U.S. GOVERNMENT PUBLISHING OFFICE

31–456 PDF WASHINGTON : 2018

IMPLEMENTATION OF FINCEN’S CUSTOMER 

DUE DILIGENCE RULE—REGULATOR PERSPECTIVE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON TERRORISM 

AND ILLICIT FINANCE 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

MAY 16, 2018 

Printed for the use of the Committee on Financial Services 

Serial No. 115–92 

( 

mcarroll on FSR431 with DISTILLER

(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 

mcarroll on FSR431 with DISTILLER

(III) 

SUBCOMMITTEE ON TERRORISM AND ILLICIT FINANCE

STEVAN PEARCE, New Mexico Chairman 

ROBERT PITTENGER, North Carolina, Vice 

Chairman 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

ED PERLMUTTER, Colorado, Ranking 

Member 

CAROLYN B. MALONEY, New York 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

RUBEN KIHUEN, Nevada 

STEPHEN F. LYNCH, Massachusetts 

mcarroll on FSR431 with DISTILLER

mcarroll on FSR431 with DISTILLER

(V) 

C O N T E N T S 

Page 

Hearing held on: 

May 16, 2018 ..................................................................................................... 1 

Appendix: 

May 16, 2018 ..................................................................................................... 23 

WITNESSES 

WEDNESDAY, MAY 16, 2018 

Blanco, Kenneth A., Director, Financial Crimes Enforcement Network ............. 3 

APPENDIX 

Prepared statements: 

Blanco, Kenneth A. ........................................................................................... 24 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Pearce, Hon. Stevan: 

Statement for the record from the Consumer Bankers Association ............. 29 

Statement for the record from the Credit Union National Association ....... 31 

Statement for the record from the Independent Community Bankers of 

America .......................................................................................................... 33 

Blanco, Kenneth A.: 

Written responses to questions for the record submitted by Representative Budd ....................................................................................................... 35 

mcarroll on FSR431 with DISTILLER

mcarroll on FSR431 with DISTILLER

(1) 

IMPLEMENTATION OF FINCEN’S CUSTOMER 

DUE DILIGENCE RULE—REGULATOR 

PERSPECTIVE 

Wednesday, May 16, 2018 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON TERRORISM

AND ILLICIT FINANCE

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:01 p.m., in room 

2128, Rayburn House Office Building, Hon. Stevan Pearce [chairman of the subcommittee] presiding. 

Present: Representatives Pearce, Pittenger, Rothfus, Tipton, Williams, Hill, Emmer, Zeldin, Davidson, Budd, Kustoff, Hensarling, 

Perlmutter, Maloney, Foster, Kildee, Sinema, Vargas, Gottheimer, 

Kihuen, and Lynch. 

Chairman PEARCE. The subcommittee will come to order. 

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

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

are not members of the Subcommittee on Terrorism and Illicit Finance may participate in today’s hearing, and all members will 

have 5 legislative days within which to submit extraneous materials to the Chair for inclusion in the record. This hearing is entitled, ‘‘Implementation of FinCEN’s Customer Due Diligence Rule— 

Regulator Perspective.’’ 

I now recognize myself for 3 minutes to give an opening statement. 

I want to thank everyone for joining us today. Today’s hearing 

will examine the implementation and enforcement of FinCEN’s (Financial Crimes Enforcement Network) customer due diligence 

(CDD) rule, along with its compliance requirements for financial institutions. Last week, the customer due diligence rule went into effect, capping a 6-year effort by FinCEN to address shortcomings in 

our anti-money laundering (AML) and countering terrorist financing (CTF) regulatory regime. 

I want to applaud FinCEN for their work in this area. As Chairman of the Terrorism and Illicit Finance Committee, I have heard 

testimony from a variety of experts in the field of detecting and 

pursuing criminals in the financial system. Many agree that a critical component of success in these investigations is law enforcement’s timely access to beneficial ownership information of shell 

corporations being used to further criminal endeavors. The CDD 

rule requires covered entities, including banks, brokers, or dealers 

mcarroll on FSR431 with DISTILLER

2 

of securities, mutual funds, and futures commission merchants to 

identify and verify any beneficial owner who, directly or indirectly, 

owns 25 percent or more of the equity interest in a legal entity, 

along with a single individual who exercises control over the legal 

entity at the time of account opening. 

Although we agree on the importance of this information, there 

are legitimate concerns about the application of this new rule and 

the impact it will have on financial institutions. As the GAO reported in February, banks in the southwest border regions are 

derisking specifically because of concerns with BSA compliance. 

Adding additional requirements will likely increase this occurrence 

and cut business off from the financial system. Outstanding questions also remain for institutions that are working to ensure compliance with the CDD rule, including what an appropriate riskbased approach to collection entails. I look forward to the Director’s 

opinion on these issues. 

Today’s hearing is an opportunity to discuss the implementation 

and enforcement of FinCEN’s CDD rule and the impact it will have 

on our financial institutions. I hope our members will take this opportunity to learn from our witness about the benefits of collecting 

beneficial ownership information and how FinCEN plans to work 

with bank examiners and financial institutions to implement and 

appropriately enforce the CDD rule. 

I would also like to thank Director Blanco for being here today. 

I look forward to his expert testimony. 

The Chair now recognizes Mr. Perlmutter for 2 minutes. 

Mr. PERLMUTTER. Thanks, Mr. Chair. 

Mr. Blanco, thank you for being here. Thank you for your service. 

The lack of transparency in our financial system has created an 

environment where criminals who should be shut out of the financial system can use anonymous shell companies to launder money, 

finance terrorism, and engage in other illegal activities. 

In the last few years, high-profile leaks, such as the Panama Papers and Paradise Papers, have highlighted this tactic and the 

need for Congress and agencies to address beneficial ownership and 

financial transparency. FinCEN’s customer due diligence rule seeks 

to take an important step in requiring beneficial ownership information and preventing criminals from hiding from law enforcement 

through anonymity. I look forward to your testimony on the implementation of this new rule and our discussion about how FinCEN 

and this subcommittee can continue to improve our anti-money 

laundering system and reduce illicit finance. 

Obviously, some of the banking institutions that we hear from, 

from time to time feel that this puts a little additional burden upon 

them, and we have had complaints about that. But I think, from 

a law enforcement point of view, the need to know who owns a particular entity is very critical, and so we want to hear about the 

benefits and the burdens of this rule. 

And I thank you today in advance for your testimony. 

Chairman PEARCE. The Chair now recognizes Mr. Pittenger for 

2 minutes for an opening statement. 

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

Perlmutter, for holding this hearing today. 

mcarroll on FSR431 with DISTILLER

3 

I would also like to thank our distinguished panelist, Mr. Kenneth Blanco, for his testimony to our subcommittee this afternoon. 

As the Director of the Financial Crimes Enforcement Network, 

commonly known as FinCEN, his division is responsible for the enforcement of the customer due diligence rule, which went into effect 

May 11th. 

Last month, this committee’s Subcommittee on Financial Institutions, of which I am also a member, heard from legal and issuearea experts on financial institution perspective. 

I am looking forward to Mr. Blanco’s testimony on the regulatory 

perspective and hearing his thoughts on how we can encourage information sharing while still providing banks clarity and not placing additional burdens on their customers. 

