U.S. GOVERNMENT PUBLISHING OFFICE

31–494 PDF WASHINGTON : 2018

INTERNATIONAL AND DOMESTIC 

IMPLICATIONS OF DE-RISKING 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

JUNE 26, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–105 

( 

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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 

SHANNON MCGAHN, 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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(V) 

C O N T E N T S 

Page 

Hearing held on: 

June 26, 2018 .................................................................................................... 1 

Appendix: 

June 26, 2018 .................................................................................................... 33 

WITNESSES 

TUESDAY, JUNE 26, 2018 

Clements, Michael E., Director, Financial Markets and Community Investment, Government Accountability Office ........................................................... 3 

Eckert, Hon. Sue E., Adjunct Senior Fellow, Center for a New American 

Security ................................................................................................................. 5 

Haddad, Gabrielle, Chief Operating Officer, Sigma Ratings, Inc. ....................... 7 

Lewis, John, Senior Vice President, Corporate Affairs and General Counsel, 

United Nations Federal Credit Union on behalf of the National Association 

of Federally-Insured Credit Unions .................................................................... 9 

Yearwood, Sally, Executive Director, Caribbean-Central American Action ....... 11 

APPENDIX 

Prepared statements: 

Clements, Michael E. ....................................................................................... 34 

Eckert, Hon. Sue E. .......................................................................................... 64 

Haddad, Gabrielle ............................................................................................. 96 

Lewis, John ....................................................................................................... 103 

Yearwood, Sally ................................................................................................ 114 

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INTERNATIONAL AND DOMESTIC 

IMPLICATIONS OF DE-RISKING 

Tuesday, June 26, 2018 

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

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

The subcommittee met, pursuant to notice, at 2:02 a.m., in room 

2128, Rayburn House Office Building, Hon. Blaine Luetkemeyer 

[chairman of the subcommittee] presiding. 

Present: Representatives Luetkemeyer, Rothfus, Posey, 

Pittenger, Barr, Tipton, Williams, Love, Loudermilk, Kustoff, 

Tenney, Clay, Scott, Green, and Crist. 

Chairman LUETKEMEYER. The committee will come to order. 

Without objection the chair is authorized to declare a recess of the 

committee at any time. This hearing is entitled, ‘‘International and 

Domestic Implications of De-risking.’’ 

Before we begin I would like to thank the witnesses for appearing today, we appreciate your participation and look forward to the 

discussion. 

I now recognize myself for 5 minutes to deliver my opening statement. 

This subcommittee has spent significant time analyzing the impact of de-risking on consumers, businesses, and entire communities. As we have discussed, the overly punitive supervisory and 

examination tactics employed by Federal financial regulators that 

came in the wake of the financial crisis have had dramatic implications on the availability of financial products and services in all of 

our communities. 

What we have not discussed are the global implications of these 

regulations. Today we will not only explore de-risking’s impact on 

U.S. financial institutions and their customers but also its impact 

on people and businesses around the world as well as our fight to 

combat illicit financial activity. Making relationships with so-called 

high-risk clients, they become cost prohibitive for financial institutions due, in large part, to heightened compliance expectations, and 

as a result many institutions have opted to terminate relationships. 

This decision has resulted in the elimination of the consumer and 

small business access to financial products and services, a decrease 

in the availability of money remittances, and reduced flow of humanitarian aid globally. 

To be clear, there are valid reasons for account terminations and 

the fight against illicit finance is one of the most important fights 

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we wage; however, we would be better equipped to wage that fight 

if we had a modernized regulatory system. 

It is particularly true in the case of compliance with the Bank 

Secrecy Act and Anti-Money Laundering laws. The truth of the 

matter is that compliance with BSA/AML is so costly and the penalty is so steep, financial institutions would sooner rather end customer relationships than run the risk of running afoul of the regulators and law enforcement. 

The status quo doesn’t foster a safer system and it doesn’t necessarily help catch more bad actors; in fact, it is quite the opposite. 

Instead of fostering collaborative relationships between institutions 

and government, the modern BSA/AML framework, along with the 

other regulatory drivers of de-risking, push more people and more 

money into the shadows. 

So where do some of those de-bank customers go? According to 

data published last year by payment and compliance technology 

company Accuity, correspondent banking relationships with Chinese banks surged more than 3,300 percent, from 65 in 2009 to 

2,246 in 2016. There was a 25 percent drop in the number of correspondent relationships globally during the same time period. 

It is in the best interest of our financial services firms, our communities, law enforcement, and the Federal Government to monitor 

and maintain these global banking relationships. This hearing isn’t 

only important to the people testifying today or to the financial institutions that do business internationally, it is important to any 

small nation that relies heavily on the U.S. dollar and the trading 

partners who sell U.S. goods there. 

It is important to poorer communities that are losing banks and 

credit unions because of the BSA/AML regime. It is important to 

a worker in Florida who can no longer send the money he earns 

to help his family in Haiti. This is an incredibly important topic. 

We have an excellent panel today and I want to thank each of 

them for taking time to testify and we look forward to your statements. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Scott excuse me, who is subbing for Mr. Clay, the Ranking Member 

of the subcommittee, for a 5-minute opening statement. 

Mr. SCOTT. Thank you very much Chairman Luetkemeyer for organizing today’s hearing. 

And to each of our outstanding panelists for this testimony, we 

are looking forward to hearing from you. 

First of all, it is clear that the push by depository institutions’ 

decisions to de-risk and discontinue account services for certain 

customers is having very significant, adverse consequences on a 

broad range of consumers, industries, and regions around the 

world. 

And in addition to the devastating regional impacts the de-risking of broad categories of customers’ accounts, has also had an impact on key consumer groups that perform essential functions in 

our society. This includes nonprofit organizations, charities, embassies, and remittance providers among others; although the adverse 

effects of de-risking are clear, what is less apparent are the specific 

factors and the degree to which each factor is responsible for arriving at this trend. 

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We look forward to the hearing, hopefully we can come up with 

some very good recommendations as to how we go forward. Thank 

you again to each of the panelists for being here. 

And I yield back the balance of my time. 

Chairman LUETKEMEYER. The gentleman yields back. 

Today we welcome the testimony of Mr. Michael Clements, Director, Financial Markets and Community Investment, U.S. Government Accountability Office; the Honorable Sue Eckert, Adjunct 

Senior Fellow, Center for a New American Security; Ms. Gabrielle 

Haddad, Chief Operating Officer, Sigma Ratings, Inc.; Mr. John 

Lewis, Senior Vice President for Corporate Affairs and General 

Counsel, United Nations Federal Credit Union and on behalf of the 

National Association of Federally Insured Credit Unions; and Ms. 

Sally Yearwood, Executive Director of Caribbean-Central American 

Action (CCAA). 

Each of you will be recognized for 5 minutes to give an oral presentation or a testimony. Without objection each of the written 

statements will be made part of the record. 

Just two quick housekeeping things. Number one, we have votes 

called right around 3:30 to 4. We will see where we are with our 

witnesses’ testimony and our questions but we may have to ask you 

to stay a little longer if we need to go vote and come back. 

In the meantime, the timing system on your microphones there 

are such that green means go, yellow means you have about a 

minute left, and red means your time is up and so you need to 

wrap it up very shortly. 

So, with that Mr. Clements you are recognized for 5 minutes. Excuse me you are— 

STATEMENT OF MICHAEL CLEMENTS 

Mr. CLEMENTS. Chairman Luetkemeyer. 

Chairman LUETKEMEYER. Recognized for 5 minutes. I am sorry. 

Mr. CLEMENTS. Chairman Luetkemeyer, Mr. Scott, and other 

Members of the subcommittee, I am pleased to be here today to discuss our recent report, discussing de-risking by depository institutions and the implication for the southwest border region and 

money transmitters serving fragile countries. 

My statement today focuses on three key findings from our reports. As background, the Bank Secrecy Act serves an essential 

function, it helps to prevent money laundering, terrorism financing 

and other criminal activity. 

We define de-risking as the practice of depository institutions 

limiting services or ending relationships with customers in response to perceived regulatory concerns. 

Chairman LUETKEMEYER. Mr. Clements, if you could move the 

microphone, just pull right in front of and just take a bite at it 

when you speak— 

Mr. CLEMENTS. OK. 

Chairman LUETKEMEYER. Thank you. 

Mr. CLEMENTS. Our first key finding, the extent of and reasons 

for account terminations and bank closures in the southwest border 

region. We found that branch closures in the southwest border region were concentrated in a small number of communities. Five 

counties in Arizona, California, and New Mexico lost 10 percent or 

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more of their branches. In some instances, those losses were concentrated in smaller communities. For example one California town 

lost five of its six branches. 

The loss of bank branches can have negative implications for 

business lending and ultimately employment in these communities. 

In many instances banks limit service or terminate accounts in response to legitimate BSA concerns. The southwest border region 

poses a high risk for money laundering because of the high volume 

of cash transactions, number of cross-border transactions, and 

number of foreign account holders. 

However, we also found evidence of de-risking, in particular 80 

percent of southwest border banks reported limiting or not offering 

of accounts because the customer type drew heightened BSA regulatory oversight. Here the reason is perceived oversight, not the 

customer’s action. 

Our second key finding, the challenges money transmitters face 

remitting funds to select fragile countries. We examined the experience of money transmitters serving four fragile countries: Haiti, Liberia, Nepal and Somalia. Remittances from the United States are 

an important source of funds for these countries. All 12 money 

transmitters we interviewed that served these countries report losing some accounts with banks. In the case of Somalia, two of four 

money transmitters report losing all access to bank accounts. 

Some banks acknowledge closing and denying accounts for money 

transmitters. These banks consider money transmitters high cost 

and also high-risk customers. In particular banks cite: One, high 

staff and technology cost associated with BSA-related activities; 

and two, the perceived risk of significant fines and penalties. 

Money transmitters that lose access to banking services often resort to nonbanking channels such as couriers physically transporting cash. For law enforcement, nonbanking channels provide 

less transparency and thereby hinder the ability to detect criminal 

activities. 

Finally, our third key finding, agencies’ efforts to assess and respond to de-risking concerns. Treasury and Federal banking regulators have taken some steps in response to concerns about de-risking. The agencies have issued BSA guidance to banks. The agencies 

have also conducted retrospective reviews; these are a lookback to 

assess whether regulation should be retained, amended, or rescinded. However, we found the agencies’ reviews have not fully addressed the factors that influence banks to de-risk. 

