U.S. GOVERNMENT PUBLISHING OFFICE

28–778 PDF WASHINGTON : 2018

S. HRG. 115–161 

THE FINANCIAL STABILITY OVERSIGHT COUNCIL 

ANNUAL REPORT TO CONGRESS 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FIFTEENTH CONGRESS 

SECOND SESSION 

ON 

EXAMINING THE FINANCIAL STABILITY OVERSIGHT COUNCIL’S 2017 ANNUAL REPORT AND THE OPERATIONS AND ACTIVITIES OF THE FSOC 

THIS CONGRESS 

JANUARY 30, 2018 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.govinfo.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

MIKE CRAPO, Idaho, Chairman 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

BEN SASSE, Nebraska 

TOM COTTON, Arkansas 

MIKE ROUNDS, South Dakota 

DAVID PERDUE, Georgia 

THOM TILLIS, North Carolina 

JOHN KENNEDY, Louisiana 

JERRY MORAN, Kansas 

SHERROD BROWN, Ohio 

JACK REED, Rhode Island 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

JOE DONNELLY, Indiana 

BRIAN SCHATZ, Hawaii 

CHRIS VAN HOLLEN, Maryland 

CATHERINE CORTEZ MASTO, Nevada 

DOUG JONES, Alabama 

GREGG RICHARD, Staff Director 

MARK POWDEN, Democratic Staff Director 

ELAD ROISMAN, Chief Counsel 

BRANDON BEALL, Professional Staff Member 

ELISHA TUKU, Democratic Chief Counsel 

COLIN MCGINNIS, Democratic Policy Director 

AMANDA FISCHER, Democratic Professional Staff Member 

COREY FRAYER, Democratic Professional Staff Member 

DAWN RATLIFF, Chief Clerk 

CAMERON RICKER, Deputy Clerk 

JAMES GUILIANO, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

TUESDAY, JANUARY 30, 2018 

Page 

Opening statement of Chairman Crapo ................................................................. 1 

Prepared statement .......................................................................................... 45 

Opening statements, comments, or prepared statements of: 

Senator Brown .................................................................................................. 2 

WITNESS 

Steven T. Mnuchin, Secretary, Department of the Treasury ............................... 4 

Prepared statement .......................................................................................... 45 

Responses to written questions of: 

Senator Brown ........................................................................................... 48 

Senator Sasse ............................................................................................ 53 

Senator Menendez ..................................................................................... 69 

Senator Warner ......................................................................................... 75 

Senator Van Hollen ................................................................................... 77 

Senator Cortez Masto ................................................................................ 77 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Letter submitted by Andrew M. Schaufele, Director, Bureau of Revenue 

Estimates .............................................................................................................. 85 

Department of the Treasury 2017–2018 Priority Guidance Plan, Joint 

Statement ............................................................................................................. 86 

(III)

(1) 

THE FINANCIAL STABILITY OVERSIGHT 

COUNCIL ANNUAL REPORT TO CONGRESS 

TUESDAY, JANUARY 30, 2018 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10 a.m., in room 538, Dirksen Senate Office Building, Hon. Mike Crapo, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN MIKE CRAPO 

Chairman CRAPO. This hearing will come to order. Today, Treasury Steven Mnuchin will testify on Financial Stability Oversight 

Council’s 2017 annual report and the operations and actions of 

FSOC this Congress. 

In December of last year, FSOC issued its 2017 annual report, 

in which it provided numerous recommendations, insights into the 

Council’s key activities, and identified potential emerging threats 

to financial stability. One of the recommendations urged Congress 

to reform the housing finance system and boost the role of private 

capital in mortgage finance. I have repeatedly stated that the status quo is not a viable option and reforming the housing finance 

system is one of my key priorities. 

Testifying before the Banking Committee last year, Secretary 

Mnuchin reaffirmed his commitment to work with us to find a solution, and stressed the importance of finding a balance between ensuring strong taxpayer protection and ample access to credit. 

Four years ago, a bipartisan group of Senators passed a housing 

finance reform bill in this Committee. We have an opportunity now 

to build on that effort and create a broader coalition of Republicans 

and Democrats to pass a bill into law. This remains one of my top 

priorities, and I look forward to continuing to work with the other 

Members of this Committee, with Secretary Mnuchin, and other 

stakeholders throughout this process. 

Another focus of the report was cybersecurity, particularly in the 

financial services space. FSOC identified cybersecurity as an area 

requiring greater attention due to the increasing sophistication of 

cybercriminals and the growing scope and scale of malicious attacks, including data breaches. The list of significant cyberattacks 

and cyberbreaches both in the public and private sectors keeps 

growing at an alarming rate and seems to have impacted the majority of all Americans. 

2 

The Council made recommendations to specifically address cybersecurity risks, including greater collaboration between the public 

and private sectors. 

It is critical that personal data is protected by both the Government and industry, and that when there is an attack or breach, the 

impact on victims is minimized. 

The report also highlighted key actions taken by the Council 

since the last report. This included FSOC rescinding the designation of two nonbank financial companies. Many of us on the Committee have long been critical of the lack of transparency and analytic rigor of FSOC’s process for designating nonbank SIFIs. 

In November 2017, Treasury issued a report outlining recommendations for enhancing both the nonbank and financial market utility designation process, which included tailoring regulations 

to minimize burdens and ensuring the designation analyses are rigorous, clear, and transparent. 

In the past, the nonbank SIFI designation process has lacked 

clarity and consistency, with the threat of serious regulatory consequences for firms that received the designations. This inevitably 

translates into higher costs for consumers and the overall economy. 

When making determinations, the FSOC’s process must be transparent, objective, and measurable, with clearly outlined criteria 

when such designations are appropriate. It must also provide clarity on how companies can shed such designations. 

I thank the Secretary for his work in these areas and for testifying before the Committee today, and look forward to his comments and insights on these and other important issues. 

Senator Brown. 

OPENING STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Mr. Chairman, and welcome, Mr. 

Secretary. I look forward to your testimony on the threats to financial stability. 

The economy has grown steadily for the past 8 years, in large 

part because of the hard-earned progress of the Obama administration. Unemployment has fallen and some, but certainly not all families have recovered from the financial crisis. We made some 

progress. We still have some pretty substantial challenges to financial stability in this country. 

Personal savings rates have fallen for years, now stand at only 

2.4 percent, the lowest since September 2005. Household debt continues to climb. Job growth in 2017 was OK—we will hear about 

that tonight—but below job growth in 2017 was below the levels of 

job growth in 2011, 2012, 2013, 2014, 2015, 2016. Three million 

Americans have lost their health insurance since this President 

took office, the largest jump since Gallup started tracking coverage 

a decade ago. 

For the second year in a row, life expectancy for Americans actually fell, driven in large part by an opioid epidemic that has been 

ignored by too many in Washington. 

Stock markets around the world have been on a tear, which certainly helps the top fifth of Americans. By one estimate, these are 

the people who own 92 percent of stocks in the United States. It 

is good for workers with a 401(k)—we welcome that—but too few 

3 

workers have even that retirement security. Only a third of workers are making contributions to a 401(k) or a similar retirement 

plan. 

While the President likes to take credit for what he labeled an 

ugly bubble a little over a year ago, it will be interesting to see if 

he is eager to take credit for a down market. 

Most workers build wealth with a hard-earned paycheck, not a 

statement from their broker. While the economy’s growth last year 

was the same as it averaged over the prior 3 years, the share that 

goes to wages continues to be far too weak, and for these people, 

a teamster in Toledo, a waitress in Waverly, a machinist in Mansfield, building a secure middle-class life is as tough as ever. The 

policies of this Administration and this Congress are only making 

these problems worse. 

The tax bill raises health care premiums—we know that—it 

gives a huge boost to the richest people in the country—we know 

that—and it could encourage more outsourcing. It keeps in placed 

the idiotic tax deduction that corporations get for shutting down in 

Lima or Zanesville, Ohio, and moving to Wuhan or Beijing. And, 

in fact, American companies will be enticed to do that even more 

because companies could owe absolutely nothing to the IRS on 

overseas manufacturing operations, brought to you by this most recent tax bill. 

Meanwhile, our kids will be left with the tab, picking up $1 trillion in new deficits, something that your party, and Republicans in 

this town, used to care about. 

I will be the first to acknowledge when a company does the right 

thing and boosts wages. I was asking bank CEOs to increase pay 

for their tellers, averaging about $13 an hour, custodians, and contract workers, long before the labor market was tight. I thank them 

when they do that. I call them and compliment them. And I offered 

an amendment to the tax bill to reward companies that did right 

by their workers, the Patriot Corporation Act. 

So I am happy that a combination of factors has caused some employers to pay their workers more, but let us keep it in perspective. 

Take Wells Fargo, a bank you are very aware of—familiar with. 

After the tax bill, Wells Fargo put out a press release to brag about 

raising pay to $15 an hour. We welcome that and thank them for 

that. But last week the bank announced it was buying back more 

than $22 billion—billion with a B—of its own stock this year, 

dwarfing what it passed on to workers. Think about that. That is 

288 times more spent to juice their stock than the cost of raising 

workers’ pay—288 times. 

Bank of America announced a $17 billion stock buyback while 

saying it was phasing out free checking for certain customers, now 

charging them $12 a month. 

The middle class is not just getting the short end of the tax bill. 

We also know they will pay the price if we roll back the rules for 

the financial industry. This comes as no surprise since this Administration looks like a retreat for Goldman Sachs executives. 

The Treasury has issued a steady drumbeat of reports suggesting 

hundreds of changes to our consumer protection and financial stability rules that will make the risk and severity of the next crisis 

much greater. FSOC’s tools are only as powerful as its members’ 

4 

willingness to use them. While past members of FSOC were eager 

to do the hard work of keeping Wall Street honest, this new team 

would rather join them for schnapps at a Swiss ski resort. 

Instead of fulfilling Wall Street’s wish list, we should be finding 

a long-term solution for our budget. We should invest in our Nation’s crumbling roads and bridges. We should ensure that workers 

are keeping the pensions they have earned. 

I agree with FSOC’s warning that many multi-employer plans 

are in tough shape. If the Congress and the Administration do not 

act soon, we threaten the promises made to millions of retirees, 

hence our Butch Lewis Pension Act. 

I look forward to today’s hearing and thank the Chairman and 

the Secretary. 

Chairman CRAPO. Thank you, and Mr. Secretary, you can see 

there still are some disagreements among us here on the panel. I 

suspect we will get into some of those today during your testimony. 

We again appreciate you being willing to come here and report 

once again to us. 

With that we will turn to your testimony. You may begin your 

statement. 

STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, 

DEPARTMENT OF THE TREASURY 

Mr. MNUCHIN. Thank you. Chairman Crapo, Ranking Member 

Brown, and Members of the Committee, thank you for inviting me 

today. One of my top priorities as Treasury Secretary is sustained 

economic growth for the American people, so I am happy to report 

that the growth rate of the economy over the past year was higher 

than the average over the prior 20 years, and included two straight 

quarters of 3 percent or higher GDP growth. The President promised robust growth, and he is delivering on that promise. 

I am here today to speak about the Financial Stability Oversight 

Council’s 2017 annual report. This is an important vehicle for providing Congress and the public with the Council’s assessments and 

recommendations relating to regulatory developments and potential 

risks to the financial system. 

This report emphasizes the importance of economic growth to 

maintaining a resilient financial system. Since the financial crisis, 

we have had time to assess the effectiveness of regulatory reforms 

and consider their unintended consequences. The report recommends that the Council member agencies address regulatory 

overlap and duplication, modernize outdated regulations, and tailor 

regulations based on the size and complexity of financial institutions. 

The report also discusses a number of risks that the Council is 

monitoring. One that I would like to emphasize in particular is cybersecurity. The financial system’s heavy and increasing reliance 

on technology increases the risk that significant cybersecurity incidents could disrupt the financial sector and potentially impact U.S. 

financial stability. Substantial gains have been made, but I want 

to emphasize the need for sustained attention to these risks. 

The report makes a number of recommendations, including creation of a private sector council of senior executives in the financial 

5 

sector to collaborate with regulators in order to mitigate cybersecurity threats. 

Turning to our growth policies, the Tax Cuts and Jobs Act passed 

last year was our top priority, and this overhaul of the tax code is 

already having a positive impact. Because of tax reform, over three 

million Americans have received special bonuses or other benefits, 

and over 250 companies have announced investments in their 

workforces. Companies are announcing higher wages and increased 

benefits, as well as greater spending on employee training, infrastructure, and research and development. These investments will 

lead to long-term prosperity, and as companies continue to bring 

back cash from overseas, our economy will continue to grow. 

Let me now turn to some specific priorities for this new year. 

I want to commend the houses of Congress for their work on financial regulatory reform. The bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act is a balanced and 

thoughtful approach that better aligns our financial system to support economic growth in our communities. Further, the legislation 

reflects many of Treasury’s recommendations from our Executive 

Order reports released last year. I encourage the Senate and the 

House to work together to move legislation as quickly as possible. 

In December, I wrote to Congress providing notification of my determination that a ‘‘debt issuance suspension period’’ would last 

until January 31st. Congress has not acted to suspend or increase 

the debt ceiling. I have determined that the DISP will be extended 

into February and will be notifying Congress as such. I respectfully 

urge Congress to act as soon as possible to protect the full faith 

and credit of the United States by increasing the statutory debt 

limit. 

The House and Senate have been working toward modernization 

of the Committee on Foreign Investment in the United States, 

CFIUS. I support the Foreign Investment Risk Review Modernization Act, FIRRMA, and applaud Senators Cornyn, Feinstein, and 

Burr and Representatives Pittenger and Heck for their leadership 

on this issue. A modernized CFIUS will enable us to protect our 

national security from current, emerging, and future threats, while 

preserving our longstanding open investment policy that is key to 

fostering innovation and economic growth. I look forward to working with Congress and the relevant committees to advance 

FIRRMA. 

One of Treasury’s core missions is to safeguard the Nation by 

using the powerful economic tools in our arsenal. We will continue 

to take frequent and ongoing actions to combat threats from malicious actors. These include terrorist groups, proliferators of weapons of mass destruction, human rights abusers, cybercriminals, and 

rogue regimes like North Korea, Iran, and Venezuela. We continue 

to review intelligence to identify targets with maximum impact and 

deny them access to the U.S. and international financial systems, 

disrupt their revenue streams, and ultimately pressure them to 

change their behavior. 

On housing finance, the current situation of indefinite conservatorship for Fannie Mae and Freddie Mac is neither a sustainable nor a lasting solution. The Administration looks forward to 

working with Congress to reform America’s housing finance system 

6 

in a manner that helps consumers obtain the housing best suited 

to their own personal and financial situations while, at the same 

time, protecting taxpayers. 

I am proud of what we have accomplished so far, and there is 

more to do. Our country’s potential is enormous, which is why 

Americans expect their Government to enact policies to allow them 

to succeed and prosper. Treasury’s collaboration with Congress is 

vital to that mission, and we are working every day to make it a 

reality. 

Thank you very much and I look forward to answering your 

questions. 

Chairman Crapo. Thank you very much, Secretary Mnuchin. I 

appreciated your comments about the Economic Growth, Regulatory Reform, and Consumer Protection Act and appreciate your 

encouragement that we move it quickly. I also appreciated your 

comments on housing finance reform. As I indicated, it is currently 

my highest priority in the Committee. 

In the FSOC annual report last year, one recommendation made 

was that the regulators and market participants continue to take 

steps to encourage private capital to play a larger role in the housing finance system. I agree with that goal. 

Can you elaborate on why it is important for private capital to 

play a larger role and what steps you believe we can take to further encourage that? 

Mr. MNUCHIN. Chairman Crapo, thank you very much. I fundamentally believe in the importance of the 30-year mortgage. I 

think it is important to the economy, and as we look at housing reform we need to look at Fannie Mae and Freddie Mac as well as 

the risks in FHA. And I am open-minded to many solutions and I 

have actually had some very productive conversations with several 

Members of your Committee on this, and look forward to working 

with you on them. 

I do believe that in order to protect taxpayers we do need to have 

substantial private capital and risk in front of any type of Government guarantee or Government support. 

Chairman CRAPO. Well, thank you very much, and in the context 

of protecting taxpayers against a Government guarantee, there 

have been a number of different ideas about how to accomplish 

that as well, including the idea of private guarantors absorbing 

losses in front of the Government guarantee. If that were part of 

the model, do you believe it is important that such guarantors are 

subject to GSIB-like capital requirements to ensure that the taxpayers are protected? 

Mr. MNUCHIN. I think it is very important that there is substantial capital and that the taxpayers are protected, and I look forward to working with you and your Committee, and also feel if 

there is any guarantee that the taxpayers are paid for putting that 

up as opposed to explicit guarantees that were not compensated in 

the past. 

Chairman CRAPO. All right. Thank you. And moving to another 

topic, in the Treasury report on FSOC’s designation process, Treasury recommended that the FSOC implement an activities-based or 

industrywide approach to evaluating systemic risk. Similarly, in 

2017, the International Association of Insurance Supervisors anVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
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nounced the development of an activities-based approach to assessing systemic risk in the insurance sector. 

How would an activities-based approach to assessing systemic 

risk work, and why is it more effective than the current entitiesbased approach? 

Mr. MNUCHIN. I think it is more effective because, to the extent 

that we look at risky activities across an industry or within a sector, we can look at proper regulation that deals with those issues 

and eliminates systemic risk. 

Chairman CRAPO. Moving to cybersecurity, cybersecurity is one 

of the most pressing issues, and you mentioned that again in your 

testimony, that faces companies, consumers, and Governments. The 

FSOC annual report identified cyberattacks on financial services 

companies as a potential vulnerability to U.S. financial stability, 

due to the increasing frequency and sophistication of such attacks. 

Where does the FSOC see gaps or shortfalls in cybersecurity 

today and, frankly, what steps can we take to address this? 

Mr. MNUCHIN. Well, I am pleased to say that I do not see any 

specific gaps today, but I do think this is an area where we need 

to always be advancing issue, I think, whether it is recent issues 

we have seen in chips or recent software situation. This is something that we need to be very, very careful, we need to be working 

in public–private partnerships, we need to have ways of sharing intelligence when it is appropriate, and we need to make sure that 

whatever the cost, the United States financial system is protected 

from cyberattacks. 

Chairman CRAPO. Thank you. I appreciate your attention to all 

these issues, and also the willingness you have to engage very aggressively with us on issues as they come forward, and I am sure 

we will be dealing with you on each of these as well as many more. 

And again, Mr. Secretary, I appreciate your attendance here today. 

With that, Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. Based on the bank 

threshold in the Wall Street Reform Act, FSOC uses a $50 billion 

threshold in its initial factor to determine if a shadow bank could 

cause systemic risk. The Treasury’s November report suggests raising that level. If the Chairman’s bank deregulation bill is enacted, 

is it safe to say FSOC would raise its threshold fivefold and would 

not put any resources into investigating any shadow bank below 

250, as your report said? 

Mr. MNUCHIN. I think that is correct and I think there is a general consensus from the regulatory community that the threshold 

should be raised. And, of course, the Committee could always make 

certain exceptions if there were significant instances. 

Senator BROWN. Well, I challenge that statement. Maybe the regulators appointed by President Trump, not the regulators that have 

been in office that are leaving, do not say it should be 250, but 

more on that later. 

This bill, then, has other consequences beyond bank dereg. It 

would mean that the FSOC would be very unlikely to designate a 

large leverage hedge fund, like Long-Term Capital Management, 

which, when it failed, had just $129 billion in assets, leverage of 

25-to-1, and more than $1 trillion in derivatives. With this expoVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
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sure I think you are making the system less safe, to safe and 

sound, with those ideas. 

Second question. The June Treasury report on banking dereg said if we raise the $50 billion threshold for U.S. banks we should 

do the same for foreign megabanks, based on their domestic assets. 

So if the Chairman’s bank deregulation bill is enacted, foreign 

banks with up to $250 billion in U.S. assets are going to be deregulated, akin to U.S. regional banks. Correct? 

Mr. MNUCHIN. That is correct. 

Senator BROWN. So the Treasury report specifically said if we move the $50 billion threshold up, it is the Department’s position 

we should also move the threshold up for foreign banks. The report 

says the $50 billion threshold for CCAR stress test domestic and 

foreign banks should be raised too. 

So to be clear, the Chairman’s bill, with your acquiescence, will 

deregulate banks like Santander that has repeatedly failed its 

stress test, and Deutsche Bank, basically the only bank that would 

lend President Trump money after his repeated bankruptcies and 

botched deals. 

The third question, Mr. Secretary. Last night your staff sent to 

the Committee various classified and unclassified reports, due 

under the Russia sanctions bill, including an unclassified oligarch’s 

report that looked a lot like the Forbes list of Russia’s wealthiest 

men. I hope the classified portion is more detailed and compelling. 

Also yesterday, CIA Director Pompeo said he did not see any reduction in Russian subversion of Western elections, nor did he expect them to back off their efforts to interfere in our own upcoming 

elections. The President reportedly will talk about the need for bipartisanship tonight. He cannot get any more bipartisan than the 

work that Senator Crapo and I did on the Russia sanctions bill— 

92–2 it passed. Yet it looks like the President did not impose any 

sanctions under the mandatory authorities we enacted, nothing to 

combat Russia’s cyberactivity, no sanction on those helping its intelligence and defense sectors, nothing in response to its corrupt 

privatization of State-owned assets. 

So how can sanctions punish Russia interference in Ukraine and 

in American elections and deter future interference if these sanctions continue to sit on the shelf, unused by the President? 

Mr. MNUCHIN. So let me first say I want to commend the TFI 

group, the Treasury, and the intelligence community who did an 

enormous amount of work in preparation of the report that we delivered last night. 

As we tried to outline in the unclassified version, the list in the 

unclassified version is senior political people, as well as oligarchs 

based upon a threshold of $1 billion or more of—based upon public. 

So you are correct that the public version does look a lot like the 

public—— 

Senator BROWN. I am sorry to interrupt but time is limited. So 

when are you going to take those sanctions off the shelf and use 

them, in terms of cybersecurity, in terms of intelligence, in terms 

of American elections? 

Mr. MNUCHIN. There is a substantial amount of work that was 

done. I look forward to you reviewing the classified report, and we 

will—— 

9 

Senator BROWN. No. It is—— 

Mr. MNUCHIN. ——be doing—based upon that, we will be looking 

at taking appropriate action. 

Senator BROWN. My time is ticking. 98–2 in the Senate, 3 no 

votes in the House. There is a lot of belief on both sides of the aisle. 

I hear Senators talking privately about this, that this Congress and 

the American people do not trust the President on Russia, his 

closeness to Putin, all those things, and your delay on this, your 

slow walk, just enforces that last question. 

In November, FSOC cited persistent budget deficits as a threat 

to economic growth, the FSOC annual report. A month later the 

President, and a partisan majority in the Congress, ignored their 

own warnings, passing tax cuts for corporations and millionaires, 

that will add more than $1 trillion to the deficit. Immediately after 

passing the budget-busting tax bill, some of my colleagues started 

to turn toward gutting entitlements under the guise of fixing the 

deficit. 

I listened to candidate Trump come to Ohio for rally after rally 

after rally. He said he would protect Medicare. He said he would 

protect Medicaid. He said he would protect Social Security. So it is 

fair to add $1 trillion to the deficit for tax cuts and then have colleagues, Republican colleagues, with apparently the President’s 

now acquiescence, to start talking about cutting Medicare and Medicaid and Social Security? 

Mr. MNUCHIN. Senator Brown, first let me just comment on your 

previous comment. I do not think, in any way, we are slow-walking 

the report that we delivered last night and I we look forward to 

discussing it with you in a classified setting. 

On the issue of the taxes, I think you know, as I have said before, the President, I believe, that with a breakeven of 35 basis 

points, the tax bill will create growth, it will create enough revenue. 

Senator BROWN. Nobody has ever believed that in the past. Why 

should we believe that now? 

Mr. MNUCHIN. Again, I would be more than happy to meet with 

you and go through the numbers in our economic analysis. 

Senator BROWN. But why the acquiescence on the attacks on 

Medicare, Medicaid, and Social Security, calling them 

unsustainable when the President promised to protect them? 

Mr. MNUCHIN. Again, I have not made those comments, Senator. 

Chairman CRAPO. Senator Shelby. 

Senator SHELBY. Thank you. Mr. Secretary, thank you for your 

service. Also, I would be remiss if I did not thank you for your leadership and your steady hand in dealing with the tax reform measure, that a lot of us—maybe not all of us, but a lot of us believe 

is going to really help our economy, and we see signs of it already 

in the confidence, at least I see. But congratulations on that. 

FSOCs. When you designate an entity that is deemed systemically risky, that is a very, very important designation. I mean, it 

should not be done on a whim, should it not? It should be done 

very carefully with a lot of data and a lot of thought. 

When we look at insurance companies as an entity, and we look 

at banks as an entity, there might be some overlap, but two difVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
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ferent models, at least I believe. Should they be viewed as such before you make a designation? What is your thought on that? 

Mr. MNUCHIN. I think, as you pointed out, banks are very different from insurance companies. They have very different liabilities. 

Senator SHELBY. Uh-huh. 

Mr. MNUCHIN. And they should be reviewed carefully, which is 

something I believe we have done at the Committee over the last 

year. 

Senator SHELBY. You have. When you designate—going back to 

that—when you designate an entity systematically risky, that is a 

profound thing. Would you agree with that? 

Mr. MNUCHIN. I would. 

Senator SHELBY. OK. Now I want to shift to something that I 

hope you will have some play in and some interest in, and that is 

the infrastructure. We keep talking about infrastructure. How are 

we going to come up—how is the Trump administration? I think a 

lot of Democrats and Republicans both know that we need an infrastructure bill. We need to do it. And, of course, it takes money to 

put that together. We know that. 

But how do we use an infrastructure bill, if we come with one, 

and I hope we will, to tap the private money in America, which you 

are very familiar with, there is a lot of it out there, that is looking 

for a better return on their investment? How do we do that, rather 

than just let the Government deal with infrastructure? Have you 

thought about that? 

Mr. MNUCHIN. We have thought about that. the Administration 

has put a lot of work into this and the President looks forward to 

releasing his infrastructure plan shortly and working with Congress. And I agree with you that we should be looking at both Federal money, State money, as well as private money, as we look at 

infrastructure investment. 

Senator SHELBY. But should not the infrastructure bill, from the 

standpoint of our future economy, the infrastructure in this country 

is so important to move goods, people, services, and be one of our 

top priorities? I think it might be. 

Mr. MNUCHIN. I believe so, yes. 

Senator SHELBY. The Chairman talked about cybersecurity. We 

know we are in the information age. So is everybody else in the 

world. We know that we get benefits from this—big benefits—from 

modern information systems, but they are subject to attack, including our law enforcement, Pentagon, Treasury, Federal Reserve, and 

so forth. 