Banks value legal compliance, but especially midsize banks value 

their customers’ experience. We must ensure FinCEN is providing 

banks with adequate information to ensure their compliance, that 

there is no unintentional noncompliance. 

Thank you, Mr. Chairman, and I yield back the balance of my 

time. 

Chairman PEARCE. The gentleman yields back. 

Today, we welcome the testimony of Mr. Ken Blanco. He is the 

Director of the Financial Crimes Enforcement Network, FinCEN, 

in the U.S. Department of Treasury. Mr. Blanco joined FinCEN in 

2017, after serving as the Acting Assistant Attorney General of the 

Criminal Division at the United States Department of Justice. 

During his tenure with the Criminal Division, Mr. Blanco 

oversaw a number of its sections, including the Money Laundering 

and Asset Recovery Section, formerly the Asset Forfeiture and 

Money Laundering Section, the Narcotic and Dangerous Drug Section, the Organized Crime and Gang Section, the Childhood Exploitation Section. Mr. Blanco has supervised many of the Criminal Division’s most significant national and international investigations 

into illicit finance, money laundering, Bank Secrecy Act, and sanctions violations, including the investigation of global financial institutions and money service businesses. 

Mr. Blanco joined the Department of Justice almost two decades 

ago as an Assistant United States Attorney in the Southern District of Florida. Prior to joining the Department of Justice, Mr. 

Blanco began his career at the Miami-Dade State Attorney’s Office, 

where he served in various sections, including the Organized Crime 

Section, Public Corruption Section, and the Major Narcotics Section. Mr. Blanco earned his J.D. from the Georgetown University 

Law Center, where he also currently teaches as an adjunct professor of law. 

You will be recognized now for 5 minutes to give an oral presentation of your testimony. 

Without objection, your written statement will be made part of 

the record. 

Mr. Blanco, you are recognized for 5 minutes. 

STATEMENT OF KENNETH A. BLANCO 

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

Perlmutter, and members of the subcommittee. Thank you for inviting me to appear today on behalf of the Financial Crimes Enmcarroll on FSR431 with DISTILLER

4 

forcement Network, FinCEN, to discuss our efforts to safeguard our 

Nation’s financial system, by increasing transparency through the 

implementation of our customer due diligence, or CDD, rule. I have 

prepared a written statement that I would like to submit for the 

record, Chairman. 

Prior to my appointment as the eighth Director of FinCEN just 

a few months ago, I had served for almost three decades as a prosecutor in both State and Federal offices and, for the last decade, 

at the highest levels of the Department of Justice. Over those three 

decades, I saw firsthand the importance and power of our financial 

system and the need to keep it safe and secure. 

I appreciate the opportunity today to discuss how the CDD rule 

and its compliance requirements for financial institutions advances 

our mission of keeping our financial system secure, our Nation safe 

and prosperous, and our communities and families safe from harm. 

The reach, speed, and accessibility of the U.S. financial system 

make it attractive to criminals, terrorists, state actors, and other 

bad actors. In response, we have developed and rigorously enforce 

one of the most effective AML/CFT regimes in the world. Nevertheless, as strong as our AML/CFT framework is, bad actors will continue to exploit its vulnerabilities to move their illicit proceeds undetected through legitimate financial channels in order to hide, foster, and expand the reach of their criminal and terrorist activities. 

The misuse of legal entities to disguise illicit activities has been 

a key vulnerability in the U.S. financial system. This is not breaking news. Corporate structures have facilitated anonymous access 

to the financial system for criminal activities and terrorism. 

Transnational organized crime syndicates, rogue states, human 

traffickers, terrorists, and other bad actors have been able to establish shell companies and then open accounts in the names of those 

companies without ever having to reveal who ultimately stands to 

benefit, masking their identities, hiding in the shadows, and making it difficult for law enforcement to pursue investigative leads 

and for financial intelligence units like FinCEN to generate those 

leads in the first place, putting our Nation and our people at risk. 

An open and transparent financial system in which we can identify the transactions and account owners is, therefore, essential to 

disrupting and dismantling criminal and terrorist networks that 

seek to exploit our system and do us harm. 

For these reasons, FinCEN and the Department of Treasury 

have prioritized increasing transparency in corporate formation 

and have strengthened regulatory requirements regarding customer due diligence for legal entity customers when they open accounts at financial institutions. 

FinCEN finalized a CDD rule on May 11, 2016. The CDD rule 

was the result of extensive and thoughtful engagement with industry and with other stakeholders, notice and comment, hearings and 

other discussions over many years about the benefits of the rule as 

well as its potential burdens. 

The CDD rule clarifies and strengthens customer due diligence 

requirements for covered financial institutions by streamlining and 

standardizing existing regulatory requirements and adding a new 

requirement for these financial institutions to know and verify the 

mcarroll on FSR431 with DISTILLER

5 

identities of the actual people who own, control, and profit from 

companies, also known as beneficial owners. 

The CDD rule advances the purpose of the Bank Secrecy Act by 

making available to law enforcement vulnerable information needed to disrupt financial networks and other criminal organizations 

and terrorist networks. This, in turn, increases financial transparency and augments the ability of financial institutions and law 

enforcement to identify the assets and accounts of criminals and 

national security threats. It also facilitates compliance with sanctions programs and other measures to cut off financial flows to 

these bad actors. 

I understand that this committee has been interested in the 

readiness of both industry and government regarding the CDD 

rule’s implementation. To that end, I can report that FinCEN has 

been working collaboratively and regularly in ongoing discussions 

with our regulatory counterparts and industry to ensure a common 

understanding of consistent compliance standards within and 

across regulated industry sectors. This is especially important 

when we issue a new rule. We understand and we appreciate that 

there will be a period of fine-tuning for compliance industry, with 

the examination process itself, both of which will take time. And 

we know that new questions often emerge when implementation 

begins. 

The purpose of the rule is to enhance AML/CFT, not to serve as 

a vehicle to punish financial institutions. We are committed to continue working with our partners, agencies, and industry to ensure 

that covered financial institutions are also implementing the rule 

effectively, in a way that makes practical sense, and we understand 

that it won’t happen overnight. In the meantime, we encourage our 

financial institutions to alert their examiners and us and to share 

their issues and concerns. 

Chairman Pearce, Ranking Member Perlmutter, I look forward to 

answering your questions. Thank you. 

[The prepared statement of Mr. Blanco can be found on page 24 

of the appendix.] 

Chairman PEARCE. Thank you, sir. 

I now recognize myself for 5 minutes for questions. 

And so I guess one of the key things is if you have any information on the cost-benefit analysis. In other words, there are lots of 

speculation on how much this is going to cost our banking system. 

So do you have that information? 

Mr. BLANCO. Chairman, I don’t have the specifics as far as the 

numbers. We can get you those numbers with respect to the costbenefit and how much that is going to cost. 

I can just tell you, Chairman, through my experience of 29 years 

in law enforcement, the benefits are really important and critical 

to law enforcement, and I think very critical to the financial institutions in order for them to be able to do their due diligence as we 

move forward. 

The information, I have only been at FinCEN for 4 months. I can 

tell you the information that we collect from the financial institutions and the way we use it is critically important for our mission. 

Chairman PEARCE. OK. On the southwest where New Mexico 

lies, there are reports of how there is something like 80 percent of 

mcarroll on FSR431 with DISTILLER

6 

the banks have chosen just to eliminate accounts for people who 

might draw too much attention, so derisking. 