The agencies also recently began collecting data on international 

remittances from banks. However, we found Treasury does not 

have the data it needs to assess how the loss of banking services 

by these remitters will influence service to fragile countries. 

Given the problems we identified, we made several recommendations. We recommended that Treasury and the banking regulators 

conduct retrospective reviews that incorporate banks’ regulatory 

concerns regarding BSA/AML compliance. We recommended that 

Treasury assess the extent to which remittance flows through nonbanking channels may hinder its ability to monitor criminal activity. 

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Chairman Luetkemeyer, Mr. Scott, and other Members of the 

subcommittee, this completes my prepared statement. I would be 

pleased to respond to any questions you may have. 

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

34 of the Appendix.] 

Chairman LUETKEMEYER. Thank you. Mr. Clements yields back 

the balance of his time. 

Then we go to Ms. Eckert. You are recognized for 5 minutes. 

Welcome. 

STATEMENT OF SUE ECKERT 

Ms. ECKERT. Thank you. Chairman Luetkemeyer, Congressman 

Scott, and distinguished Members of the subcommittee, thank you 

for the opportunity to testify today on the international and domestic implications of de-risking. 

I applaud your efforts to call attention to the critically important 

phenomena of de-risking—something that is not well understood 

but which has profound impacts on some of the world’s most vulnerable populations. The U.S. has a unique role to play in addressing de-risking globally as the dominance of the U.S. dollar and 

American regulatory policy set the stage for other countries. 

My comments today focus on the impact of de-risking on charities and nonprofit organizations and is based on the research that 

I conducted for the February 2017 report, Financial Access for U.S. 

Nonprofits. It was commissioned by the Charity & Security Network and supported by the Bill and Melinda Gates Foundation. 

While I am currently involved with the World Bank ACAMS (Association of Certified Anti-Money Laundering Specialists) process on 

financial access for NPOs (non-profit organizations), the views expressed today are my own. 

I spent a number of years on Capitol Hill as a staffer in the Executive branch as a regulator of dual-use exports and in the academic community but in all those years there is no issue that I 

dealt with that has more serious, real, and dire consequences for 

populations in need. These severe implications extend beyond 

NPOs and the groups that they serve; it also extends to U.S. security and foreign policy interest. So with my brief time I want to 

make a couple points. 

First, there is no question of the need for humanitarian and development assistance today, it is a profound need. The United Nations estimates that in 2018, more people than ever before will 

need assistance and protection, 136 million people. Conflict, protracted crises, and natural disasters continue to be the main drivers of need, which remains exceptionally high levels in countries 

such as Nigeria, South Sudan, the Syria region, and Yemen which 

are likely to remain the world’s most serious humanitarian crises. 

To effectively respond to these humanitarian crises, funds must 

be able to move across borders in a timely and predictable fashion. 

Financial access for charities and NPOs, therefore, can literally 

mean life and death. 

Second, there is no question that de-risking or problems with financial access for NPOs is having a serious and widespread effect. 

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some was the fact that in order to respond and get the aid to these 

places, 42 percent of NPOs were starting to carry cash because 

they could not get money through the financial system. We actually 

have more recent data that shows that the problem appears to be 

worsening. 

Third, the problem relates to concerns by financial institutions 

for the risk and cost associated with banking in the charitable sector. This derives from well-intended and important policies developed immediately after 9/11 by the FATF (Financial Action Task 

Force), whereby NPOs or charities, were considered particularly 

vulnerable to terrorist abuse. 

Based on more recent analysis, the evolving nature of the terrorist threat and actions that the charitable sector has taken, that 

perception is outdated and, in 2016, FATF changed its policies. 

However, the pervasive nature of the perception that charities are 

high risk persist; serious unintended consequences of these policies 

have resulted. 

Fourth, de-risking is a complex problem that entails a variety of 

interest: Financial integrity; national security and counterterrorism; foreign policy; and the provision of humanitarian and development assistance and it must be a shared responsibility. No one 

group, U.S. policymakers, U.S. regulators, financial institutions, or 

the nonprofit and charitable sector, can address these issues by 

themselves. 

Fifth, in terms of what kind of action should be taken, very briefly, raise awareness and promote a balanced approach; stakeholder 

dialog which the World Bank and ACAMS has promoted, has enhanced engagement among all parties. What is really interesting is 

how little these sectors know of each other. 

The second is to provide regulatory and policy guidance. The government needs to develop policy and regulatory guidance that provides clarity to banks and NPOs on the implementation of a riskbased approach; however, 2 years ago when FATF adopted the recommendation, changed the nature of how charities should be treated, nothing has happened subsequently. Banks have told us there 

is no question that they have to have something from the regulators in order to change their assessment of risk. 

Currently the World Bank and ACAMS initiative has produced 

recommendations that were jointly made by banks and nonprofits, 

which is pending before the regulatory agencies. 

Third, we need to explore incentives for financial institutions to 

bank NPOs. A menu of measures including the creation of safe harbor to incentivize banks to keep NPO accounts and encourage efforts to engage with NPOs should be developed. 

Finally, the creation of safe-payment channels. There are times 

when banks are not going to go any further and we need to consider those options. 

There are additional recommendations in my statement. Mr. 

Chairman, I look forward to discussing them. 

[The prepared statement of Ms. Eckert can be found on page 64 

of the Appendix.] 

Chairman LUETKEMEYER. Thank you. 

Ms. Haddad, you are recognized for 5 minutes. 

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STATEMENT OF GABRIELLE HADDAD 

Ms. HADDAD. Thank you. Chairman Luetkemeyer, Congressman 

Scott, and distinguished Members of the subcommittee, I am honored by your invitation to testify before you today. 

De-risking is a phenomenon that has had dramatic impacts on 

the international financial system over the last decade. De-risking 

has impacted the concentration of trade flows and cross-border payment activity which challenges financial stability and inclusion for 

affected markets. 

For the United States specifically, a decline in dollar-denominated transactions and flows through U.S. financial institutions 

has potential implications on commerce as well as the United 

States’ competitive position. 

I am the Co-founder and Chief Operating Officer of Sigma Ratings, a company we founded to address de-risking by highlighting 

and incentivizing good corporate behavior globally. Today my testimony will focus on the drivers and international impacts of de-risking that resulted from the termination of correspondent banking relationships. 

Since founding Sigma Ratings, my team and I have met with financial institutions and regulators in dozens of countries across 

Europe, Latin America, the Middle East, and Africa to better understand the challenges of de-risking and determine how our solution can help solve them. 

We have learned that there are many drivers of de-risking including profitability and reputational risk concerns and these drivers may vary from country to country; however, fears of regulatory 

enforcement actions and fines as well as the cost associated with 

complying with anti-money laundering, counterterrorist financing, 

and sanctions regulations, are consistently highlighted as primary 

drivers of de-risking. 

Regulatory fines imposed since 2012 against global banks 

reached billions of dollars and have had a chilling effect on the 

robustness of global correspondent relationships. The magnitude of 

these fines has instilled fear in many global banks and resulted in 

the reassessment of those banks’ risk appetites. 

Another driver is cost. Global banks are spending billions of dollars a year on compliance with some banks individually spending 

over a billion dollars themselves. Cost of due diligence and concerns about the compliance regimes of respondent banks are frequently mentioned as the main reasons for termination. 

While much of bank-spending is for critically important tasks, 

many costly compliance tasks are repetitive and viewed as mere 

check-the-box exercises by banks. This may distract institutions 

from the intended outcome of detecting real risk and ultimately 

identifying illicit activity. As a result of these fears and costs, many 

institutions determine that the costs and risks associated with 

maintaining certain relationships are no longer worth the revenue 

generated, leading to terminations. 

I would like to turn to the three key consequences of de-risking: 

Financial exclusion, decrease in transparency, and long-term effects. 

First, research demonstrates that de-risking has direct financial 

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kets. In a World Bank report from November 2015, decreases in 

lending, international wire transfers, cash management services, 

and check-clearing were highlighted among some of the most significant impacts at the local level. Additionally, an IMF report from 

March 2017 indicates that small countries with low volumes of 

transactions experienced increased costs for remittance transfers 

which has a direct impact on end-users. 

Second, it has been cautioned by the World Bank, the Financial 

Action Task Force, and other groups, that de-risking may unintentionally drive financial transactions underground or into shadow 

markets. This makes detecting illicit activity much harder. It is 

well-documented that channels with a low likelihood of detecting illicit activities such as unregulated industries are the channels 

more frequently used by money launderers and terrorist groups for 

movement of funds. As regulated entities, banks have higher likelihood of detecting illicit activity. 

Third, de-risking has long-term effects that should not be ignored. We found in our research that many countries and institutions that were de-risked continue to struggle to find new relationships and for those who do, they are often subject to higher fees 

and increased due diligence by correspondents leading to higher 

costs of doing business. 

The loss of correspondent banking relationships can also create 

a long-term stigma, for example, rating agencies have started to 

consider loss of correspondent banking relationships as a factor for 

downgrading the rating of a financial institution. 

With de-risking and its drivers receiving much attention over the 

last few years, with public and private sector players have presented potential solutions, a sustainable solution, however, will require a change in the overall cost-benefit analysis for correspondents in high-risk markets. 

Some possible approaches are the following: First greater sharing 

of risk information to improve overall transparency and reduce due 

diligence costs. For a bank with thousands of relationships, due 

diligence practices, much of which are done manually today, are almost impossible to keep up with. Greater information sharing between both public and private sector improves information availability and transparency. 

Second, the compliance burden can be further reduced through 

the use of standardized, independent third-party assessments of potential respondents’ risk and compliance practices. An independent 

assessment would serve as a baseline for a correspondent to enter 

into a relationship, thus reducing much of the up-front and ongoing diligence processes. 

Furthermore, standardized assessments would allow for 

benchmarking across jurisdictions, for use by governments as well 

as financial institutions. This increased visibility and comparability 

would allow for better allocation of capacity-building resources. 

Finally, the use of technology to enable financial institutions to 

better understand their clients and manage their risk should be 

welcomed. 