This is an ongoing risk management thing. I do not know how 

we get to the bottom of it, but that is a big, big challenge for all 

of us, and it has got to be for Treasury, is it not? 

Mr. MNUCHIN. It is and that is why it is one of my top priorities, 

Senator. 

Senator SHELBY. What should we do first? Should we worry 

about the financial system? Sure. Should we worry about our electrical grid? Sure. But we also have to worry, first of all, about national security and the implications of penetrating through cybersecurity, do we not? 

11 

Mr. MNUCHIN. That is correct and that is why we have a process 

across all the different agencies that we are focus on this. Homeland Security is responsible for the overall coordination. We are responsible for looking at the financial sector and dedicating a lot of 

resources to that. 

Senator SHELBY. How do you think the economy will continue to 

grow? I like what I see out there. We feel it. People have got confidence. Do you feel like it is going to continue to move forward? 

Mr. MNUCHIN. I do, and I think, as you know, the President is 

determined that we enact legislation that moves forward on a sustained economic growth, the 3 percent or higher. We are not focused on any one quarter. We are focused on sustained growth. 

Senator SHELBY. Thank you. Thank you, Mr. Chairman. 

Chairman CRAPO. Senator Menendez. 

Senator MENENDEZ. Thank you, Mr. Chairman. Mr. Secretary, 

you have talked up the economy and the results of the Trump tax 

plan but I do not think the workers facing layoff at Carrier, Toys 

‘R’ Us, AT&T, Kimberly Clark, Walmart, and GE would share your 

enthusiasm, and I do not think we should be satisfied with the 

slowest year of job growth since 2011. So I have a much different 

view about what we need to do as it relates to the economy. 

But I want to get to a specific provision in the Trump tax bill, 

which gutted the State and local tax deduction and compelled thousands of New Jerseyans to rush to prepay their 2018 property 

taxes before the start of the year in order to escape being taxed 

twice on the same dollar. And if it was not bad enough spending 

the holiday fretting over a tax hike, in came the Grinch, played by 

the IRS, to tell them they could not deduct their property taxes in 

2017, despite paying them that year. 

Now this IRS advisory was confusing, frustrating, and, most importantly, was plain wrong—plain wrong. The Trump tax bill specifically prohibited the deduction of prepaid State income taxes, but 

it made no similar prohibition against prepaid property taxes. 

So my question, Mr. Secretary, is do you commit to fixing this 

fundamentally flawed IRS advisory and stopping the IRS from 

changing the rules in the middle of the game for working families? 

Mr. MNUCHIN. Senator, actually, I do not think it was confusing. 

The intention for the IRS was actually to put something out that 

clarified. 

Senator MENENDEZ. It is wrong. 

Mr. MNUCHIN. What the IRS—— 

Senator MENENDEZ. Do you suggest that that advisory is right? 

Mr. MNUCHIN. Yes, I do. What the IRS advisory—— 

Senator MENENDEZ. How is that possible that it is right when 

the legislative text is as clear as day? Section 11042 specifically 

prohibits 2018 State and local income taxes from being prepaid and 

deducted from Federal income taxes in 2017. It is silent—silent— 

on the prepayment and deduction of property taxes. Now whether 

that exclusion was included intentionally or because of the secretive and rushed process by which the bill became law, the legislative text, through its deafening silence, actually is loud and clear 

on this topic. And that means the IRS advisory clearly contradicts 

the law and is nothing more than a back-door attempt to get these 

12 

people who should not have—should be able to deduct their property taxes when they paid it. 

Mr. MNUCHIN. Senator, what the IRS advisory did is it deferred 

it to the legal position of the State, and I would be more than 

happy to meet with you and go through that. The intent was that 

it would not allow taxpayers to abuse the system, and again, it was 

intended for clarification. 

Senator MENENDEZ. Abuse. 

Mr. MNUCHIN. It never said—— 

Senator MENENDEZ. The system is abusing them. They paid it in 

2017. They should be able to deduct it in 2017. I hope that you can 

get to a point with us that you can help us on this, because it will 

be bad enough that in the next years they will not have that deduction. But they certainly should get the deduction for the year in 

which they paid it. 

Let me ask you this. The CIA Director Pompeo unequivocally 

states that he believes that Russia has every intention in meddling 

in the 2018 election. Do you agree with his assessment? 

Mr. MNUCHIN. I defer to the CIA Director on that. 

Senator MENENDEZ. You do not disagree with his assessment. 

Mr. MNUCHIN. I am not disagreeing with him. 

Senator MENENDEZ. Do you agree with the assessment for our intelligence community that Russia used a hybrid of political intelligence and defense tools to meddle in the 2016 U.S. elections? 

Mr. MNUCHIN. Again, I am not going to comment on things that 

I have classified information on—— 

[Overlapping speakers.] 

Senator MENENDEZ. It is not a question of that. There has been 

plenty in the public sphere to have a judgment on this, because 

your department actually has jurisdiction over the enforcement of 

sanctions. So if you do not believe those things are true then maybe 

that goes to your view on sanctions policy. 

Mr. MNUCHIN. Senator, I did not say I did not believe it was 

true. I said I was not—— 

Senator MENENDEZ. You did not tell me you did. 

Mr. MNUCHIN. ——going to comment on—— 

Senator MENENDEZ. It is a simple—it is not classified. 

So yesterday the Treasury Department identified senior political 

oligarchs and political figures in Russia, as mandated in the Countering America’s Adversaries Through the Sanctions Act, which I 

was one of the coauthors of, which this body passed 98–2. That law 

provided the tools and a deadline of yesterday to go after entities 

who support the very same Russian intelligence and defense agencies. However, is it not true that yesterday the Trump administration failed to apply a single new sanction against anyone who 

might be supporting these Russian efforts? 

Mr. MNUCHIN. Senator, we very much agree with the purpose of 

the report. There was an extraordinary amount of work. I assume 

you have not yet reviewed the classified version. I look forward 

to—— 

Senator MENENDEZ. Just give me a simple yes or no, as my 

time—— 

Mr. MNUCHIN. What I want to—— 

13 

Senator MENENDEZ. Have you, the Administration, imposed any 

new sanctions on any of these entities? 

Mr. MNUCHIN. Again, the intent was not to have sanctions by the 

delivery report last night. The intent was to do an extremely thorough analysis. It is hundreds of pages, and there will be sanctions 

that come out of this report. 

Senator MENENDEZ. The law is pretty clear and it seems to me 

not only did you have to describe the entities but you also had to 

pursue sanctions, and I will look forward to continuing to press 

that question of the Administration. 

Chairman CRAPO. Senator Heller. 

Senator HELLER. Mr. Chairman, thank you, and Mr. Secretary, 

thanks for taking time being with us today. 

I am sure you recall last August when you came to Las Vegas, 

had a roundtable with some prominent business leaders in my 

State. And what I am pleased about is that the promises and the 

questions, the concerns that were shared at that roundtable were 

delivered 4 months later, in December, with the tax bill that did 

file. 

Last week I had a town hall meeting out of my office with NFIB, 

and we called thousands of small businesses in the State of Nevada. Hundreds were on the line. And questions were asked, specifically with this new tax bill out there, what do you anticipate 

your business practices will be for this year? Ninety percent—90 

percent of the small businesses in Nevada said that they were 

planning on expanding their business, that they are going to hire 

more employees, that they are going to provide bonuses, pay raises, 

and increase the minimum wage for their business. Ninety percent 

said they would either do parts or all or some of those business activities. 

Now, it was not a professional survey, by any means, but I was 

just pleased to know that what the White House and what your department attempted to do in December, I do believe, are being delivered on what we are seeing in the State of Nevada. 

We have had South Point Casino said it is going to double its 

2,300 full-time workers’ bonuses. We have seen Fontainebleau developers say that they are going to resume a stalled project and 

that the effects of that will be creating approximately 10,000 jobs. 

And we are seeing this across the State of Nevada and I want to 

thank you, the White House, and all your efforts of putting us 

where we are today and seeing this kind of expansion. 

So what do you anticipate economic growth being this year, from 

what you originally anticipated? 

Mr. MNUCHIN. Senator, as I have said, and, first of all, thank you 

for your comments. I think, as you know, the tax rate on small 

businesses is the lowest it has been since 1930s and we are seeing 

that in terms of a pickup in growth. 

We would expect, again, over the next several years, sustained 

economic growth of 3 percent or higher. 

Senator HELLER. I was in your office and you showed me that 

comment, written note from the President, saying that he wants 5 

percent growth. When are we going to get there? 

Mr. MNUCHIN. He has delivered high ambitions for us, as you 

know. 

14 

Senator HELLER. What positive effects do we expect to see in Nevada over the next couple of years? 

Mr. MNUCHIN. I am sorry. Could you repeat that, Senator? 

Senator HELLER. Could you tell us what positive impacts we will 

see in the next couple of years through growth and business activities in the State of Nevada? 

Mr. MNUCHIN. Well, I think one of the most important things is 

that we expect to see wage inflation. For the average America, 

their wages have really gone nowhere. It has been a great time for 

financial people, and one of the benefits we expect to see, of the tax 

bill, is wage growth. 

Senator HELLER. What do you anticipate with capital coming 

back into the country? Apple just announced a new data center expansion in Reno, and it is a $30 billion capital expenditure over the 

next 5 years. Can we anticipate, or what do you anticipate over the 

next 5 years with capital coming back into the United States due 

to this tax bill? 

Mr. MNUCHIN. We expect a lot. I had the pleasure of meeting 

with Tim Cook recently, to talk about their investment. Obviously 

they are bringing back hundreds of billions of dollar. They are paying a very large tax to do that, and they have made a major commitment to invest in the United States. 

I also had the opportunity to meet with many CEOs of international companies that, as a result of the tax bill, are now committed to bring manufacturing into the U.S., and we look forward 

to that. 

Senator HELLER. Mr. Secretary, I am pleased that you are here, 

and to the Chairman, you know, we are seeing some huge expansions in the State of Nevada. In fact, some of it is actually causing 

problems. In northern Nevada our housing starts are about 20 percent behind. With the kind of expansion that we are seeing that 

has come from this piece of legislation that was passed in December, the Jobs Act is doing exactly that, technology and technical 

companies coming to the State of Nevada. We can list them, from 

Amazon to Tesla to Apple. The list of organizations that are moving into both the northern and the southern part of the State has 

been pretty incredible. And I am just pleased that we have the 

Treasury Secretary in front of us today to expound on some of 

these issues, and I want to thank you for the time. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you, Senator Heller. Senator Tester. 

Senator TESTER. Thank you, Mr. Chairman and Ranking Member, and thank you for being here, Secretary Mnuchin. 

Are you familiar with the Marketplace Fairness Act, sales tax? 

Mr. MNUCHIN. Yes, I am. 

Senator TESTER. Will you and the President oppose creating this? 

Mr. MNUCHIN. I think the President is—fundamentally supports 

the idea of some type of sales tax across the board and we look forward to working with you and others on that. 

Senator TESTER. So what you are saying is the President would 

support a national online sales tax. 

Mr. MNUCHIN. In my conversations with the President on that, 

he thinks that there are aspects of that that he likes a lot and he 

looks forward to working with you and others on it. 

15 

Senator TESTER. Will you direct the Treasury Department to conduct a study on what I believe would be burdensome costs on small 

businesses in non–sales tax States? 

Mr. MNUCHIN. I would be more than happy to work with your 

office on that, and we think there are ways of dealing with that. 

Senator TESTER. I would love to have that conversation, to figure 

out how we could do that. 

In a previous question on entitlement reform, you had said that 

you had not made the commitment to protect Social Security and 

Medicare, that the President had. Does that mean that you are 

looking to do reductions in Social Security and Medicare? 

Mr. MNUCHIN. Not at all. 

Senator TESTER. What does that mean then? 

Mr. MNUCHIN. It just meant—again, it was a comment I was referring to, at the time. The President has made that commitment 

and I have every reason to believe he will continue with that commitment. 

Senator TESTER. And do you believe, personally, that you will 

support him in that commitment? 

Mr. MNUCHIN. Of course. Whatever the President wants to do, I 

will support. 

Senator TESTER. OK. Do you believe that a 30-year fixed rate 

note would exist without a Government guarantee? 

Mr. MNUCHIN. I think that a 30-year—well, again, I think it is 

critical that we have a 30-year mortgage. I do not believe that the 

private markets, on their own, could support it. So I think one of 

the things that we are looking at is various different solutions 

around that. 

Senator TESTER. I gotcha and I do not disagree with any of your 

comments that you talked about with the GSE potential reform 

putting private money ahead of taxpayer dollars. The question that 

I have, and it relates to a previous person who was sitting at that 

desk a few days ago, that said he believed that the 30-year fixed 

rate mortgage would occur without a Government-backed guarantee. By your answer, I think you disagree with that. Do you believe that a 30-year fixed rate, even with public dollars up front, 

you need that Government backstop at some point in time? 

Mr. MNUCHIN. Again, I am not trying to be cute. 

Senator TESTER. No. 

Mr. MNUCHIN. I think this is a complex thing. What I do believe 

is that Fannie and Freddie would not be able to exist without either an implicit or explicit Government guarantee, and if there is 

an implicit guarantee I would want taxpayers to be paid for it. So 

this is something that we are working with people and looking for 

solutions. 

Senator TESTER. It is very complicated, but I agree with you. We 

need a 30-year fixed rate mortgage in this country and I think that 

as we talk about GSE reform, and there is plenty of options out 

there on the table, that we need to make sure that we do not do 

something that puts that at risk, because it would have incredible 

impacts on housing market and affordability housing, and all of the 

above. 

Mr. MNUCHIN. I agree with that. Thank you, Senator. 

Senator TESTER. Good. Good. 

16 

Let us talk about FSOC for a second. It was put in, in Dodd– 

Frank, for nonbank financial companies—I do not need to give you 

a lecture on this. You know that. The FSOC has basically taken 

the companies that were designated and de-designated them. I assume that you did research on that and found out that they were 

not systemically risky? 

Mr. MNUCHIN. Actually, that is not the case. The only company 

that we de-designated as a result of them not being financially systemic was AIG, where they had de-levered and cut their risk—— 

Senator TESTER. OK. 

Mr. MNUCHIN. ——significantly, and that is why that judgment 

was made. That is the only company we made that judgment. 

Senator TESTER. So that decision was—the de-designation for 

Prudential or MetLife did not happen? 

Mr. MNUCHIN. Again, the decision on MetLife had nothing to do 

with the risk of MetLife. The decision was there was a recommendation as it relates to a legal case that had nothing to do 

with the riskiness, and MetLife could, indeed, be subject to designation in the future. 

Senator TESTER. OK. 

Mr. MNUCHIN. So the issue was more around a legal issue. 

Senator TESTER. And Prudential? 

Mr. MNUCHIN. Prudential, again, would follow the same issues. 

Senator TESTER. OK. So I guess the question is, could you confirm if the council is still functioning and still actively looking at 

companies, financial products, and assess their risk to the financial 

system? Are they still working? 

Mr. MNUCHIN. Absolutely. 

Senator TESTER. OK. Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you. Senator Cotton. 

Senator COTTON. Thank you, Mr. Chairman. Thank you, Mr. Secretary. 

Senator Brown started his remarks speaking of a Swiss ski resort. I presume he was referring to Davos, where the President addressed the World Economic Forum last week. To my knowledge, 

in Davos, all they do is do is have their party once a year, but in 

another Swiss ski resort, Basel, they purport to exercise great authority without accountability, at the Financial Stability Board. 

So let us address what happens in that Swiss ski resort, Mr. Secretary. I, and other Members of the Committee, recently sent the 

Administration a letter which raised concerns about the operation 

of the Financial Stability Board. We are concerned that it is more 

into a kind of global regulatory body, using its peer review mechanism as a quasi-enforcement tool to pressure U.S. companies into 

adopting global standards. I am concerned about that kind of regulatory creep into U.S. jurisdictions, especially considering how dissimilar our financial markets are from any foreign markets. For example, we have thousands of small lenders, we have independent 

asset managers, and we have an insurance industry regulated by 

our States, primarily. 

So simple question. Are FSB rules voluntary or binding? 

Mr. MNUCHIN. They are voluntary. 

Senator COTTON. Are they suitable to be used by ex-Presidents 

and U.S. courts, by regulatory agencies, or in private litigation? 

17 

Mr. MNUCHIN. Again, I am going to defer to the lawyers on that, 

but my view is not necessarily. 

Senator COTTON. Thank you. In 2015, four Chinese banks sought 

an exemption from an FSB rule related to how much capital they 

have to hold. Given that I agree with you that these rules are voluntary, it is strange that they would have to seek an exemption 

from such a rule. Can you imagine a scenario in which a U.S. bank 

or firm would have seek an exemption from an FSB rule? 

Mr. MNUCHIN. Again, the U.S. banks are regulated by the U.S. 

regulators. I think the purpose of the international standards, from 

our standpoint, is to make sure that there is a level playing field 

for our banks and that to the extent that foreign banks have a lot 

less capital, that there are certain standards that they would adhere to. But that is not legally binding. 

Senator COTTON. Thank you. Let us talk now about the FSOC 

process for identifying systemically important financial institutions, 

especially under the last Administration, as it relates to the FSB. 

In July 2013, the FSB determined that three U.S. insurers—AIG, 

MetLife, and Prudential—were globally systemic important insurers, but at that time only AIG had been designated by the FSOC 

as a systemically important institution in the United States. Prudential was not designated as a SIFI by FSOC until September of 

2013, MetLife not until December of 2014. 

Since the FSB operates by consensus, however, this means that 

for months before the FSOC designated either Prudential or 

MetLife as SIFI or predecessor at Treasury and the Chair of the 

Fed, two of the most important members at FSOC, had already determined as members of the FSB to designate Prudential and 

MetLife as globally systemically important. So I would assume that 

if a firm is systemically important on a global scale, it must be systemically important in its own home country. 

I wonder, then, how the FSOC designation process, in the last 

Administration, for Prudential and MetLife could be considered fair 

and objective. The Treasury and the Fed, after all, had already determined, as members of the FSB, that they were globally systemic. 

Do you believe that this decision was simply a show trial by the 

FSOC in 2013 and 2014? 

Mr. MNUCHIN. Senator, since I was not there I cannot comment 

on specifics, although I understand your concerns. I would say, fundamentally, I do believe that there should be better transparency 

at FSOC to the extent that companies are designated. They should 

understand why they are designated, and the basis of the risks. 

Senator COTTON. Can we be certain that we will not see a repeat 

of such a scenario in which the FSB designates a U.S. firm as globally systemically important before the FSOC designates it as systemically important in the United States? 

Mr. MNUCHIN. I would not expect that to be the case. Thank you. 

Senator COTTON. Thank you. I think this is a very important 

issue. Financial experts around the world have not exactly covered 

themselves in glory for the last 25 years. Our Nation is not just the 

United States, but in Europe have faced some turbulent political 

times, with populist candidates and parties, on both sides, right 

and left, across our Nations, defeating more conventional politicians and parties because of the failure of our country’s leaders to 

18 

deliver stable, prosperous conditions for our citizens. I think it is 

important to remember that we are countries that are governed by 

our citizens, not by our experts, certainly not by unelected experts 

at Swiss ski resorts. 

Chairman CRAPO. Senator Schatz. 

Senator SCHATZ. Thank you, Mr. Chairman. Mr. Secretary, thank 

you for being here. I want to try to get in three questions. The first 

is about the debt ceiling and the debt limit. I heard that the Vice 

President was at least open to the notion of repealing the statute 

overall. That is very attractive to me. Having been here under a 

Democratic President, now under a Republican President, and with 

a Democratic Senate and with a Republican Senate, I can say, definitively, that utilizing the debt ceiling statute as a sort of opportunity to take a policy ransom only harms our country. 

So I am wondering whether you would be willing to work with 

us on a statutory fix to just repeal this thing once and for all. I 

understand the political difficulty of doing it, because, on the 

record, you are increasing the amount of debt that the country is 

under. But the fact of the matter is there is no evidence that having a statutory requirement that we do this every 6 months or 

every 12 months or 18 months reduces spending at all, reduces the 

deficits at all. 

So I am wondering whether you could work with us, and we especially, frankly, need a little political support on the Republican 

side. I know they want to get rid of this as badly as we do, but 

they need cover from the Administration. We will need to work 

with you on this if you are open to it. 

Mr. MNUCHIN. I have spoken to both the President and the Vice 

President and we are very open to bipartisan solutions to figure out 

something as an alternative to the current system that I think 

many of us would agree does not work well. 

Senator SCHATZ. Thank you. Your comments on the dollar in 

Davos, I think, surprised a lot of people, raised a lot of eyebrows. 

I just want to give you an opportunity to expand on them or clarify 

them, if you wish. 

Mr. MNUCHIN. Sure. So, thank you. I have tried to clarify this 

now many times. This was clearly a situation where, at a press 

gaggle, I made a comment that had three parts to it, that was extremely balanced and very specific. It was not anything new. And 

the press took one part out of this and kept on playing it over and 

over. 

So let me be very clear. I absolutely support a long dollar, a 

strong dollar, as being in the long-term best interest of the country, 

and I strong support—we have a free currently market that we do 

not intervene in and have rely upon the most liquid market in the 

world. So the short term is not a concern of us and it was no way 

intended to talk down the dollar, whatsoever. 

Senator SCHATZ. Thank you. Yesterday the Administration declined to impose sanctions required under the bipartisan Russia 

Sanctions Law that passed with overwhelming majorities from the 

House and the Senate. It is not clear which parts are waivable and 

which parts are not. We are still doing the analysis. But what is 

clear is to the extent that there is discretion to waive or delay, the 

19 

Administration has to have factual findings. And so can you tell us 

what those findings are? 

Mr. MNUCHIN. Senator—and will repeat this again. I think that 

is a very unfair characterization of what we have done, OK, as I 

have said. There was an extraordinary amount of work that went 

into this. The classified report is hundreds of pages. I look forward 

to Congress reviewing this, OK? Our sanctions going forward will 

be based upon a lot of the work that the intelligence community 

did. It was our interpretation that we had to deliver the report to 

Congress yesterday, which we did and we fulfilled. Again, I want 

to commend a lot of career professionals, the Treasury—— 

Senator SCHATZ. You are saying you did not waive or delay any 

sanctions? 

Mr. MNUCHIN. We did not waive or delay. There will be, as a result of this work, we are looking at—— 

Senator SCHATZ. They are just not implemented yet. 

Mr. MNUCHIN. Again, that is—— 

Senator SCHATZ. That sounds like a delay. 

Mr. MNUCHIN. No, that is not a delay. What it was was, I think, 

as you know, our sanctions are based upon an enormous amount 

of intel work. There was an enormous amount of work that went 

into creating this report, and that is what we did. And now we will 

take the basis of that report and look at, kind of, as we do in the 

normal course, where it is appropriate to put sanctions. 

Senator SCHATZ. OK. 

Mr. MNUCHIN. So this should in no way be interpreted as we are 

not putting sanctions on any of the people in that report. 

Senator SCHATZ. OK. I have got it. And one final question. I will 

take it for the record. On SIFI designations I am trying to understand—the underlying statute, right, is about the financial stability 

of the system, and you seem to be introducing a new criteria for 

consideration, which has to do with the burden on the institution 

that is designated systematically significant. And I am trying to 

figure out why that would matter under the policy objectives of the 

law itself. If we are trying to figure out whether something is systematically significant, it actually should not matter whether there 

is a burden on the institution designated. If we wanted to provide 

you with that discretion, we would have written the law accordingly. And I will just take that for the record. Sorry for going over. 

Chairman CRAPO. Thank you. Senator Corker. 

Senator CORKER. Thank you, Mr. Secretary. Thank you for being 

here. As you know, we talked a lot about the tax reform, a great 

deal, in our office. I will have to say I was surprised, I saw Christine Lagarde at the event last week and I went there because of 

my foreign policy activities, and I will say that she had revised upward world economic growth because of what the United States has 

done, which was quite shocking to me, actually, and to see what 

other countries are doing in response to what we did with tax reform is pretty amazing. So I do want to say it seems to be having 

an impact far beyond what we thought it would have, just on our 

own country. 

On the Russia issue, just to my friends, I am very vested in this. 

I was a big part of this passing, working very closely with Crapo 

and Brown. I actually think what they have done is exactly the 

20 

right thing. We gave a period of time to warn people about doing 

business with Russia. That was the purpose of it. Our diplomats 

were involved in that. They did keep numbers of transactions from 

occurring. They have put together this report and now the process 

is that they will begin sanctioning. 

So just for what it is worth, as someone, as you know, that is 

more than glad to offer criticism if I think it needs to be offered, 

in this particular case I do think they have handled it in the way 

that it was supposed to be handled. I do look forward, though, to 

sanctions being put in place for those violators. 

On the issue of housing finance reform, which Senator Crapo 

brought up earlier, I know that you have been very involved in this 

in the past, understand it well. Let me just go through a series of 

questions quickly. 

The conservatorship that we now have is unsustainable. Is that 

correct? 

Mr. MNUCHIN. Yes, I believe so. 

Senator CORKER. And if we have a new model of housing finance 

reform—and there are people on both sides of the aisle that are 

working together and have worked together in the past—if we have 

a Government guarantee in the future, would it not be your preference that that be at the actual security level and not at the entity level? 

Mr. MNUCHIN. That would be my preference. 

Senator CORKER. So I think most of us understand, whereas as 

last time, taxpayers had to bail out, with hundreds of billions of 

dollars, the entities. What we really care about is the individual 

bars and that their securities are guaranteed. Is that correct? 

Mr. MNUCHIN. That is what would create a sustained liquid market. 

Senator CORKER. And I assume that if we were able to pass 

something here that you would want significant private capital in 

advance of an explicit guarantee, where if we are issuing guarantees, whereas was not the case in the past, these whatever entities 

are actually paying for those, so the Government is getting something for the eagle stamp, which is causing that 30-year mortgage 

to be guaranteed. Is that correct? 

Mr. MNUCHIN. That is correct. So taxpayers would be compensated for any unlikely risk. 

Senator CORKER. And I assume if we were to put in place a new 

regime, we would want to do what we could to end the too-big-tofail situation that we have today. Is that correct? 

Mr. MNUCHIN. I believe so. 

Senator CORKER. OK. So let me just—in the event we do not act, 

as you know we passed something in years past called Jump Start, 

which said that we could only revise these entities through a process of us acting. That ended December 31st at midnight. So now 

the Administration, if they so chose—and I think you have committed to the fact you are not going to leave things as they are. 

What would be your options, if we do not act—and I hope that we 

will? I mean, what would be your options with these entities? 

Mr. MNUCHIN. There are certain administrative options that we 

have. These entities are very complicated. I would just say my 

21 

strong preference would be to work with Congress on a bipartisan 

basis to reach a long-term solution. 