So how do you approach that problem when you are talking 

about this further requirement? 

Mr. BLANCO. Chairman, I don’t think this further requirement is 

going to exacerbate any of the derisking that is happening on the 

southwest border. What we plan on doing is talking with those 

banks and industry in that area to see if we can come up with any 

solutions to those issues that they are seeing. 

I can tell you we have an outreach program at FinCEN that is 

very robust, where, in fact, this morning, I met with the Florida 

Bankers Association. So we are listening to their comments and 

understanding what they have, but I don’t think that the CDD rule 

is going to do anything to further what is happening on the southwest border. 

Chairman PEARCE. Now, there are people that are critics of this 

CDD rule, and then our attempt to quantify in law the same concept, who declare that the information is readily available right 

now, that the IRS has the information. 

Did you look at other agencies, other less-intrusive ways if this 

is intrusive? Tell me a little bit about that. 

Mr. BLANCO. I can tell you, Chairman, that with respect to the 

information that the IRS receives, that is very different information, and the way to get the information is much more difficult 

than what we are proposing. 

Having been on the other side and being a prosecutor trying to 

get that information, you would have to get a court order to get the 

IRS information, first of all, which takes time, and it defeats the 

purpose of your AML risk assessment. 

In addition, the information that is contained in the IRS records 

are very different. It is not as specific as the information that we 

are looking for. It is a little different. It doesn’t specifically go to 

equity owners, and it doesn’t specifically go to what we have as a 

control prong for beneficial owners. 

It is a very different standard, much more simple than what we 

are asking for. It doesn’t really get to the point of who actually 

owns and who actually controls the entity that we are looking at. 

Chairman PEARCE. That question of who actually has the say-so 

over the company is one that has drawn questions also. The language I think says that anyone who has significant input or whatever the language is. How are the banks to interpret who actually 

has that input? What guidance can you give them? 

Mr. BLANCO. In the guidance that we have provided through the 

FAQs (frequently asked questions) that we provided, both a year 

ago and just recently, it is pretty clear that somebody who has 

some decisionmaking, whether it is in a control position, somebody 

who has a stake in the corporation as far as making decisions, that 

is really what we are looking for. Who maintains the actual control, 

or do they have a decisionmaking process within the company? 

That is what we are looking at. 

And if you look at the IRS, what they ask for, it is somebody who 

has some responsibility, which is very different, and that is more 

of a mushy standard. We are looking for somebody who has control, 

makes decisions. That is what we are looking for. 

mcarroll on FSR431 with DISTILLER

7 

Chairman PEARCE. Now, there have also been statements that 

this is going to be very onerous to the small businesses. Tell me 

a little bit about what you visualize the form looking like that the 

banks are going to get filled out. 

Mr. BLANCO. Chairman, we have a form that is attached to our 

website that they can take a look at. I have a copy of it here. We 

are happy to give you a copy. It really is very simple, and it asks 

for very simple things. 

It asks for, on the customer side, the name, legal entity, the address, ZIP Code, the name of the person who is the customer. Then 

it goes into who is the equity owner. Who are they? Is there anybody who has 25 percent? If so, you have to list who they are: 

Name, address, social security number if that exists, or foreign 

identification number if that exists as well. 

They could also, if they wish, get a copy of the driver’s license. 

It doesn’t have to be the actual driver’s license that they have to 

see; it could be a photocopy. And then it goes into the control 

prong, and that is an individual with significant responsibility for 

managing or directing the entity. 

It is a very simple form. They don’t have to use this form. Banks 

can use their own form, consistent with whatever software or products that they are using, as long as it has that information in it, 

four or five key points. That is all we are looking for. It is very simple. 

Chairman PEARCE. My time has expired. 

I would recognize the gentleman from Colorado, Mr. Perlmutter, 

for 5 minutes. 

Mr. PERLMUTTER. Thanks, Director. 

And I like terms like ‘‘mushy,’’ so we will get to the mushy in 

a second. But, the debate for us is whether it is most of lower Manhattan coming down or the Murrah Building in Oklahoma City or 

some terrible act. We want to try to stop those things. And so the 

cost of those are enormous, if calculable at all. The costs of the 

compliance certainly are there. 

Between the chairman, Mrs. Maloney, Mr. Hill, we have talked 

about secretaries of State. We have talked about the IRS. We have 

talked about the lawyers. We have talked about the bankers. Somebody has some responsibility to help you, as the head of FinCEN 

and the FBI and elsewhere, have good information that stops some 

terrible act that harms Americans. 

So let’s just go back to basics. How prolific, how often, in your 

experience as a law enforcement agent, have you seen shell companies come into play to hide bad actors? 

Mr. BLANCO. All the time. 

Mr. PERLMUTTER. So explain that. 

Mr. BLANCO. It is not a secret, it really isn’t. Even when I was 

a young prosecutor at the State’s attorneys’ offices and we were 

doing financial crimes, people would hide behind shell corporations 

all the time. Yes, eventually you might find out who owns it, 

maybe. 

That time expended in trying to figure that out and the hoops 

that you have to jump through, by that time those criminals have 

already left and gone and either defrauded the elderly person who 

they were defrauding or committed whatever act they are going to 

mcarroll on FSR431 with DISTILLER

8 

commit, transferred the drug money if they had it to transfer drug 

money, or took their human traffickers and already sold them into 

human trafficking. They are done. 

What this does for us is, even if the information that is provided 

to us is false—let’s just assume that, because I have heard that. 

People say, ‘‘Well, Ken, how are you going to get them to provide 

you truthful information? The fact that they are providing false information to us is a key indicator of who you are dealing with at 

that point. And it gives you a lead of how you should be investigating these people, and it is a red flag. 

But let’s just assume the information is correct, which I think 

much of it will be. It gives you leads. The time you are saving in 

doing your investigation is exponential. For example, a terrorist 

act, and many of you may understand this, we have a group that 

responds 24/7. They come into the FinCEN office. We run names. 

We run numbers. We run phone numbers. We run corporations. 

Without the beneficial ownership information, it takes a lot more 

time. With that information, both at the time of the account being 

opened and, frankly, at the time the business is incorporated, it is 

going to be critical for us to respond. It is about stopping acts before they happen. And this critical information, which is very simple information, it really is, we are not asking for a lot here, very 

simple information that gives us a heads-up what is going on. 

And the—I am sorry; I am talking a lot. 

Mr. PERLMUTTER. So my question was: You talked about at the 

formation of the company. How often do you update this through 

your particular rule? Is it every month? Is it upon a loan renewal? 

Is it a change of somebody who signs the credit card? What is it? 

Mr. BLANCO. So those are triggering events that would cause you 

then to update it. And that is, we have been having a lot of conversation with both industry, and we have been having a lot of conversation with law enforcement. And the way that we have left it 

with industry and law enforcement is that, through your normal 

AML program, whatever AML program you have, if you notice that 

there has been a change event, a triggering event, that is when you 

update it. 

Triggering events could be all kinds of things. They could be an 

extensive money flow that all of a sudden appears in the bank account. That gives you indication something is different. A change 

in ownership, different name being used, a different account being 

opened, all those things that are common sense would cause us to 

update the beneficial ownership information. 