Thank you for taking the time to hold this hearing and for allowing me to share my perspective on this important topic. I look forward to your questions. 

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[The prepared statement of Ms. Haddad can be found on page 96 

of the Appendix.] 

Chairman LUETKEMEYER. Thank you, Ms. Haddad. 

Mr. Lewis you are recognized for 5 minutes, hopefully it is within 

a 5-minute timeframe. 

STATEMENT OF JOHN LEWIS 

Mr. LEWIS. We will try. 

Chairman LUETKEMEYER. We have a difficulty with 5 minutes 

today. 

Mr. LEWIS. Good afternoon Chairman Luetkemeyer, Ranking 

Member Clay, and Members of the subcommittee. 

My name is John Lewis. And I am testifying today on behalf of 

NAFCU. I am the Senior Vice President of Corporate Affairs and 

General Counsel for the United Nations Federal Credit Union. 

NAFCU and its member credit unions have consistently recognized the importance of BSA and AML requirements in assisting 

in prevention of illicit activity. Credit unions are fierce supporters 

of efforts to combat criminal activity utilizing our financial systems. Credit unions work closely with examiners to ensure consistent application of BSA risk assessments. Still, the implementation of BSA requirements remains a burden for many credit unions 

especially in the post-financial crisis regulatory environment. 

Given credit union’s field-of-membership limitations, it is important for credit unions to have potential to serve everyone in their 

field of membership whether individuals or legitimate businesses, 

some members may present heightened-risks which can mean increased compliance burdens, cost, and pressures on credit unions. 

Despite UNFCU’s unique field-of-membership, we have been fortunate to have good relationships with our examiners who have 

worked with us in riskier areas. However, other credit unions report that while NCUA (National Credit Union Administration) 

doesn’t directly prohibit them from serving certain types of members, they feel pressured by examiners to limit services. 

It is important to note that when a credit union is serving a 

higher-risk individual or business, they are very thorough in their 

evaluation recordkeeping. However, when examiners evaluate that 

relationship they can be very demanding of the credit union, this 

additional pressure and scrutiny from examiners can lead institutions to de-risk by limiting services for certain types of members. 

Sometimes the pressure to de-risk comes not from the regulators 

but from law enforcement. Although credit unions recognize the importance of sharing critical information with law enforcement, some 

report they have received unreasonably broad subpoenas asking for 

all information and correspondence related to any members in a 

certain type of business. The threat of over-broad investigatory demands makes credit unions hesitant to provide services to members 

that are targeted as higher risk. 

Credit unions can also be impacted by others making the decision to de-risk. At UNFCU, some of our members have international ties and some are located abroad, as a result we are presented with a unique set of risks for which we have learned to 

adapt. 

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We have found that some of UNFCU’s long-standing vendors 

have reevaluated their relationships with UNFCU even de-risked 

by ending the relationship due to the fact that we serve some higher-risk members. This loss of vendors has led to a significant disruption of services and increased costs to our members. Our unique 

membership coupled with our vendor relationships gives UNFCU a 

strong understanding of the challenges from both sides of the derisking issue. 

Credit unions continue to work with FinCEN (Financial Crimes 

Enforcement Network) and other regulators to develop ways to provide services to higher-risk members without incurring compliance 

burdens and costs that are so onerous that de-risking becomes the 

only option. 

Some ideas for improvement include first, creating a safe harbor 

for the financial institution providing services to high-risk accounts 

if they meet certain requirements in scrutiny of those accounts. 

Second, ensuring the risk-based review requirements for financial institutions are understood by examiners. 

And third, not making the financial institution the de facto regulator of business. While it may make sense for the institution to 

verify registration licensing, they should not be forced to verify levels of compliance by the business. 

NAFCU also supports legislative proposals to address these 

issues. I outlined these in greater detail in my written statement 

but they include H.R. 6068, the Counter Terrorism and Illicit Finance Act which takes important steps to update and modernize 

the BSA/AML regime; H.R. 4545, the Financial Institutions Examination Fairness Reform Act, enacting this legislation would provide relief for financial institutions from perceived pressures from 

examiners; and finally H.R. 2706, the Financial Institution Customer Protection Act of 2017 that would ensure ‘‘Operation Choke 

Point’’ policies will not be used by regulators to prevent the provision of financial services to a member. 

An additional area where relief is needed is the Bureau’s rule on 

international remittances. The rule has driven a number of credit 

unions out of the remittance business as the cost of compliance and 

risks associated with it are too great. We believe that the Bureau 

should use its exemption authority under Section 1022 of DoddFrank to provide relief to credit unions on the issue. 

In conclusion, NAFCU and its member credit unions recognize 

the importance of the BSA regime as well as the importance of regulator and law enforcement scrutiny of riskier businesses. Given 

UNFCU’s field of membership, we serve as an example that it can 

be done, nonetheless heavy compliance costs, burdens, and pressures from regulators and law enforcement when dealing with 

high-risk members and businesses can lead many to de-risk and 

stop providing services to them. 

Congress can help by working with financial regulators and law 

enforcement to alleviate these burdens and pressures. NAFCU 

stands ready to work with you in this regard. 

Thank you for the opportunity to appear before you today. I welcome any questions you may have. 

[The prepared statement of Mr. Lewis can be found on page 103 

of the Appendix.] 

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11 

Chairman LUETKEMEYER. Thank you, Mr. Lewis. 

Ms. Yearwood you are recognized for 5 minutes. 

STATEMENT OF SALLY YEARWOOD 

Ms. YEARWOOD. Chairman Luetkemeyer, Ranking Member Clay, 

and Members of the subcommittee, thank you for the opportunity 

to appear before you today. As one of the most insidious threats to 

the Caribbean’s economic sustainability, de-risking is destabilizing 

economies, threatening trade, and creating security concerns and it 

requires constructive solutions. I would like to begin with some examples. 

In 2015, on instruction from their U.S. correspondent banks, the 

two banks in the Cayman Islands that supported money transfer 

business, severed those relationships and the MTBs (money transfer businesses), which provide critical remittance services were 

forced to shut down. This led to moving cash in planes in order to 

make sure that the affected population had access to finance. 

Today only one MTB remains open. 

Tourism is one of the Caribbean’s most important industries and 

generates significant demand for U.S. goods and services. About 4 

years ago, a leading hotelier told me that they had received a letter 

from their longtime U.S. bank, it essentially said ‘‘as of today we 

are no longer your bank.’’ There was no valid explanation and no 

opportunity to address concerns. I spoke to that hotelier last week 

in preparation for this hearing to see how they had resolved the 

issue and was told that finding a new U.S. bank was extremely difficult and that they still feel that the situation is precarious. They 

did not want me to use their name, the hotel name, the name of 

the U.S. bank that they are now using, or disclose the country or 

countries where they operate. 

This last point underscores why getting a grip on the impact of 

de-risking can be so difficult. A legitimate business has lost its U.S. 

banking relationships regardless of whether or not there is any real 

risk present, has the stain of de-risking on them so they keep it 

quiet and try to replace the lost relationship. Bottom line it is like 

Fight Club, the first rule of being de-risked is, you don’t talk about 

being de-risked. 

The toll has been highest on small- and medium-sized business 

where the costs of banking are becoming prohibitive. We have seen 

a rise in cash in informal economies in some jurisdictions and the 

operation of parallel foreign exchange markets. Even for long-established businesses banking has become burdensome. One U.S. 

company that operates in the Caribbean reports that a basic process like opening a new account that used to take 10 days or so, now 

can take up to 60 days and require 10 times more paperwork. 

The Caribbean Association of Banks reports that nine members 

have no U.S. correspondent banks but have been on-boarded by 

third parties to manage these banking services and 17 members 

have only one U.S. correspondent. At the same time, they report 

a 39-percent year-on-year increase in correspondent banking fees 

between 2014 and 2017, and the cost of compliance has increased 

approximately 66 percent. 

As relationships are lost with U.S. banks, they are being sought 

in Asia and the Middle East and if the United States doesn’t work 

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12 

to address the challenges, countries may have no option but to 

build new relationships and prioritize trade with other countries. 

While de-risking is a motivation for the loss of banking relationships, the reality is that profitability plays a significant role as 

well. These are small economies in a global system and weighing 

perceived risk with profitability does not always work in the Caribbean’s favor, even though the region has been working diligently to 

improve its risk profile. 

It is important to stress that no one is advocating for a removal 

of the rules. Today’s world requires that we build systems that 

have the capacity to recognize and eliminate threats. But this 

should not be done in a way that forces legitimate actors out of the 

system and there are a number of ways to change the narrative. 

First, the U.S. Department of Treasury provides important assistance to the region. Resources could be made available to allow 

the Department to deepen its engagement there. Another idea related to Treasury is if larger banks are not going into the market 

because of the profit ratio, is there a scenario wherein community 

and minority banks are encouraged to serve the Caribbean using 

the platforms within large banks, with the large banks who make 

their platforms available receiving credit under the Community Reinvestment Act? 

Second, innovation has the capacity to level the playing field. 

This is happening in the Caribbean where we have seen the emergence of technology companies that are working to remove financial 

friction-points across the region. I also believe that some consideration should be given to the issue of proportionality, fines can 

reach billions of dollars. Taken in context, Belize, which has been 

particularly affected by de-risking, had a GDP of just under 1.8 billion in 2016 along with 1.3 billion of external debt. If the application of the rules is weighted against small economies and their inherent vulnerabilities, how do we keep them viable? 

In conclusion, taken as a group, the countries of the Caribbean 

and Central America are the fifth largest buyer of United States 

non-oil exports and the U.S. consistently records a trade surplus. 

If access to banking is removed or becomes more costly and difficult, it is likely that this healthy relationship will begin to be 

eroded. 

Second, the countries of the Caribbean and Central America are 

the United States’ third border. When the countries of the region 

experience instability, mass-migration is one risk, and in the absence of the U.S. actively working to help the region, the door is 

open to other partners who may be antithetical to the United 

States’ security interests. 

CCAA is grateful that this subcommittee has provided this platform. Thank you, Mr. Chairman for the opportunity. 

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

114 of the Appendix.] 

Chairman LUETKEMEYER. Thank you, Ms. Yearwood. 

I appreciate everybody’s comments. 