Senator CORKER. Yeah. But in the event this great bipartisanship does not survive and we do not get this done—it is a very complicated topic—what are some of the steps that you might take? 

For instance, I know that in past Administrations the notion of 

putting these entities into receivership and moving forward with a 

clean slate has been laid out. Is that something that you have 

thought about? 

Mr. MNUCHIN. Again, we have thought about and considered lots 

of things. I do not really want to go through, in this format, publicly, all the different alternatives. You and I have spoken. I would 

be more than happy to come see you. But there are lots of alternatives. I just want to be careful, given that they do have different 

market impacts. 

Senator CORKER. Well, I appreciate that and I do appreciate your 

leadership on this leader and extreme knowledge. And I would just 

say that, Chairman, I know this is one of your goals. I actually believe that we have got an opportunity to do something—it is a very 

complex topic—that matters. We have an Administration that is 

willing to work with us. And I think, for the first time, we have 

an opportunity, because of just all the things that have occurred, 

that we have a lot of interest out there. Let us face it. I mean, we 

have people who have shareholder—we have shareholders in these 

entities today. And I understand some of the rubs that have existed 

there. 

I think we have got an opportunity, though, to really deal with 

all of the interest in a manner that is fair, but also move our Nation ahead in a manner that we do not have these two behemoths 

that basically are 100 percent, right now, backed by the Federal 

Government, and I hope we will get there. 

Chairman CRAPO. Thank you, Senator. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. So after the 2008 

financial crisis, Congress created the Financial Stability Oversight 

Council, in order to monitor the risks in the financial system, and 

one of FSOC’s main duties is to ‘‘identify gaps in regulation that 

could pose risks to the financial stability of the United States.’’ 

Now, Mr. Secretary, you are the head of FSOC. Despite that role, 

you appear to support a bill that this Committee has passed that 

would roll back the rules on banks between $50 billion and $250 

billion in assets. That is about 30 of the 40 largest banks in this 

country. 

So what I want to understand today is why you are so confident 

that that would not pose a risk to the financial stability of the 

country. So, Mr. Secretary, how much does these 30 banks hold, 

collectively, in assets—deposits, securities, and so on? 

Mr. MNUCHIN. Well, first of all, I think that we have very significant regulators that will continue to regulate—— 

Senator WARREN. But that is not my question. Excuse me, Mr. 

Secretary. I just asking you a straightforward question. We are 

talking about changing the rules—— 

Mr. MNUCHIN. Yes. 

Senator WARREN. ——that 30 of the 40 largest financial institutions would lose their designation, automatic designation, as sysVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
22 

temically significant financial institutions. And I am just asking 

you, that 30, how much do they collectively hold in asset? 

Mr. MNUCHIN. It is a large number. 

Senator WARREN. A large number. 

Mr. MNUCHIN. You have it. I do not have it in front of me. 

Senator WARREN. How about $4 trillion? 

Mr. MNUCHIN. It is a large number. 

Senator WARREN. How about $4 trillion? Does that sound about 

right? 

Mr. MNUCHIN. Yeah, that is correct. 

Senator WARREN. OK. And that is about what portion of the 

GDP? 

Mr. MNUCHIN. Again, that is higher—— 

Senator WARREN. That is about a quarter of the entire GDP. 

During the 2008 financial crisis, do you know how much the taxpayers had to pay out in bailout money to those 30 of the 40 largest banks in the country, in order to keep them up and floating? 

Mr. MNUCHIN. Again, I assume you have that number there too, 

so I do not have it in front of me. 

Senator WARREN. It is $50 billion, nearly $50 billion. 

So I am a little surprised that as the head of FSOC and the Secretary of the Treasury that you would support a bill without knowing how much you are actually reducing the regulation on it in this 

giant financial institutions. These banks hold the equivalent of 

about a quarter of the entire economy. They got $50 billion in bailout money, less than a decade ago, and yet you think we can roll 

back, reduce our oversight of them now. 

Now, so let me ask. Do you think that these $50 billion to $250 

billion banks cannot pose a risk to the financial system? 

Mr. MNUCHIN. Again, there could be banks, OK, that do pose a 

risk and could be designated. The purpose of this is, many of those 

banks are large community, regional banks that—— 

Senator WARREN. Excuse me. I am sorry. Are you saying that a bank of $200 billion is a community bank? 

Mr. MNUCHIN. No. That is not what I am saying. I am saying 

they are regional banks, OK. 

Senator WARREN. And are you saying regional banks cannot pose 

a risk to the financial system? 

Mr. MNUCHIN. No. I did not say that. What I said is that many 

of those banks do not, OK. This is something that I believe there 

is bipartisan support for. 

Senator WARREN. And my understanding is—— 

Mr. MNUCHIN. Again, I think—— 

Senator WARREN. ——if they do not pose a risk, you can always 

alter, under the current rules, how you regulate them. The question is the immediate designation so that you keep them on the 

watch list. 

You know, it is clear to me that these banks do pose a risk to 

the economy, and that is the reason that Congress said they should 

be on a watch list. 

But let me take a specific example. In the years leading up to 

the financial crisis, Countrywide Financial issued one out of every 

five mortgages in the country. It did more subprime and teaser-rate 

mortgages than almost anyone, and it turned around and sold 

23 

them to Wall Street banks. It basically created all these grenades, 

pulled the pins out, threw them into our economy, and helped blow 

up the American economic system. At the height of its impact on 

the financial system, about 18 months before the crash, Countrywide was a $200 billion bank, which is actually smaller than some 

of the banks that would be deregulated by this bill. 

So my question is, Mr. Secretary, why would you be so eager to 

take these banks off the watch list, to deregulate it, and make it 

easier for them to follow whatever practices they want to follow? 

Mr. MNUCHIN. First of all, Senator, I share your concerns about 

Countrywide. I think there was lots of mistakes that went on there, 

particular with the mortgages that they underwrote and lots of 

blame to go around. 

Again, we believe that these entities, below this side, can be regulated by their primary regulators. But let me just say, this is 

something that requires bipartisan support and it is up for Congress to decide whether they want to raise the limits. 

Senator WARREN. Well, thank you, Mr. Secretary, but as I understand it, you have been pushing on raising the level from $50 billion to $250 billion. If you think that means that we will be taking 

on more risk in the system—and I think that is what it means— 

I wish you would tell us so. 

You know, the banks have record profits right now. They are rolling in money. They just got a giant tax giveaway. They have got 

even more money. They do not need another chance to blow out 

this economy. 

Thank you, Mr. Chairman. 

Chairman CRAPO. Senator Toomey. 

Senator TOOMEY. Thank you, Mr. Chairman, and Mr. Secretary, 

thank you for joining us once again. Let me just stay on this topic, 

since my colleague from Massachusetts has brought it up. I think 

an important point that needs to be stressed here, and I am curious to see if you agree, Mr. Secretary, but these banks that are $50 

billion to $250 billion, and under this bipartisan regulatory relief 

measure, would no longer be automatically designated as SIFIs, 

they are extremely heavily regulated anyway. Outside of a SIFI 

designation, absent a SIFI designation, is it not true that all of 

these banks are subject to a huge raft of regulations that has nothing to do with the SIFI designation? 

Mr. MNUCHIN. That is true. 

Senator TOOMEY. Right. 

Mr. MNUCHIN. In many cases they are probably regulated by as 

many as four different entities. 

Senator TOOMEY. Right. Multiple regulators. And is it not also 

true that these banks now have huge capital standards, the industry is generally extremely heavily capitalized. Is it not also true 

that they have very high liquidity requirements, new requirements 

that did not exist prior to the crash, and is it not also true that 

most of these entities engage in pretty ordinary, plain vanilla banking activities as opposed to the more exotic, complex, and interconnected international business of the truly enormous banks? Are 

those all relative fact? 

Mr. MNUCHIN. They are all true statements. 

24 

Senator TOOMEY. Well, I think those are the reasons why it is 

perfectly reasonable to not automatically designate, for yet another 

regulatory overlay, those banks that do not create this systemic 

risk. 

Let me briefly thank you and congratulate you for your work and 

that of your team on tax reform. You folks in your organization 

were terrific to work with, and the collaboration between the Administration and Congress allowed us to produce something that is 

enormously constructive. I think you mentioned, in response to a 

question, that it is the view of Treasury that we are likely to have 

approximately 3 percent economic growth for some time. Did I understand that correctly? 

Mr. MNUCHIN. That is true, and I just want to particularly thank 

you and Senator Scott and others who worked very closely with us 

on the tax bill. 

Senator TOOMEY. Well, thank you. I would just point out that the 

Congressional Budget Office forecasted, prior to the tax reform, 

that our economic growth would average 1.9 percent. We are now 

at approximately 3 percent before the tremendous benefits of this 

tax reform have fully kicked in, and we are already at the 3 percent. If we sustain anything close to 3 percent, just for the record, 

the Federal Government will take in much more revenue as a result of a bigger economy than we were projected to take in with 1.9 

percent growth. Is that true? 

Mr. MNUCHIN. That is very accurate. 

Senator TOOMEY. And I think it is a very important factor. 

I want to touch briefly on the discussion on mortgages. I am 

eager to see us make some progress on this. I would—I am pleased 

that there seems to be a consensus that we should have private 

capital in front of taxpayer risk on guarantees. 

I would disagree with your view, but this is understandably a 

subjective matter, that a Government guarantee is a necessary precondition to have a liquid 30-year mortgage. As you know very 

well, the average life, or the duration, however you choose to measure it, of a 30-year mortgage is much less than that, typically depending on interest rates and how you look at it, anywhere, maybe 

7 to maybe 12 years is about right. And we have a number of other 

nonguaranteed 30-year securities that play a very important role 

in the capital market. 

So I would just urge us to consider what I think is a very likely 

probability that we could have a very robust 30-year mortgage 

market without requiring the taxpayers to be at risk. 

Very quickly—I am running out of time—Mr. Chairman—Mr. 

Secretary, North Korea, we are seeing stories now, in yesterday or 

today’s Wall Street Journal, reports behavioral changes by the regime in North Korea that might be linked to the sanctions that are 

making fuel, for instance, more difficult for them to obtain. I hope 

that is true. I think that strikes me as constructive. But I and my 

colleague on the Committee from Maryland, Senator Van Hollen, 

have legislation called the BRINK Act, which I think you are aware 

of, and which your staff has been very helpful. This would require 

additional round of sanctions against financial institutions that are 

facilitating business with North Korea. I think this is very imporVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
25 

tant and I hope you will support our effort to get that done. It came 

out of this Committee with a unanimous vote, I believe. 

Mr. MNUCHIN. Thank you. 

Chairman CRAPO. Thank you. Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman, and thank you, 

Secretary, for coming. Just a couple of kind of follow-on points. Obviously, no one wants to put the financial institutions in jeopardy 

or in any way limit the ability of the economy to thrive. I think it 

is critically important that we make the public understand that we 

simply went in the bill from designating automatically to basically 

allowing the regulators to designate some entity as a SIFI. We 

have not abandoned that process, and so I want to make that point. 

I also want to make another point. I think it is fascinating when 

people hear CBO statistics but they do not want to take all of CBO. 

It is called cherry-picking. Cherry-pick the statistic that most 

makes your argument, whether it is we are only going to have a 

1.9 percent projected growth when the growth has been over 2 percent for a prolonged period of time. 

So I want to talk a little bit about CBO projections, because the 

love fest that we are having here needs to have a little discussion 

about CBO forecasts on deficits, which, as you know, Moody’s has 

recently issued a report on what they think are the econometric 

considerations and results of the tax bill. It is not exactly consistent with the story that we are hearing today. So CBO forecasts that the Administration’s $1.5 trillion tax bill 

will send deficits to 4.6 percent of gross domestic product by 2020, 

versus 3.6 under the forecast made last July. So, you know, talking 

about they were forecasting lack of growth. Obviously, the forecast 

today is that we are growing the debt. 

The publicly held debt, which doubled as a shared GDP during 

and after the recession was projected, before the tax cut, to rise 

from 78 percent this year to 91 percent over the coming decade. 

The CBO now expects the tax change to send this ratio to 97.5. 

You know, if we are going to use CBO statistics, let us use CBO 

statistics. And this is—it is like we handed a credit card, and at 

the same time we handed a credit card, with debt on it, to the next 

generation, we are failing to fix over 50,000 bridges. That is another way to hand debt and deficit on. 

And I know the Administration is looking at an infrastructure 

plan that could, in fact, be adopted here. It is not going to be robust enough. Right now, if you look at the Corps of Engineers, the 

Corps of Engineers has a queue of projects. If they do not get another dime about what they are doing, it is going to take at least 

17 years, in current dollars, to finish those projects. 

So we have now made a choice. We have made an economic 

choice and we have made an economic gamble. But let us not pretend that we have not taken a risk here, that this is all rosy. Do 

not pretend that we are being fiscally responsible every day that 

we are here. 

And so I am going to leave it at that. I want to talk about something that hits people every day, and that is the insecurity and 

multi-employer pensions. We have got a plan, which the Ranking 

Member has ably presented, the Butch Lewis plan. It is incredibly 

important to thousands of North Dakotans, thousands of people. 

26 

The President promised to help exactly these people, who now are 

being threatened with dramatic cuts in their pensions. Will this 

Administration support the Butch Lewis bill and help us get it on 

the spending package? 

Mr. MNUCHIN. First of all, let me thank you for your comments 

on the regulatory issue, because you are right, it does not preclude 

the regulators from designating people. I think that was an important point. 

On the multi-employer pensions, it is a very complicated issue. 

I have had the opportunity to study this the last year, and meet 

with, actually, workers on this issue, and we look forward to working with you on different solutions. 

Senator HEITKAMP. But what is your plan? These are exactly the 

people the President promised that he would represent, the forgotten people. And we stand alone on this side, trying to fix this. We 

have not gotten a lot of help from the other side of the aisle. We 

need you guys. We need the Administration that has made a commitment to stand up for these workers who are threatened with, 

in my case, some 70 percent reduction in their pensions. That is 

unfathomable. That is unspeakable. 

And so you can you help us, and what is your idea? If you do 

not like Butch Lewis, what is your idea? But let us get this done. 

Mr. MNUCHIN. Well, we look forward to working with both parties on this. 

Senator HEITKAMP. No. That is not—you know, I hear that all 

the time. ‘‘I look forward to working with you.’’ You know what? 

This problem has been hanging out there. We have a solution on 

the table. We need a result. It is not enough to have a process. We 

need a result for these pensions. And I want to thank the Ranking 

Member for the excellent work that he and his staff have done on 

this. We are proud to stand with you. And if that is not the solution, tell me what is. But these folks need to be made whole. 

Chairman CRAPO. Senator Scott. 

Senator SCOTT. Thank you, Mr. Chairman. Secretary, good to see 

you again. Let me say, at the beginning, as Senator Toomey did as 

well, thank you for your hard work on the tax reform package. You 

have helped to accomplish something that has not been done in 

over 30 years. And specifically, thank you for helping the IRS get 

the new withholdings done in time for, hopefully, the February 

15th paychecks. My understanding is that somewhere around 8 out 

of 10 employees will see more money in their take-home pay. That 

is significant progress for folks who are living paycheck to paycheck. They are going to have a greater appreciation in a tangible 

way of the success of this Administration and, frankly, of your 

leadership. So thank you for that. 

I would also like to say thank you because between the President’s Executive order last spring and the Treasury’s report last 

November, the Administration has made solid progress on the issue 

of nonbank SIFI designations. But imagine getting pulled over for 

speeding in a neighborhood without any speed limit sign. It is kind 

of how you get designated a SIFI, from a nonbanking perspective. 

Then imagine the ticket does not have any instructions on how to 

pay it. That is how you find your way out of being a SIFI. 

27 

And I would like to make sure that folks back at home who are 

not involved in the financial industry at all understand and appreciate the complexity of something that is as profound as SIFI designation, but to do so in language that we all understand and appreciate. And that is just how dizzying this process is for the average person to understand and appreciate, but the impacted on 

those folks, because of designations, is significantly higher costs in 

doing business. 

There should be clarity around what gets you labeled as a SIFI 

and what gets you off of being designated. Without a doubt, FSOC 

should release public explanations for its designations. 

So my question for you, and I know that you agree with much 

of this, is what specific steps are you and FSOC taking to bring 

about these needed reforms? 

Mr. MNUCHIN. Thank you, Senator, and I thought that was a 

very good and interesting analogy. So I share your view on transparency. It does not mean that people cannot get tickets, but we 

have got to post the speed limit. 

So we are working with the Committee on looking at guidelines 

and trying to figure out how we can have more transparency in the 

process. 

Senator SCOTT. Thank you. What is the level of involvement of 

other Council members in recent FSOC decisions? 

Mr. MNUCHIN. Very active. 

Senator SCOTT. Good. There have been some questions about 

that and I think it is important for us to recognize that FSOC is 

still meeting, still actively involved in the process. 

Mr. MNUCHIN. Absolutely. We have had public and private meetings and there has been robust discussion at the principles and the 

staff. A lot of work went into what has been done this year. 

Senator SCOTT. Thank you. 

Next question. Not Congress, not you, but the district court now 

requires a cost benefit analysis, which I support. My question is 

can you walk me through what a FSOC cost benefit analysis will 

look like, and what is taken into consideration? 

Mr. MNUCHIN. We are working on that and as we develop those 

thoughts we look forward to coming to your office and reviewing 

with them before they are implemented. 

Senator SCOTT. That will be an important part of the process to 

understand it before it happens. Thank you. 

Last question, or actually just a statement. Last May, I asked 

that you reevaluate the need to include property and casualty insurance premiums under FATCA reporting requirements. In October, Treasury issued a priority guidance plan that included doing 

just that. 

I appreciate your responsiveness and I hope I can count on the 

same level of responsiveness as we work with you on Kroll Bond 

Rating Agency’s inclusion in the IFC’s investor guidelines. Thank 

you. 

Chairman CRAPO. Senator Cortez Masto. Good timing. 

Senator CORTEZ MASTO. I did time that perfectly. Thank you. 

Thank you for being here, Secretary. Interesting morning. 

So let me start off, just a comment. I have heard some of the conversation back and forth and I think in response to one of my colVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
28 

leagues you made the comment that it has been a great time for 

financial people. That concerns me. There are many people across 

this country who are still struggling, and that is where we should 

be looking, those working families. 

The other thing I want to point out, I am from Nevada. We had 

the worst recession we have ever seen. We are still coming out of 

it. And, in fact, there was a report that came out that shows that 

Nevada’s economic forecast is doing very well. Experts are bullish 

on Nevada’s overall economy this year, anticipating continued recovery from the recession and growth. They cite four key markers 

for that outlook: wages, because the average private weekly wage 

for Nevada workers peaked in October, representing a 2.3 percent 

year-over-year; construction activity, construction now is the Silver 

State’s fastest growing sector; discouraged workers, the number of 

discouraged workers, those who left the labor force because the 

could not find a job has dropped; and Nevada’s GDP has show significant continual growth over the past 5 years. That is an incredible statistic, considering we were the hardest hit in 2007, because 

of the economy. 

What I just cited to you was a report that came out in January 

1, 2017, before you or President Trump were even in office. So the 

comments that I am hearing today that somehow this tax reform 

bill contributed to where we are today in Nevada to me is a misnomer, and it does not give respect to the Governor, and every single legislator, and every single leader, both Republican and Democrat, in the State who has worked hard for Nevada to come out of 

recovery. 

With that said, I am hoping the actions that you take continue 

to benefit what we are doing in Nevada and I look forward to working there. But I think it is questionable now where that is going 

to lead in the year to come. 

The other area that is very difficult in the State of Nevada right 

now, and we have been having this conversation, is affordable 

housing. Half of renters pays more than 30 percent of their income 

for rent and utilities. One in four renters pay more than half of 

their income for rent. Only about 5 million families live in public 

housing or benefit from Section 8 or other HUD- or USDA-assisted 

housing programs. For every low-income family who gets some 

housing assistance, four families receive no housing assistance at 

all. 

So while I am relieved that the low-income housing tax credit 

and private activity bonds remain—they support 90 percent of all 

affordable housing built in our Nation—their value has gone down. 

Some say this could result in 200,000 fewer affordable units built 

in the next decade. Wages are stagnant or increasing modestly but 

the rent is going up. 

When will the Treasury address the affordable rental housing 

crisis? 

Mr. MNUCHIN. It is an important issue and we look forward to 

working with you on it. 

Senator CORTEZ MASTO. OK. That seems to be the standard answer for everything. 

29 

Let me ask you this. Will the President’s proposed infrastructure 

bill including funding to invest in our affordable housing infrastructure? 

Mr. MNUCHIN. I think that when the President releases it there 

will be the opportunities in affordable housing, as in other things. 

Senator CORTEZ MASTO. Are you working with the President how 

to address that—those needs? 

Mr. MNUCHIN. Not specifically affordable housing but yes, the 

overall infrastructure, and that can be part of it. 

Senator CORTEZ MASTO. When will Treasury and HUD begin 

publishing the monthly housing scorecard again? Apparently there 

has not been one issued in nearly 2 years. 

Mr. MNUCHIN. I was not aware of that but I will look into that 

and get back to you. 

Senator CORTEZ MASTO. OK. And then let me just say, I am disappointed that the Treasury Department killed the myRA program. 

Half of workers do not have access to a retirement account at work. 

The national savings rate is going down. How does the Treasury 

Department plan to help more people save for retirement? 

Mr. MNUCHIN. Again, that is actually something I looked at very 

carefully, and it really—it has—the desire or the reason to get rid 

of it had nothing to do with our view on savings, and we do want 

to. It was just the cost of maintaining it, there were very, very few 

people who were using it, with a staggering cost, and we would 

rather reallocate those—that money to other ways that we can help 

people in saving and retirement. 

Senator CORTEZ MASTO. So do you have a program that you are 

looking at right now? 

Mr. MNUCHIN. We moved those people into the private sector and 

we are looking at different programs to encourage private solutions, yes. 

Senator CORTEZ MASTO. OK. I would like to know, if you would, 

in the future, as you develop your programs and what you are looking at to make sure you are reaching out to my staff and working 

with us as well. 

I noticed my time is all up—is basically up, so I will submit the 

rest of my questions for the record. Thank you. 

Chairman CRAPO. Thank you. Senator Tillis. 

Senator TILLIS. Thank you, Mr. Chairman, and Secretary, thank 

you for being here. 

I want to go back. You know, we are 10 years past the financial 

crisis. We now have a bipartisan bill that is intended to provide 

regulatory relief for community banks and regional banks. Can you 

tell me a little bit about why you think that is important and what 

benefits are ultimately accrued to businesses and customers of 

those banks? 

Mr. MNUCHIN. Sure. First of all, I believe that too many of the 

banking assets are held in the large banks, and one of the ways 

to distribute risk is to allow the smaller banks to continue to grow 

effectively and not have them burdened by unnecessary regulation. 

So I think that, one, this accomplishes more diversification in the 

banking, and I also think that lending is very important, in terms 

to growing the economy, and in many cases the local bank, the 

30 

community bank, the regional bank has those relationships. They 

know how to lend and we want to encourage them to lend. 

Senator TILLIS. Do you think that the people wanting to startup 

a bank—we have got a very unhealthy, I think, situation in the 

banking ecosystem today, and that is the number of de novo banks 

that have come up. It is a very disturbing trend in North Carolina. 

We have lost about half of ours since the financial crisis, in a State 

that had a vibrant environment before, in North Carolina. Do you 

feel like a part of the reason why we are just not seeing that churn 

on banks is, at least in part, attributed to the fact that they have 

a regulatory hurdle that they would have to climb, that makes it 

difficult for them to make the business model work? 

Mr. MNUCHIN. I do. 

Senator TILLIS. I want to ask you, also, about—you know, with 

tax reform, if you were—let us say, in December, we failed to pass 

tax reform, and so the current tax regimen was going to be the regimen for the next 10 years. Where do you think we would ultimately be, economically, over a 10-year period? 

Mr. MNUCHIN. I think we would be substantially lower than we 

are and probably in the low twos. 

Senator TILLIS. One of the things that we have seen, it is true 

that the economy was turning. Some States were doing better before the President took office. I think we saw significant increase 

last year largely attributed to a calming regulatory overreach, and 

this year I think it will be a combination of continuing that regulatory reform, right-sizing regulations, and of the benefits of tax reform. 

Now as businesses start looking ahead and looking at how the 

tax cuts affect their business, we have seen hundreds of businesses 

announce pay raises. We are seeing de facto minimum wages being 

created in the banking industry and the retail industry as a result 

of announcements that have been made by large organizations. We 

have seen pay increases. We have seen bonuses. We have seen 

plans for capital deployment. I do not think that there is any doubt 

that the vast majority of those occurred as a result of the tax plan, 

and they would not have occurred if we had not passed that to the 

President’s desk. Do you agree with that? 

Mr. MNUCHIN. I do. 

Senator TILLIS. Now there is one piece that I think has been 

criticized that I would like for you to talk a little bit about, and 

that has to do with stock buy-backs. Some people here think that 

using that—some of the resources that come through tax reform to 

do stock buy-backs is a bad thing. I do not necessarily agree with 

that, in many cases. 

Can you talk about what actually occurs when a company does 

a stock buy-back, what they are likely to do with the resources? 

Mr. MNUCHIN. Sure. It is really just a reallocation of capital. So 

companies have a decision. They can reinvest money in their business, they can pay dividends, or they can buy back stock. And to 

the extent that they buy back stock or they pay dividends, that is 

capital that flows out to investors that can be recycled and put into 

other businesses. So it is a natural flow of funds from businesses 

that have excess capital to businesses that need to raise capital. 

31 

Senator TILLIS. So it also ultimately contributes to an increase 

in the GDP and economic growth. 

Mr. MNUCHIN. Yes, it does. 

Senator TILLIS. The last question I have for you actually relates 

to what you are going to do, as Secretary, for regulatory relief within your own rulemaking authorities. Can you give me some sense 

of what your priorities are over the next year or so, in terms of 

areas that you think—through the rulemaking process, not through 

congressional action—that we could see some of the—I know you 

cannot get into specifically what you want to do, but in the areas 

of regulations that you think that need to be looked at and may 

be right-sized, what can we expect? 

Mr. MNUCHIN. Again, we will look across the board in the financial area. 

Senator TILLIS. And, Secretary, I appreciate you being here. I actually appreciate you offering to work with us and partner with us 

and do—on a bipartisan basis, come up with good outcomes that, 

on a bipartisan basis, like the Banking Regulatory Relief Bill. I see 

one member who was here who worked with us to get that out of 

the Committee and to the Senate and hopefully to the House. We 

look forward to working with you on a continuing basis, on a bipartisan basis, to get regulations right and get the economy moving 

even more quickly than it is at this time. 

Thank you. 

Chairman CRAPO. Senator Jones. 

Senator JONES. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for your appearance here today. 