Mr. PERLMUTTER. So just if I were the banker at that point and 

there is a new signer on the account, a signatory on the account, 

is that a triggering event? The question I have—and I think you 

are on the right track. I am not fighting with you on this. 

And you used the word ‘‘fine-tuning,’’ and that is what this is 

going to be, but, if I am that banker, every time that customer 

walks in the bank, is that a triggering event? And how often are 

you expecting stuff from these guys? Because it sounds like a lot. 

Mr. BLANCO. Not every time a customer walks in the bank, I 

don’t think that is a triggering event. But let’s just say there is a 

new signatory on the account. Yes, I think that is a triggering 

event. That is a changed circumstance that you are going to want 

mcarroll on FSR431 with DISTILLER

9 

to take a look into, and you may want to verify the beneficial ownership information. 

And in our FAQs, we also said, look, you can also just update the 

information as long as you get an oral or verbal confirmation that 

the information is still correct except there is a different signator 

or a change event. It doesn’t have to be a drastic event. 

We are not looking for things that are very rogue. We just want 

people to think. What would cause them to want to update the beneficial ownership information? What makes sense? What is the triggering event? 

Like you said, we are going to be working through this with industry and with law enforcement. We are not using this as a hammer on anybody. It is not a gotcha game. What we are trying to 

do is make sure that we have the right information. 

Mr. PERLMUTTER. Thank you, and my time has expired. 

Chairman PEARCE. The gentleman’s time has expired. 

The Chair would now recognize Mr. Pittenger for 5 minutes. And 

be advised that we just had a vote call. There are 14 minutes left 

in that. So we will take probably two more rounds of questions: Mr. 

Pittenger, and Mrs. Maloney I think would be the next. So we will 

try to get those in. Then we will take a recess for votes and return 

to the hearing. 

So, Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Thank you again, Mr. Blanco. It seems to me that the new CDD 

rule makes financial institutions weigh convenience and customer 

experience against cost of compliance. Do you think that is an accurate assessment? 

Mr. BLANCO. I am sorry, sir. I— 

Mr. PITTENGER. It makes the financial institutions weigh convenience and customer experience against cost of compliance. Do you 

believe that is a valid and accurate assessment? 

Mr. BLANCO. Yes, one could assume that is a valid assessment. 

I think here, though, when we talk about cost weighed against a 

secure financial system, I am not so sure we are talking about cost. 

I think what we are talking about is the financial system that 

is safe and secure, that everybody can benefit from, including the 

banks and including the customer. And the customer too also 

wants a secure financial system so that they can put their money 

in a place where they can invest and make sure that it is safe and 

secure. 

So I know we talk a lot about costs, but I can just tell you what 

we are asking for is something very simple. I cannot imagine it 

costing too much. 

Mr. PITTENGER. Yes, sir. Do you think, with that in mind, that 

some institutions will opt to derisk some customers due to the difficulty in understanding the CDD rule or complying with it? 

Mr. BLANCO. I hope that does not happen. We are going to look 

for that. We take derisking very seriously. We believe people 

should have access to capital and access to the banking system, 

and we want to make sure that happens. May it happen? It might. 

And those are things that we are going to take a look at and make 

sure that those things do not happen for the wrong reasons. They 

mcarroll on FSR431 with DISTILLER

10 

may derisk them for other reasons, but we want to make sure it 

isn’t because of this. 

Mr. PITTENGER. Sure. Mr. Blanco, it is my understanding that 

the CDD rule will only apply to new accounts opened after the effective date. 

Mr. BLANCO. That is correct. 

Mr. PITTENGER. If that is true, what happens to a financial institution if they fail to meet the new CDD rule requirements? 

Mr. BLANCO. So we have spoken with our regulators, and we 

have spoken with institutions, our financial institutions, and we 

know there is going to be this time period where everybody is adjusting to it. And all we are asking for is that they have a good 

faith effort to comply with it. 

We are not using it to ding anybody. We will work with them. 

We have fielded hundreds of questions since this came out in 2016, 

actually thousands of questions, and we are going to continue to do 

that. It is not a gotcha game. 

Mr. PITTENGER. Yes, sir. With that in mind, would a financial institution be restricted with their customer accounts across the entire customer relationship or solely with respect to the new accounts opened after the implementation date? 

Mr. BLANCO. I am sorry, sir. I am having trouble understanding. 

Mr. PITTENGER. I understand. Would a financial institution be 

restricted with their customer accounts across their entire customer relationship or solely with respect to the new accounts 

opened after the implementation date? 

Mr. BLANCO. If I understand your question correctly, you are 

talking about a customer across their entire relationship with the 

bank. 

Mr. PITTENGER. Versus new accounts opened. 

Mr. BLANCO. Once they start opening new accounts—and remember, what we are talking about here are legal entities that are 

opening new accounts. 

What the financial institution will have to do is make sure that 

it corresponds correctly with the other information that they have 

on other accounts, yes. 

Mr. PITTENGER. FinCEN released two sets of FAQs—one in 2016 

and then one in the final days before implementation—to help 

bring clarity to the CDD ruling. However, these FAQs do not specify the extent to which a financial institution should integrate technology changes to the better use of information it obtains through 

CDD. 

Is there any clear guidance on what to do with the information 

once it is gathered and how it should be used to enhance AML programs? 

Mr. BLANCO. We can provide better guidance, Congressman. But 

I believe, in the FAQs themselves, they talk about where the information should be stored and how it should be used in the regular 

course of their AML/CFT risk assessment. That is something that 

they can use in the normal course of how they review their risk 

with respect to that one client. 

Mr. PITTENGER. Then how would or should the information then 

be integrated into the transaction, monitoring, or sanctions compliance programs? 

mcarroll on FSR431 with DISTILLER

11 

Mr. BLANCO. In the normal course, each of the institutions has 

their own procedures and policies that they use, and it should just 

be done with their normal policies. 

Mr. PITTENGER. Thank you. I yield back. 

Chairman PEARCE. The gentleman yields back. 

The Chair will now recognize the gentlelady from New York, 

Mrs. Maloney, for 5 minutes. 

Mrs. MALONEY. Thank you, Mr. Chairman and Mr. Ranking 

Member, for calling this hearing. 

And thank you, Director Blanco. I have had a bill in on beneficial 

ownership at the request of law enforcement for quite some time. 

And I think that the customer due diligence rule is a huge step forward. I support it, but I also believe that the responsibility 

shouldn’t be entirely on financial institutions. Banks should know 

their customers, but it shouldn’t be this hard to figure out who 

their customers really are. 

And law enforcement and banks have expressed to me that they 

are unable to figure out who these people are. That is why I have 

introduced a bill, the Corporate Transparency Act, that would require companies to disclose their beneficial owners at the time they 

are formed, and then financial institutions would have access—and 

law enforcement—to that beneficial ownership information, so that 

they can assure themselves that these companies that open accounts with them are not money launderers, sex traffickers, or 

other types of criminals. Under my bill, FinCEN would be in 

charge of collecting this beneficial ownership information. 

And in your view, should companies be required to disclose their 

beneficial owners at the time they are formed? 

Mr. BLANCO. Yes. 

Mrs. MALONEY. And is FinCEN capable of maintaining a database of beneficial ownership information that would be available to 

law enforcement and financial institutions? 