And with that we will begin the question part of our discussion 

today. And I will begin with my questions. 

Mr. Clements, you and all the witnesses today have described 

concerns about the problems of de-risking across the board with renshattuck on FSR297 with DISTILLER

13 

gards to how law enforcement and regulatory officials have come 

down on the people in the financial services industry. 

Is law enforcement aware that they are deterring actual profitable, well-intentioned business and if they are do they have some 

ideas on how to fix the problem so they don’t deter normal activity 

or are they content with driving everybody out of the business altogether? 

Mr. CLEMENTS. In the two reports, we were not talking to law 

enforcement so I can’t speak to the effect of whether law enforcement is aware of it. I think you bring up a relevant issue. In many 

instances it is not people telling, instructing banks, for example, to 

drop a customer, it is simply the effect of working through the examiners saying, this is a high-risk customer, and the next thing 

you know, it involves additional staff and additional resources; 

there is the risk of large fines that we have heard about and those 

things create an incentive for the bank to essentially drop service 

rather than have to deal with that potential risk. 

Chairman LUETKEMEYER. Well it is very concerning because it is 

a manifestation, a morphing if you will of ‘‘Operation Choke Point’’ 

into other areas here from the standpoint of trying to intimidate 

the banks and then discontinuing financial services with customers 

who are legitimate customers or did a good job. 

You know, Mr. Clements, I believe you were the one that indicated and had some nice charts in your testimony that showed the 

counties along the border between the United States and Mexico 

are being dramatically impacted, where they are closing branches 

so they can’t do any business so they can de-risk themselves of 

their problem. I guess my question is, have you seen the next county above them, are they starting to de-risk as well or are they 

starting to close financial service because, I would assume, that if 

you close the branch off next to the border, that people will start 

going to the next county over, is that happening as well, or starting 

to happen now? 

Mr. CLEMENTS. Our experience was just with the counties on the 

southwest border, it was certainly the case that one option that 

consumers have if they have lost their branch in that community 

is to go one community over and have to travel to that branch. 

The other options they have are mobile banking. 

Chairman LUETKEMEYER. Mr. Lewis, you are a credit union, did 

you see that happening, you see them closing on the border and 

then moving to the next county over, to where you are starting to 

get some pressure to be able to close those next? 

Mr. LEWIS. We, UNFCU are not seeing that, as we are not located on a border State. We know that there are credit unions that 

are under pressure and have had some issues with it. Certainly, I 

could get back to you and provide a written response to that in 

more detail if you like. 

Chairman LUETKEMEYER. Thank you. 

I have another question here with regards to, there was an article from Reuters back on May 8, 2017, the headline is, ‘‘Chinese 

banks payment networks surge as Western lenders cut ties,’’ and 

there was a study to show this and it was, I quoted the numbers 

in my opening statement here and the last part of this says, ‘‘the 

U.S. dollar dominates world trade but there is a trend toward a denshattuck on FSR297 with DISTILLER

14 

cline in the use of U.S. dollar and an increase in the use of the 

renminbi,’’ which is the Chinese dollar if you will. Have you seen 

this going on, any of you, where we have seen that there is a risk 

to the U.S. dollar being the reserve currency, we are starting to 

trade in other currencies versus the dollar? 

Mr. Clements, you have seen evidence of that? 

Mr. CLEMENTS. We have no evidence of that. 

Chairman LUETKEMEYER. Ms. Eckert? 

I know that you deal with a lot of charities around the world. It 

is terrible that even they are being hurt by this. I mean who wants 

to launder money through a charity but that’s the ultimate slap of 

whatever, but can you comment on this? 

Ms. ECKERT. On the question of reverting to alternative currencies, we did not see that— 

Chairman LUETKEMEYER. OK. 

Ms. ECKERT. But I would say that in terms of the law, the first 

point that you raised on law enforcement, I think it is a very interesting comment because law enforcement actually has been extremely concerned about the loss of traceability and transparency, 

that as these NPOs are de-risked they will either use cash, they 

will use MSBs, they will use alternative means. 

Chairman LUETKEMEYER. OK. Ms. Haddad, I would like for you 

to comment and Ms. Yearwood as well on this question, have you 

seen any problems with this or there are concerns? 

Ms. HADDAD. I haven’t seen it directly but I have heard from 

people particularly in Africa, from banks there that when those 

banks were de-risked that some Chinese banks picked up the correspondent relationships that were previously held by U.S. correspondents. 

Chairman LUETKEMEYER. Yes, the relationships, they are picking 

them up left and right like leaves on the—on the ground here. 

Ms. Yearwood, have you seen anything like that with the Caribbean banks that you are dealing with? 

Ms. YEARWOOD. I don’t have any evidence of Caribbean banks 

getting Chinese accounts; however, what I have been told is that 

some Caribbean banks have tried to get Chinese accounts but not 

being able to get them because of the ongoing relationship to the 

U.S. dollar. 

Chairman LUETKEMEYER. OK. Thank you very much. My time is 

up. 

With that we go the Ranking Member, Mr. Clay. 

Mr. CLAY. Thank you so much, Mr. Chairman. I thank the panel 

of witnesses for being here. 

Let me start with Ms. Yearwood or Ms. Eckert or both of you, 

what would give financial institutions more comfort in serving remittance service providers especially those serving fragile nations, 

can you help us with that, whoever wants to go, Ms. Yearwood? 

Ms. YEARWOOD. Thank you, Ranking Member Clay. 

In my testimony I pointed to some of the things in terms of the 

assistance from the Treasury Department that could help give a 

certain amount of comfort to the people who are providing services 

in the region. That being said, the remittance side of the coin, I actually think Gabrielle Haddad may have some input because I 

think transparency and the ability to have traceability of where the 

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15 

money is going and coming from is key especially when you are 

moving very small amounts of money so— 

Mr. CLAY. Right. 

Ms. YEARWOOD. I will defer to Ms. Eckert and then Gabrielle 

may have something to add. 

Mr. CLAY. Go right ahead. 

Ms. ECKERT. Thank you, Mr. Clay. 

I think that what banks are asking for as they relate to NPOs 

is they are asking for some clarity about regulatory expectations, 

what is expected of them and, in fact, to the point of the interviews 

that I conducted, I had banks who say that they can manage risk, 

that is what their business is; however, what they can’t deal with, 

there is regulator-risk and that is examiners second-guessing them 

all the time in terms of what their assessments are under a riskbased approach. 

The other thing that the financial institutions want is they want 

more information to be able to make the best-informed decision so 

part of the process that we are engaged in is identifying what information financial institutions need from NPOs and getting NPOs 

comfortable providing that to banks so they can break down some 

of these perceptions that exist about each other. 

Mr. CLAY. Thank you. 

Ms. Haddad, anything to add? 

Ms. HADDAD. I would just add that I agree that the informationsharing is a huge challenge that banks face, both from money-service businesses and from respondent banks, in order for them to actually obtain the information that they need to make assessments 

of their relationships, is incredibly challenging and this is resulting 

in huge burdens and a real lack of clarity, as Ms. Eckert mentions, 

around what their regulatory expectations are. 

Mr. CLAY. So, it is more of the uncertainty on the part of banks 

that they are hesitant to go forward? 

Ms. HADDAD. That is what it appears to be, yes. 

Mr. CLAY. I see. 

This question is for Mr. Clements and Ms. Eckert, what specific 

steps do you believe Congress or State governments can take to address the adverse consequences of de-risking remittance service 

providers? 

Mr. CLEMENTS. We have a variety of recommendations to the 

Federal agencies in terms of Treasury and the banking regulators 

to conduct retrospective reviews, actually looking at this issue of 

de-risking. The last round they simply looked at the currency 

transaction reports and the SAR filings but didn’t get into the underlying cause of what is causing a bank to de-risk. 

The second thing we have asked Treasury to look on this issue 

of de-risking, is remittances, the movement then of funds out of the 

banking system to non-banking channels, how does that affect 

Treasury’s ability to actually monitor criminal activity. Those are 

a couple of things we have looked at. We have also recommended 

in the past, efforts among the bank regulators to reduce the burdens associated with these activities. 

Mr. CLAY. I see. 

Ms. Eckert, anything to add? 

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16 

Ms. ECKERT. Yes. I think first and foremost again is some clarity 

from the regulators about what is expected and here in particular 

the bank examination manual, the standard changed for NPOs, in 

June 2016 yet there is nothing reflected other than statements by 

officials which are helpful but the bank has nothing to rely on in 

terms of how they assess risk associated with NPOs. 

Currently it is an outdated assessment but banks have nothing 

to hold on to. if you will. and to help them make the appropriate 

risk assessment, the clarity, the regulatory guidance; I think another thing is to recognize the importance of humanitarian assistance— 

Mr. CLAY. Yes. 

Ms. ECKERT. Emphasizing that humanitarian and development 

assistance are important U.S. objectives, they are important for foreign policy, they are important for countering violent extremism 

and promoting the kind of values in certain of these higher-risk 

areas to rely on U.S. support. 

And the other is to consider incentives, what can we do that will 

actually encourage banks to take the additional step to bank NPOs. 

Mr. CLAY. And I see the Chairman won’t let me go over my 5 

minutes so I yield back. 

Thank you for your response. 

Chairman LUETKEMEYER. The gentleman yields back. 

In fact, he went over 5 minutes significantly but that is OK, we 

are not counting today, are we. 

With that we go to the Vice Chairman of the committee, Mr. 

Rothfus from Pennsylvania, you are recognized for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Ms. Yearwood, as you know, many poor and unstable countries 

rely heavily on the flow of remittances from the United States. 

Haiti for instance received $1.3 billion in remittances in 2015 and 

its GDP is only about 8 billion. What are the potential impacts of 

a loss of remittances due to regulatory pressures on U.S. institutions for countries like Haiti, Somalia, and Nepal? 

Ms. YEARWOOD. I think it is impossible to overstate how important remittances are to Haiti. I don’t have the precise numbers on 

me but it is a significant portion of their GDP that is through remittances. 

Going back to one of the statements earlier, what you will begin 

to see is not just a drop in remittances but an increase in money 

moving through unofficial channels, money that cannot be regulated so it puts pressure on the system, it puts pressure on securing the network and of course there are questions whether the 

money will get to the people that it is supposed to get to, will the 

money be diverted on the way, and will it get to people that it is 

definitely not supposed to get to. 