I want to go back, though. I want to defer a couple of my questions at the top of my time here to go back to Senator Heitkamp’s 

questions concerning the pension bill and the Ranking Member’s 

bill that is pending now, which I told him I was going to sign on. 

That is an important bill for folks in my State, and I think we can 

agree that there is a looming crisis in that. 

I appreciate your answer about, you know, looking forward to 

working with us, but I would kind of like to start that process now. 

And, if you could, just give me your ideas, give me your thoughts 

about what do—you have looked at the bill. What about the bill 

was OK, anything, and are there other things that we need to be 

looking at to try to solve that crisis? 

Mr. MNUCHIN. First of all, thank you, and I would be more than 

happen to meet with you. Again, this is a significant problem. I do 

not believe there is a simple solution. It is complicated. I would be 

happy to go through in aspects, but this is something that I look 

forward to working with Senator Brown and Chairman Crapo and 

figure out what are the various different solutions. 

So we have a lot of resources at Treasury. I think, as you know, 

one of the things we look at is restructurings. We have a very prescribed formula of what we can do and what we cannot do. But as 

I said, I am aware of the problem that exists. 

Senator JONES. And you would acknowledge that it is a significant problem for those that have those pensions. 

Mr. MNUCHIN. I would say it is a significant problem. I do not 

know what the—it is not one with a clear, simple solution. 

Senator JONES. Yes. 

32 

Mr. MNUCHIN. But we look forward to working with the Committee. 

Senator JONES. All right. Thank you, Mr. Secretary. 

The Small Business Jobs Act of 2010 was created to support a 

lot of local small businesses and to help accelerate growth. That 

was an important initiative for Alabama. I think we created a 

number of jobs; we got $31 million. But that has now—round one 

has effectively run out. Would you support a reauthorization of the 

SBCI? 

Mr. MNUCHIN. Not necessarily but I would not rule it out. Again, 

it is something that I would work with Congress and we need to 

look at more carefully. 

Senator JONES. All right. 

I was not here when the tax bill was brought to the floor and 

passed, and I am sure you may have talked about this ad nauseum, 

and I apologize. But you mentioned earlier that the tax bill would 

help create wage inflation and help wage growth. That is a big 

problem, again, in my State. The median income is $47,000 a year, 

which is below all but a handful of States. In some counties, that 

median income is below $30,000 a year. 

Could you just explain how the tax bill, as it exists right now, 

is going to help in places like Alabama, and particularly those rural 

areas where the median income is $27—, $28,000 a year? 

Mr. MNUCHIN. Sure, and that is a big concern of the President, 

as I commented, that workers have not had the type of raises that 

they should have. I would be happy to go through with you—the 

Council of Economic Advisors put out a piece that showed that the 

average would be about $4,000. We believe that as there is significant more investment into business, that that will lead to wages 

going higher. 

Senator JONES. All right. 

The other thing that is coming up, and we are talking—I know 

the President will be talking about tonight, as has been mentioned 

here, is infrastructure, and a huge infrastructure bill. We are also 

talking about immigration and border security, where the Administration is asking for $25 billion in this year to be placed for border 

security, which generally everyone wants better border security. 

My concern, though, is that the CBO reports that talk about the 

debt that is being created by that tax bill, $1 trillion over 10 years, 

and I know we are going to try to tap in, as Senator Shelby said, 

some private investment. But private investment in the infrastructure is not going to help in my rural areas. You are not going to 

have a toll road in Dallas County over one bridge, or certain roads 

there. 

How are we going to pay for all of this? How are we going to pay 

for the $25 billion? How are we going to pay for the infrastructure 

if we are having to wait to catch up? And hopefully the tax bill will 

do as exactly what you said and will grow the economy and we will 

get more money coming in. But how are we going to pay for that 

infrastructure now and the border security? 

Mr. MNUCHIN. Well, I think, as you know, we do not agree with 

the CBO analysis as to—on the tax bill. We do think the revenues 

will go up significantly. On the infrastructure, it is going to have 

to be a combination of, as I said, Federal dollars, State dollars, and 

33 

private dollars. I agree with you completely. There are many, many 

infrastructure projects that are not going to be privately funded. 

Senator JONES. All right. I see my time is up. Thank you, Mr. 

Chairman. 

Chairman CRAPO. Thank you. Senator Rounds. 

Senator ROUNDS. Thank you, Mr. Chairman. Good morning, sir. 

Mr. MNUCHIN. Good morning. 

Senator ROUNDS. I am just curious. First of all, I appreciate the 

time that you have been in the chair already so I am going to try 

to be brief and not repeat a lot of the items that have been laid 

out today. 

But, as you know, on January 18th, the FSOC and MetLife filed 

a joint motion to dismiss an earlier FSOC appeal which was an effort to designate MetLife as a SIFI. Additionally, on September 29, 

2017, FSOC voted to rescind its designation of the American International Group, or AIG. These moves leave Prudential as the lone 

nonbank designated SIFI. 

I understand that FSOC is given the ability to designate 

nonbank SIFIs under Section 113 of the Dodd–Frank. Given your 

comments on FSOC today, should the Banking Committee consider 

changes to Section 113 and to the structure of the FSOC more 

broadly? 

You mentioned greater transparency is necessary to FSOC. 

Would you recommend other changes as well, specifically with regard to this section? 

Mr. MNUCHIN. Again, I do not have specific recommendation to 

that section because I think there are things that we can do at the 

committee level, and as you have mentioned, in the case of AIG 

they were de-designated because they significantly reduced their 

risk, and that was the decision of the Committee. In the case of 

MetLife there was a legal view and a decision to drop the appeal. 

So I do not think we need legislative changes at this point. 

Senator ROUNDS. OK. I know that Senator Scott had done a series with regard to the cost benefit analyses that were being used, 

and I am just curious. I would kind of like to follow up just a little 

bit with his questioning. Do you intend to push for an interpretive 

guidance from FSOC to reflect that agency action is appropriate 

only if a cost benefit analysis can show that it does more good than 

harm? 

Mr. MNUCHIN. We are going to go through reviewing those guidelines, and I want to be careful to make conclusions before I have 

had a chance to review that with the Committee Members. But we 

are in favor of more transparency in the analysis of cost benefit. 

Senator ROUNDS. So you would be interested in a further discussion with the members of—when you say ‘‘the committee’’—— 

Mr. MNUCHIN. Excuse me. Of FSOC, not of this Committee. 

Senator ROUNDS. OK. I was going to say, we would be happy to 

have that discussion with you as well. 

In the past, also, on another issue, in the past there has been 

a great deal of concern surrounding the role of the Financial Stability Board, the FSB, and the FSOC designation process. As you 

know, the FSB is an international body that makes recommendations about the global financial system. While the United States is 

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34 

cial regulation. However, past actions, such as the designation of 

Prudential and MetLife raise questions over the influence of the 

FSB and FSOC’s SIFI designations. 

Can you commit, or would you discuss with us your philosophy 

with regard to the role that the FSB will play, or perhaps no role, 

in future FSOC designations? What are your thoughts and where 

do you see the committee going? 

Mr. MNUCHIN. I do not see FSB having any role in future designations at FSOC. 

Senator ROUNDS. Would that be a change from previous activity 

or previous considerations, in your opinion? 

Mr. MNUCHIN. I cannot comment on what the committee did before I was on it, although I share some of the concerns that have 

been raised. 

Senator ROUNDS. So more appropriate to perhaps take under advisement, but most certainly independently from anything proposed 

by our international group. 

Mr. MNUCHIN. Absolutely. 

Senator ROUNDS. We have all recently watched the swings in 

bitcoin’s market value. Bitcoin, along with numerous other 

cryptocurrencies has seen their values jump substantially since the 

beginning of 2017. Do you see cryptocurrencies as a threat to financial stability? 

Mr. MNUCHIN. I am glad you brought up one of my favorite subjects. We have got something new to talk about now. So I do not 

see it as a treat to financial stability but I see them as very important issues. We have set up a subcommittee of FSOC to look at 

this. 

My primary concern about cryptocurrencies is twofold. One, I 

want to make sure that these are not used by bad guys, that they 

do not turn into old Swiss numbered bank accounts. In the United 

States, if you are dealing with these cryptocurrencies in our wallets 

and other things, you have the same BSA, you have the same 

money-laundering requirements as banks. We want to make sure 

that around the world that exists. And I also want to make sure 

that consumers understand the issues around cryptocurrencies. 

Senator ROUNDS. Just one last—just a very quick follow-up on 

that particular issue. Do you think you have the tools available to 

you now, both in terms of legislative authority and the manpower, 

to actually follow through and enforce with regards to the concerns 

that you have expressed? 

Mr. MNUCHIN. I do think we have them now, but having said 

that this is an evolving world and we will not be bashful in coming 

back and asking for more resources. 

Senator ROUNDS. Thank you. Thank you, Mr. Chairman. 

Chairman CRAPO. Senator Donnelly. 

Senator DONNELLY. Thank you, Mr. Chairman. Mr. Secretary, 

thanks for being here. 

Mr. Secretary, the recently enacted NDAA, the National Defense 

bill, included an amendment I authored to require a comprehensive 

strategy from all the agencies—that includes Treasury—within 90 

days of enactment to address the threat posed by North Korea. 

That was enacted in late November. This is due by March 15th. 

35 

Have you had any discussions about Treasury’s reporting requirements in regards to this North Korean strategy? 

Mr. MNUCHIN. I probably spend more time on North Korea than 

almost any other subject. So the report will be part of this, but we 

spend a lot of time at Treasury discussing these issues. 

Senator DONNELLY. I appreciate the fact that you discuss those 

issues. Will you be meeting the required reporting date of March 

15th with Treasury strategy regarding North Korea? 

Mr. MNUCHIN. I have no reason to think that we will not meet 

that deadline, so I anticipate we will. 

Senator DONNELLY. OK. Thank you. 

This has been mentioned before. I will mention it again. It is absolutely critical to my State as well, and it is in regards to the pension situation we find ourselves in. We are working to protect the 

pensions of coal miners, Teamsters, participants of more than 140 

multi-employer pension plans, and we must shore up this system 

before it grows even worse. I know you have met some of these retires in the past, and we could really use your support to help get 

the legislation across the finish line. 

I am also a sponsor of the Butch Lewis Act. Are you willing to 

support the Butch Lewis legislation in order to ensure the solvency 

of these plans? 

Mr. MNUCHIN. Again, I am not willing to specifically support that 

legislation but I am willing to sit down with you and others, on a 

bipartisan basis, and figure out a solution. 

Senator DONNELLY. OK. Do you have any specifics of legislation 

you will support at this time? 

Mr. MNUCHIN. I would rather not go through it at this moment 

in time. As I said, it is a complicated issue. It is one of the more 

complicated issues I have come across in the last year. 

Senator DONNELLY. When you meet with me, will you bring specifics at that time? 

Mr. MNUCHIN. Yes. I would be more than happy to do that. 

Senator DONNELLY. OK. 

Let me tell you about a meeting I had in Oakland City, Indiana, 

and it was with about 300 miners and their spouses, the retired 

miners, and they had just gotten their health benefits. And they 

said, ‘‘Harry Truman made this promise to us,’’ and to be able to 

get this, for one of the miners there, it mean he could still get the 

medicine he needed so that his wife, who was in a terminal medical 

condition, could get that medicine and live out her remaining days 

in peace and without pain. That is how important that was. And 

they said, ‘‘This pension piece is equally important to us, so we do 

not find ourselves living hand to mouth at the end of the day.’’ 

And you have been kind enough to agree to meet with me, and 

I know you have met with others. Will you meet with our miners 

and our truck drivers to go through this, to answer their questions? 

They are our friends and neighbors. They are citizens of my State. 

They want to know what the future holds. 

Mr. MNUCHIN. We had a meeting last year and I would be happy 

to conduct a meeting this year, again, with workers across different 

industries who are affected by this. 

Senator DONNELLY. OK. 

36 

Senator Sasse and I lead the Banking Subcommittee on National 

Security and International Trade and Finance, and we held a hearing last spring on North Korea, and asked former Administration 

officials how we can more effectively deploy sanctions. 

Unsurprisingly, as I am sure it is unsurprising to you too, the conversation focused largely on China and the possibility of secondary 

sanctions on Chinese institutions. 

I know Treasury has imposed sanctions on a number of Chinese 

entities that have served as sources of trade and revenue for North 

Korea. Have you see that those secondary sanctions have been effective as a deterrent in regards to North Korea? 

Mr. MNUCHIN. Yes, very much so. 

Senator DONNELLY. When you look at this, does China, do you 

think, have a basic understanding of where and how North Korea 

is using China’s banks and economy? 

Mr. MNUCHIN. I do. 

Senator DONNELLY. And does that activity occur at the largest 

Chinese banks, including State-owned banks, or does North Korea 

intentionally funnel primarily to the smaller Chinese banks that 

are less susceptible to U.S. pressure? 

Mr. MNUCHIN. I do not want to go through the specifics of this 

in this setting but I would be happy to come and talk to you about 

it. But I will say we are having very, very specific, ongoing dialogue 

with the Chinese banks. I just sent my under secretary over there. 

She met with a large group of people and regulators, and we are 

having very good dialogue with the banks over there. And we will 

continue to have sanctions where appropriate. 

Senator DONNELLY. I would—I appreciate that and I would like 

that meeting to be sooner rather than later, in light of the significantly dangerous situation we find ourselves in with North Korea. 

Mr. MNUCHIN. We will follow up with you to get that on the 

books. 

Senator DONNELLY. Thank you, Mr. Secretary. Mr. Chairman, 

thank you very much. 

Chairman CRAPO. Thank you. Senator Reed. 

Senator REED. Well, thank you, Mr. Chairman. Thank you, Mr. 

Secretary, for joining us here today. 

In the 2017 FSOC annual report they called for underscoring the 

necessity of sustained senior-level attention on cybersecurity risks 

and their potential systemic implications. Could you elaborate, give 

us more understanding of what you are doing, because cyber seems 

to be in the headline of every paper, every day? Please. 

Mr. MNUCHIN. Well, thank you. It is a very important subject. I 

am spending a lot of time on this. I am happy to report, as I said 

earlier. I do not see anything at this moment that is risk to the 

financial sector, but we need to continue to invest lots of money, 

and this has to be a combination of our intelligence community, our 

experts at Treasury, our experts in the regulators, as well as private industry. We need to be working very, very closely together, 

because this is something that is evolving every day. 

Senator REED. I just—apropos of your comment ‘‘evolving every 

day,’’ I saw, I think this week, the story about the ATMs that can 

be remotely controlled by bad people. In fact, there is one, I think, 

if you have the right sort of magic words you can go up and deVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
37 

mand money and it just flows out. If that is not checked, that 

would, you know, an upheaval on our banking system. 

Mr. MNUCHIN. Yeah. That has actually been going on for years. 

So at first people put skimmers on and now they are using little 

doctored things. But that—the ATMs, I think, have been upgraded 

to where we are OK, but there plenty of other cyberattacks that we 

need to stay ahead of. 

Senator REED. Let me ask you a related question, is that given 

the fact that this is an onslaught by both organized, State-sponsored entities, criminal entities, individual hackers that have talents, et cetera, have you had adequate personnel and experts in the 

Treasury Department to carry on this expanding work? 

Mr. MNUCHIN. Again, I would say right now we do, but I am not 

going to bashful to come back and ask for more resources as this 

evolves, if we need it. 

Senator REED. We have talked about digital currencies. My colleague, Senator Rounds, raised the issue, and you seem to enjoy 

questions about digital currency, so I will give you another one. 

That is that FSOC is, as you point out, involved not just in terms 

of the stability of the financial system with these digital currencies 

but also with nefarious activities by money laundering, avoiding 

sanctions. That raises the question of how closely are you aligned 

with our intelligence community in terms of the intelligence problems here, i.e., circumventing sanctions, criminals using it to support terrorist activities—you can go down a long laundry list. What 

is your relationship with the intelligence communities? 

Mr. MNUCHIN. Very closely. I meet with Director Pompeo and 

others on a regular basis and at all levels of the Treasury we have 

daily interaction and people going back and forth. So it is very good 

working relationships. 

Senator REED. Have you noticed a significant increase in these 

types of nefarious actors using cryptocurrencies, or is it just that 

the problem has stabilized, or is it growing? 

Mr. MNUCHIN. Again, I want to be a little bit careful of what I 

say in this format, but what I would say is there is not something 

that is of significant concern to us today, but it is something we 

need to actively monitor. And it is a bigger concern of mine in other 

countries. So that is our big push, whether it be at the G7 or the 

G20, to make sure that other countries are regulating these activities the way we are. 

Senator REED. Just stepping back for a moment, as the chairperson of the FSOC you have multiple agencies reporting to you. 

We have raised multiple topics here today—cryptocurrencies, cybersecurity, particularly. Do all your component agencies have the 

expertise, the relevant expertise and the personnel to fully engage 

with you? You might be very well intentioned but if—you know, if 

you cannot count on an agency that has different responsibility, 

your intentions will not be, at the end of the day, up to the job. 

Mr. MNUCHIN. Again, I would say right now I think we do, but 

one of the things we want to make sure is we have the proper coordination so that when we have all these resources we can use 

them appropriately together. And again, as I have said, I will not 

be bashful if the agencies need to come back and more resources. 

38 

Senator REED. Just a quick question. Will you—are you contemplating doing an assessment of the threat and the resources and 

presenting it, I assume first to the Administration, but to us, so 

that we have an idea? Because in the past, you know, we have had 

agencies who have come up and—at the directly, particularly, of 

ONB, said we do not need anything, when, in fact, they were really 

in arrears in terms of personnel and resources. Can you make that 

commitment? 

Mr. MNUCHIN. That is something in the early states that we are 

working on and I think it makes sense. 

Senator REED. Thank you, Mr. Secretary. 

Chairman CRAPO. Thank you. Senator Van Hollen. 

Senator VAN HOLLEN. Thank you. Thank you, Mr. Chairman. 

Welcome, Mr. Secretary. Sorry, I was in another committee hearing, and I do want to start by thank you and the Department for 

your input on the legislation, the BRINK Act. I think Senator 

Toomey mentioned it. The Chairman has been working very hard 

to get a vote scheduled on that, and I appreciate working with you 

and your team on the issues related to North Korea. 

A lot of the issues I was going to cover have been addressed, but 

this is the first time, I believe, you have been before the Congress 

since the passage of the tax bill, and by all accounts the President 

tends to talk a little bit about that this evening. And you and I will 

find plenty to disagree with about the tax bill, in general. 

But in the interest of truth in advertising I do think it is worth 

pointing out a couple of things that were said that the plan would 

do, which it did not. And one, of course, is that it ended up providing big tax breaks to very wealthy Americans. And you recall 

because you have been faced with this question before. 

Back in November of ’16 you said, and I quote, ‘‘Any reductions 

we have in upper income taxes will be offset by less deductions so 

there will be no absolute tax cut for the upper class.’’ That is not 

true with respect to the final bill, is it? I mean, there are net tax 

reductions for the upper class. 

Mr. MNUCHIN. There are overall. There are people who did not 

get them but there are overall. Yes, that is the case. 

Senator VAN HOLLEN. And I do think it is worth pointing out, 

Mr. Chairman, that the Joint Committee on Taxation, which, of 

course, is the official sort of scorekeeper on tax matters, concluded 

that households that make more than $1 million per year will get 

an average tax cut of $64,000 in 2019 alone. And, Mr. Secretary, 

do you have any reason to doubt that analysis? 

Mr. MNUCHIN. I do not have the numbers in front of me, but I 

think our numbers—I do not have any reason to doubt that. 

Senator VAN HOLLEN. Thank you. 

And let me go back to another statement. This was made by candidate Trump in May, 2016. He said with respect to his tax plan, 

and I quote, ‘‘Everybody is getting a tax cut, especially the middle 

class.’’ Speaker Ryan, and later Republican leader McConnell made 

statements about how everybody in the middle class, every single 

person, was going to get a tax cut, and that turned out not to be 

the case either, right? 

Mr. MNUCHIN. I think we worked very hard, that almost everybody got a tax break. But as you know, the tax system was very 

39 

complicated, and as we simplified it certain people have different 

situations, but again, over 90 percent of the people have gotten tax 

breaks. 

Senator VAN HOLLEN. Well, Mr. Secretary, with all respect, we 

just had a State analysis, and this is a bipartisan result in the 

State of Maryland. And it was performed by Maryland Bureau of 

Revenue Estimates, and they concluded that 376,000 Maryland 

families are going to get a tax increase as a result of the bill that 

passed the Congress, and that those tax increases will average 

$2,080 per family. I do not know what you mean by ‘‘almost nobody,’’ but 376,000 Marylanders, that is a lot of people just in the 

State of Maryland. 

And if you look at the impact of those tax cuts, they also con- cluded that 123,000 Maryland families who make between $25,000 

and $50,000 a year are going to get tax hikes, and for them it will 

be an average tax hike of $759. That is not consistent with earlier 

claims that everybody was going to get a tax reduction, is it? 

Mr. MNUCHIN. I will assume your numbers are correct. 

Senator VAN HOLLEN. Well, that is a lot of people, just in Maryland. And so Maryland, like other legislators and others around the 

country, actually scrambling to try to protect the people in our 

States from tax increases that they are going to face as a result of 

this tax bill. I am hoping that the Department of Treasury will actually work with this—work with the States on this. If your intention was, as the President indicated early on, that nobody in the 

middle class should see a tax increase, I hope you will work with 

us, especially as it relates to issues of eliminating the deduction for 

State and local taxes, the SALT deduction, which results in double 

taxation. I hope you will be working with us to actually accomplish 

what the President said he wanted to accomplish on the campaign 

trail, and I look forward to that discussion. 

Mr. MNUCHIN. Thank you. 

Chairman CRAPO. Thank you very much, Senator Van Hollen, 

and Senator Kennedy, who had to go preside until noon, which is 

about 5 minutes ago, is on his way back, and I so I told him that 

I would keep the hearing open. And while we are waiting just a 

few minutes for Senator Kennedy to return, I thought I would take 

another opportunity to ask you a few questions, Mr. Secretary. And 

I want to go into this tax question. You have been asked a number 

of questions today about taxes. 

I sit on the Finance Committee and was a part of the team that 

helped to write this tax bill. And, Senator Van Hollen, I do kind 

of wonder about the numbers you are getting from your State. 

What was the one about zero to $25,000? 

Senator VAN HOLLEN. No—123,000 Maryland families who make 

between $25,000 and $50,000 a year will get tax hikes. Average tax 

hike for that group, $759. 

Chairman CRAPO. Well, I do not know exactly what that is, but 

let tell you some of the stuff that we ran into, in terms of these 

kinds of scores—and we will just have to check it out. But when 

we eliminated the individual mandate, which was a tax on people 

who did not want to buy insurance that the law forced them to buy, 

that was scored by some of the tax scorers, including the Joint Tax 

Committee, as a tax increase. 

40 

Now how can telling people that they can voluntarily avoid a tax 

turn it into a tax increase? The way that happened was, Joint Tax 

said if they do not take advantage of the Obamacare subsidy of several thousand dollars to buy insurance, that that they do not want 

to buy, that the value of that insurance is a—that they are voluntarily choosing not to get the subsidy for, the value of that subsidy 

is a tax increase. 

Some of us found that that was an outrageous assumption to be 

making in calculating these kinds of things, and so we asked Joint 

Tax to run the numbers without calling it a tax increase when 

someone voluntarily chooses not to take a Government subsidy. 

When they ran those numbers it turns out that—and I would like 

you to verify this, if you can, Mr. Secretary—the analysis of the tax 

code that we implemented showed that every single income cohort 

in the tax code, starting from 0 to 10 and going on up to the highest income categories, every single income tax cohort got a tax cut. 

Can you verify that, Mr. Secretary? 

Mr. MNUCHIN. I can. 

Chairman CRAPO. And can you also verify that the largest percentages of tax cuts were in the lower- and middle-income categories? 

Mr. MNUCHIN. Yes, I believe that is the case. 

Chairman CRAPO. Now, I will be the first to say that, as the Secretary has indicated, you can go into each cohort and find individuals who, because of their particular tax circumstances, might have 

seen their taxes go up, particularly if they live in a State with high 

State and local taxes. That is something that happened. 

But I think it needs to be said, that every single, solitary tax cohort got a tax cut, and the highest percentages of tax cuts were in 

the lower- and middle-income categories. And I just—can you verify 

that again, Mr. Secretary? 

Mr. MNUCHIN. Yes. 

Chairman CRAPO. I think those things are important. I have seen 

a lot of analyses of this code and many other different tax provisions, and I just think we have to be very careful when we look 

at the study that some group has done, and be sure we understand 

what the assumptions that they are making are when they do their 

calculus. 

I have a—I want to shift real quickly, and I expect Senator Kennedy to come through the door at any moment—but, Mr. Secretary, 

you have spoken a lot today about a wide range of issues. Are there 

any areas, either in the FSOC report or the Treasury reports that 

you think we need to continue monitoring or that we should pay 

greater attention to here? This is just an open question to you, to 

tell us what you would like us to be focusing on. 

Mr. MNUCHIN. No. I think we have had the opportunity to talk 

about a lot of interesting issues across the board. Obviously, cyber, 

we have talked about a lot. We touched on cryptocurrencies, which 

is something that we are spending time looking at. We have talked 

about the designation process. We look forward to working with 

you and the Committee to raise the threshold. That does not mean 

that those entities will not be regulated. They will be regulated. 

And as the Senator pointed out, it does not mean that they cannot 

be designated. 

41 

So we look forward to working with you on that, and housing reform, I am glad we have had a lot of conversations today on housing reform. I hope we do figure out a solution to this so that we 

do not leave these entities around for another 10 years. And as I 

have said, I am open-minded to working with you and the Committee on lots of solutions, with the understanding that we maintain a 30-year mortgage, and with the understanding if we put the 

Government taxpayer at risk on a guarantee, which we do not have 

to do but we will look at different alternatives. But if we do do 

that, that the taxpayer is compensated and that there will not be 

any explicit—implicit guarantees that they are not compensated 

for. 

Chairman CRAPO. Well, thank you. And I do, before it turn it 

to—in fact, I am going to let Senator Van Hollen have a comeback, 

if you would like to. 

Senator VAN HOLLEN. Very briefly, I would just first of all say 

on the—the analysis I gave you was based on our State Board of 

Revenue estimates—— 

Chairman CRAPO. Mm-hmm. 

Senator VAN HOLLEN. ——and there is no mention there at all 

of the Affordable Care Act component. 

But I would love to share information, because I do think a lot 

more people are going to see tax increases than suggested. 

The last point I would make, Mr. Chairman, as you know, that 

if someone had a $200, you know, tax liability and now it is $100, 

that is a 50 percent cut. So, yes, those folks who had—who were 

in the lower brackets who got tax cuts, they were a higher percentage, but that does not take away the fact that the average tax cut 

for a millionaire was $67,000, according to Joint Tax. And I think 

we could have avoided that in this process. All right. 