Mr. BLANCO. Congresswoman, if that is what ultimately happens, we have to keep in mind that we are going to have to be well 

resourced in order to do it. If you are asking me today if we are 

well resourced to do it, I would tell you it would be very difficult 

for us to pull that off. 

If, in fact, the ultimate decision is going to be to have FinCEN 

house it, then we are going to have to be resourced to do it, but 

we can do it. 

Mrs. MALONEY. Great. Do you think that a bill that would have 

FinCEN collecting beneficial ownership information and then allowing financial institutions to access that information from 

FinCEN would complement your customer due diligence rule? 

Mr. BLANCO. I do. 

Mrs. MALONEY. Great. And in 2016, FinCEN issued two geographical targeting orders (GTOs) covering Manhattan and Miami 

that required title insurers to collect beneficial ownership information for any legal entity making all-cash real estate transactions. 

And the findings from the first 6 months were just shocking. 

FinCEN found that about 30 percent of the transactions reported 

involved a beneficial owner or purchaser that had previously been 

the subject of a suspicious activity report (SAR), which is a 

shockingly high number and strongly suggests that criminals and 

mcarroll on FSR431 with DISTILLER

12 

other bad actors are using anonymous shell companies to launder 

money. 

FinCEN’s GTOs were then extended last year and also expanded 

to include L.A., San Francisco, San Diego, and San Antonio. 

So I have two quick questions: First, has the beneficial ownership information that you have collected after you renewed the program continued to be useful for FinCEN? Second, doesn’t this suggest that one of the keys to cracking down on money laundering 

and terrorist financing, which is a top concern of New York, the 

city I represent, is requiring companies to disclose their beneficial 

owners at least to law enforcement? 

Mr. BLANCO. The answer is yes to both. 

Mrs. MALONEY. OK. Thank you very much, and I hope we didn’t 

miss our votes. We have to run. Thank you. 

Thank you, Mr. Chairman. 

Chairman PEARCE. We have 6 minutes left. So the Chair now 

places the committee in recess until after the votes. 

[Recess.] 

Chairman PEARCE. The subcommittee will come to order. 

We have a couple of members coming in for questions. 

Until then, I would recognize myself. 

So you talked about implications for bankers and that we are 

there to work together; you are just not after gotchas. What about 

the people who are filling out the forms, if they fill them out incorrectly on purpose? Tell me a little bit about the consequences. 

Mr. BLANCO. That is a very good question, Congressman. That 

actually was a question that I asked myself. Of course, being a 

prosecutor, I want to know what the consequences are. 

Right now, the consequences are there are no penalty provisions 

to the false information given. However, I think it really depends 

on what they say. They could be prosecuted for bank fraud, depending on what information they choose to lie about, and the consequences to the bank in which lying it. But right now the consequences are that they will be investigated probably, but there is 

no crime with respect to that, at least that I know of, no penalty 

provision with respect to the CDD rule. 

Chairman PEARCE. So how do they come to the attention, how do 

we know that the banks are not gathering the latest information 

and that people are submitting bad or improper information? 

Mr. BLANCO. I think two ways, Chairman. One way would be 

that the banks, through their normal due diligence, would discover 

that this information is false information. 

It could be that the bank person who is actually doing the intake 

of the information will recognize the red flags. 

And I think the third way to do it is that law enforcement themselves, when they run these names, realize that the information is 

incorrect. And right there, that is a red flag that perhaps this legal 

entity should be looked at or the individual opening the legal entity, the customer himself or herself should be looked at. 

Chairman PEARCE. I would recognize the gentleman from Nevada, Mr. Gottheimer, for 5 minutes. 

I would then recognize the gentleman from Ohio, Mr. Davidson, 

for 5 minutes. 

Mr. DAVIDSON. Thank you, Chairman. 

mcarroll on FSR431 with DISTILLER

13 

And I really appreciate your testimony today, Director, and I appreciate the opportunity to talk about some of the rulemaking 

there. A number of issues have been raised as banks have attempted to come into compliance with the consumer due diligence 

rule. And the frequently asked questions, that have been issued by 

FinCEN aiming to clarify the rule, have in some cases had the reverse effect of complicating and confusing its requirements. 

For example, who should actually be listed as the beneficial owners that a bank might need to report. It is very clear when you say 

25 percent or greater, but when, for example, significant influence. 

And from your previous testimony, perhaps every time a company 

updates their org chart, there might be a trigger to say, ‘‘Gee, we 

just hired a new plant manager at one of our facilities; do we have 

to update our org chart with FinCEN?’’ And then the premise is, 

that all the small businesses in America, many of the smallest, 

least sophisticated businesses of America are criminals if they don’t 

keep these forms updated. So it seems the burden is heavily shifted 

to law-abiding citizens to somehow keep the government apprised 

of their privately held business, instead of on this organization that 

we created and asked you to lead to do the work to find this information out. 

I guess, do you believe that some of the same, perhaps even some 

complicating factors may arise in terms of how beneficial owners 

should be reported? Do you think about the kinds of businesses 

that you are asking to comply with this admittedly simple-to-use 

form, but at what level in the org chart do I say this person isn’t 

exercising significant influence over my business? 

Mr. BLANCO. Congressman, what the form asks for is just one individual if we are talking about a control prong. We are only asking for one person. We are not asking for a litany of people who 

may have responsibility or control over the legal— 

Mr. DAVIDSON. You just need the CEO? 

Mr. BLANCO. You could. You could put the CEO. You could put 

the controller. You could put a senior manager. It has to have 

somebody who has decisionmaking and that is responsible for making decisions. 

Mr. DAVIDSON. You just need a name. You don’t need all the 

names; you just need a name. 

Mr. BLANCO. You do not need all the names. 

Mr. DAVIDSON. OK. So the other complicating factor is there are 

a number of folks that will have issues with the shift in bases, 

which is the default is, if a newly created business is established, 

the government collects a fair bit of information. And they don’t 

necessarily collect all this in a way that would make it easy for 

FinCEN to access, but in a lot of ways it seems that it would be 

easier for us to lower the threshold for you to obtain this information than to criminalize every business in America unless they fill 

out this admittedly easy-to-fill-out form. 

Mr. BLANCO. Congressman, we are not criminalizing these individuals. People are going to make mistakes. We get that. The question is, are they intentionally falsifying documents to avoid actually 

listing who the beneficial owners are? 

Mr. DAVIDSON. I understand. And the basis there is to say that 

you are going to focus on a certain number of companies. You are 

mcarroll on FSR431 with DISTILLER

14 

not focused on every small business in America, yet you make 

every small business in America fill out the forms. That is the gap. 

So you are heavily focusing on financial institutions, it seems, 

and they are charged with enforcing the rule. Do you believe 

FinCEN has the technical expertise and capacity to properly enforce the CDD regime being applied to small businesses which have 

never heard of this CDD rule? Or FinCEN, for that matter. 

Mr. BLANCO. I am with you on that, Congressman. I think we 

can. I think we do have the tools to enforce it. And I think we are 

doing a great job of doing outreach also to these small institutions 

and other institutions who are covered by this rule. We are going 

to do a better job of doing it. We are out there speaking. This whole 

hearing, I am sure many of them are going to be interested in 

watching it as well. So we are going to get out there and make sure 

that there is— 

Mr. DAVIDSON. Do you believe the IRS already has enough information or any other part of the government would already have 

enough information if you could just ask them? 