I spent 10 years in Haiti and so I know first-hand that remittances are a significant part of what drives the economy. At this 

point, if it were to go away I think there would have to be serious 

consideration about how the U.S. engage Haiti in other ways to improve trade and other areas that aren’t necessarily subject to this 

hearing but the remittance channels right now need to be kept 

open and alive. 

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17 

And I am sure that Haiti’s banking system is very much under 

stress because of this issue. I believe they have maybe one, maybe 

two U.S. correspondent banks right now and so if it remains fragile 

it could go south. 

Mr. ROTHFUS. With respect to the risks of going to unofficial 

channels and maybe remittances not being made at all, among the 

risks there would be any security or political stability risks? 

Ms. YEARWOOD. Oh, absolutely. 

Mr. ROTHFUS. In what sense? 

Ms. YEARWOOD. Again if—remittances make up such a large portion of the GDP, I wish I had brought the number but I will get 

that to you, they make up such a significant portion of the GDP. 

We are talking about a country that has high unemployment, low 

education, if people aren’t able to pay for school fees, for school 

books, for health, for food, political stability is absolutely threatened and of course that has implications as we saw back in the 

1990’s on migration. 

Mr. ROTHFUS. And in 2015 there was a paper from Oxfam, the 

Oxfam Global Center on Cooperative Security suggested that derisking practices will likely result in the further isolation of vulnerable communities particularly women from the financial sector and 

may have wide-ranging humanitarian, economic, and security implications. Would you agree with that, Ms. Yearwood? 

Ms. YEARWOOD. A hundred percent. 

Mr. ROTHFUS. Let us see, yes, there we go, Ms. Haddad, the GAO 

(Government Accountability Office) found that several money 

transmitters including all of the Somali money transmitters reported that they were using non-banking channels to transfer 

funds, in some cases the money transmitter was forced to conduct 

operations in cash. What are some of the risks associated with 

pushing—activities out of the formal channels. 

Ms. HADDAD. I would say that there are a number of risks with 

that happening because as it goes outside of the channels you can’t 

monitor it anymore, you don’t know where the money is flowing, 

you don’t know who is transacting business— 

Mr. ROTHFUS. But do you believe that the regulators would have 

appropriately weighed the risks of this activity leaving regulated 

markets? 

Ms. HADDAD. Do you believe that they have? 

Mr. ROTHFUS. Would you believe that the regulators have 

weighed those risks of pushing remittances out— 

Ms. HADDAD. —I am not sure. I believe that a lot of these are 

unintended consequences of these regulations. I don’t think that it 

was intentional or even— 

Mr. ROTHFUS. Would they be considering that, do you think? 

Ms. HADDAD. I don’t know, I would hope so. I don’t know. 

Mr. ROTHFUS. Mr. Lewis in your testimony you expressed support for facilitating BSA/AML innovation by financial institutions, 

how can emerging technologies help to address the problems 

caused by indiscriminate de-risking? 

Mr. LEWIS. Well, thank you for the question. Certainly, technology helps because much of it’s about monitoring and crunching 

the numbers on the accounts it is tying certain transactions to 

other transactions, accumulating those transactions together so I 

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18 

do believe technology will help and has helped and will continue to 

with BSA. 

The one thing with technology is we want to make sure that all 

the technology and all the FinTech companies are regulated equally and it is a clean playing field, if you will. 

Mr. ROTHFUS. I yield back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that we go to the distinguished gentleman from Georgia, 

Mr. Scott, is recognized for 5 minutes. 

Mr. SCOTT. Thank you very much Chairman Luetkemeyer for 

holding this hearing. And I also want to thank you Chairman 

Luetkemeyer for your leadership on the ‘‘Operation Choke Point’’ 

legislation, H.R. 2706, which we passed out the committee, got 

through the House. But I will remind everyone that it was Mr. 

Luetkemeyer and I who were working on this bill when it wasn’t 

generating as much support and it wasn’t a popular thing to talk 

about back then, especially for some of my Democratic friends, but 

we have grown with this legislation, it has passed, it is over in the 

Senate now and we hope that we can get it through. 

But our bill gets at the fundamental purpose of what we are discussing today and that is there are real side effects that have a 

real impact on our economy when the regulatory pressure we apply 

on our financial system is too strong and our ‘‘Choke Point’’ legislation would prevent Federal banking agencies from ordering a bank 

to terminate a customer’s account without a material reason and 

that reason could not be based solely on reputation risk. 

Now Ms. Haddad, how are you? In your testimony, you provided 

an interesting recommendation for a way forward on how to deal 

with the de-risking trend we have seen lately and your recommendation caught my attention and it was, I quote, you say, 

‘‘use of technology to lure AML/CFT (Combating the Financing of 

Terrorism) compliant costs without the fear of regulatory backlash,’’ that is at the core of why we are here and I am the Co-chair 

of the FinTech Caucus here in the House and I share your enthusiasm about using innovative technologies to solve many of the 

problems we have in today’s financial system. 

And you say in your testimony that we should establish channels 

for regulatory approval and support of innovation. Tell me, are you 

envisioning a sort of sandbox approach to regulation? 

Ms. HADDAD. Thank you for your question. I think that a sandbox approach is a very good one. I think that it is one that could 

be beneficial. We are a young FinTech company ourselves and we 

are in regular conversation with regulators because that is something that we have sought out on our own but getting that type of 

engagement is quite challenging and particularly working with 

banks and having them become comfortable, trying out your technology and being able to see how it benefits their business is a real 

challenge without some sort of safeguard in place from regulators. 

Mr. SCOTT. And as you know, and I am sure as the committee 

knows there has to be a delicate balance between allowing innovation while also at the same time making sure our regulators stand 

firm on compliance and enforcement. 

nshattuck on FSR297 with DISTILLER

19 

And so, Mr. Lewis, I would be interested to hear how you feel 

about the approach and recommendation that Ms Haddad is offering? 

Mr. LEWIS. Thank you. I appreciate it. I think that any way technology can benefit, we should be looking at it. One of the problems 

we run into with technology and new technology is that technology 

is expensive, it is very resource-intensive. Our systems at our credit union and many credit unions are extremely complex, creating 

in the interfaces between the systems and the new technology, testing the new technology, demonstrating that to regulators, can be 

expensive and resource-intensive so we certainly are always willing 

to and very interested in looking at new technologies. 

We use technology to operate our credit union on a daily basis, 

some is home-grown and some was bought from vendors but it is 

not so easy always just to test out a technology because of the 

entry costs for us. 

Mr. SCOTT. And tell me about that cost, you say it is very expensive but give us an idea, give us what you are talking about, why 

do you say that? 

Mr. LEWIS. Well I can give you one example on the remittance 

side, when the remittance regulation came into effect, there were 

requirements for disclosures and we had to use outside third-party 

in order to create these remittances, to originate the remittances 

because we weren’t able do it ourselves. In order for us to create 

that interface with this outside third-party, UNFCU spent over $1 

million to create that single interface with this outside entity and 

it took about 3 months of time. 

Mr. SCOTT. Well thank you. 

And Ms. Haddad, do you concur with that? 

Ms. HADDAD. I mean engineering costs, costs of developing technology is incredibly high— 

Mr. SCOTT. Yes. 

Ms. HADDAD. —and banks are trying to do this internally and 

they are incurring a lot of costs internally. As an external company 

that is trying to work with banks, I understand the costs, the costs 

are significant and it is helpful to be able to work with third-party 

companies to reduce the cost that the banks themselves have to 

face in leveraging these technologies. 

Mr. SCOTT. Well thank you both. 

Thank you, Mr. Chairman. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

I too want to thank Mr. Scott though for his leadership and tenacity working with us on ‘‘Operation Choke Point.’’ We were the 

lone voices in the wilderness for a long time and now we can see 

the effects, even at the international level, of some of these policies 

and actions that we have taken, so I thank him again. 

With that we go to the gentleman from Colorado, the distinguished gentleman, Mr. Tipton is recognized for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

I thank the panel for taking the time to be here. 

Mr. Lewis, if I could start with you, we would have had a comment from Ms. Yearwood, I think saying some of the compliance 

costs had gone up 66 percent and you just cited a billion dollars 

of investment that had to be made, some of that seems to be counshattuck on FSR297 with DISTILLER

20 

pled back with what Ms. Eckert was talking about when she had 

made the comment that banks have nothing to hold on to in terms 

of having some real guidance. 

Does that feed on itself not having some certainty in terms of 

what you are going to have to be dealing with in terms of de-risking, what you need to be looking for? I found it a little concerning 

when you were citing that you will have some of the law enforcement agencies that will come in and ask for a broad swath rather 

than an individual account, that they would like to be able to look 

into, which speaks to the chairman and Mr. Scott’s words in regards to ‘‘Operation Choke Point’’ so are those issues, when we 

mold them together, is that creating real complexity for you? 

And you had cited a few bills in your testimony that we are 

working on out of this committee, would you expand on how those 

might be helpful as well? 

Mr. LEWIS. Well first, thank you very much for the question. I 

would say that, yes, those things in combination provide complexity 

for us. If they comply, it is cost, it is resources, and it is the uncertainty. In essence, we are talking about risk here and risk is uncertainty and for an institution like ourselves, if we have some certainty then we are able to evaluate the risk and mitigate against 

that risk; it is the uncertainty that causes the problems with us 

and in our industry. 

So, anything that the regulators, Congress, the Bureau, can provide some certainty on is beneficial. 

I think some of the bills that we were talking about here certainly—relief on 6068 which is the BSA/AML bill, that will certainly help us, maybe not with uncertainly but it will reduce some 

of the burdens as some of the caps will be raised on what we would 

need to report; 4545, Financial Institutions Examination Fairness, 

again this would provide institutions with the ability to challenge 

or to go to the next level if they have problems with the regulator 

or examiner. 

So, I think and certainly ‘‘Operation Choke Point’’ would help because theoretically that would reduce the regulatory burden on 

credit unions and financial institutions. 

Mr. TIPTON. Great. Thank you for that. You might want to speak 

to this as well but I would like to be able to talk to Mr. Clements 

a little bit in regards to some of your testimony. 