Chairman CRAPO. Understood. 

Senator VAN HOLLEN. I appreciate the opportunity. 

Chairman CRAPO. It is always going to be the case that when you 

have tax cuts across the board, those who pay more taxes will get 

larger tax cuts, in dollars. 

Senator VAN HOLLEN. Well, especially when you reduce the top 

rate, which was not required to be done in order to close loopholes. 

Chairman CRAPO. Understood. 

Senator VAN HOLLEN. But we should have another conversation. 

I appreciate the opportunity, Mr. Chairman. 

Chairman CRAPO. Senator Kennedy, before I come back to you, 

or go to you, I want to ask just one more question. This relates, 

again, to basically the economic growth and the deficit issue. Just 

a couple of quick things. The CBO score that was issued this year, 

for budget purposes and also was used in discussion of the tax bill, 

projected a 1.9 percent rate of the economy. Correct? 

Mr. MNUCHIN. Correct. 

Chairman CRAPO. And am I also correct that it projected that the 

economy would grow only at 1.9 percent for 10 straight years? 

Mr. MNUCHIN. That is correct. 

Chairman CRAPO. In other words, zero growth in the rate of 

growth of the economy, under current law, and that is what the 

CBO projected. It is that projection, that absolutely flat-line projection, that if we do nothing we will see nothing in terms of growth, 

42 

that has been used to analyze and make the claims about this tax 

bill. 

The argument is that this is going to generate $1 trillion worth 

of deficit. How much would the economy need to grow, to average 

over the next decade, before there is not a—before it is revenue 

neutral? Do you know that number? 

Mr. MNUCHIN. It is about 30 to 35 basis points. 

Chairman CRAPO. Which is about 2.3 percent? 

Mr. MNUCHIN. Yes. 

Chairman CRAPO. So if the economy can average 2.3 percent instead of 1.9 percent over the next decade, there will be no deficit 

from this tax bill. Correct? 

Mr. MNUCHIN. That is correct. 

Chairman CRAPO. And we are already at 3, and the projects that 

the Council of Economic Advisors has put out is we hope to be able 

to maintain that 3 for a decade. 

Mr. MNUCHIN. That is correct. 

Chairman CRAPO. I understand those are projections, and I understand there are lots of arguments about those projections, but 

at least this far in we are exceeding what is needing to be achieved 

in order to avoid any deficit. 

Mr. MNUCHIN. That is correct, Mr. Chairman. 

Chairman CRAPO. All right. Thank you. Senator Kennedy. 

Senator KENNEDY. Thank you, Mr. Chairman. Thank you, Mr. 

Secretary. 

Mr. MNUCHIN. Nice to see you. 

Senator KENNEDY. I want to start by associating myself with the 

remarks of Senator Shelby, and thank you for your hard work on 

our tax legislation. 

Mr. MNUCHIN. Thank you. 

Senator KENNEDY. Can we agree that the revenue generated, the 

one-time revenue, generated by the repatriation of monies from 

overseas profits back to the United States is nonrecurring revenue? 

Mr. MNUCHIN. Yes. 

Senator KENNEDY. OK. Then why do not we match that up with 

a nonrecurring expense like infrastructure? 

Mr. MNUCHIN. Well, it—— 

Senator KENNEDY. Does that make sense in terms of budgeting—— 

Mr. MNUCHIN. Again—— 

Senator KENNEDY. ——101? 

Mr. MNUCHIN. ——I would just say, at the end of the day, you 

know, cash and revenues are fungible. So from our standpoint, we 

were just looking at from the tax standpoint and we would leave 

it to Congress on the appropriations side. 

Senator KENNEDY. So you would not be opposed if we decided to 

dedicate all of the tax revenues, one-time tax revenues, that are 

generated by monies repatriated, one time, to the United States 

from overseas profits, and we match those up, as any first-year accounting student would recommend that you do, with one-time, 

nonrecurring expenses like infrastructure. You would not have any 

objection with that? 

Mr. MNUCHIN. I would have no objection with that whatsoever. 

Senator KENNEDY. Can we agree that would be a swell idea? 

43 

Mr. MNUCHIN. That sounds like a terrific idea. 

Senator KENNEDY. Good. You are going to ask us to raise the 

debt limit. 

Mr. MNUCHIN. I already have, yes. 

Senator KENNEDY. OK. I know you are not clairvoyant but over 

the next 3 years, and perhaps 7 years, how many more times are 

you going to ask us to raise the debt limit? 

Mr. MNUCHIN. I assume a lot. 

Senator KENNEDY. Should not we do something about that? 

Mr. MNUCHIN. Again, I think the President is very much concerned about the rate increase of the debt, and particularly that it 

grew over the last 8 years. His first priority was to create economic 

growth. That is the single most important thing that will create 

revenues. And over time we need to figure out where we can have 

Government savings to deal with the deficit. 

Senator KENNEDY. Well, we are at $20 trillion and climbing, and 

at some point we are going to have to change the name of the Department of the Treasury to the Department of the Debt, because 

there is not going to be any treasure left. 

Now, in the past year we have added, what, $536 billion to that? 

Mr. MNUCHIN. That is about right. 

Senator KENNEDY. OK. I mean, it would seem to me that we 

need to have an adult discussion at some point about how we are 

going to get control of that. 

Mr. MNUCHIN. I think the long-term debt and the long-term 

budget deficits are something that Congress needs to be conscious 

of. 

Senator KENNEDY. OK. I want to talk to you about the sanctions. 

Can we agree that at least for the past 5 years that President 

Putin has acted like a thug? 

Mr. MNUCHIN. I am not going to use that terminology, but there 

are clearly issues that we need to address, and that we have done 

with sanctions, and as I have said earlier, now that we delivered 

the report last night there will be additional sanctions going forward. 

Senator KENNEDY. Well, let us go through the list. Ukraine, Crimea, Syria, he meddled in our election, he is helping North Korea 

cheat. I mean, it seems to me that in terms of sanctions, we ought 

to hit him so hard he is coughing up bones. I mean, he is not getting better. He is getting worse. I do not understand why we are 

not—why the Administration is not imposing the sanctions that the 

U.S. Congress overwhelmingly supported. 

Mr. MNUCHIN. Again, I apologize because I said this earlier and 

you were not here, but we did an enormous amount of work in the 

intel community and Treasury putting together this report. I encourage you to look at the classified version, which is hundreds of 

pages. We delivered that last night, and we intend to now use that 

report and that intelligence to go forward with additional sanctions. 

Senator KENNEDY. When? 

Mr. MNUCHIN. We will be working on—we are already working 

on that. Now that we have finished the report, that is the next part 

of—— 

44 

Senator KENNEDY. In the next—I do not meant to interrupt you. 

I am sorry. Were you through? 

Mr. MNUCHIN. Yeah. No, I mean, again, I want to be careful, but 

in the near future you will see additional sanctions. 

Senator KENNEDY. Is that near future within the next month? 

Mr. MNUCHIN. Again, I want to be careful because the sanctions 

process, there is a process of declassifying. I do not want to commit 

it is going to be within the next month, but I can assure you as 

quickly as we can do this, this will be. So in the next several 

months you will see it. It may be a month. I just want to be careful 

in making that commitment. It is a thorough process of the work 

that needs to be done. 

Senator KENNEDY. He is not getting any better, Mr. Secretary. 

Maybe you are seeing something and there is something in classified information that we are not seeing, and if there is, I would 

sure like to see it, because what you allow is what will continue. 

Mr. MNUCHIN. All right. I understand. Thank you. 

Senator KENNEDY. And I really think we are sending the wrong 

message at this critical juncture. I mean, his activities alone, in 

helping North Korea cheat, ought to require additional sanctions. 

Mr. MNUCHIN. I understand, and we look forward to working 

with you on this, and there is a lot of activity here. 

Senator KENNEDY. Thank you, Mr. Chairman. 

Chairman CRAPO. Thank you, and I have just a couple of quick 

announcements. Some Senators may want to ask some additional 

records—questions for the record, and those will be due by February 16th, Tuesday. And, Mr. Secretary, we ask that you respond 

to those questions as promptly as you can. 

And that concludes this hearing. Thank you for your testimony 

again. This hearing is adjourned. 

[Whereupon, at 12:21 p.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

45 

PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO 

Today, Treasury Secretary Steven Mnuchin will testify on the Financial Stability 

Oversight Council’s 2017 annual report and the operations and actions of FSOC this 

Congress. 

In December of last year, FSOC issued its 2017 annual report, in which it provided numerous recommendations, insights into the Council’s key activities, and 

identified potential emerging threats to financial stability. 

One of the recommendations urged Congress to reform the housing finance system 

and boost the role of private capital in mortgage finance. 

I have repeatedly stated that the status quo is not a viable option and reforming 

the housing finance system is one of my key priorities. 

Testifying before the Banking Committee last year, Secretary Mnuchin reaffirmed 

his commitment to work with us to find a solution, and stressed the importance of 

finding a balance between ensuring strong taxpayer protection and ample access to 

credit. 

Four years ago, a bipartisan group of Senators passed a housing finance reform 

bill in this Committee. 

We have an opportunity now to build on that effort and create a broader coalition 

of Republicans and Democrats to pass a bill into law. 

This remains one of my top priorities, and I look forward to continuing to work 

with the other Members of this Committee, Secretary Mnuchin, and other stakeholders throughout this process. 

Another focus of the report was cybersecurity, particularly in the financial services space. 

FSOC identified cybersecurity as an area requiring greater attention due to the 

increasing sophistication of cybercriminals and the growing scope and scale of malicious attacks, including data breaches. 

The list of significant cyberattacks and cyberbreaches both in the public and private sectors keeps growing at an alarming rate and seems to have impacted the majority of all Americans. 

The Council made recommendations to specifically address cybersecurity risks, including greater collaboration between the public and private sectors. 

It is critical that personal data is protected by both the Government and industry, 

and that when there is an attack or breach, the impact on victims is minimized. 

The report also highlighted key actions taken by the Council since the last report. 

This included FSOC rescinding the designation of two nonbank financial companies. 

Many of us on the Committee have long been critical of the lack of transparency 

and analytic rigor of FSOC’s process for designating nonbank SIFIs. 

In November 2017, Treasury issued a report outlining recommendations for enhancing both the nonbank and financial market utility designation process, which 

included tailoring regulations to minimize burdens and ensuring the designation 

analyses are rigorous, clear, and transparent. 

In the past, the nonbank SIFI designation process has lacked clarity and consistency, with the threat of serious regulatory consequences for firms that received designations. 

This inevitably translates into higher costs for consumers and the overall economy. 

When making determinations, the FSOC’s process must be transparent, objective, 

and measurable, with clearly outlined criteria when such designations are appropriate. 

It must also provide clarity on how companies can shed such designations. 

I thank the Secretary for his work in these areas and for testifying before the 

Committee today, and look forward to his comments and insights on these important issues. 

PREPARED STATEMENT OF STEVEN T. MNUCHIN 

SECRETARY, DEPARTMENT OF THE TREASURY

JANUARY 30, 2018 

Chairman Crapo, Ranking Member Brown, and Members of the Committee, thank 

you for inviting me today. One of my top priorities as Treasury Secretary is sustained economic growth for the American people, and so I am happy to report that 

the growth rate of the economy over the past year was higher than the average over 

the prior 20 years and included two straight quarters of 3 percent or higher GDP 

46 

growth. The President promised robust growth, and he is delivering on that promise. 

I am here today to speak about the Financial Stability Oversight Council’s 2017 

annual report. This is an important vehicle for providing Congress and the public 

with the Council’s assessments and recommendations relating to regulatory developments and potential risks to the financial system. 

This report emphasizes the importance of economic growth to maintaining a resilient financial system. Since the financial crisis, we have had time to assess the effectiveness of regulatory reforms and consider their unintended consequences. The 

report recommends that Council member agencies address regulatory overlap and 

duplication, modernize outdated regulations, and tailor regulations based on the size 

and complexity of financial institutions. 

The report also discusses a number of risks that the Council is monitoring. One 

that I would like to emphasize in particular is cybersecurity. The financial system’s 

heavy and increasing reliance on technology increases the risk that significant cybersecurity incidents could disrupt the financial sector and potentially impact U.S. 

financial stability. Substantial gains have been made, but I want to emphasize the 

need for sustained attention to these risks. The report makes a number of recommendations, including creation of a private sector council of senior executives in 

the financial sector to collaborate with regulators in order to mitigate cybersecurity 

threats. 

Turning to our growth policies, the Tax Cuts and Jobs Act passed last year was 

our top priority, and this overhaul of the tax code is already having a positive impact. Because of tax reform, over three million Americans have received special bonuses or other benefits, and over 250 companies have announced investments in 

their workforces. Companies are announcing higher wages and increased benefits, 

as well as greater spending on employee training, infrastructure, and research and 

development. These investments will lead to long-term prosperity, and as companies 

continue to bring back cash from overseas, our economy will continue to grow. 

Let me now turn to some specific priorities for this new year. 

I want to commend both houses of Congress for their work on financial regulatory 

reform. The bipartisan Economic Growth, Regulatory Relief, and Consumer Protection Act is a balanced and thoughtful approach that better aligns our financial system to support economic growth in our communities. Further, the legislation reflects 

many of Treasury’s recommendations from our Executive Order reports released last 

year. I encourage the Senate and the House to work together to move legislation 

as quickly as possible. 

In December I wrote to Congress providing notification of my determination that 

a ‘‘debt issuance suspension period’’ (DISP) would last until January 31st. As Congress has not acted to suspend or increase the debt ceiling, I have determined that 

the DISP will be extended into February and will be notifying Congress as such. 

I respectfully urge Congress to act as soon as possible to protect the full faith and 

credit of the United States by increasing the statutory debt limit. 

The House and Senate have been working toward modernization of the Committee 

on Foreign Investment in the United States (CFIUS). I support the Foreign Investment Risk Review Modernization Act (FIRRMA) and applaud Senators Cornyn, 

Feinstein, and Burr and Representatives Pittenger and Heck for their leadership on 

this issue. A modernized CFIUS will enable us to protect our national security from 

current, emerging, and future threats, while preserving our longstanding open investment policy that is key to fostering innovation and economic growth. I look forward to working with Congress and the relevant committees to advance FIRRMA. 

One of Treasury’s core missions is to safeguard the Nation by using the powerful 

economic tools in our arsenal. We will continue to take frequent and ongoing actions 

to combat threats from malicious actors. These include terrorist groups, proliferators 

of weapons of mass destruction, human rights abusers, cybercriminals, and rogue 

regimes like North Korea, Iran, and Venezuela. We continue to review intelligence 

to identify targets with maximum impact, deny them access to the U.S. and international financial systems, disrupt their revenue streams, and ultimately pressure 

them to change their behavior. 

On housing finance, the current situation of indefinite conservatorship for Fannie 

Mae and Freddie Mac is neither a sustainable nor a lasting solution. The Administration looks forward to working with Congress to reform America’s housing finance 

system in a manner that helps consumers obtain the housing best suited to their 

own personal and financial situations while, at the same time, protecting taxpayers. 

I am proud of what we have accomplished so far, and there is more to do. Our 

country’s potential is enormous, which is why Americans expect their Government 

to enact policies that allow them to succeed and prosper. Treasury’s collaboration 

47 

with Congress is vital to that mission, and we are working every day to make it 

a reality. 

Thank you and I look forward to answering your questions. 

48 

1https://www.treasury.gov/press-center/press-releases/Documents/PM-FSOC-DesignationsMemo-11-17.pdf 2https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/ 

FSOCl2017lAnnuallReport.pdf 3https://www.treasury.gov/initiatives/fsoc/Documents/Nonbank%20Designations%20- 

%20Final%20Rule%20and%20Guidance.pdf 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN 

FROM STEVEN T. MNUCHIN 

Q.1. A Treasury report on nonbank financial company designations 

issued last year 1 recommended that Financial Stability Oversight 

Council (FSOC) pivot to an activities-based approach, and away 

from nonbank financial company designations, as the method by 

which FSOC attempts to mitigate systemic risk. 

What kinds of activities by nonbank financial companies would 

be considered as having effects on financial stability? 

A.1. The Council monitors all aspects of financial markets and institutions to fulfill its important statutory role of identifying and 

responding to risks to financial stability. Council members are considering the recommendations made in Treasury’s November 17, 

2017, report on FSOC designations, and I look forward to working 

with them to determine how best to implement the recommendations. 

Q.2. How do those activities differ from the ‘‘Emerging Threats and 

Vulnerabilities’’ identified in Section 6 of the FSOC Annual Report? 2

A.2. The Council’s annual reports describe potential emerging 

threats to U.S. financial stability, as well as vulnerabilities in the 

financial system. The Council’s annual reports also make recommendations to enhance the stability of U.S. financial markets. 

I look forward to working with the Council to determine how best 

to implement Treasury’s recommendations regarding an activitiesbased approach in this context. 

Q.3. Does the FSOC intend to update its systemically important financial institution (SIFI) final rule and interpretive guidance to explain how it will conduct activities-based reviews? 3

A.3. I expect that the Council will update its rule and interpretive 

guidance regarding nonbank financial company designations in 

light of Treasury’s recommendations in this area and taking into 

account the perspectives of all Council members. 

Q.4. Once identified, will those activities be made public? 

A.4. Consistent with its commitment to making its deliberations 

and actions transparent to the public and stakeholders, the Council 

regularly makes public statements regarding potential risks to financial stability that it identifies. 

Q.5. How sure are you that the data necessary for monitoring the 

activities described in Question 1 is available in a timely manner, 

given the current prevalence of data gaps, a number of which are 

pointed out in the 2017 FSOC Annual Report? 

A.5. The Council and its members, including State and Federal 

regulators, are able to gather extensive data regarding potential 

risks to U.S. financial stability. To the extent that gaps exist, we 

49 

4Supra n. 1. 

work to identify and address those concerns, as described in the 

Council’s annual reports. 

Q.6. Are you confident that the FSOC will have the ability to fill 

data gaps and gather the necessary information FSOC needs to 

monitor and prevent the emergence of financial crisis-level risky 

activities while at the same time you are shrinking the FSOC and 

Office of Financial Research (OFR) staff? 

A.6. The Council and its members, including State and Federal 

regulators, are able to gather extensive data regarding potential 

risks to U.S. financial stability. To the extent that gaps exist, we 

work to identify and address those concerns, as described in the 

Council’s annual reports. The OFR will continue to play an important role in improving the coverage, quality, and accessibility of financial data, as well as data sharing between agencies. 

Q.7. The Treasury Report on nonbank financial company designations issued last year 4 provided that the FSOC shouldn’t just consider whether a failure of a nonbank would be catastrophic when 

making a designation decision, but also should consider the ‘‘likelihood’’ of a firm’s failure. Bear Stearns was trading for $65 a share 

a week before it failed, when it was bought for $2 a share—with 

$30 billion in backing from the Federal Reserve. Regulators have 

a bad track record of predicting failures. 

Please discuss how FSOC would assess the likelihood of a firm 

failing. 

A.7. Council members are considering the recommendations made 

in Treasury’s November 17, 2017, report on FSOC designations, 

and I look forward to working with them to determine how best to 

implement the recommendations. 

Q.8. Isn’t the point of a designation to avoid a catastrophic 

nonbank financial company failure, even if it’s a remote event? 

A.8. The Council has a variety of statutory authorities for identifying and responding to potential risks to U.S. financial stability. 

It is important that the Council use its tools in a manner that is 

both effective and efficient. 

Q.9. Could an FSOC determination that a nonbank financial company was ‘‘likely’’ to experience material financial distress cause a 

flight of creditors, customers or other counterparties of such firm? 

How would the FSOC mitigate such a run risk? 

A.9. Council members are considering the recommendations made 

in Treasury’s November 17, 2017, report on FSOC designations, 

and I look forward to working with them to determine how best to 

implement the recommendations. 

Q.10. Under the revised process set forth in the Treasury Report 

issued last year, would AIG have been designated in 2013? 

A.10. I was not involved in the Council’s original designation of 

AIG, so I cannot speak to that process. In 2017, the Council conducted an annual reevaluation of AIG in accordance with the 

Dodd–Frank Act and the Council’s existing procedures regarding 

nonbank financial company determinations. In that reevaluation, 

50 

5https://www.treasury.gov/initiatives/fsoc/studies-reports/Pages/2016-Annual-Report.aspx 

the Council concluded that AIG no longer met the statutory standard for designation. 

Q.11. On page 3 of the Executive Summary, the 2017 FSOC Annual Report says ‘‘as a result of postcrisis regulatory reforms, the 

U.S. financial system is clearly stronger and better positioned to 

withstand a market shock or an economic downturn than it was before the financial crisis.’’ 

Can you provide examples of reforms you think have been beneficial? 

A.11. The creation of the Council itself has been beneficial in bringing together the expertise of Federal financial regulators, State regulators, and an independent insurance expert to share information 

and collaborate to promote financial stability. The Council serves 

as an important forum to monitor market developments and identify potential threats to financial stability. The financial system 

has also benefited from other changes including increased capital 

and liquidity at our largest financial institutions. 

Q.12. The 2016 FSOC Annual Report 5 contained recommendations 

concerning the mitigation of operational risk, securities lending 

risk, and resolvability and transition planning, all under its discussion of asset management products and activities. The 2017 Report 

omits discussion of these topics. 

Why? 

A.12. The Council’s 2017 annual report noted that it continued to 

assess the potential for financial stability risks to arise from certain asset management products and activities, particularly in the 

areas of liquidity and redemption, leverage, operational functions, 

securities lending, and resolvability and transition planning. 

Q.13. The 2017 FSOC Annual Report discusses multi-employer 

pension plans, and notes that according to the Pension Benefit 

Guaranty Corporation (PBGC), over 1 million participants in such 

plans are facing insolvency. 

What is the FSOC doing to mitigate the risks posed by insolvent 

multi-employer plans? 

A.13. Both Treasury and the Council have been very focused on 

pension-related issues. The Council’s 2017 annual report analyzes 

risks related to pension funds and notes that the Council supports 

efforts to improve the quality, timeliness, and depth of disclosures 

of pension financial statements, as well as the use of market valuation for pension data as described in guidance issued by the Governmental Accounting Standards Board. 

Q.14. Could such insolvency cause financial instability across particular demographics or regional economies? 

A.14. Sections 4.2.3 and 4.13.4 of the Council’s 2017 annual report 

describe a number of risks related to pension funds. 

Q.15. The Treasury Report on nonbank financial company designations issued last year outlines five policy goals to guide your review 

of the FSOC’s work. 

51 

Why didn’t it include a mention of promoting financial stability 

or preventing a financial crisis? 

A.15. The Council’s statutory mission includes identifying risks to 

U.S. financial stability and responding to emerging threats to the 

U.S. financial system, and I expect all of the Council’s activities to 

further those goals. 

Q.16. Can you provide an update on the status of the FSOC hedge 

fund working group established under the prior Administration? 

A.16. The Council is looking at these and other activities as part 

of its regular work to monitor all sectors of the U.S. financial system. 

Q.17. Please provide the legal analysis authored by Treasury Department or FSOC counsel providing the rationale for determining 

the number of voting members in the vote to de-designate AIG as 

a nonbank SIFI. This should include the legal rationale providing 

that a recused member of the FSOC is excluded from the vote tally. 

Please also provide the legal basis for the Council’s understanding 

that Mr. Noreika’s limited term as Acting Comptroller of the Currency had not yet expired at the time of the AIG de-designation 

vote. 

A.17. The minutes of the Council’s September 22, 2017, meeting 

describe in detail the advice I relied on from Treasury’s Office of 

the General Counsel in this matter, as follows: 

[The Chairperson] stated that he had been advised by 

counsel that the phrase ‘‘voting members then serving’’ is 

best read to refer to members able to serve by casting a 

valid vote on the issue in question. He explained that the 

word ‘‘serve’’ is commonly used to mean discharging the 

duties of an office, and that the effect of a recusal is to prevent a recused member from discharging those duties with 

respect to a specific vote. He stated that a recused Council 

member is therefore out of service with respect to a vote 

he is recused from, even though he continues to hold office 

and serve on other matters. He then explained that counsel had informed him that this reading of the statutory 

language was supported by judicial interpretation of similar language in a law that sets the standard for appellate 

judges to vote for rehearing. He stated that counsel had 

also informed him that this reading was consistent with 

other provisions of the Dodd–Frank Act, including section 

111(c) (which provides that when an agency head is legally 

‘‘disabled’’ by recusal, the acting agency head serves in his 

place as a Council member on the subject of the recusal) 

and section 111(i) (which uses the word ‘‘serve’’ in connection with the performance of Council duties, not service as 

the head of an agency). The Chairperson stated that counsel had also informed him that this reading of the statute 

was consistent with the common practice of other multimember bodies, including the SEC, the FDIC, the U.S. Supreme Court, and the Federal appellate courts. Finally, he 

stated that counsel had informed him that, even assuming 

there is more than one reasonable interpretation of the 

52 

6https://www.prnewswire.com/news-releases/zions-bancorporation-announces-plans-to-simplify-its-structure-by-merging-parent-company-into-its-banking-subsidiary-300559183.html 7 Ibid. 

8Supra n. 1. 

statutory language, this interpretation is more sound because (1) an alternative interpretation would defeat the 

purpose of recusal by treating a recusal as the equivalent 

of a ‘‘no’’ vote and would arbitrarily treat vacancies differently from recusals; (2) the alternative interpretation 

would incentivize parties to engage in strategic behavior to 

trigger recusals, because a recusal would convert the 

recused member into an effective ‘‘no’’ vote; and (3) the alternative interpretation could affect the exercise of the resolution authority under Title II of the Dodd–Frank Act, for 

which Congress used the same ‘‘members then serving’’ 

language. 

I would refer you to the Office of the Comptroller of the Currency 

regarding the term of Acting Comptroller Noreika. 

Q.18. The current FSOC independent member with insurance expertise, Mr. S. Roy Woodall, maintains an independent office outside of Treasury, and recruited a small staff to assist him with his 

statutory responsibilities, and, with the approval of the other 

FSOC members, maintained an independent member budget within the larger FSOC budget. 

As Chair of the FSOC, are you committed to maintaining an 

independent budget, staff and office for the incoming FSOC independent member with insurance expertise? 

A.18. The independent insurance member’s role on the Council was 

established by statute to be just that—independent. I expect to continue to support the independence of that office, consistent with the 

Dodd–Frank Act. 