Mr. BLANCO. No. We wouldn’t be doing the CDD rule if we 

thought that. 

Mr. DAVIDSON. I guess we can disagree on that. 

And I think the last thing is just a specific one on CDs. Every 

time a certificate of deposit changes, you roll it over. You might 

hold it with a bank. It is the same thing. So you might have, every 

90 days, you are updating a certificate of deposit. It seems like a 

pretty heavy burden on banks. You are confident you have the rule 

right on that? 

Mr. BLANCO. In fact, today, we are issuing exemptive temporary 

relief on instruments just like the CDs that roll over. We are going 

to spend more time thinking about them and what we need to do. 

And these are for CDs that preexist the implementation of the rule 

on May 11th. 

Looking into the future, these CD rules, as long as the information doesn’t change—and we leave that for the banks to tell the 

customers and the customers must agree: If any of the information 

on your beneficial ownership changes, you must notify us. 

So I don’t see that that is going to be too much of a burden moving forward. As you will see today on our website, and we have noticed it today, that we are issuing temporary exemptive relief on 

those that preexist the date of the implementation. 

Mr. DAVIDSON. I think that you feel too much immunity from the 

regulatory impact that is being inflicted on America’s economy and 

America’s small businesses. 

With that, my time has expired, and I yield, Chairman. 

Chairman PEARCE. The gentleman’s time has expired. 

The Chair now recognizes Mr. Lynch for 5 minutes. 

Mr. LYNCH. Thank you very much, Mr. Chairman. Thank you for 

your work on this committee. 

And thank you, Mr. Blanco, and congratulations. I haven’t seen 

you since you received your promotion. 

Mr. BLANCO. Thank you. 

Mr. LYNCH. I am a big fan of FinCEN, and I am a frequent flier 

to FinCEN’s offices and a frequent advocate for more funding for 

the work that you do and your folks do within Treasury, although 

mcarroll on FSR431 with DISTILLER

15 

I know there are a lot of competing claims within Treasury for 

those resources. 

Mr. BLANCO. There are. 

Mr. LYNCH. So I try not to cause too much trouble there. 

Mr. BLANCO. Thank you for your support. 

Mr. LYNCH. But suffice it to say we work with your folks regularly. Everybody up on the committee does, and we really appreciate the work that you do, and we understand the relevancy of all 

the work you are doing. 

So among the key findings that FATF had back in 2016, the Financial Action Task Force, they evaluated our AML, anti-money 

laundering protocols, and counterterrorism, counterfinancing terrorism protocols. And they said that one of the chief weaknesses 

was, and I will quote them, ‘‘lack of timely access to adequate, accurate, and current beneficial ownership information that created 

fundamental gaps in the U.S. context.’’ 

So the new implementation of Customer Due Diligence requirements, do you think that will be enough to address the weaknesses 

that they have identified in our system? 

Mr. BLANCO. I think it is one step in identifying the weakness. 

I think there is another weakness, as most of you know and talk 

about, and that is beneficial ownership information at the point of 

opening a corporation, of starting the legal entity itself. That is 

going to be critical for us to know and to understand and to use. 

Mr. LYNCH. Right. The other piece that we are working on quite 

a bit—the chairman has put a lot of focus on this—is cybersecurity 

within the financial sector. And I have been thinking this through 

to try to figure out a way that we might get the financial services 

industry to more robustly police themselves. They are always complaining about overregulation. If we can get them in as a partner, 

a willing partner, then it might be a better result. 

But one of the things I have been considering is draft legislation 

to establish a financial sector cyber stress test council. This is unlike the other stress test, which is governed by FSOC, an external 

regulator. It would really be industry-driven, but we would obviously see what they are doing. But require them to periodically upgrade their system so that it seems, as the hackers evolve, they 

find these weaknesses in our system. And we don’t regularly update, so we are having these repeated failures. 

Would something like that help you, in terms of establishing a 

standard out there and a level of accountability that requires continual upgrade periodically? Because that is what the hackers are 

doing. They are plus-upping their methods, and they seem to be 

able to find that weak link. 

Mr. BLANCO. One of the priorities I have here at FinCEN—and 

I think I might have spoken to you about this—is cybersecurity and 

cybercrime, and I think it is going to be really important for us to 

get a handle on that, moving forward. And to your point, it does. 

It evolves. There has to be a constant effort to renew what resources we are looking at, what technology we have, to move ahead 

of the game. 

In fact, I have put somebody in my front office that has been 

charged with innovation development and tactical development 

moving forward for FinCEN to look at issues just like that. 

mcarroll on FSR431 with DISTILLER

16 

Happy to work with your staff on anything that you are proposing. Happy to have that discussion about it. I can tell you that 

we work regularly with industry about this technology. We were 

just on the West Coast talking to some of the virtual currency exchangers about this technology and how we move forward and the 

attacks that cyber hackers are doing on information that we have, 

but in general the financial system. 

Mr. LYNCH. So I will work with my Republican colleagues to see 

if we can come up with something that is suitable to both sides, 

and also reach out to you and to the industry to see if we can come 

up with something that is a consensus approach to this rather than 

have people have to amend it later on. 

Mr. BLANCO. Happy to talk to you about it. 

Mr. LYNCH. Thanks for your great work. 

And thank you, Mr. Chairman. I yield back. 

Chairman PEARCE. The gentleman yields back. 

The Chair now recognizes Mr. Budd for 5 minutes. 

Mr. BUDD. Thank you, Mr. Chairman. 

And thank you, Director Blanco, for joining us today. I appreciate 

that. 

I want to talk this afternoon about the lack of clarity surrounding compliance requirements under the CDD rule. Financial 

institutions back home are still not entirely sure what they could 

potentially be held liable for. In the latest FAQs on the rule released by FinCEN, while it is helpful, it still highlighted some 

issues that need to be addressed. 

First, I am curious, in developing the FAQs that were published 

on April 3rd, was there any discussion with industry representatives to understand the potential impact? And let me give you an 

example. Question 12 treats the renewal of a CD or a loan as a 

new account, which is inconsistent with the industry’s approach. So 

was there any discussion with industry on that? 

Mr. BLANCO. Lots of discussion, Congressman. In fact, today I 

issued temporary exemptive relief on that one issue so that we can 

have further discussion on it. We have given industry 90 days, exempting them from having to comply with it, so we can better understand the rule. They have a very sympathetic ear in me with 

respect to that, and we will take a look at it. I will make a decision 

whether or not we provide permanent exemptive relief moving forward. 

But we have had—I have to tell you, Congressman, one of the 

things—and look, I have only been in this job for 4 months, but I 

have to credit our FinCEN staff who, since 2012, has really been 

talking to industry about this and learning from them. 

And we have taken what we have learned, and you will see we 

have done seven or eight different tweaks to the rule. We provided 

several exemptive reliefs, not only in premium financing but also 

on the rollover, automatic rollover accounts for preexisting accounts. 

So we are listening. And I think that they should be happy about 

the fact that we are engaging with them regularly. 

Mr. BUDD. I appreciate your ear toward industry on that. I want 

to continue. 

mcarroll on FSR431 with DISTILLER

17 

The FinCEN FAQs as well as the FFIEC manual update, it stated that banks still must update beneficial ownership details when 

opening multiple accounts. So what is this bank supposed to do if 

a customer doesn’t respond to calls or emails or letters to confirm 

that their information hasn’t changed? 