I happen to live in an area southwest Colorado, we have a lot of 

high-intensity drug-trafficking designation areas, five counties, 

southwest Colorado, are these areas more prone probably to be suspect for de-risking by banks as we move off of the borders that you 

had noted in some of your charts and start to move up in States 

as far north as Colorado? 

Mr. CLEMENTS. We conducted an econometric model as part of 

our report and in that case it was nationwide so we weren’t just 

limited to the southwest border States. To your point, some of the 

variables we did look at were the high-intensity drug-trafficking 

areas (HIDTA), and high-intensity financial crimes areas. In both 

those types of locations if the county was designated, it had a 

greater likelihood of losing a branch the following year, so those 

are certainly factors in the declining number of branches in communities not just along the southwest border but nationwide. 

nshattuck on FSR297 with DISTILLER

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Mr. TIPTON. Good. Do you have some examples of some misplaced assumptions of high risk because of the HIDTA designation 

for some businesses? 

Mr. CLEMENTS. We looked at a variety of classes of customers 

that stakeholders had told us were at greater risk of money laundering, those would be cash-intensive small businesses, money 

services business, and also domestic businesses that have a lot of 

cross-border transactions. Those would be the ones that they told 

us would be related to money laundering, not exactly a particular 

business. You could have a business that is completely legitimate 

operating in that space but money launderers, their transactions 

tend to mirror the type of transactions that you would see businesses in those spaces engaged in. 

Mr. TIPTON. And so probably the extension would be natural, and 

Mr. Lewis you might want to speak to some of this as well, do the 

banks de-risk because of that HIDTA designation simply for the 

fear that they are going to be out of compliance and have a challenge with that? 

Mr. LEWIS. Well certainly, we haven’t experienced that directly 

but I know many of our credit unions have, and what it comes 

down to is it comes down to the intensity of scrutiny both from the 

regulator and law enforcement, so it may not be a directive to derisk but in essence it is an indirect effect of the intense scrutiny 

either by a regulator and/or by law enforcement with regards to 

these businesses. 

Mr. TIPTON. Right. Hey my time is expired. Mr. Chairman I yield 

back. 

Chairman LUETKEMEYER. The gentleman’s time has expired. 

With that we go to the gentleman from Georgia, Mr. Loudermilk, 

you are recognized for 5 minutes. 

Mr. LOUDERMILK. Well thank you Mr. Chairman. 

And thank everyone on the panel for being here. 

Ms. Haddad in your testimony you talked about how de-risking 

reduces transparency by redirecting money to unregulated channels, can you elaborate a little bit on how that happens? 

Ms. HADDAD. Sure, I would like to highlight something that happened actually just last month with a bank in Argentina, this Bank 

chose to drop SWIFT in favor of a strategic partnership with 

BIDEX, which is an unregulated crypto-exchange firm and they are 

now using this crypto-exchange firm to settle their international 

payments and the CEO noted for the reason cost, and said that the 

cost of having an intermediary was too high. 

And I bring up that example because we speak a lot about other 

unregulated industries like Hawala and unregulated money service 

businesses as well as movement of large amounts of cash cross-border, which are things that happen but I wanted to highlight that 

because I think that this is critical today with the change in the 

payment landscape, with the rise of crypto exchanges, with the rise 

of alternative payments that this is what is happening now that 

these alternative providers are now gaining traction and banks are 

no longer a part of the system. 

Mr. LOUDERMILK. So, I know that we have been dealing a lot 

with the cryptocurrencies here in the U.S. with the Blockchain 

technology which I think when you divest the cryptocurrency from 

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Blockchain, Blockchain’s an interesting technology but it also gives 

some challenges to law enforcement so what you are saying is because of de-risking, we are forcing some businesses into these 

somewhat underground networks that make it harder for us to 

track and trace. 

Ms. HADDAD. Exactly there are no alternatives for the payments 

to flow or for money to flow if they can’t access either a remittance 

firm— 

Mr. TIPTON. Yes. 

Ms. HADDAD. A regulated remittance firm or a bank and that is 

why we are seeing the rise of these alternative systems. 

Mr. LOUDERMILK. So, we are really being counterproductive, well 

through this de-risking is creating more risk. 

Ms. HADDAD. It is possible. It is possible. I believe that there actually have been some studies that have shown that that when the 

de-risking has occurred that money laundering has increased, I 

don’t have those exact numbers, I could get them for you but there 

have been some instances that I have read in the past where that 

has happened. 

Mr. LOUDERMILK. OK. Thank you. That was a very interesting 

antidote. 

Mr. Lewis, I want to talk a little bit about the Suspicious Activity Reports (SARs), can those contribute to the problem of de-risking because the SARs are such a compliance burden especially on 

smaller institutions. 

Mr. LEWIS. Yes. Thank you for the question. Certainly SARs 

BSA/AML requirements create a lot of constraints for smaller finance institutions and even for institutions like ourselves. People 

talk about the volume of SARs, which is certainly something that 

we need to look at but also, what we have to understand is that 

behind each SAR there is a tremendous amount of research and investigation and decisioning that goes into it. 

We take SAR filing very seriously and while we are told by the 

regulators, ‘‘don’t file too many SARs, we don’t want defensive 

SARs,’’ we are also told by the regulators, ‘‘make sure you file the 

right SARs,’’ and so for us to strike that balance to the institution, 

it takes a lot of research, a lot of investigation to do it. 

We certainly support 6068 by raising the limit of the SARs, modernizing BSA, as that in and of itself would eliminate the need to 

file at least some SARs which would provide some relief for us and 

certainly for some smaller financial institutions. 

Mr. LOUDERMILK. Well besides raising that limit for the SARs, 

is there anything else that you would recommend that we can do 

to reduce that burden? 

Mr. LEWIS. Well certainly more guidance and certainty would 

help out as well. A lot of the consternation we have is should we 

file the SAR, shouldn’t we file the SAR, under what circumstance 

should we, under what circumstances we couldn’t. 

Now we do receive some guidance from the regulators but even 

more guidance or maybe some possible safe harbor, don’t know how 

that would work as I sit here but something that would give us an 

opportunity for more certainty with what we are doing. 

Mr. LOUDERMILK. OK. Thank you. 

Mr. Chairman, I yield back. 

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23 

Chairman LUETKEMEYER. The gentleman yields back. 

With that we go to the gentleman from Texas, Mr. Williams, is 

recognized for 5 minutes. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

Risk management is one of the most important functions that a 

financial institution performs. As a business owner myself I can relate to the fact that compliance challenges especially the excessive 

growth of Federal regulations over the past 10 years, it has been 

hard. De-risking forces an institution to perform the cost-benefit 

analysis of doing business with a customer. ‘‘Operation Choke 

Point’’ is one of those many examples of Executive-overreach from 

the previous Administration. 

While this Administration has taken deliberate action to curb efforts like ‘‘Operation Choke Point,’’ we must be vigilant for future 

occurrences and this isn’t theoretical, it is reality. 

I know firsthand how this occurs because I have experienced 

‘‘Operation Choke Point.’’ Now while I understand the importance 

of risk management, it is important not to view whole industries 

as potentially high-risk groups, apply a single standard to industries in different States with different business owners and values 

is inconsistent in my belief. 

So, Mr. Lewis, first question, how would you categorize the working relationship between State banking supervisors, Federal regulators, and industry stakeholders when it comes to discussion of derisking. 

Mr. LEWIS. Thank you for the question. From our experience I 

think there is some unevenness that echoes on. We are a federally 

chartered credit union so we don’t have much direct contact with 

the State regulators so NCUA is our examiner and regulator. We 

do, however, through law enforcement, we will receive subpoenas 

and we will receive others and a lot of times there’s not coordination between those various areas of law enforcement with regards 

to the subpoenas. 

Mr. WILLIAMS. OK. Next question also Mr. Lewis. I introduced 

H.R. 3626, the Bank Service Company Examination Coordination 

Act, this Bill would enhance State and Federal regulators’ ability 

to coordinate examinations and share information on bank’s technology vendors in an effective an efficient manner. 

So, my question would be, can you touch on the benefits to authorizing State regulators to examine third-party TSPs (technology 

service providers) and how that could avoid duplicative examinations and reduce regulatory burden on an institution? 

Mr. LEWIS. Yes. Again, thank you for the question. We again, we 

are a federally chartered credit union; I personally don’t have a lot 

of experience with State credit unions or regulators. What I can 

say is we welcome the opportunity to follow up with you in writing 

with that question, also we can provide a good and thorough answer. 

Mr. WILLIAMS. OK, thanks. 

Mr. Clements, the Justice Department recently announced the 

end of ‘‘Operation Choke Point,’’ are you aware of any account termination notices since that announcement? 

Mr. CLEMENTS. Not aware of any. We haven’t conducted work on 

that point. 

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24 

Mr. WILLIAMS. OK, thank you. 

I might ask if anybody else—so the question I talked to Mr. 

Lewis—again I repeat if anybody wants to answer it, can you touch 

on the benefits to authorizing State regulators to examine thirdparty TSPs and how that could avoid duplicative examinations and 

reduce regulatory burden on an institution, anybody would like to 

answer that? 

Yes ma’am? 

Ms. ECKERT. Congressman, I would just note that the question 

of State regulators has become an important issue because there 

are growing fines. For example, the New York, Department of Financial Services has had significant fines on numerous banks and 

I think that because they are looking at it from a different perspective it has become a very significant issue in compatibility perhaps 

of how some of the regulators are actually looking at it. 

The other question is examiners and the disconnect either at the 

State level but in particular at the Federal level, the disconnect between what policy is and what is going on at the examination level; 

the examiners are sitting with the banks, day-in and day-out. I had 

a situation where one financial institution said their examiner 

asked them, ‘‘do you know your customers’ customer?’’ And when 

the Bank said, ‘‘well according to the 2006 guidance we don’t need 

to know our customers’ customer,’’ the examiner didn’t even know 

that there was August 2016 guidance. 

So, I think that there’s an important you know, compounding effect of State regulations on top of the Federal ones. 

Mr. WILLIAMS. OK, thank you. 

In my remaining time I might ask all of you, getting back to ‘‘Operation Choke Point,’’ do any of you know, that if account termination notices have been sent out or anything or how that is going 

to happen, ‘‘Choke Point’’? 