Q.19. On November 20, 2017, Zions Bancorporation issued a press 

release 6 in which it announced it would be merge its holding company parent into its bank, thus no longer being a bank holding 

company (BHC) subject to supervision by the Federal Reserve 

under the Bank Holding Company Act. Section 117 of Dodd–Frank 

provides that BHCs with more than $50 billion in assets that were 

bailed out with taxpayer funds during the financial crisis through 

the Troubled Asset Relief Program cannot escape Fed supervision 

by ceasing to be a BHC, and instead should continue to be regulated by the Fed as a nonbank SIFI, unless the FSOC de-designates the firm. Zions indicated in a press release that it would 

seek such a de-designation. 7

Given that the Treasury report on FSOC designations from last 

year said that designations represented a ‘‘blunt instrument’’ approach, 8 does this mean that Zions Bancorporation will be granted 

the Section 117 de-designation it seeks? 

A.19. At this time, the Council has not received an application 

under Section 117 of Dodd–Frank from any institution. If the 

Council receives such an application, I expect the Council to conduct a careful and deliberate analysis on the merits. 

53 

Q.20. Will the FSOC be applying the activities-based approach that 

the Treasury Department recommended in the November FSOC report with respect to BHCs that shed their holding company structure and seek to be de-designated under Section 117? 

A.20. The Dodd–Frank Act sets forth the factors the Council is required to consider in the case of an application under section 117 

of the statute, and the Council will comply with those statutory obligations. 

Q.21. How will the FSOC’s nonbank SIFI final rule and interpretive guidance be applied to a business model like Zions when the 

nonbank SIFI criteria was never designed to evaluate a bank? 

A.21. The Dodd–Frank Act sets forth the factors the Council is required to consider in the case of an application under section 117 

of the statute, and the Council will comply with those statutory obligations. In particular, the Council is required to consider whether 

an applicant under section 117 meets the standards under section 

113—namely, whether the company’s material financial distress, or 

the nature, scope, size, scale, concentration, interconnectedness, or 

mix of its activities, could pose a threat to U.S. financial stability. 

The Council will be able to consider whether a former bank holding 

company meets those standards. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE 

FROM STEVEN T. MNUCHIN 

Q.1. I’d like to continue our ongoing conversation about deficits and 

the debt, in light of the Treasury Department’s obligation to advise 

the President on ‘‘domestic and international financial, monetary, 

economic, trade and tax policy . . . ’’ In response to my questions 

for the record for your May 18, 2017, Senate Banking Committee 

appearance, you agreed with the Financial Report of the U.S. Government’s statement that ‘‘ ‘the projected continuous rise in the 

debt-to-GDP ratio indicates that current policy is unsustainable.’ ’’ 

You also said that ‘‘[r]educing the deficit to levels that are sustainable over time is critical . . . ’’ and agreed that ‘‘a continually increasing level of debt to GDP is not sustainable.’’ (citation and 

quotation omitted). 

While I appreciate that answer, it was not responsive to whether 

you agreed with then-Federal Reserve Chair Yellen that ‘‘fiscal policymakers should soon put in place a credible plan for reducing 

deficits to sustainable levels over time.’’ 

Do you agree with this? 

A.1. The President’s 2019 Budget is a credible plan to reduce deficits to sustainable levels over time. Under the President’s budget, 

the debt-to-GDP ratio slowly rises until 2022 at 81.9 percent, and 

then falls rapidly to 72.6 percent in 2028. 

Q.2. If so, what should the targeted debt-to-GDP ratio be? 

A.2. The President’s 2019 budget will reduce the debt-to-GDP ratio 

as the economy grows and further reduces Federal spending. We do 

not target a specific debt-to-GDP ratio. 

Q.3. Is it possible to address the projected unsustainable rise in 

debt-to-GDP ratio without reforming nondiscretionary spending, 

54 

particularly in light of your statement in response to my May questions for the record that an aging population will result in increased Government spending and reduced tax receipts? 

A.3. No. The extent to which those programs needs to be reformed, 

however, can be mitigated by robust economic growth as a result 

of the tax, trade, and regulatory policies promoted by the Administration in the FY2019 budget. 

Q.4. Should the Administration consider policy reforms that could 

reduce nondiscretionary spending, in order to reduce our debt and 

deficit over time? 

A.4. In the President’s budget our economic program and reduced 

Federal spending will reduce our debt. 

Q.5. If so, what policies should the Administration consider? 

Should the Administration preserve any particular nondiscretionary program (such as Medicare or Medicaid) from reforms? 

A.5. The President’s Budget recommends efficiency-enhancing reforms across a wide spectrum of nondiscretionary programs. It is 

important that those reforms do not adversely affect those who are 

at or near retirement age and therefore unable to plan for changes 

in expected benefits, but no program should be exempt from 

changes that promote efficient operations and the elimination of 

wasteful spending. 

Q.6. I’d like to continue our ongoing conversation about trade. In 

my questions for the record for now-Federal Reserve Chairman Jerome Powell’s November 28th, 2017 confirmation hearing, I asked 

now-Chairman Powell if the measure of the U.S.’s trade deficit 

with another country (the bilateral trade deficit) was ‘‘a useful metric to consult to evaluate whether trade with that country hurts or 

helps our economy.’’ In response, now-Chairman Powell said: The 

overall U.S. trade balance is the most useful measure for evaluating the impact of trade on the U.S. economy. That balance is affected by many factors, including savings and investment in the 

United States, economic conditions abroad, and movements in exchange rates. Bilateral trade deficits are less informative. For example, U.S. workers and businesses could benefit when the United 

States runs a deficit with one country by importing goods that we 

use as inputs to produce goods to sell to another country. In this 

example, a focus on the bilateral deficit would obscure the net effect on the U.S. trade balance and the overall benefit to the economy. 

Do you agree with Chairman Powell that ‘‘[b]ilateral trade deficits are less informative?’’ If so, why does the Administration aim 

in NAFTA renegotiations to reduce our bilateral trade deficit with 

Mexico and Canada? 

A.6. The Administration has focused its trade policies on countries 

with which we have large trade deficits in goods and we will continue to seek to reduce a range of unbalanced trade relationships. 

Specifically, we continue to press our trading partners to reduce 

tariffs, remove nontariff barriers that block U.S. exports, counter 

dumping and unfair subsidies with robust trade remedies, and 

tackle unfair trade practices more generally. 

55 

In examining the trade practices of countries with which we have 

large trade deficits, we have identified a number of barriers that 

we can work to remove in order to help U.S. workers and firms in 

support of the Administration’s trade agenda. 

Our effort to modernize NAFTA is a top Administration priority 

and a key part of our trade agenda. 

Q.7. I’d like to discuss cybersecurity. I understand that some of 

these questions may involve classified and law enforcement-sensitive information, and I am eager to work with you to adapt my 

request in a manner that accommodates public safety and national 

security interests while ensuring maximum transparency for the 

American people. In your January 30, 2018, appearance before the 

Senate Banking Committee, you were asked by Senator Crapo 

‘‘[w]here does the FSOC see gaps or shortfalls in cybersecurity protection today?’’ While you did speak to the importance of ‘‘always 

. . . advancing issues’’ you also said that ‘‘I don’t see any specific 

gaps today.’’ 

Can you elaborate on what you mean by that statement? For example, do you believe no major structural changes are necessary 

for our Nation’s cybersecurity efforts, even in light of the Equifax 

breach and the SEC breach of their EDGAR filing system? 

A.7. Treasury’s work depends on partnerships with various stakeholders, including private sector institutions and industry groups, 

and other Government entities to enhance the security and resilience of the U.S. financial services sector. As Treasury is not a regulator, we do not have knowledge of specific weaknesses of specific 

institutions regarding cybersecurity that may have been identified 

through the course of regulatory examinations. While there is comprehensive cybersecurity regulation in place for institutions that 

are covered by financial regulators, we must address the challenge 

of correctly implementing and maintaining what we know must be 

done. 

The two tenets of Treasury’s mission, maintaining a strong economy and strengthening the national security by combating threats 

to the U.S. financial system and the economy, have been furthered 

by driving discussions and conversations. So, while we continue to 

work to centralize cybersecurity leadership within Treasury to 

work collaboratively and transparently to protect critical financial 

infrastructure, we do not see any specific gaps at this moment. We 

instead must work to mitigate risk that we naturally carry with 

proper information sharing through our various partnerships. 

Q.8. What steps is the Treasury Department taking to improve cybersecurity at our Nation’s financial institutions and within the 

Treasury Department itself? 

A.8. Treasury’s efforts are focused on helping the financial services 

sector improve its security as the sector-specific agency under Presidential Policy Directive 21 (dated February 21, 2013). Since Treasury itself is not a regulator in this area, as mentioned above, our 

ability to be effective depends on a wide range of both public and 

private partnerships. Treasury’s efforts, led by the Department’s 

Office of Critical Infrastructure Protection and Compliance Policy, 

works closely with the many members of the private sector, the Department of Homeland Security, law enforcement, Federal and 

56 

State financial regulators through the Financial and Banking Information Infrastructure Committee (FBIIC) to reduce cybersecurity and operational risk and improve resilience in the financial 

sector. 

We work to reduce these risks in various ways. We are a strong 

proponent and driver for effective and timely cybersecurity information sharing. This includes not only sharing information from 

the Government to the sector, but encouraging sector members to 

share information with each other. This helps other institutions 

identify and deflect cybersecurity attacks. Or, if an institution is already breeched with a contagion, increased sharing helps improve 

the ability to identify, contain, and eradicate the malicious code. 

Another example of our work is our Hamilton Exercise Program, 

which is geared toward major functions of the U.S. financial sector. 

Treasury has also carried out regional cybersecurity exercises focused specifically on smaller financial sector companies. These exercises are an opportunity for firms to practice incident response 

procedures; share and refine best practices; develop stronger connections with similar firms in their communities; and, often, for 

regulators to engage in a neutral setting. This program, and others 

like it, benefit smaller firms, which are a key component of our financial sector. 

Internally, Treasury continuously evaluates its cybersecurity posture to understand areas of strength and identify opportunities for 

improvement. Treasury actively partners with the Department of 

Homeland Security (DHS) to implement Federal-wide initiatives to 

improve cybersecurity defenses. These have included implementation of Trusted Internet Connections, the National Cybersecurity 

Protection System, and the Continuous Diagnostics and Mitigation 

program. Treasury also leverages multiple services provided under 

the DHS National Protection and Programs Directorate’s Office of 

Cybersecurity and Communications to help all Federal civilian 

agencies improve their cybersecurity defense. 

In addition, the Department has identified opportunities to enhance cyberdefense across the enterprise through strategic investment in additional technical capabilities. The Department is also in 

the process of implementing the NIST cybersecurity risk framework. Treasury is executing multiple projects to introduce new capabilities across the Department, including Data Loss Prevention, 

inspection of encrypted network traffic, automated incident response for workstations and servers, and enhancement of enterprise threat analysis capabilities. Finally, Treasury engages with 

its bureaus to develop and implement plans to mitigate any potential weaknesses identified in weekly DHS vulnerability scans, quarterly Risk Management Assessments from the Office of Management and Budget, and annual cybersecurity program evaluations 

conducted by the Department’s Inspectors General. 

Q.9. Are you concerned that a cyberbreach at the Treasury Department could jeopardize the Treasury Department’s operations, endangering national security, or cause broader systemic financial 

risk? If so, please describe the consequences of such breaches. 

A.9. As the steward of U.S. economic and financial systems, the 

Department of the Treasury performs functions that are critical to 

57 

the Nation’s financial infrastructure, such as the production of coin 

and currency, the disbursement of payments to the American public, revenue collection, and the borrowing of funds necessary to run 

the Federal Government. To accomplish the Department’s mission, 

Treasury bureaus operate information systems that store, process, 

and/or transmit information of varying degrees of sensitivity. To 

identify which of its systems would, if breached, pose the greatest 

risk to Departmental operations, national security, and/or broader 

financial systems, Treasury applies Federal-wide guidance for managing critical infrastructure and information systems. This allows 

the Department to prioritize cybersecurity defense of those systems 

and infrastructure for which a breach would be most likely to cause 

the greatest harm. 

The consequences of a breach (i.e., a cybersecurity incident resulting in exfiltration of sensitive information to unauthorized parties or to authorized parties for unauthorized purposes) of any critical infrastructure system or other information system would depend on the specific nature of the affected system, but could potentially include: exposure of personally identifiable information of 

U.S. taxpayers, increasing their risk of monetary or identity theft; 

or loss of Federal revenue. 

Q.10. How many cyberbreaches have there been at the Treasury 

Department? Have any of these breaches come close to jeopardizing 

the Treasury Department’s operations, endangering national security, or causing broader systemic financial risk? 

A.10. Treasury understands ‘‘cyberbreaches’’ to refer to incidents 

like those reported to have occurred at Equifax and the Securities 

and Exchange Commission, in which unauthorized parties 

exfiltrate sensitive data from agency information systems. Between 

2008 and 2012, network intrusions and system compromises involving Advanced Persistent Threat (APT) actors led to three incidents 

in which sensitive data was found to have been exfiltrated. The Department responded by working to mature computer network defenses, particularly targeting vulnerabilities known to be exploited 

by APT actors. Since 2012, no further such intrusions have been 

detected. 

Subsequent cyberbreaches affecting Treasury data have leveraged public-facing applications that provide access to data from the 

Internal Revenue Service (IRS). These breaches did not result from 

technical weaknesses in the affected systems. In each case, individuals utilized personally identifiable information stolen from nonTreasury sources to impersonate taxpayers to the applications, 

thereby gaining inappropriate access to taxpayer data. Since 2015, 

Treasury has experienced and reported two such incidents involving IRS applications. The breaches did not endanger national security or introduce systemic financial risk, but the breaches did impact IRS operations as well as increase the likelihood that fraudulent tax returns would be processed. In response to this threat, the 

IRS has tightened authentication requirements for its public-facing 

applications. This has led criminals to explore other means of 

exfiltrating taxpayer data. Treasury and the IRS are continuing efforts to identify and block potential avenues of taxpayer data 

exfiltration. 

58 

Q.11. What is the most likely cyberthreat to our financial system? 

A.11. There are a wide range of cyberthreats to our financial systems; none of these are particularly novel or surprising. It is impossible to say any one threat is the most likely, given the widespread 

diversity of our financial system, both geographically (to include 

the cloud in some cases), and in terms of a wide range of heterogeneous new and legacy technologies. In some cases, the biggest 

cyberthreat is an indirect one due to a reliance upon another critical infrastructure such as energy or telecommunications. We need 

to examine the question from an all-hazards approach, in order to 

strengthen cybersecurity, we need to help better prepare the sector 

from threats than can result in the greatest harm, such as: trusted 

insiders with highly privileged access, phishing and related attacks 

as a way to plant destructive malware into a network Another example would be an attack exploiting a ‘‘zero-day’’ vulnerability, 

which leaves no opportunity of detection there would be no patch 

already available; poor cyberhygiene (timely patching, secure configurations, sound network design, etc.), physical threats (ranging, 

for example, from hurricanes, to fires, to terrorism) and outside 

attackers. As such, Treasury remains dedicated to working with 

the private sector and regulators to better prepare the financial 

services sector. 

Q.12. How could a large scale cyberattack on our financial system 

impact the U.S. economy and international economy? For example, 

are you concerned that hackers could pose a national security or 

systemic risk by accessing the live markets and shutting down 

trading, deleting trade information, or otherwise sparking a major 

crisis? 

A.12. There is a high degree of redundancy and resiliency built into 

most institutions of the sector. For example securities are usually 

traded on multiple exchanges and exchanges themselves have their 

own backup facilities and services, typically real-time failover. This 

redundancy reduces the expected impact on the economy because 

a large scale attack would require a concerted attack on more than 

a dozen exchanges and their backup facilities. Furthermore, exchanges, as private-sector entities have the authority to order a 

shutdown should they detect a situation that warrants it. 

To help decrease the likelihood of similar attacks against multiple institutions, I cannot emphasize enough the importance of 

sharing information within the sector. We are able to better understand our risk when we communicate effectively with the sector as 

a whole. I have instructed my staff to be as supportive as they are 

able, but it is important to note that the private sector owns and 

operates the bulk of the critical infrastructure that Treasury and 

others in Government seek to help protect. It is also critically important to highlight that Treasury’s cybersecurity mission is designed to support not just large financial institutions, but also the 

smaller financial sector companies that are the primary interface 

with the financial system for millions of Americans. 

Treasury works on a regular basis to assist all financial sector 

companies large and small by encouraging the use of baseline protections, assisting with response and recovery activities, and facilitating information sharing. Treasury does this work in close partVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00062 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
59 

nership with the Department of Homeland Security, law enforcement, financial regulators, and industry groups such as the Financial Sector Information Sharing and Analysis Center. 

Q.13. If so, please describe the consequences of such a breach. 

A.13. I have stated before that nongovernmental estimates have 

found the cost of criminal data breaches will cost global businesses 

$8 trillion over the next 5 years. At this time it is not possible to 

estimate the consequences of a specific hypothetical breach. 

It is not possible to estimate the consequences of a hypothetical 

breach. 

Q.14. Is the Treasury Department considering recommending or 

imposing new regulations on financial institutions or recommending or new agency policies, in order to mitigate cybersecurity 

risk? If so, what regulations or policies? 

A.14. As mentioned above, the Financial and Banking Information 

Infrastructure Committee (FBIIC) continues to serve as a successful venue for coordinating approaches among agencies with different statutory authorities, and Treasury believes that FBIIC 

should be the focal point to drive domestic regulatory harmonization efforts. By harmonizing cyberregulatory requirements and 

oversight procedures, industry tells us that significant efficiencies 

will result. Within FBIIC, Treasury has supported efforts to promote the National Institute of Standards and Technology (NIST) 

Cybersecurity Framework as a common lexicon for regulatory agencies to incorporate into their supervisory efforts; to expand and 

complete efforts to map existing regulatory guidance to reflect and 

incorporate appropriate elements of the Framework; and to advance work as to whether cybersecurity examinations could be further coordinated. Treasury has also worked to help inform industry 

of the NIST voluntary framework and its uses. 

Q.15. Is there a risk that new cybersecurity regulations could actually introduce some cybersecurity risk by introducing an incentive 

for companies to focus more on complying with the regulation, instead of leveraging private sector resources to implement innovative cybersecurity techniques? If so, what steps can be taken to 

mitigate this risk? 

A.15. Broadly speaking, in the past, we have certainly seen that 

the introduction of ill-informed, poorly coordinated, duplicative regulation across the multiple regulators in the sector has resulted in 

significantly increased regulatory compliance burden. 

Therefore, as mentioned above, an end goal of our current cybersecurity harmonization effort is to reduce burden by harmonizing 

existing regulations, eliminating any that may no longer be necessary (e.g., due to advances in protective technologies) and thereby 

improve cybersecurity by freeing up resources to invest in improving security. In order to move in this direction to benefit Americans 

and the financial services sector, we need to complete and further 

efforts by Treasury to promote the National Institute of Standards 

and Technology (NIST) Cybersecurity Framework as a common 

lexicon for regulatory agencies to incorporate into their supervisory 

efforts to facilitate this reduction of duplicative regulation. 

60 

Q.16. I’d like to ask about our sanctions policy toward North 

Korea. I understand that some of these questions may involve classified and law enforcement-sensitive information, and I am eager 

to work with you to adapt my request in a manner that accommodates public safety and national security interests while ensuring 

maximum transparency for the American people. 

Since North Korea was designated a State Sponsor of Terrorism 

on November 20, 2017, has the Treasury Department, in coordination with the State Department, seen a reduction in financial flows 

to the North Korean regime? If so, where is that reduction primarily coming from? 

A.16. The State Department’s determination that North Korea is 

a State Sponsor of Terrorism did not have a direct impact on our 

assessment of financial flows to North Korea, in part because U.S. 

and U.N. sanctions against North Korea were already—and continue to be—so robust. U.S. sanctions, including those that Treasury imposes, allow us to target any person who engages in significant trade with North Korea or has operated in any one of 10 identified industries of North Korea, among other things. Treasury has 

used its authorities broadly and aggressively to target financial 

networks and facilitators of the regime. Over the past several 

months, Treasury has designated dozens of companies that were 

collectively responsible for hundreds of millions of dollars in trade 

with North Korea. In addition to U.S. sanctions, U.N. sanctions are 

having an impact on financial flows to North Korea. The U.N. 

maintains export bans on sectors that collectively represented $1 

billion of hard currency earnings for the regime per year. 

Q.17. Does the Treasury Department have a minimum estimate of 

revenue the North Korean regime receives from its ‘‘guest worker’’ 

partnerships? If so, what is that estimate? 

A.17. The Associated Press estimated last October that labor 

brings in revenue of $200 million to $500 million annually to the 

North Korean Government, most of which comes from China and 

Russia. My staff would be happy to provide further details in a 

classified briefing. 

Q.18. Which countries host North Korean ‘‘guest workers’’? 

A.18. Russia and China host the majority of North Korean laborers. Gulf countries and countries throughout Africa have historically hosted several thousand workers. My staff would be happy to 

provide further details in a classified briefing. 

Q.19. In your opinion what are primary policy options if the United 

States was to penalize foreign partners, allies, and adversaries that 

host North Korean work crews within their countries? 

A.19. The United States continues to apply maximum economic 

and diplomatic pressure to counter North Korea’s illicit finance activities that support its nuclear and ballistic missile program, including the use of North Korean laborers. U.N. Security Council 

Resolution 2397 calls on Member States to expel North Korean 

laborers in their territories by December 2019 and Member States 

are also prohibited from issuing new work visas to North Korean 

laborers. In line with the U.S. Government’s approach that U.N. 

Security Council resolutions are the floor, not the ceiling, Treasury 

61 

is using all of its available tools to disrupt North Korean laborers 

from earning funds in support of North Korea’s ballistic and nuclear weapons program. In most cases, North Korean workers only 

receive a portion of their earnings and the majority of their wages 

are provided directly to the regime. We are taking a number of 

steps to address this issue. First, Treasury is designating individuals and entities that are facilitating the exportation of North Korean laborers overseas. Second, the U.S. Government, including 

Treasury, is pressing all countries to immediately expel North Korean laborers and is clearly messaging its willingness to designate 

any foreign companies involved in hiring North Korean labor. 

Third, we are isolating the North Korean financial system in order 

to disrupt the flow of funds to North Korea. North Korea’s embassies abroad are often involved in arranging contracts for laborers 

and the U.S. Government is actively urging all countries to ensure 

that North Korea downsizes its diplomatic staff in each embassy. 

Q.20. Is the Treasury Department currently considering pursuing 

any of these options? 

A.20. The Department of the Treasury remains aggressive in working to identify and sanction entities and individuals involved in 

North Korea’s illicit finance activities, including the use of North 

Korean laborers to support its nuclear and ballistic missile programs. The U.S. Government, including Treasury, is also engaging 

with foreign Governments to urge them to immediately expel North 

Korean workers. 

On November 21, 2017, Treasury designated Korea South–South 

Cooperation Corporation, which has operated in at least China, 

Russia, Cambodia, and Poland, for its involvement in exporting 

workers from North Korea. 

On October 26, 2017, Treasury identified the External Construction Bureau and the Ch’olhyo’n Overseas Construction Company 

pursuant to E.O. 13722 as agencies, instrumentalities, or controlled 

entities of the Government of North Korea or the Workers’ Party 

of Korea. OFAC also designated Kim Kang Jin, the Director of the 

External Construction Bureau, pursuant to E.O. 13687 for being an 

official of the Government of North Korea or the Workers’ Party of 

Korea. Beyond North Korea, the External Construction Bureau has 

been located in Kuwait, Oman, Qatar, and the United Arab Emirates. The Ch’olhyo’n Overseas Construction Company is reported to 

earn foreign currency for North Korea, and it has been located in 

Algeria. According to the State Department report issued simultaneously with these sanctions measures, ‘‘employees of Ch’olhyo’n 

are kept in slave-like conditions, including having salaries and 

passports withheld by DPRK security officials assigned as site supervisors, meager food rations, poor living conditions, and severe 

restrictions on their freedom of movement.’’ 

Since the start of this Administration, Treasury leadership has 

engaged with countries throughout the Gulf, Africa, and Southeast 

and East Asia to press them to immediately expel laborers. 

Q.21. Are there currently any countries that procure North Korean 

arms and thus fund North Korea military activities? If so, what are 

those countries? 

62 

A.21. The procurement of North Korean arms remains a critical 

concern, and Treasury continues to investigate any individual or 

entity involved in purchasing arms or providing North Korea funds 

for military or police training. We would be happy to provide additional information on countries currently involved in this activity 

in a classified setting. As part of its overseas procurement networks, North Korea maintains weapons representatives abroad to 

both sell and buy weapons and dual-use goods for North Korea. 

Most recently, on January 24, 2018, Treasury designated ten North 

Korean representatives of the U.N.- and U.S.-designated Korea 

Ryonbong General Corporation. The representatives were located 

in China, Russia, and Georgia and we continue to press those countries to immediately expel the representatives. According to the 

United Nations Panel of Experts February 2018 Final Report, 

North Korea continues robust military cooperation and arms sales 

with Syria, Myanmar, Mozambique, and other African Nations. 

The Panel has also reported that over 40 shipments were made by 

North Korea to the U.S.-designated Syrian Scientific Studies and 

Research Center (SSRC) since 2012, including acid-resistant tiles 

used for large-scale chemical manufacturing facilities but not including chemical weapon components or materials. While Treasury 

does not comment on investigations of specific potential targets, 

Treasury does continue to investigate all instances of procurement 

and weapons sales and will not hesitate to use its authorities to 

target any individual or entity involved. 

Q.22. What is the minimum estimate of revenue the Kim regime 

receives from those transactions? 

A.22. We would be happy to discuss this in a classified setting. 

Q.23. Has the U.S. Treasury imposed sanctions on these countries 

for these transactions with the North Korean military? 

A.23. Yes, Treasury has and will impose sanctions on any person 

that procures arms from North Korea or otherwise supports the 

North Korean military, in addition to sanctions on any person that 

facilitates revenue for North Korea’s weapons of mass destruction 

(WMD) or ballistic missile programs. For instance, on January 24, 

2018, we designated representatives of Korea Ryonbong General 

Corporation, which specializes in acquisition for North Korean defense industries and support to Pyongyang’s military sales. The 

same day, we also designated Dandong Jinxiang Trade Co., Ltd., 

which reportedly conducted trade with U.N.- and U.S- designated 

Tangun Trading Corporation, a North Korean company that is primarily responsible for the procurement of commodities and technologies to support North Korea’s defense research and development programs. Similarly, in June 2017, Treasury designated Ardis 

Bearings LLC, a Moscow-based company, for its support to Tangun 

Trading Corporation. 

Q.24. On February 2, 2018, it was reported that in 2017 North 

Korea violated U.N. sanctions to earn an estimated $200 million 

from exporting coal, iron, steel, and other commodities. Is the 

Treasury Department considering any steps that could reinforce 

U.N. sanctions and encourage implementation? 

