requirements. The letter may be 

included in account statements. 

Others said letters might prove inadequate, and 

should be supplemented with branch signage and a 

social media or online outreach effort. A Frequently 

Asked Questions (FAG) posted on bank websites 

would also be helpful. 

There was a hope expressed by some for FinCEN to 

create a brochure as well, similar to one it produced 

regarding CTR requirements. 

In addition, banks must provide talking points and 

FAGs to relationship managers and other personnel to 

ensure accurate responses to client queries. 

tional risks such as proper resource allocation; technology risks including data flow and record retention; 

strategic risks such as unpleasant customer experience; and reputationalllegal risks. 

Documentation of the testing process should be thorough, and senior management and the project management team must be briefed on the progress. 

Decisions to alter the original model, and why, should 

also be documented. 

The estimated amount of time for this initial phase 

varied, though several believed it would take at least 

four months. 

Following that, most plan a gradual rollout, such as by 

LOB. This will mitigate strains on available training 

resources. 

For long-term quality control, planned approaches 

varied. Smaller institutions tended to favor random 

sampling of new account openings; larger ones anticipated moving toward 100% quality control review for 

high-risk clients. 

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Review and Conclusions 

The day concluded with presentation of findings by 

facilitators and a review and analysis by Rick Small, 

A CAMS advisory board chairman and executive vice 

president and director, Financial Crimes Program at 

BB&T. 

Mr. Small outlined the rule's four core elements of 

CDD. They are {1) customer identification and verification; {2) beneficial ownership Identification and verIfication; (3) understanding the nature and purpose of 

customer relationships to develop a customer risk 

profile; and {4} ongoing monitoring for reporting suspicious transactions and, on a risk basis, maintaining 

and updating customer information. 

The first is already an AML program requirement. The 

third and fourth are implicitly required to comply with 

suspicious activity reporting requirements. The 

second is required under the new rule. 

AML program requirements are being amended to 

explicitly include risk-based procedures for ongoing 

CDD, including understanding the nature and purpose 

of customer relationships for purposes of developing a 

risk profile. A risk profile refers to information gathered 

at account opening, to be used as a baseline against 

which customer activity is assessed for suspicious 

activity reporting. The profile may, b'Jt need not, include 

a system of risk ratings or customer categories. 

The AML program amendments also include conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, update client 

information, including beneficial ownership. 

When, in the course of normal monitoring, a financial 

institution detects information relevant to assessing 

client risk, including possible changes in beneficial 

ownership, it must update customer information 

including beneficial ownership. There ts not a cate· 

gorical requirement to update client information on a 

continuous or periodic basis. Updating is to be 

event-driven. 

For identifying and verifying customers, current processes need not change. Current CIP requirements 

meet CDD standards. 

However, understanding the nature and purpose of 

customer relationships may require evaluating current risk rating and enhanced due diligence (EDD} 

systems to ensure they meet minimum standards. A 

key issue is regulatory expectations for what informa~ 

tion should be collected at account opening. 

Existing ongoing monitoring processes and procedures should suffice in terms of maintaming and 

updating customer information, and identifying and 

reporting suspicious transactions. But institutions 

must adhere to regulatory expectations for "refreshing" beneficial ownership information. 

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Acknowledgements 

Moderators for the ACAMS Special Forum: Mastering the CDD Final Rule-A Roadmap 

to Successful Implementation were John Byrne, Esq., CAMS, executive vice president of ACAMS, 

and Kieran Beer, CAMS, editor-in-chief of ACAMS moneylaundering.com. 

A CAMS expresses sincere and deep gratitude to the forum's facilitators. In alphabetical order: 

Megan D. Hodge, CAMS, executive compliance director and BSA/ AML officer, Ally Financial; 

Lauren Kohr, CAMS-FCI, chief risk officer and BSA officer, Old Dominion National Bank; 

Megan Nelson, senior vice president and manager of Financial Crimes, Governance and rusk Assessments, BB&T; 

Anna M. Rentschler, CAMS, vice president and BSA officer, Central Bancompany; 

Tyler Reynolds, CAMS, senior vice president and senior director of enterprise financial crimes compliance, 

US Bank; 

Rick Small, CAMS, executive vice president and director, Financial Crimes Program, BB&T and 

chairman of the A CAMS Advisory Board; 

Joe Soniat, CAMS-FCI, vice president and BSA/AML officer, Union Bank and Trust; 

Daniel P. Stipano, partner, Buckley Sandler; 

Chuck Taylor, CAMS, senior vice president and BSA officer, City National Bank; 

Susan Tuccillo, CAMS, senior vice president and head of compliance, Nordea Bank AB (New York branch) 

This paper was written by Gregg Fields, CAMS, senior copywriter of A CAMS, based on his reporting 

from the forum and notes submitted by the facilitators. 

Additional Resources 

The following link is to FinCEN's Notice of Proposed Rulemaking on Customer Due Diligence Requirements 

for Financial Institutions, posted Aug. 4, 2014 

https://www.regulations.gov/document?D,.FINCEN-2014-0001-0001 

The following link is to FinCEN's Preliminary Regulatory Impact Assessment for the CDD Final Rule, 

posted December 2015 

https://www.fincen.gov/sites/defaulUfiles/shared/CDDJliA.pdf 

The following link is to FinCEN's issuance of the final rule, posted May 11, 2016 

https://www.federalregister.gov/documents/2016/05/11/2016-10567/ 

customer-due-dlllgence-requuements-for4lnancial-mstitutions 

The following link is to an FAG on the rule posted by FinCEN on July 19,2016 

https://www.fmcen.gov/sites/default/files/2016-09/FA0s_for_CDD_Final_Rule_%287_15_16%29.pdf 

The following link is to a free ACAMS webinar, The CDD Final Rule: 

Responding Effectively to Implementation Hurdles, conducted on May 12, 2017 

http:l/www.acarns.org/webinar-2018-cdd-final-rule/ 

''ACAMS KYC CDD- Intermediate" certificate course builds research skills for complex cases, 

shell companies, and ultimate beneficial owners. 

http://www.acams.org/kyc-cdd-intermediate-training/ 

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ACAMS'I 

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