OK, very good. 

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

Chairman LUETKEMEYER. The gentleman’s time is yielded back. 

With that we go to the gentleman from Tennessee, Mr. Kustoff, 

is recognized for 5 minutes. 

Mr. KUSTOFF. Thank you, Mr. Chairman. 

Thanks to the witnesses for appearing this afternoon. 

Mr. Lewis, if I could, I could go a little bit broad and talk about, 

going back to the 2008 financial crisis and the enactment of DoddFrank, we have seen Financial Service regulators expand their 

powers significantly, I think we can all agree to that. 

With the heightened regulatory requirements, coupled with the 

prospect of financial entities receiving fines for potential violations, 

we have seen the significant decrease of products that many community banks and credit unions now offer. I think a lot of times 

you see consumers look elsewhere to find where they can have 

their services met, their needs met. Some leave the financial system entirely, if I could ask two questions. 

One is can you discuss the consequences to driving those customers out of the financial system, that is the first question? 

And then the second question is, toward that end, where do those 

people typically go when they no longer have access to financial 

products that a credit union or a community bank would offer? 

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25 

Mr. LEWIS. Well thank you very much for the question. 

I would like to add that, in addition to my role with UNFCU and 

with NAFCU, I also recently was the Vice Chairman of a community development credit union in New York with less than $1 million in assets so I have experience in both the large side and the 

small side. 

And with that community development credit union, unbanked 

and underbanked is a major problem in the community for various 

reasons, so if these folks leave the standard banking channels, they 

lose the opportunity for credit, they lose the opportunity for credit 

reporting, they end up in areas where it could be check-cashers or 

places where they are paying a huge amount of fees in order for 

them to be able to cash their checks; they don’t have access to 

standard insurance products. 

So, any time anyone’s pushed out of the traditional banking industry they are generally not going to a better place, certainly we 

know that from the credit union’s perspective; credit unions as financial cooperatives owned by the members, the reason for being 

is to serve the members so we are always looking to serve those 

in our field of membership and we will continue to do so, but we 

think that anyone who leaves the system is not going to a better 

place. 

Mr. KUSTOFF. Thank you very much for your answer. 

Mr. Clements, if I could, we have talked about the problems 

along the southwest border and in February of this year, a report 

was issued by the GAO that examined de-risking along the southwest border. The three factors I think you have identified are 

unique to account closings at financial institutions in the region. 

Specifically, I think you noted that these accounts are generally 

cash-heavy, they involve foreign account holders, and those transactions cross or transcend country boundaries. 

Can you explain why these findings are unique to the southwest 

border and what are the characteristics that have been important 

drivers if you will behind the branch closures in the region? 

Mr. CLEMENTS. Correct. Those were the factors we had cited, 

one: The large number of cash transactions. Just to give you an indication, the currency transactions, 30 percent more currency 

transaction reports filed by banks in the southwest border region. 

Compared to comparable counties. There is the issue of a lack of 

transparency if you have a lot of cash transactions. 

Then also the issue of the cross-border transactions. The concern 

there is that a transaction crossing the border can look very much 

like money-laundering even if it is a completely legitimate transaction. 

We spoke with a farmer in Nogales, Arizona, and she had operations in Arizona and Mexico and she needed to move moneys, wire 

moneys from her Mexican operation up to a U.S. bank and after 

a while the bank told her, this is too much risk for us having these 

transactions going back and forth. 

And then again last the issue of the foreign account holders is 

just a problem with being able to identify that customer and to 

meet the customer identification program requirements under BSA/ 

AML. 

Mr. KUSTOFF. Thank you very much. 

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26 

And I yield back the balance of my time. 

Chairman LUETKEMEYER. The gentleman yield’s back. 

With that we go to the gentlelady from New York, Ms. Tenney, 

is recognized for 5 minutes. 

Ms. TENNEY. Thank you, Mr. Chairman. 

And thank you to the panel for appearing today. I really appreciate you being here and obviously de-risking has become somewhat notorious especially in a community like mine but under the 

Obama Administration, ‘‘Operation Choke Point’’ attempted to cutoff financing for ammunition and gun manufacturers like Remington Arms, which was founded in my district over 200 years ago 

and a new industry, a new competitor in that market called 

Oriskany Arms and so we know, we have experienced some of that 

in our own area. 

But I would like to look at a couple of other things, angles that 

de-risking and the links to the closure of a lot of branches, small 

businesses or small banks and community banks and also credit 

unions in my region which really dominate where I live, in my district, and the implication on our very large immigrant and refugee 

populations, many of these people would like to send their money 

back to their home countries and do it in a safe way but under derisking of course, they have been pulled from a reliable and a safe 

way to send that money over. 

One of the issues is by pulling that out and there was a study 

and the Government Accountability Office came up with some 

numbers that the banks are now just terminating those accounts 

and now they are not able to do this so they are forced to go into 

other means. 

I was wondering if you could comment, and I would just ask everyone across the board, generally on what is being done or what 

we can do on our side to try to deal with this de-risking phenomenon and how we help people who are in that situation? And 

maybe we could just go right through from Mr. Clements on down, 

and I want to just save 1-minute left because I have a question for 

Ms. Eckert at the end, having to do with New York State. 

Mr. CLEMENTS. We have a variety of recommendations to the 

agencies to address de-risking including FinCEN and the banking 

regulators— 

Ms. TENNEY. Yes. 

Mr. CLEMENTS. Conducting retrospective reviews to really get at 

what are the underlying causes of de-risking rather than simply focusing on more superficial level of concerns. 

And then second, getting to your point of the remittances, we 

have asked Treasury to look at if de-risking is causing banks to 

cancel these accounts, therefore the remitters have to move to nonbanking channels, what is the implication of that for security, what 

is the implication for consumers being— 

Ms. TENNEY. Yes. 

Mr. CLEMENTS. Able to get the types of services they need. 

Ms. TENNEY. And as we go down the line, let me just also add 

that I am in an area where we don’t have as much connectivity in 

terms of broadband, in terms of being able to get on the Internet 

and we have a lot of a refugee population and a lot of our seniors 

don’t have access either so maybe you could address that while we 

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27 

are saying how do we provide this service back to a bank where 

they are not going to be subjected to, in this case obviously from 

New York, excessive regulation coming on the New York side? 

Mr. CLEMENTS. The concern with— 

Ms. TENNEY. Yes. 

Mr. CLEMENTS. If a bank branch closes that obviously limits the 

number of options for the consumer. I was going to say one of the 

options would be mobile banking or online banking but that is not 

an option and— 

Ms. TENNEY. Not always, yes. 

Mr. CLEMENTS. A senior person is either forced to find another 

bank if there is one in that area. Or drive 45 minutes to 1 hour, 

one way to get to another institution. 

Ms. TENNEY. Thank you. 

Ms. Eckert and you know, while you are at it, quickly just comment on the New York State regulatory regime in this space if you 

could, please? You alluded to it earlier so it got my interest on that. 

Ms. ECKERT. I think it is important, so what happens when these 

communities are de-risked, in the case of nonprofits and charities, 

their mission is to provide humanitarian development assistance so 

they don’t really have the option of saying, well we are not going 

to do it and only I think 3 percent of the cases, what we surveyed, 

did they cancel the program. 

What they have done is to find the other alternatives around, 

which is carrying cash, it is using unregulated money remitters. 

And all of those things come at a cost for charities in particular 

working in conflict zones, those come at a personal cost in terms 

of safety, carrying large bags of cash is enormously, inherently, 

dangerous for their staff and for their beneficiaries but more than 

that it drives these things underground which means that they are 

not traceable and that they are not transparent to regulators. 

The charities prefer to use the banking system, in fact some of 

them aren’t even comfortable with money service businesses as 

much but there is no alternative. 

Ms. TENNEY. Do you find that the New York State government 

has been effectively making it more difficult for a lot of these people to have access or a lot of the charities that you are referring 

to not-for-profits having access to a way to be able to avoid having 

to carry around cash and to be putting themselves at risk? 

Ms. ECKERT. I don’t have— 

Ms. TENNEY. Quickly, I am running out of time. 

Ms. ECKERT. I don’t have direct information with regard to the 

New York system but what I will tell you is that the personal liability now the individual compliance officers, those things all contribute to what financial institutions have to decide, which is, it is 

just not cost-effective for us to bank these charities. 

Ms. TENNEY. Thank you very much to the panel, I am out of 

time, thank you. 

Chairman LUETKEMEYER. The gentlelady’s time has expired. 

With that we go to the gentleman from Kentucky, Mr. Barr who 

is Chairman of our Monetary Policy Committee— 

Mr. BARR. Thank you, Mr. Chairman— 

Chairman LUETKEMEYER. You are recognized for 5 minutes. 

Mr. BARR. Thanks for holding this important hearing. 

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And I wanted to start with Mr. Lewis and touch on some testimony that you offered earlier about the need to modernize SARs 

and these Suspicious Activity Reports under the Bank Secrecy Act 

and the—and your call for a greater guidance and certainty from 

the regulators may be a safe harbor. 

What percentage of SARs would you say if you have an estimate, 

would actually justify further scrutiny or investigation by regulators or officials investigating genuine cases of terror-financing or 

money-laundering? 

Mr. LEWIS. I would say on the terrorist-financing side, a very, 

very, very small percentage. 

On the money-laundering side, I couldn’t quote a percentage. I 

would say that there’s some but many of the SARs that we file, 

while I think they are legitimate SARs under the guidance are 

probably not indicative of any sort of illegal activity, remember 

SARs is suspicious activity, it is not necessarily an illegal activity. 

Mr. BARR. Right. And that is the difficult balance that we have 

to, as policymakers, we have to figure out how to strike that balance. 

If we were to create a safe harbor or if the regulators were to 

create a safe harbor, well how would we know we are not missing 

something? 

Mr. LEWIS. Well I think that is always the balance. We are never 

going to be sure we are not missing something but there’s going to 

be a balance of the effort and what the utility of it is, is that I 

couldn’t sit here today and chart that out for us but certainly I 

think it is worthy of a robust discussion and we would welcome the 

opportunity to discuss that further. 

Mr. BARR. Thanks, and I will move on but I would invite further 

feedback from any of the witnesses about what a safe harbor would 

look like, so as to ease compliance burdens while at the same time 

not missing any critical information for law enforcement. 