63 

A.24. We aggressively pursue for designation any person that violates U.N. sanctions. Since the start of this Administration, Treasury has sanctioned 212 companies, individuals, and vessels for 

North Korea-related activities. Most of these designations are connected to U.N. sanctions violations. For example, on February 23, 

2018, we sanctioned 27 entities, 28 vessels, and one individual in 

response to ongoing U.N. sanctions violations. Among those sanctioned, nine were international shipping companies and their nine 

vessels that have been used to transport coal from North Korea or 

engaged in U.N.-prohibited ship-to-ship transfers of refined petroleum products. Also in that action, we designated Tsang Yung 

Yuan, who has a history of sanctions evasion activities and has coordinated North Korean coal exports with a Russia-based North 

Korea broker. Treasury also designated two of Tsang’s companies, 

Pro-Gain Group Corporation and Kingly Won International. Also 

on February 23, we issued a shipping advisory to alert persons 

globally to the deceptive shipping practices used by North Korea to 

evade sanctions. The North Korean shipping industry is a primary 

means by which North Korea evades sanctions to fund its nuclear 

weapons and ballistic missile programs. 

Q.25. Last year significant progress was made in isolating the 

North Korean regime from SWIFT. Can you provide an update on 

the current progress on isolating the regime’s access to the financial messaging service? Is there more work to be done? 

A.25. In March 2017, SWIFT cut off the four North Korean banks 

that were still connected to its system. As a result, North Korea 

no longer has direct access to the international messaging system 

through SWIFT but Treasury remains concerned that North Korea 

uses deceptive practices to indirectly access the international financial system such as through front companies and financial and 

trade operatives who earn and move money through the international financial system and are located outside of North Korea. 

As the U.N. Panel of Experts (PoE) noted in its most recent report, 

in 2017, more than 30 representatives of North Korean banks and 

trade companies operate outside of North Korea in countries such 

as China and Russia, in contravention of United Nations Security 

Council resolutions (UNSCRs). The PoE also noted that these trade 

and financial representatives play a role in supporting North Korea’s prohibited programs, including by acting as fronts for designated entities and individuals, as well as engaging in commercial 

activities that violate the UNSCRs. Treasury is very focused on 

highlighting this activity and taking steps to shut it down. Treasury has now sanctioned 26 North Korean financial representatives 

and 12 representatives of weapons-related entities known to have 

operated in China. These North Korean operatives are highly 

skilled and trusted, and we have repeatedly called on China and 

Russia and other countries to expel them. 

Q.26. I’d like to ask about our sanctions policy toward Russia. I understand that some of these questions may involve classified and 

law enforcement-sensitive information, and I am eager to work 

with you to adapt my request in a manner that accommodates public safety and national security interests while ensuring maximum 

transparency for the American people. 

64 

On January 29, 2018, the Trump administration announced it 

would not impose additional sanctions against individuals and entities doing business with the Russian defense and intelligence sectors because the Countering America’s Adversaries Through Sanctions Act (CAATSA) was ‘‘serving as a deterrent.’’ Has the Treasury 

Department withheld implementing Congressional sanctions because of a ‘‘deterrent’’ effect in the past? If so, when and under 

what circumstances? 

A.26. We refer you to the Department of State, which has responsibility for implementing Section 231 of CAATSA. 

Q.27. What are the specific metrics the Department of Treasury 

used to calculate a ‘‘deterrent’’ effect? 

A.27. We refer you to the Department of State, which has responsibility for implementing Section 231 of CAATSA. 

Q.28. What level of divestment from those industries constituted a 

‘‘substantial reduction’’ and therefore warranted the decision to not 

impose sanctions? 

A.28. We refer you to the Department of State, which has responsibility for implementing Section 231 of CAATSA. 

Q.29. What is the level of investment in those industries that 

would be considered ‘‘substantial’’ and would necessitate the consideration of sanctions? 

A.29. We refer you to the Department of State, which has responsibility for implementing Section 231 of CAATSA. 

Q.30. What was the specific time horizon used to make the determination that there was a ‘‘substantial reduction’’ in transactions 

to these sectors? 

A.30. We refer you to the Department of State, which has responsibility for implementing Section 231 of CAATSA. 

Q.31. Who are the primary individuals, entities, and States that 

currently investing in the Russian defense and intelligence sectors? 

A.31. We refer you to the Department of State, which has responsibility for implementing Section 231 of CAATSA. 

Q.32. Since the adoption of CAATSA, has Treasury witnessed attempts at sanctions evasion? If so, what are the primary ways and 

means that the Russian defense and intelligence sectors are receiving continued funds? 

A.32. We refer you to the Department of State, which has responsibility for implementing Section 231 of CAATSA. 

Q.33. The initial release of the unclassified oligarch and parastatal 

entity list seems to have been hastily thrown together. Numerous 

analysts have made the comment that the unclassified list seems 

to primarily rely on a Forbes list of Russian billionaires. How can 

you stand by both the unclassified and classified reports as accurate representations of fulfilling the letter and the spirit of Section 

241 (a) of CAATSA? 

A.33. This Administration is very focused on pressuring Russia for 

its continued efforts to destabilize Ukraine, occupy Crimea, meddle 

in elections, as well as for its endemic corruption and human rights 

abuses. Our most recent Russian related action on April 6, 2018, 

65 

specifically targeted Russian oligarchs and elites who profit from 

Russia’s corrupt system. OFAC designated 7 Russian oligarchs and 

12 companies they own or control, 17 senior Russian Government 

officials, and a State-owned Russian weapons trading company and 

its subsidiary, a Russian bank, under Executive Order (E.O.) 13661 

and E.O. 13662, authorities codified (CAATSA), as well as E.O. 

13582. 

To date, the Administration has sanctioned 136 individuals and 

entities under our Ukraine/Russia-related sanctions authorities. On 

January 26, 2018, Treasury sanctioned 42 individuals and entities, 

and in 2017, Treasury imposed sanctions on 58 individuals and entities related to Russia and Ukraine. We also target Russian malign activities through other sanctions authorities. On March 15, 

2018, OFAC designated five entities and 19 individuals under 

CAATSA and E.O. 13694 for their role in conducting destabilizing 

activities, ranging from interference in the 2016 U.S. election to 

conducting destructive cyberattacks, including the NotPetya attack, 

which was launched by the Russian military and was the most destructive and costly cyberattack in history. 

On December 20, 2017, we designated five individuals pursuant 

to the Sergei Magnitsky Rule of Law Accountability Act of 2012, 

bringing the total designated under this program to 49. Additionally in 2017, we designated nine Russians targeted for malign activities related to the North Korea sanctions program, and the 

President imposed sanctions on two Russians under Executive 

Order 13818, which implements the Global Magnitsky Human 

Rights Accountability Act. 

Treasury’s track record demonstrates that we have and will continue to actively target the full range of Russian malign activities. 

And in considering additional future measures, Treasury will look 

for opportunities to use the full range of authorities at its disposal, 

including CAATSA. We treat responsibility of administering U.S. 

sanctions programs with the utmost seriousness. The report required under CAATSA Section 241 was released in an unclassified 

form, with a classified annex that reflects in great detail the extensive work of experts within the Department of the Treasury, the 

Office of the Director of National Intelligence (ODNI), and the Department of State, as well as other key agencies. For the purposes 

of the unclassified report, and consistent with our interest in avoiding asset flight and protecting intelligence sources and methods, we 

wanted to cast a wide net that encompassed a range of senior political figures and oligarchs while not tipping our hand to any future 

action. A critical aspect of effective sanctions implementation is 

avoiding providing notice to potential targets in order to reduce the 

risk that they can move their funds or obscure their connection to 

property in which they have an interest. By releasing the report in 

the manner we did, Treasury sought to respond to the provisions 

of the statute while preserving our ability to take meaningful action against potential future targets. As I have made clear, we are 

using the report to inform future actions. 

Q.34. Are there changes to either Section 241 or CAATSA more 

broadly that Congress should consider that would lead to the development of a list that achieves its desired end; namely, public identification of Putin’s closest associates? 

66 

A.34. We do not have suggestions at this time, but note that publicizing such associates risks tipping them off that they may be subject to sanctions. We would be pleased to have discussions with you 

or your staff on this question, and we stand ready to brief you or 

your staff on Treasury’s efforts to target and counter the full range 

of Russian malign activities. 

Q.35. Is the Treasury Department considering imposing sanctions 

on any of the individuals identified in either the classified or unclassified lists required by Section 241? If so, how many? 

A.35. We cannot comment on possible future designations or on the 

status or existence of ongoing investigations. However, we remain 

aggressive in working to identify and sanction entities and individuals involved in these activities. As I have made clear, we are 

using the report to inform future actions. 

Q.36. I’d like to ask about our sanctions policy towards Hezbollah. 

I understand that some of these questions may involve classified 

and law enforcement-sensitive information, and I am eager to work 

with you to adapt my request in a manner that accommodates public safety and national security interests while ensuring maximum 

transparency for the American people. 

On Friday, February 2, 2018, the Department of Treasury’s Office of Foreign Assets Control (OFAC) designated 6 individuals and 

7 entities with terror-related sanctions and specifically targeted 

connections to Adham Tabaja, a Specially Designated Global Terrorist (SDGT). Are there additional individuals and entities with 

ties to Tabaja that have not been designated? If so, how many and 

what was the justification for not designating them? 

A.36. We cannot comment on possible future designations or on the 

status or existence of ongoing investigations. However, any person 

whom we determine has provided material support to, or has acted 

for or on behalf of, Adham Tabaja or Hezbollah, can be designated. 

In general, we continue to investigate networks of Specially Designated Nationals and Blocked Persons (SDNs) following their designation, and, as evidenced by our February 2, 2018, action, designates additional persons as appropriate. 

Q.37. Can you provide a minimum estimate for the amount of 

funding Tabaja secured for Hezbollah since his designation as a 

SDGT? 

A.37. We would be happy to discuss this in a classified setting. 

Q.38. How many other individuals currently designated as SDGTs, 

are continuing to act as financiers for Hezbollah? 

A.38. In general, we continue to investigate the networks associated with SDNs following their designation, and as evidenced by 

our February 2, 2018, action, designate additional persons as appropriate. 

Q.39. Can you provide a minimum estimate for the amount of 

funding these other individuals have secured for Hezbollah over 

the last 5 years? 

A.39. We would be happy to discuss this in a classified setting. 

Q.40. Does the Treasury Department regularly estimate and monitor the assets of key Hezbollah officials and how these assets were 

67 

acquired? If so, does Treasury provide regular reporting on these 

estimates to Congress? 

A.40. We would be happy to discuss this in a classified setting. On 

an annual basis, OFAC produces the Terrorist Assets Report (TAR) 

for Congress which identifies blocked property in the interest of 

various designated terrorist organizations, including those of 

Hezbollah. The TAR also identifies blocked property in the interest 

of State Sponsors of Terrorism. The most recent report is available 

at https://www.treasury.gov/resource-center/sanctions/Programs/ 

Documents/tar2016.pdf. 

Q.41. Since the adoption of the Hezbollah International Financing 

Prevention Act (HIFPA), how has Hezbollah’s financing network 

evolved to continue financing its activities? 

A.41. We continue to use all available authorities to target 

Hezbollah and its networks of terrorists regardless of where they 

operate. We are committed to imposing sanctions against 

Hezbollah, and we will continue to expose, block, and disrupt 

Hezbollah’s finances and deny Hezbollah access to the U.S. and 

international financial systems. As Hezbollah continuously evolves 

its methods for financing its operations, we’re able to use an extremely broad set of authorities, including HIFPA, to target their 

activities. The Treasury Department has designated Hezbollah pursuant to three Executive orders, and the State Department has 

designated the group as a Foreign Terrorist Organization. In addition, Treasury has designated over 110 individuals and entities for 

their material, financial, or other support to Hezbollah. These actions, combined with international engagement, continue to place 

significant strain on Hezbollah’s financial and commercial 

facilitators. The Treasury Department also works with Lebanese 

and third-country authorities where Hezbollah operates to target 

Hezbollah’s finance and procurement networks in Lebanon and 

across the globe, restricting access to financial institutions, identifying new avenues to curb Hezbollah’s operations, and designating 

Hezbollah operatives and supporters. 

Q.42. Is the Treasury Department considering secondary sanctions 

under HIFPA to financial institutions that bank for Hezbollah 

members and its associates outside of the Middle East, specifically 

in Europe, Africa, and South America? 

A.42. We cannot comment on possible future designations or on the 

status or existence of ongoing investigations. However, we remain 

aggressive in working to identify and sanction entities and individuals involved in these activities. 

Q.43. If the Treasury Department is considering secondary sanctions on these institutions why has it not acted to impose secondary sanctions? 

A.43. Treasury cannot comment on possible future designations or 

on the status or existence of ongoing investigations. However, 

through our global engagement, we highlight to third-countries the 

risk of secondary sanctions if their banks engage in transactions 

with Hezbollah. 

Q.44. Are there criminal activities that Hezbollah engages in that 

are currently not covered under U.S. sanctions? 

68 

A.44. No, Hezbollah is already subject to U.S. sanctions. Hezbollah 

is designated pursuant to three Executive orders, including two 

counterterrorism-related authorities and one of our authorities targeting the Syrian regime, in addition to the State Department’s 

designation of the group as a Foreign Terrorist Organization. Each 

of these authorities imposes blocking sanctions on persons determined to meet the criteria for designation. In addition, OFAC can 

prohibit or impose strict conditions on the opening or maintaining 

in the United States of a correspondent account or a payablethrough account on any foreign financial institution OFAC determines to have knowingly facilitated a significant transaction for 

Hezbollah. As a result, OFAC has wide authorities to designate 

Hezbollah and those providing material support to, or acting for or 

on behalf of, Hezbollah. 

Q.45. Does the Treasury Department have a list of what have been 

called ‘‘super facilitators,’’ individuals who are not personally members of Hezbollah but provide the organization with specific services to enhance its criminal enterprises? 

A.45. Treasury cannot comment on possible future designations or 

on the status of, or existence of, ongoing investigations. As evidenced by our February 2, 2018, designation of 13 persons as 

SDGTs with ties to Hezbollah, Treasury is determined to expose 

and disrupt Hezbollah’s financial, facilitation, and support networks. We are aggressively investigating and taking appropriate 

action against individuals and entities who provide material support to the organization. 

Q.46. Does the Treasury Department have a minimum estimate for 

the amount of funding these ‘‘super facilitators’’ have secured for 

Hezbollah over the last 5 years? 

A.46. We would be happy to discuss this in a classified setting. 

Q.47. Is the Treasury Department considering designating 

Hezbollah as a Transnational Criminal Organization (TCO)? 

A.47. Hezbollah is already designated pursuant to three Executive 

orders, including two counterterrorism-related authorities and one 

of our authorities targeting the Syrian regime, in addition to the 

State Department’s designation of the group as a Foreign Terrorist 

Organization. Each of these authorities imposes blocking sanctions 

on persons determined to meet the criteria for designation. Treasury’s Office of Foreign Assets Control also issued regulations in 

April 2016 implementing the Hezbollah International Financing 

Prevention Act of 2015. The regulations impose secondary sanctions on any foreign financial institution that is determined to be 

knowingly engaged in significant financial activities related to 

Hezbollah. As a result, a designation of Hezbollah as a 

Transnational Criminal Organization would not impose any additional sanctions or restrictions not already in place against 

Hezbollah. However, we will continue to review this possible authority. 

Q.48. If the Treasury Department is considering designating 

Hezbollah as a TCO why has it not proceeded to designate? 

A.48. Hezbollah is already designated pursuant to three Executive 

orders, including two counterterrorism-related authorities and one 

69 

of our authorities targeting the Syrian regime, in addition to the 

State Department’s designation of the group as a Foreign Terrorist 

Organization. Each of these authorities imposes blocking sanctions 

on persons determined to meet the criteria for designation. Treasury’s Office of Foreign Assets Control also issued regulations in 

April of 2016 implementing the Hezbollah International Financing 

Prevention Act of 2015. The regulations impose secondary sanctions on any foreign financial institution that is determined to be 

knowingly engaged in significant financial activities related to 

Hezbollah. As a result, a designation of Hezbollah as a 

Transnational Criminal Organization would not impose any additional sanctions or restrictions not already in place against 

Hezbollah. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR MENENDEZ FROM STEVEN T. MNUCHIN 

Q.1. Last year, the Administration proposed cutting more than $6 

billion dollars from critical Federal housing and community development programs like CDBG, and supportive housing for the disabled and the elderly. When asked about this, Secretary Carson 

said the Administration ‘‘considers housing a significant part of infrastructure,’’ and not to worry because ‘‘the infrastructure bill 

that’s being worked on has a significant inclusion of housing in it.’’ 

So I was surprised to see there’s not a single mention of housing 

in any reports of the President’s infrastructure plan. 

Does the Administration consider our aging affordable housing 

stock part of our Nation’s infrastructure? 

A.1. The President’s recent infrastructure outline is a comprehensive framework that addresses more than just traditional infrastructure and aims to promote investment across American communities. We look forward to working with Congress to enact infrastructure legislation. 

Q.2. What specific plans does the Administration have to invest in 

preservation and creation of affordable homes to address our current shortage of more than 7 million affordable rental homes for 

low-income households? 

A.2. The United States needs a comprehensive approach to its 

housing policy. Treasury stands ready to work with Congress on reform that supports the vital role housing plays in the financial security of American families and the broader U.S. economy. 

Q.3. The Countering America’s Adversaries Through Sanctions Act 

(CAATSA) requires the President to work with the State Department, Treasury and ODNI. While the President has threatened to 

withdraw from the JCPOA and has issued a limited number of new 

sanctions, you have yet to present this mandated comprehensive 

regional strategy. 

When can we expect to see that? 

A.3. We refer you to the Department of State, which is responsible 

for this report, pursuant to Section 103 of CAATSA. 

Q.4. Earlier this month, United Nations Officials again expressed 

concern that Iran may be violating an arms embargo by continuing 

70 

to supply weapons to Hezbollah and by providing missiles and 

drones to actors in Yemen. CAATSA provided expanded authorities 

to designate entities supporting the import and export of arms to 

and from Iran. 

When can we expect the Administration to fully implement and 

utilize the provisions of this law to counter Iran’s continuing activity throughout the region, including its support for terrorism and 

arms trafficking? 

A.4. This Administration takes the threat posed by Iran very seriously. We have aggressively targeted the full range of Iranian malign activities under all of our Iran-related sanctions authorities 

and will continue to do so in response to the Iranian regime and 

the Islamic Revolutionary Guard Corps’s (IRGC) destabilizing activity in Syria, support to the murderous regime of President 

Bashar al-Assad, and provision of funding to proxies, including the 

Houthis and Hezbollah. As of the date of this hearing, Treasury 

has issued 10 tranches of sanctions, designating 97 individuals and 

entities in the Middle East, Asia, and Europe in connection with 

the IRGC and Iran’s support for terrorism, ballistic missile programs, cyberattacks, transnational criminal activity, censorship, 

and human rights abuses. Additionally, Treasury has actively implemented the Countering America’s Adversaries Through Sanctions Act (CAATSA). For example, on October 13, 2017, consistent 

with Section 105 of CAATSA, Treasury’s Office of Foreign Assets 

Control (OFAC) put additional pressure on the IRGC by designating the IRGC pursuant to Executive Order (E.O.) 13224, our 

counterterrorism authority, for providing material support to the 

IRGC-Qods Force (IRGC–QF). OFAC took further action against 

the IRGC on October 31, 2017, by amending the Global Terrorism 

Sanctions Regulations (GTSR), 31 CFR part 594, to apply the 

blocking provisions of the GTSR to 41 foreign persons that have 

been identified by OFAC as officials, agents, or affiliates of the 

IRGC. Treasury presses key allies and partners at every opportunity to take concrete action, whether jointly with the United 

States or independently, to address Iran’s malign activities. Treasury is engaged in ongoing, productive discussions to advance partner action. As you know, CAATSA Section 107 requires the President to impose sanctions on persons he determines are knowingly 

engaged in certain activities related to the supply, sale, or transfer 

of enumerated arms and related material to or from Iran, among 

other things. The President delegated primary responsibility for 

making the determination described in Section 107(a) of CAATSA 

to the Secretary of State, so we defer to our State Department colleagues on specific questions related to that provision. 

Q.5. We understand that the State Department has eliminated the 

Office of Coordinator for Sanctions Policy, despite sanctions being 

one of the most effective diplomatic tools we have. 

How has the Treasury Department responded to this organizational shift? 

A.5. The Treasury Department develops targeted economic sanctions through a rigorous process in conjunction with a range of 

interagency partners, including the State Department. Prior to taking action, we work closely with the State Department and others 

71 

to ensure that our sanctions are consistent with our national security objectives and complement other U.S. Government activities. 

We continue to have a strong working relationship with a number 

of offices within the State Department that relate to our actions 

and authorities. 

Q.6. Have you ramped up your efforts to ensure sanctions coordination and effectiveness? 

A.6. The Treasury Department is continually working to ensure 

that our targeted economic sanctions are highly effective and implemented in conjunction with other agencies’ actions, including 

diplomatic efforts by the State Department. We develop and administer sanctions in close coordination with a range of interagency 

partners, including the intelligence community and law enforcement partners. We constantly calibrate our authorities and assess 

their effects to achieve maximum impact, and sanctions are part of 

an interagency strategy that includes our other economic authorities, diplomacy, intelligence, law enforcement, and our other elements of national power. 

Q.7. How many new employees has the Department hired in the 

Office of Foreign Asset Control? 

A.7. Since the beginning of fiscal year 2017, OFAC has hired and 

on-boarded 55 new employees, and has an additional 9 selections 

currently in the on-boarding process. OFAC is continually recruiting and hiring employees to ensure that it is appropriately staffed 

to support all of our country’s foreign policy and national security 

challenges. As part of a resource increase described below, Treasury is planning on giving OFAC new resources. 

Q.8. What are the current staffing levels of the Terrorism and Financial Intelligence Office? We’ve heard concerning reports about 

a sharp decline in staffing for critical positions. Can you provide information on staffing levels for TFI and OFAC over the past 2 

years? 

A.8. TFI’s work is vital to our national security and its work is of 

increasing importance and breadth. There has been an increase— 

not a decline—in staff for TFI positions. In addition, we requested 

additional resources in both FY2018 and FY2019 budgets, a clear 

recognition of the great value this Administration places on TFI’s 

tools. TFI is continually recruiting and hiring employees to ensure 

that we have the knowledge, skills, and expertise to address our 

country’s most critical national security challenges. In the last 2 

years, the staffing levels for TFI and OFAC have gradually increased. As reported in the Fiscal Year 2019 Budget in Brief, staffing levels for TFI, to include FinCEN, stood at 669 direct FTE for 

fiscal year 2017. This number increased to 725 for fiscal year 2018, 

which does not account for the significant increase in personnel due 

to the additional funding for TFI that was included in the FY2018 

Omnibus Appropriations bill signed by President Trump. OFAC 

has similarly increased staffing levels. At the end of FY2017, 

OFAC had 187 employees on-board. As of early 2018, OFAC had 

202 employees on-board. 

Q.9. The Administration is celebrating the passage of a tax overhaul specifically crafted to provide massive breaks to the biggest 

72 

banks and largest corporations. All along, the Administration 

claimed that the benefits would trickle down to the people that 

need it most—those who haven’t seen a raise in a decade and those 

who work multiple jobs just to get three meals a day on the table. 

Can you explain how undermining the Community Reinvestment 

Act, which requires banks to make loans to creditworthy borrowers 

in low- and moderate income communities, helps achieve the Administration’s stated intent to reach those who need it most? 

A.9. Treasury has no intentions of undermining CRA. Treasury’s 

policy teams have been engaging with a wide range of stakeholders 

to study CRA and assess potential improvements to the administration of CRA. As of April 3, 2018, we shared our findings with 

the regulators responsible for CRA administration. 

Q.10. I sent a letter to you a few weeks ago regarding Venezuela’s 

stated interest in developing a cryptocurrency for the explicit purpose of evading U.S. sanctions. Shortly thereafter, Treasury 

warned that U.S. investors in the cryptocurrency would be subject 

to sanctions risk. 

A.10. Setting aside the technical hurdles that may inhibit or delay 

the launch of Venezuela’s cryptocurrency, can you give us a sense 

of what tools and enforcement mechanisms Treasury can use to 

track the development of cryptocurrencies by adversarial countries 

like Venezuela and Russia? 

We are taking action to mitigate potential sanctions evasion 

risks associated with the petro, other sovereign digital currencies, 

and virtual digital currencies (digital currencies that are not issued 

or guaranteed by any jurisdiction and are not legal tender in the 

jurisdiction of issuance (i.e., non-fiat)). 

On March 19, 2018, President Trump issued Executive Order 

13827, which prohibits, as of such date, all transactions related to, 

provision of financing for, and other dealings in, by a United States 

person or within the United States, any digital currency, digital 

coin, or digital token, issued by, for, or on behalf of the Government 

of Venezuela on or after January 9, 2018, including the petro. The 

prohibition in E.O. 13827 is not limited to the petro; it also covers 

dealings in any other ‘‘digital currency, digital coin, or digital 

token’’ the Government of Venezuela may issue going forward. This 

scope prevents the regime from evading the E.O. by merely changing the name of the digital currency or coming out with alternate 

digital currencies, digital coins, or digital tokens. Treasury continues to monitor Venezuela’s efforts to develop its own sovereign 

digital currency closely, and stands ready to respond further to any 

attempts to circumvent U.S. sanctions. 

We also remain focused on efforts by Venezuela, Russia, and 

North Korea to exploit other digital currencies to circumvent U.S. 

sanctions. Under our existing sanctions authorities, persons subject 

to U.S. jurisdiction, including entities that process transactions 

using sovereign digital currencies or virtual currencies, are responsible for ensuring that they do not engage in transactions prohibited by sanctions administered by the Office of Foreign Assets Control (OFAC). OFAC compliance obligations apply, regardless of the 

currency in which a transaction is denominated, and OFAC will not 

hesitate to take action against persons that violate these prohibiVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00076 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
73 

tions. To further underscore this point to the compliance community and general public, on March 19, 2018, OFAC issued several 

digital currency-related Frequently Asked Questions (FAQs) that 

provide guidance on the application of U.S. targeted financial sanctions in the digital currency space. 