Mr. BLANCO. So I think that really goes to the bank’s risk assessment and how they use their protocols to make that determination. 

I can tell you, Congressman, that what we have done, both with 

our Federal regulators and also industry, is we discuss with them 

that any time a new rule like this one is being issued, there is 

going to be this time period where we are going to take a look and 

give people the ability to implement it without coming and saying, 

you didn’t do this or you didn’t close that account. There is this 

timeframe where things need to be worked out, both in the regulatory side and in the implementation side. We are very mindful 

of that. 

But in the instance that you just talked about, I have to tell you 

it certainly is wondering if I am the banker, why you are not getting back to me. And they have a better risk assessment of their 

client than I would, and I think the regulators will take that into 

account. 

Mr. BUDD. I appreciate your thoughts on that. And so do you expect banks to follow the FinCEN FAQs as if they equate to regulations or, rather, if it was formal guidance, even though they were 

released without industry feedback and a comment period? 

Mr. BLANCO. Actually, they were released with industry feedback. One thing about the FAQs which is really interesting— 

Mr. BUDD. Sorry to interrupt. Also, did it have a comment period? 

Mr. BLANCO. It didn’t have a comment period. 

Mr. BUDD. Did not have a comment period? 

Mr. BLANCO. Not with the FAQs, but the rule certainly had a 

comment period that lasted for quite a while. If I am not mistaken 

I think it lasted for 2 years or more, correct? 

But the FAQs, one interesting thing about the FAQs is before we 

issue FAQs, there is a lot of discussion with industry and with law 

enforcement and with other individual stakeholders before those 

FAQs come out. 

So it isn’t as though industry is seeing those FAQs the day we 

publish them. Some of them are, but, for the most part, many of 

them have had discussions in panels, in hearings, in conversations 

with us, through our call-in line. We have a call-in line where people can ask questions about the rule. 

So a lot of this has already been hammered out before those 

FAQs have even come out. And these tricky issues, the FAQ answers the tricky ones. So you are talking about the ones that are 

the most difficult for industry and, frankly, for regulators too, to 

understand as we implement the new rule. And we are working 

with industry to make sure that we do it right. 

Mr. BUDD. Thank you very much. 

In the time remaining, one question: Finally, is FinCEN concerned that banks might close accounts if they can’t collect the information, particularly since that would cause FinCEN and law enforcement to lose that information? 

mcarroll on FSR431 with DISTILLER

18 

Mr. BLANCO. That certainly, Congressman, is something that we 

are going to look at and make sure that, if there is a trend in that 

way, we will certainly look into it and see why it is happening and 

what we can do about it. 

You are right: We end up losing valuable information. Also, people end up losing access to capital, which is not what we want either. So we will be monitoring that. 

Mr. BUDD. Thanks for your time, Director. 

Chairman, I yield back. 

Chairman PEARCE. The gentleman yields back. 

The Chair now recognizes Mr. Hill for 5 minutes. 

Mr. HILL. Thank you, Chairman. Thanks for holding this hearing. 

Mr. Blanco, glad to have you with us today. Thanks for your 

work on behalf of law enforcement. 

I read in the CDD discussion that the annual cost had a range 

that you all have assessed up to around $280 million on the high 

end. 

How many SARs that FinCEN receives every year would be directly related to a shell company report from a financial institution? Would you just hazard a guess? 

Mr. BLANCO. I think I would probably guess incorrectly. Given 

my background, I would say a lot, but I don’t want to give you the 

wrong figure. We are happy to get back to you. 

Mr. HILL. Yes, if you would get back to me on that. So I know 

you report the total number of SARs, but if you would tell me how 

many SARs relate directly to a bank reporting to you about a concern over a, quote, ‘‘shell company,’’ however the bank defines shell 

company. 

Mr. BLANCO. Yes. 

Mr. HILL. From criminal indictments that you have brought in 

this arena, how many would turn on a shell company? And how 

much money have you recovered from indictments that are connected directly to a shell company? 

Mr. BLANCO. So I can tell you, with respect to investigations that 

we have done, if they are sophisticated investigations, multimillion 

dollar, whether they are fraud investigations—so we are not just 

talking about drug trafficking and human tracking or terrorism. 

We are talking— 

Mr. HILL. But they meet the definition of FinCEN. 

Mr. BLANCO. Right. We are talking about fraud of elderly. We 

are talking about really significant things that affect people. Almost in every one of those very sophisticated cases, you are going 

to have a shell company someplace involved because that is the 

way they are laundering their money, and that is the way they are 

moving their money, and that is the way they hide what they do. 

And you don’t have to go too far to see those kinds of cases. So it 

depends on the level. 

Mr. HILL. Do you think the banks are doing a bad job collecting 

that information and reporting it since the Know Your Customer 

rules were put in place? 

Mr. BLANCO. Can I just tell you I think the banks are doing a 

great job. I think they are doing their best, and I think they want 

mcarroll on FSR431 with DISTILLER

19 

to do even more and even better. So I wouldn’t say they are doing 

a bad job. 

I think what we need to do is what we are doing here today: 

Having hearings like this, inviting industry, having the conversation, giving them priorities. These are our priorities, banks, and 

this is what we are looking at, together with law enforcement. I 

think that would better help the banks. 

Mr. HILL. When I think of a tax haven, when I say the word ‘‘tax 

haven,’’ what pops in your head? Name a country. 

Mr. BLANCO. Congressman, I can’t go there. That— 

Mr. HILL. Is Panama a tax haven? 

Mr. BLANCO. The obvious ones. I have done a lot of work in Panama, and I have done great work with their government. And I 

enjoy working with them, and they are dedicated public servants 

just like we are. So I wouldn’t identify— 

Mr. HILL. So would this sentence in the memo that we were 

given be hyperbole where it says that the United States risks being 

labeled as a money laundering, tax avoidance, and terror financing 

haven? Would you say that is hyperbole? 

Mr. BLANCO. I think there may be some countries that would say 

that, but I think that is hyperbole. But— 

Mr. HILL. Yes. The Financial Action Task Force said it. So I find 

that shocking that an organization that we support would say that. 

Mr. BLANCO. One thing, Congressman— 

Mr. HILL. Let me keep going. I have limited time. Sorry. 

Has Congress asked or has the Treasury Department asked 

States for changes in State law that would be best practices for secretaries of State that they capture name, email address, address, 

all the data that you are looking for, for all company formations by 

State and make that available online and that it also contain some 

State penalty for nonaccuracy or not being updated? Have you ever 

called for that, or, to your knowledge, has Congress ever asked the 

States to do that in model legislation? 

Mr. BLANCO. Not in my recollection. They may have. I wouldn’t 

know. 

Mr. HILL. Would you support that? Would Treasury support that 

if the States said a telephone number, email address, address, and 

contact person is just a best practice that was required under their 

State law? 

Mr. BLANCO. The devil is always in the details in how it works 

out. I think it is something that we can certainly think about and 

discuss. I think it is always great to have the States involved at 

the corporate formation level, but we can’t make them do it. 