Ms. Haddad, from your testimony it sounds like you believe there 

is obviously a complicated set of factors that have led global banks 

to de-risk and stop offering some or all services in a particular region due to non-credit risk. 

In your mind what is the number one reason why these banks 

are de-risking? 

Or if there’s more than one factor, you can offer that as well? 

Ms. HADDAD. I do think that it is difficult to pin-point the number one because they are all interrelated so profitability concerns 

is related to increased costs of compliance and so all of the factors 

end up being related to one another. 

But I do think that one of the biggest challenges is around balancing the cost of compliance with the revenue potential of a particular relationship. 

Mr. BARR. And I am sure you have already touched on this but 

can you amplify your testimony on what role new technology and 

third-party providers of independent standardized assessments of 

respondent banks compliance with global standards might have on 

de-risking? 

Ms. HADDAD. Sure. Today there does not exist a global benchmark. It is frankly what we are creating at Sigma Ratings and the 

relevance of this is that if there is a global standard and there is 

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29 

one tool that is used to conduct initial due diligence that provides 

a baseline for correspondents to actually look at their respondent 

relationships, this standardization will allow them to have a starting point from which they can then do additional due diligence. 

So today the way that it works is that these respondent banks 

have a number of correspondent banking relationships sometimes 

you know, 10 to 20 correspondent banking relationships and they 

are required to provide the same information to each of those, over 

and over and over again and then each of the global banks or the 

regional banks are then required to review all of that information 

individually and provide their own risk assessment. 

If there is a standardized approach that provides a baseline risk 

assessment on all of the respondent banks or potential respondent 

banks, then each of those global correspondents can start from that 

point and then do additional due diligence on top of it. It would reduce the redundancies that are happening across the entire system 

and it would also allow for banks to focus their time and energy 

and money on real risk. 

Mr. BARR. And in my time remaining, back to my question to Mr. 

Lewis, what would a safe harbor on SARs look like, how might this 

platform that you are creating limit the number of superfluous or 

unnecessary SARs? 

Mr. LEWIS. Thank you. I think what Ms. Haddad’s company has 

done is excellent. I think it is a great start and it is a direction and 

any information is good information, the question of course is how 

expensive the utility but certainly I think any information is good 

information for us to have but how much is that information going 

to cost us. 

Chairman LUETKEMEYER. The gentleman’s time— 

Mr. BARR. My time has expired. 

Chairman LUETKEMEYER. —has expired. 

Votes have been called but we have two witnesses or two questioners yet. 

So, Mr. Green from Texas is recognized for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the Ranking Member as well. 

And I also thank the witnesses for being here today to discuss 

de-risking, which is another way of saying closing accounts, and 

these accounts are being closed to avoid legal liability. And by the 

way, there’s nothing wrong with avoiding liability. I think that it 

is perfectly appropriate that you avoid liability if you can. 

The question that I have has to do with the NGOs that are trying to be of help and that are finding themselves without the 

means by which they can transfer large sums of money to people 

who are in need of the help. That is doing good but running into 

obstacles that are just not appropriate sometimes. 

So, my first question is to what extent does this problem exist? 

I have talked to at least two NGOs, there may be many more, there 

may be just a few but to what extent does the problem exist as it 

relates to NGOs, these are nongovernmental organizations? 

Ms. ECKERT. Congressman, as a colleague of mine has said, we 

have been admiring the problem, we know that there is a problem. 

Two-thirds of all U.S. charities, NPOs are facing financial access 

difficulties and that has a very serious impact on their ability to 

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30 

be able to transfer funds for humanitarian and development assistance. 

Part of the problem is that it is not just closing of accounts and 

that is one of the reasons why going beyond de-risking, the term, 

we talk about financial access because in the case of nonprofit organizations, delay and denial of wire transfers are actually a very serious problem; when it takes 6 months to provide fuel for a hospital 

in Syria, the situation is obviated; when it takes so much time to 

actually get the bank to provide permission for the wire transfer, 

the assistance is thwarted and in that regard the utility, the technologies, that we have been talking about. 

KYC Utilities can actually provide a significant path forward and 

that is because of the repeated requests for information, the same 

charity gets repeated quest—requests from the same Bank for the 

information. If we are able to create a utility where all of the NPO 

information resides, financial institutions can actually rely, go 

there, get all of the information about their internal compliance, 

their due diligence procedures, and that is a repository or KYC 

Utility for nonprofits is something that the World Bank and 

ACAMS processes is exploring. 

Mr. GREEN. It is ironic that you would mention the example that 

you did because that is exactly what was called to my attention 

about the delay that it was taking, what was thought to be an inordinate amount of time, an unusual amount of time to do something 

that was thought to be relatively simple so but again I understand 

that it is happening but is it happening to a large number of entities, 10 percent, 50 percent, 20 and just a guesstimate? 

Ms. ECKERT. The study that was conducted and released last 

year found two-thirds of all U.S. charities, NPOs, are experiencing 

these problems. 

Mr. GREEN. Two-thirds? 

Ms. ECKERT. Two-thirds and that was surprising. 

Mr. GREEN. OK. 

Ms. ECKERT. It was extremely surprising and I would just say 

with regard to the problems that are experienced, account closures 

represented only 6 percent, refusal to open accounts was about almost 10 percent but the transfers delayed was 37 percent of the 

charities that were actually surveyed so that kind of delay, fee increases, et cetera are really posing very serious problems for the 

provision of important humanitarian and development assistance. 

Mr. GREEN. Ms. Yearwood, do you have any additional comments 

on this? 

Ms. YEARWOOD. The only comment I would like to add is that 

this isn’t only a problem for charities. I can cite at least one Caribbean government that could not get a bank account for their embassy here in the United States and so this doesn’t only have implications for charity, it has implications for diplomacy. 

Mr. GREEN. Well thank you very much. 

Mr. Chairman, thank you for the time. I do have another question but I think it might go well beyond my 12 seconds, so thank 

you very much. 

I yield back. 

Chairman LUETKEMEYER. The gentleman yield’s back his time. 

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31 

With that we go to the gentleman from North Carolina, Mr. 

Pittenger is Vice Chairman of the Terrorism Financing Committee, 

you are recognized for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Really appreciate each of you being here today. I know you made 

a great effort to do that and your knowledge is very much appreciated. I would like to just address to a greater extent, further discussion, issues related to the cumulative effects of the AML/CFT 

and risk management compliance on the financial service industry. 

Just Mr. Lewis, if you could please, just give me some effect, impact of the account of these terminations by this de-risking? 

Mr. LEWIS. Thank you very much for the question. 

I think from my perspective UNFCU, we have one very, very significant example of this and we have several but that would be 

with regards to international remittances through Dodd-Frank and 

through the Bureau’s ruling and rules; we had to basically change 

our entire remittance business. We were able to originate remittances ourselves for our members but then certain requirements 

came in to be with regards to disclosures. 

One disclosure was all the fees that would be taken out, the 

problem is we don’t control that transfer so if there’s a transfer 

going to Asia it may go through a correspondent bank in Europe 

and then through a correspondent bank in Asia and they may take 

fees out of that so what we had to do is because we couldn’t do 

that, we had to go to a third party to do that and what that ended 

up doing is it ended up increasing the expenses for our members 

because we had to go to the third party. 

In addition to that, it ended up consolidating the industry because what you had was many credit unions have gotten out of the 

business of remittances, obviously simply can’t afford the technology and they can’t track it as well so you have this consolidation 

which increases fees and costs and then on top of that, as I was 

saying earlier, on our technology side in order to do that, it was 

a million dollars. 

So that is just one small example of what we endured with regards to one specific type of regulation and I know the credit 

unions across the board are experiencing similar situations. 

We as credit unions don’t really fire customers, we don’t have 

that luxury if you will to do that. The best we can do because we 

can’t terminate an account without a very, very long process so the 

best we can do is restrict services but it is a real issue and a real 

problem for credit unions. 

Mr. PITTENGER. Thank you, sir. 

Sure, Ms. Eckert? 

Ms. ECKERT. Mr. Pittenger in terms of additional monitoring 

compliance costs of AML/CFT regulations, some have placed it at 

$4 billion annually, one bank reported that over 4,000 additional 

compliance staff— 

Mr. PITTENGER. Yes. 

Ms. ECKERT. —in 1 year were hired at a cost of a billion dollars. 

In 2016, the Association for Certified Anti-Money Laundering Specialists surveyed their members and found that three-fifths of the 

respondents cited enhanced regulatory expectations as the greatest 

AML compliance challenge. 

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So, these are real costs. No one is saying that it is solely due to 

that but it is among the most frequently cited causes of de-risking 

or financial access difficulties. 

Mr. PITTENGER. Thank you. 

Ms. Eckert, let me address the issues related to law enforcement 

and national security agencies and their ability to track financial 

activities and potential criminals, does de-risking make it harder 

for them to do that? 

Ms. ECKERT. I would say absolutely, sir, because as charities and 

other de-risked communities have to find alternatives, they go to 

unregulated money remitters, they go to Hawalas, they go to places 

where they are not transparent or traceable and that is contrary 

to what our money laundering and terrorist financing regime is all 

about, and that is responsibility of financial institutions and others 

and traceability and transparency so I think that the negative implications for counter-terrorist initiatives and security overall are 

quite significant. 

Mr. PITTENGER. Thank you very much. 

Mr. Clements, I would like to ask you if you would just speak 

to the specifics of what impact communities face when banks as 

well as bank branches close up and move away due to de-risking? 

Mr. CLEMENTS. There were a variety of challenges for the community. Just for the consumer angle, the consumers are going to 

lose that access to the service. On a broader economic scale, you 

are going to have less business lending which then will ultimately 

flow down into lower employment, lower wages would be some examples. 

Mr. PITTENGER. Thank you. Can I ask another question? I don’t 

have enough time. 

Thank you. 

Chairman LUETKEMEYER. The gentleman yield’s back. 

With that I want to thank the witnesses for being here today. I 

would love to follow up a little bit more here but we have to rushoff to a vote. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

With that this hearing is adjourned. 

[Whereupon, at 3:39 p.m., the subcommittee was adjourned.] 

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A P P E N D I X 

June 26, 2018 

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