Mr. HILL. Yes. So Mr. Davidson asked you a question about access to information you have or could have under a criminal investigation. So the SS–4 taxpayer ID number form that the IRS has 

and the annual tax reform data, including ownership, is that data 

that would be helpful to you in searching for shell company beneficial owners? 

Mr. BLANCO. Honestly, Congressman, no. It is different information. 

Mr. HILL. Why? 

Mr. BLANCO. Because what they are asking for is something very 

different. And if you look at their definition of it—first of all, two 

mcarroll on FSR431 with DISTILLER

20 

things: One is getting the information is very difficult because you 

need to get a court order. And having done that and spent months 

trying to get one, that defeats the whole AML purpose. But if you 

look at the definition of what they are asking for when they talk 

about responsible party, they are not talking about an equity party. 

They are not talking about somebody who would benefit from that 

legal entity and what they are doing. 

They are asking for a responsible person. A responsible person 

could be—I am sure the IRS has their own definition of what a responsible person is, but it is not what we are looking for. We are 

looking for somebody who is making decisions, who has some interest in the corporation, both either on the equity side or the control 

side. 

Mr. HILL. My time has expired, Mr. Chairman. Thank you. 

Chairman PEARCE. The gentleman’s time has expired. The Chair 

would now recognize Mr. Tipton for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. Appreciate your holding 

this hearing. 

Mr. Blanco, thank you for taking the time to be able to be here. 

I would like to be able to follow up on Mr. Budd’s questions just 

a little bit. We seem to have some evidence that, in terms of 

derisking, it has been showing to be able to push customers from 

larger institutions into smaller institutions. Obviously, the bigger 

institutions have the financial resources to be able to do the exams, 

to be able to handle and have the backup people that are there. 

And I guess my question to you is a little bit twofold. Do you anticipate that the CDD rule and derisking trend is going to trickle 

this down to the smaller institutions to the point to where they 

may stop offering products and services, getting people unbanked? 

And then, as a little bit of a follow up to that, I think it was a 

comment in relation to the CDs being individual new accounts coming up. You had made the comment that, I think you said, ‘‘I think 

the regulators will take this into account.’’ So I would like to know 

if you have had conversations with the Federal Reserve, OCC, 

FDIC, and others issuing guidance in terms of how they are interpreting what you are trying to be able to develop? 

Mr. BLANCO. Let me answer the first one on whether it would 

trickle down. I don’t believe that the CDD rule would trickle down 

and have an effect, but it is something that has been commented 

on by more than several people, and it is something that we will 

monitor. 

We want to make sure that we are looking at that very carefully. 

And if bank accounts are being closed or denied, we want to make 

sure that we understand why that is happening. As we have done 

in the last couple of weeks, we are happy to make tweaks as we 

go along in this rule. We are not averse to doing that as the rule 

becomes implemented and as our Federal examiners begin doing 

exams. 

With respect to the CD rollover, we have had conversations with 

our Federal counterpart regulators, and I think we are all in agreement that there is going to be this time period where we are learning how better to do the exams with respect to the CDD, and we 

are learning also how industry is beginning to implement it. 

mcarroll on FSR431 with DISTILLER

21 

It is not a gotcha game. I think we all agree to that. We have 

agreed to work with them as they do their exams and learn from 

their exams and maybe participate in some of their exams as we 

move forward. I think it is going to be a collective effort. Nobody 

here is playing the gotcha game. 

What we really want, Congressman, what we really need is accurate information. That is what we want. That is what we are looking for. We are not looking to punish the financial institutions. 

That is not what we want. There is no value in that. 

Mr. TIPTON. I would concur. I think we all want to be able to 

achieve the same goal, but just given the industry concerns that 

currently are there, I think that it does beg for some real actual 

clarity in terms of some of the enforcement that is going to be 

going on. 

You have just said that we are going to be—it is a work in process. But I think when we are talking to, and I have a primary concern for a lot of our smaller financial institutions, smaller credit 

unions as well, in terms of some of the compliance costs in that 

they are going to be associated with this. How does that actually 

play out when they have a moving target, while they have some 

enforcement activities, if they are deemed to have been at fault at 

some level? 

Mr. BLANCO. Congressman, I will disagree with you in that aspect that it is a moving target. 

The conversations regarding CD really have gone back all the 

way to 2016 when we started talking about these things. And then 

it morphed into conversation with industry. We have had several 

hearings. In 2012, it came up. In 2016, we issued the rule. We have 

had extensive conversations. Congressman, just recently, in meetings with industry, they all said—I was approached myself and 

said: Ken, this thing needs to happen. Do not delay it anymore. We 

are ready. 

So I think that—and I am very sympathetic to the community 

banks and the credit unions. I really am, coming from a suburb of 

Miami. I am very sympathetic to it. 

We will be watching it, Congressman. They are ready. And I 

think they are going to do a great job moving forward. We are 

working with our examiners to make sure that they understand 

what we are looking for. We are sympathetic to what they are examining for. Soundness and safety and also AFC—AML/CFT. 

It is a work in progress like any new rule or any new legislation 

that is passed. You have to work through the difficulties of how you 

are going to examine and how you are going to enforce it. But we 

are going to be doing it with our ultimate goal of making sure that 

we get the right information, not necessarily hammering people. 

But there are going to be some people who frankly, I can tell, we 

are all adults here, who feel like they don’t have to comply or they 

have to comply only when we issue a notice of exam. That is when, 

all of a sudden, you see 50, 60 people show up because now they 

have a compliance section. 

That is not compliance. And that is not complying with the CDD 

rule. 

Mr. TIPTON. I appreciate the efforts that you are making on it. 

And I think am actually empathetic to the point of making sure 

mcarroll on FSR431 with DISTILLER

22 

that we are trying to be able to get it right rather than just issuing 

a hard and fast rule. We like to make sure that I, personally at 

least, encourage you, when we are looking at some of the enforcement, we get as much clarity as soon as we possibly can and then 

implement some of that flexibility as we are seeing this work 

through the various institutions of different size as well. 

So thank you. I yield back, Mr. Chairman. 

Chairman PEARCE. The gentleman’s time has expired. 

Mr. Blanco, thank you very much for your testimony. Thank you 

for your service and for being here today. 

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. 

This hearing is adjourned. 

[Whereupon, at 3:45 p.m., the subcommittee was adjourned.] 

mcarroll on FSR431 with DISTILLER

(23) 

A P P E N D I X 

May 16, 2018 

mcarroll on FSR431 with DISTILLER

24 

mcarroll on FSR431 with DISTILLER

25 

mcarroll on FSR431 with DISTILLER

26 

mcarroll on FSR431 with DISTILLER

27 

mcarroll on FSR431 with DISTILLER

28 

mcarroll on FSR431 with DISTILLER

29 

mcarroll on FSR431 with DISTILLER

30 

mcarroll on FSR431 with DISTILLER

31 

mcarroll on FSR431 with DISTILLER

32 

mcarroll on FSR431 with DISTILLER

33 

mcarroll on FSR431 with DISTILLER

34 

mcarroll on FSR431 with DISTILLER

35 

mcarroll on FSR431 with DISTILLER

36 

mcarroll on FSR431 with DISTILLER

37 

mcarroll on FSR431 with DISTILLER

38 

mcarroll on FSR431 with DISTILLER

39 

Æ 

mcarroll on FSR431 with DISTILLER