Treasury has effective investigatory and enforcement mechanisms to follow and counter the illicit use of virtual currencies for 

sanctionable conduct, as well as for money laundering, terrorist financing, and other nefarious purposes. As the administrator of the 

Bank Secrecy Act, Treasury’s Financial Crimes Enforcement Network (FinCEN) requires money transmitters operating in convertible virtual currencies, including convertible virtual currency exchangers and administrators, to register with FinCEN, have anti– 

money laundering/counter financing of terrorism (AML/CFT) programs, identify customers above certain transactional thresholds, 

and file reports on suspicious transactions that assist law enforcement investigations. The Internal Revenue Service, under authority delegated by FinCEN, examines virtual currency money transmitters for AML/CFT compliance. In addition, FinCEN has used its 

civil enforcement authorities against virtual currency businesses 

that fail to comply with their AML/CFT obligations. Last summer, 

for example, in partnership with the Department of Justice, 

FinCEN took enforcement action against BTC-e, an internet-based, 

foreign-located virtual currency exchanger, for willful violation of 

AML/CFT laws. FinCEN assessed a $110 million civil money penalty against BTC-e and a $12 million penalty against Russian national Alexander Vinnik, one of BTC-e’s operators. Treasury is also 

actively engaged in U.S. Government efforts to identify and combat 

illicit cyberactivity, which often involves the abuse of virtual currency, including in the case of North Korea. Our efforts include 

support to domestic and international law enforcement investigations, outreach to foreign partners, the development of sanctions, 

and enforcement actions. We are prepared to bring all of these tools 

and authorities to bear to address national security and other illicit 

financing threats associated with the development of digital currencies by adversarial countries. 

Q.11. In January Turkish banker Mehmet Hakan Atilla was found 

guilty in a Federal court room for his involvement in perhaps the 

largest ever sanctions evasion scheme which resulted in tens of billions in dollars and gold being moved from Turkey to Iran. President Obama signed the Iran Freedom and Counter-Proliferation 

Act (IFCPA) in January 2013. The law closed the gold loophole so 

that Turkey could no longer export gold to Tehran. Tehran reportedly sought to keep the loophole open so that it could import as 

much gold as possible at a time when the U.S. and its allies were 

seeking to enforce financial sanctions on Iran. 

Was there a request to delay implementation of provisions that 

could have benefitted Iran’s importation of gold? 

A.11. The Department of the Treasury did not, to the best of our 

knowledge, receive a request from Turkey to delay the implementation or enforcement of the gold provisions of the Iran Freedom and 

Counter-Proliferation Act of 2012 (IFCA). As discussed below, 

74 

though IFCA was signed into law in January 2013, the gold provisions of IFCA did not take effect until July of that year. 

Q.12. When was the law implemented and how? 

A.12. IFCA was signed into law on January 2, 2013, as part of the 

National Defense Authorization Act for Fiscal Year 2013. Most of 

the provisions in IFCA, including Section 1245 (relating to the imposition of sanctions with respect to the sale, supply, or transfer of 

certain materials, including precious metals, to or from Iran), took 

effect 180 days after enactment, which was July 1, 2013. On June 

3, 2013, the President issued Executive Order 13645 which, among 

other things, implemented certain provisions of IFCA, including 

Section 1245. The effective date of E.O. 13645 was July 1, 2013. On 

June 3, 2013, OFAC also issued guidance in the form of a series 

of FAQs, including on the implementation of Section 1245 of IFCA. 

The guidance served to clarify to the compliance community, including foreign financial institutions, what would be sanctionable 

under IFCA beginning on July 1, 2013. Furthermore, Senior Treasury officials emphasized in their engagements with Turkish and 

other officials, as well as foreign banks and companies, that gold 

trade with Iran was sanctionable and that these measures would 

be strictly enforced. 

On January 20, 2014, as part of the Joint Plan of Action (the precursor to the Joint Comprehensive Plan of Action (JCPOA)), and 

pursuant to Section 1245(g) of IFCA, the Secretary of State waived 

the application of sanctions on the sale, supply, or transfer to or 

from Iran of gold and other precious metals by non-U.S. persons 

not otherwise subject to the Iranian Transaction and Sanctions 

Regulations, provided that the transactions did not involve (i) persons on the Treasury Department’s Office of Foreign Assets Control’s (OFAC) List of Specially Designated Nationals and Blocked 

Persons (SDN List) other than persons listed solely for meeting the 

definition of the Government of Iran or an Iranian financial institution, and (ii) funds drawn from certain restricted accounts. Since 

January 16, 2016 (Implementation Day of the JCPOA), the United 

States has waived sanctions on transactions by non-U.S. persons 

for the sale, supply, or transfer to or from Iran of gold and other 

precious metals pursuant to Section 1245(g) of IFCA, in exchange 

for Iran’s implementation of nuclear-related commitments under 

the JCPOA. 

Q.13. What is the status of our negotiations with Halkbank and 

the Turkish Government about any penalties to Halkbank? 

A.13. We cannot comment on the existence or status of any potential or ongoing enforcement actions. We take very seriously, however, any activity that might violate or undermine the integrity of 

our sanctions programs. OFAC, the office which administers and 

enforces the sanctions programs for the Treasury Department, 

maintains a practice of actively following up on leads and ensuring 

that appropriate enforcement action is taken in response to any apparent violations of our sanctions programs. 

Q.14. What is the likelihood that President Erdogan or other senior 

Turkish officials will face a penalty? 

75 

A.14. Again, we cannot comment on the existence or status of any 

potential or ongoing enforcement actions. We take very seriously, 

however, any activity that might violate or undermine the integrity 

of our sanctions programs. OFAC, the office which administers and 

enforces the sanctions programs for the Treasury Department, 

maintains a practice of actively following up on leads and ensuring 

that appropriate enforcement action is taken in response to any apparent violations of our sanctions programs. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM STEVEN T. MNUCHIN 

Q.1. Intel Document Request—As you are aware, the Senate Select 

Committee on Intelligence is conducting an inquiry into Russian interference in the 2016 U.S. election. In that capacity, Chairman 

Burr and I sent you a request for documents on August 11th of last 

year. That is almost 6 months ago. Having received no response, 

the Chairman and I followed up on December 7th of last year. But 

still, we are waiting on the documents. 

Will Treasury cooperate with the Intelligence Committee’s inquiry? 

When, exactly, should we expect the documents from our August 

11th and December 7th requests? 

What is the cause for the delay? 

Will you commit to getting the Intelligence Committee all requested documents by the end of February? 

A.1. As you know, the Department of the Treasury has cooperated 

and will continue to cooperate with the Senate Select Committee 

on Intelligence’s (SSCI) inquiry. Treasury has provided documents 

responsive to SSCI’s requests of both August 11 and December 7. 

Treasury maintains regular contact with SSCI staff and will continue to keep SSCI updated. 

Q.2. Cybersecurity—In its semiannual report, the Office of the 

Comptroller of the Currency noted that concentration in third-party 

service providers, such as providers of enterprise software or security products and services, can increase cybersecurity risk. The 

cybersupply chain risk—and particularly of so-called software 

‘‘monoculture’’—was vividly illustrated in June 2017, when a major 

global cyberattack was able to spread across Ukraine (and then 

globally) via compromise of a piece of accounting software used by 

virtually all Ukrainian firms. 

What role does FSOC, or other financial regulators, have in addressing supply chain risk in the financial services sector? 

A.2. Treasury works with the financial services sector to understand and manage risks associated with the supply chain. As neither Treasury nor FSOC is a regulatory agency, we work in a voluntary fashion with financial institutions and regulators to encourage the implementation of best practices and industry standards. 

Q.3. Do you have concerns related to the sector’s dependence on a 

particular vendor’s product or service? 

A.3. Treasury, in our role as sector-specific agency, is constantly 

examining with our agency and regulatory partners ways to mitigate the risk that the financial services sector naturally carries. 

76 

Q.4. The report also says that financial regulators should ‘‘establish a harmonized risk-based approach utilizing’’ the National Institute of Standards and Technology (NIST) Framework for Improving Critical Infrastructure Cybersecurity (Framework), ‘‘which can 

be leveraged to assess cybersecurity and resilience at the firms 

they regulate.’’ 

Do you believe that financial regulators today are fully assessing 

the cybersecurity and resilience at the firms they regulate? 

A.4. There are over 97,000 known vulnerabilities in the National 

Vulnerability Database at the National Institute of Standards and 

Technology (NIST). With specific regard to the unique circumstances of the financial services sector, this is an on-going challenge for the regulators. 

Q.5. What metrics and tools are they relying on to evaluate these 

risks? 

A.5. As Treasury is not a regulator, we do not have knowledge of 

specific weaknesses of specific institutions regarding cybersecurity 

that may have been identified through the course of regulatory examinations. 

Q.6. What more needs to be done in this area? 

A.6. As Treasury is not a regulator, we do not have knowledge of 

specific weaknesses of specific institutions regarding cybersecurity 

that may have been identified through the course of regulatory or 

other examinations. 

Q.7. The recent FSOC report devotes significant attention to information sharing among private sector firms and the Government. 

Information sharing is, inarguably, a priority. At the same time, 

firms and even Government entities vary in their ability to effectively process, and operationalize, shared threat information. 

What steps are you taking to ensure that, particularly for smaller financial institutions, threat information can be effectively digested and operationalized so that these firms can evaluate risk in 

real time and take appropriate remedial steps? 

A.7. As Treasury is not a regulator, we do not have knowledge of 

specific weaknesses that of specific institutions regarding cybersecurity that may have been identified through the course of regulatory or other examinations. 

Q.8. Cryptocurrency—Given the many varied Federal interests that 

cryptocurrencies implicate—consumer protection, preservation of 

the dollar as the world’s reserve currency, adequate anti–money 

laundering and counterterrorism protections—is there a single Federal regulator that is well positioned to analyze the risks and benefits of cryptocurrencies? 

Is the FSOC the best forum for analyzing the issue? 

Has FSOC analyzed this issue? 

A.8. Recent developments related to crypto-assets have raised policy issues that implicate the jurisdiction of various Federal regulators and agencies, including numerous FSOC member agencies. 

It is therefore important that the Federal Government work to address the various policy issues raised by crypto-assets in a coordinated manner. 

77 

Treasury, including through its leadership of the FSOC, is taking 

a leading role in coordinating among Federal agencies in order to 

promote our overall mission of maintaining a strong economy and 

our role in formulating and implementing fiscal and tax policy and 

combatting illicit finance. 

Q.9. Apart from the regulation of cryptocurrency exchanges and 

markets, should the Federal Government take a look at whether 

there should be limitations on the features or governance of 

cryptocurrencies? Which agency is best positioned to perform that 

analysis? 

A.9. Treasury is working with numerous Federal regulatory agencies to assess, monitor, and respond to potential risks that cryptoassets could pose. We will continue those efforts, including our collaboration with the regulators with jurisdiction over aspects of 

these markets. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR VAN HOLLEN FROM STEVEN T. MNUCHIN 

Q.1. Mr. Secretary, during the hearing you stated that you had ‘‘no reason to doubt’’ that the average household making more than $1 

million per year gets a substantial tax cut from the recently enacted tax law, despite your earlier commitment that there would be 

‘‘no absolute tax cut for the upper class.’’ According to the Joint 

Committee on Taxation, which provides nonpartisan tax analysis to 

Congress, the bill provides a total tax cut of $36.853 billion to the 

572,000 household with incomes above $1,000,000 in 2019, which 

translates to a windfall of more than $64,000 per household (JCX68-17). Your answer implied that the Department of the Treasury 

has conducted analysis that reached a similar conclusion, based on 

your reference to ‘‘our numbers.’’ 

Has the Department of the Treasury conducted a distributional 

analysis that calculates the average tax change for households in 

different income groups, and the number of households in each income group with tax increases or tax cuts? If so, please provide 

that analysis. 

A.1. According to the Joint Committee on Taxation, the share of 

Federal taxes paid by the Nation’s top-income families will increase. I refer you to that analysis. 

RESPONSES TO WRITTEN QUESTIONS OF 

SENATOR CORTEZ MASTO FROM STEVEN T. MNUCHIN 

Q.1. In the past, the nonprofit responsible for administering Hardest Hit Funds in Nevada, the Nevada Affordable Housing Assistance Corporation (NAHAC), has had difficulty administering funds 

to Nevada families in need due to programmatic failures, and 

wasteful spending. Now under new leadership, NAHAC has taken 

steps to ensure that Nevada’s allocation is getting out the door to 

homeowners seeking relief. 

One of those steps has included submitting a number of policy 

proposals, which were recently approved by Treasury. These 

changes include programmatic adjustments to income limits, unemployment mortgage assistance, mortgage reinstatement and prinVerDate Nov 24 2008 13:06 Jun 29, 2018 Jkt 046629 PO 00000 Frm 00081 Fmt 6602 Sfmt 6602 L:\HEARINGS 2018\01-30 ZDISTILLER\13018.TXT JASON
78 

cipal reduction programs. NAHAC will also be implementing a proposal to partner with the Nevada Housing Division to create a 

downpayment assistance program. 

Does the Treasury Department intend to provide technical assistance to NAHAC in implementing these programs, particularly the 

downpayment assistance program? 

A.1. Treasury’s Office of Financial Stability (OFS) has provided 

technical assistance to NAHAC with respect to the implementation 

of existing programs and in the development of any future programs such as a downpayment assistance program. OFS has also 

provided opportunities for NAHAC to discuss development and implementation of existing and future programs with other Hardest 

Hit Fund States through summits and regular conference calls. 

Treasury will follow its existing process to review submissions for 

HHF program changes in order to determine adherence to the requirements that all HHF programs are designed to prevent avoidable foreclosures and stabilize housing markets. 

Q.2. As you know, the Treasury Department’s Office of Minority 

and Women Inclusion was established by Wall Street Reform, and 

is responsible for all matters regarding diversity in management, 

employment and business activities. 

Please tell me the dates that you met with the head of the Office 

of Minority and Women Inclusion. 

A.2. I had the opportunity to meet with Dr. Lorraine Cole, who 

heads OMWI for Treasury Departmental Offices, three times so far 

in 2018. On February 1, she joined me in a meeting on the topic 

of urban revitalization arranged in collaboration with the White 

House. On February 13, she participated in an event that I hosted 

with about 30 African American business people in recognition of 

Black History Month. On March 6, she provided a briefing to me 

on the status of business diversity, workforce diversity, and workplace inclusion within Treasury Departmental Offices. In addition, 

I host a monthly meeting with myself and Dr. Lorraine Cole. 

Q.3. How many women work in Senior Leadership at the Treasury 

Department? It looks like of 22 senior positions, only three are held 

by women. Is that correct? 

A.3. The Treasurer of the United States is female, as is one of the 

Department’s three undersecretaries. A Deputy General Counsel 

and numerous Deputy Assistant Secretaries and Senior Advisors 

across the Department are also female. 

Isabel Patelunas, the nominee to be Assistant Secretary for Intelligence and Analysis, is still awaiting confirmation by Senate despite being approved by the Senate Intelligence Committee on July 

25, 2017. I again encourage the Senate to swiftly approve her nomination. Isabel’s nearly 30 years of experience in the intelligence 

community will be a great asset to the Department. 

More broadly, women make up 28 percent of the career senior executive positions in the Treasury Departmental Offices. 

Q.4. How many Latinos? African Americans? Native Americans? 

Asian Pacific Americans? 

A.4. Among the Presidentially Appointed positions, we have one 

Latina, the Treasurer of the United States. 

79 

Q.5. When will Treasury update its required Minority and Women 

Inclusion report? The most recent report seems to be from 2014. 

A.5. Treasury provided updated Office of Minority and Women Inclusion reports in March 2018. 

Q.6. In your first year as Secretary of Treasury, the Treasury Department has published many reports on your plans to weaken 

safety and soundness rules for big banks, Wall Street investment 

firms, and corporations that want to send jobs overseas but when 

it comes to working families, you’ve issued no reports to help families who struggle to pay the ever-rising rent. While I’m relieved 

that the Low Income Housing Tax Credit and Private Activity 

Bonds remain—they support 90 percent of all affordable housing 

built in our Nation—their value has gone down. Some say this 

could result in 200,000 fewer affordable units built in the next decade. 

Will the President’s proposed infrastructure bill include funding 

to invest in our affordable housing infrastructure—repair broken 

elevators, upgrade roofs and windows, etc.? Even before the hurricanes and floods, there was a backlog of $26 billion worth of repairs needed to public housing. 

A.6. The President’s recent infrastructure outline is a comprehensive framework that addresses more than just traditional infrastructure and aims to promote investment across American communities. We look forward to working with Congress to enact infrastructure legislation. 

Q.7. When will Treasury and HUD begin publishing the monthly 

Housing Scorecard again? There hasn’t been one reissued in nearly 

2 years. 

A.7. Treasury continues to produce an internal Scorecard that aggregates metrics that reflect the state of the United States housing 

market. 

Q.8. I appreciate your repeated urging for Congress to avoid a catastrophic default. 

Can you lay out the harms that would come to families, our Nation’s economy and our international reputation if the U.S. defaulted on our national debt? 

A.8. Failing to honor our outstanding debt could result in further 

downgrades to our credit rating, and increased borrowing costs that 

would ultimately be borne by the American taxpayer for years to 

come. It could also cause serious disruption to the American economy, and potentially lead to another recession. Interest rates could 

increase not only for the U.S. Government, but for all Americans 

who borrow money, including homeowners, students, and businesses attempting to grow. 

Q.9. I’m disappointed that the Treasury Department killed the 

myRA program. Half of workers do not have access to a retirement 

account at work. The national savings rate is going down. 

Please share with me how the Treasury Department calculated 

the cost of the program? 

A.9. The Treasury Department previously calculated the cost of the 

myRA program by aggregating its actual expenses for FY14, FY15, 

80 

1https://www.washingtonpost.com/news/powerpost/wp/2017/03/30/democrats-call-for-largest-irs-budget-to-improve-service-as-trump-calls-for-cuts/?utm—term=.4110e035aa96 2https://www.cbpp.org/research/federal-budget/trump-budget-continues-multi-year-assaulton-irs-funding-despite-mnuchins 

FY16, and an estimate for FY17. The updated actual cost of the 

program through FY17 was $72.5 million. In particular, the cost of 

the program reflects the infrastructure costs associated with account hosting, such as the implementation of web sites and provision of customer service. It also reflects costs for research and promotion, including the development of messaging materials for employers and individuals, efforts to get word out about the program, 

and surveys of potential and actual customers. Finally, the total 

also reflects the cost of Federal employees who oversee the program. 

Q.10. How much was spent on research and promotion for the 

myRA program? How was that money allocated? 

A.10. The myRA program spent approximately $24.8 million on research and promotion, including costs for the development of campaign materials, for outreach to employers and influencer organizations, and for other market research. 

Q.11. How many staff were allocated the program? What was their 

median salaries? 

A.11. The number of staff on the program has varied over time. At 

peak staffing, the program had 17 employees and a median salary 

of approximately $112,000. 

Q.12. How were you spending funds on account hosting when all 

you were doing was providing workers with access to a product 

that resembled the TSP’s G-fund account? 

A.12. myRA gave workers access to retirement savings bonds offered within Roth IRA accounts. Providing the Roth IRA accounts 

required an account hosting infrastructure. This infrastructure included the myRA.gov landing site, an account enrollment site, and 

an account access site. It included IT support and a customer service center. It also included back office support staff to mail documents to account owners, comply with tax laws, and mitigate the 

risks of fraud. 

Q.13. How much did you spend on account hosting before any investments arrived? 

A.13. By the time the first investments arrived in December 2014, 

the myRA program had paid $8 million for setting up infrastructure related to account hosting. 

Q.14. Increased funding for the IRS would reverse the short-sighted and damaging budget cuts which have increased our national 

debt, left the IRS ill-equipped to combat refund errors and fraud, 

drastically reduced taxpayer services, dangerously reduced audits, 

and limits the IRS’s ability to implement new laws passed by Congress. 1 Last year’s Trump budget proposal only provided $11 bil- lion, a $239 million cut from already inadequate 2017 levels. 2

What will you do to ensure that the IRS receives adequate resources to fight identity theft, respond to questions, expedite business incorporations, etc.? 

81 

3https://www.justice.gov/opa/pr/financial-freedom-settles-alleged-liability-servicing-federally-insured-reverse-mortgage 4 Namely, Section 512 of H.R. 10 seeks to narrow the scope of the DOJ’s subpoena power by 

requiring a court order or a personally signed subpoena from the Attorney General or Deputy 

General instead of the current practice of allowing any investigating attorney from any U.S. Attorney’s Office in the country to issue a subpoena. 

Also, the Section amends the Financial Institutions Reform, Recovery and Enforcement Act 

(FIRREA) by providing that actionable cases may only been brought when there is fraud 

‘‘against a federally insured financial institution or by a federally insured financial institution 

against an unaffiliated third person’’ rather than ‘‘affecting a federally insured financial institution.’’ The practical impact of this would be to eliminate liability for acts committed by financial 

institutions and instead only allow for liability in cases when a person violates Federal law 

against a financial institution or when a financial institution commits misconduct against ‘‘an 

unaffiliated third person’’—a term that the proposal does not define and that leaves open to 

question the DOJ’s ability to use FIRREA in the manner that it has to date. 

A.14. Funding for the IRS is a priority for the Department. In 2018 

we worked with Congress to ensure that the IRS had sufficient 

funding to implement the tax reform law, including funding to answer taxpayer questions, as well as base funding to provide taxpayer service and continue our enforcement efforts. The 2019 Budget proposes $11.1 billion in base funding for the IRS including $2.2 

billion for taxpayer services salaries and expenses, $4.6 billion for 

enforcement salaries and expenses, $4.2 billion for running key tax 

filing and compliance IT applications, and $110 million for IT modernization. 

Furthermore, the Budget proposes a program integrity cap in- crease of $362 million in 2019 to expand audit coverage and protections against identity theft and improper payments. We are committed to monitoring the IRS’s performance and working with Congress to identify appropriate funding levels in the future. 

Q.15. In 2016, the Department of Justice settled a case against 

OneWest’s subsidiary Financial Freedom, which sold reverse mortgages to senior citizens. 3 The settlement totaled eighty-nine mil- lion dollars ($89 million) and related to Financial Freedom defrauding taxpayers by submitting false insurance claims to HUD. I have 

data suggesting that Financial Freedom foreclosed on one-hundred 

and eighty-one (181) Nevada seniors during your tenure. 

The House bill to gut Wall Street Reform (H.R. 10) would severely restrict subpoena authority and other enforcement tools used 

by DOJ under the statute they used to bring this case. 

Do you support rolling-back the law that the Justice Department 

used to sue your old bank for fraudulent foreclosures against seniors? 4

A.15. The Department of Justice should have all appropriate tools 

it needs to effectively enforce the law. Regarding the House bill, I 

would refer you to the Department of Justice. 

Q.16. Moving forward, what do you plan to do to protect seniors 

from predatory financial products? 

A.16. I agree that it is important to protect seniors from predatory 

financial products. Agencies with enforcement authority, including 

the Department of Justice, should use their authority to protect 

seniors from any unlawful activity. Where the Treasury Department can assist law enforcement in those efforts, we are fully committed to doing so. 

Q.17. Background: In S. 2155, Section 402 changes the supplementary leverage ratio, and allows banks to exempt funds from 

82 

5The Securities and Exchange Commission. ‘‘State Street Paying Penalties to Settle Fraud 

Charges and Disclosure Failures’’. The Securities and Exchange Commission. September 7, 

2017. Available at: https://www.sec.gov/news/press-release/2017-159. 

custodial banks when calculating the amount of capital needed to 

offset risk. While some argue that funds from custodial banks are 

safer, custody banks have had compliance problems. For example, 

in September 2017, State Street paid more than $35 million to settle charges that it overcharged customers, generating approximately $20 million in improper revenue for the bank. 5

Secretary Mnuchin, as I’m sure you know, one of the reasons the 

financial crisis was so devastating was because many banks kept 

toxic assets off their balance sheet, and as a result, held less capital than needed when these assets started to fail. 

Section 402 of S. 2155 changes the supplementary leverage ratio 

to allow banks to hold custodial bank funds off the balance sheet 

when calculating how much capital is needed to offset risk. But 

even custodial banks have had compliance and fraud problems— 

just last September, State Street was fined $35 million for fraudulently charging customers. 

Do you believe that allowing banks to move funds deposited by 

custodial banks off balance sheets could cause banks to hold less 

capital and leave themselves open to risks posed by custodial 

banks? 

A.17. The leverage ratio is an important feature of improving the 

safety and soundness of the U.S. regulatory capital regime for 

banking organizations. However, deposits held at central banks 

that are the result of custody activities are fundamentally low risk 

asset exposures that are not the type of risky leveraged activities 

that the leverage ratio was designed to constrain. Moreover, a regulatory capital regime that makes the leverage ratio the primary 

binding capital constraint on firms could have the unintended outcome of actually encouraging additional risk-taking by banking organizations. 

Q.18. Follow up: Isn’t allowing banks to hold less capital part of 

what contributed to the failure of some Wall Street banks and 

made the financial crisis much worse? Why should we allow weaker financial cushions for financial institutions that have already 

shown they cannot adequately assess the risk on their own balance 

sheets? 

A.18. The aim of policy is to make leverage ratio requirements a 

backstop to the risk-based capital regime, which we think results 

in a better overall set of incentives for firms. Moreover, we think 

the Fed maintains its full authority to set overall capital levels and 

has the authority to adjust leverage ratio requirements to take into 

account any change in the treatment of deposits held at central 

banks. 

Q.19. In November 2017, Treasury issued a report regarding goals 

that FSOC should achieve. Suggestions included changes to the 

designation process, and focusing on an ‘‘activities-based approach.’’ 

During the financial crisis, regulators were unaware that credit 

default swaps, the very instrument that tanked the financial markets, were risky to markets until it was too late. 

83 

If FSOC moves from a simple threshold to a more complex analysis, how do you think regulators at the Federal and State level 

will be able to adequately catch risky products before they cause 

significant damage to the economy? 

A.19. Members of the Financial Stability Oversight Council are 

considering the recommendations made in Treasury’s November 17, 

2017, report on FSOC designations, and I look forward to working 

with them to determine how best to implement the recommendations. 

Q.20. It’s being reported today that MetLife found weakness in its 

internal controls. Supposedly, these weaknesses are making 

MetLife delay the release of its Q4 financial report. 

Did you know about the problems with MetLife’s internal financial reporting when you urged FSOC to drop the lawsuit designating MetLife as a Significantly Important Financial Institution? 

A.20. As I stated in January, I am pleased that the Justice Department settled the MetLife case, consistent with the recommendation 

by a majority of FSOC voting members. Treasury has recommended specific reforms to make its nonbank financial company 

designation process more analytically rigorous, clear, and transparent. As Chairman of FSOC, I will be working with the Council 

to clarify and revise its nonbank designation rule and interpretive 

guidance. 

Q.21. As you are aware, cannabis and cannabis related businesses, 

including landlords and companies providing security services, face 

challenges when accessing financial services from State- or federally chartered financial institutions. As a former Attorney General, 

I am concerned about money laundering and other crimes in an industry that generates hundreds of millions of dollars in revenue, 

but is forced to operate on a cash-only basis and without access to 

financial services. Currently, financial institutions are operating 

under guidance issued by Treasury’s Financial Crimes Enforcement 

Network (FinCEN) that gives such institutions regulatory certainty 

when they provide financial services to cannabis related businesses. This guidance has made State-legal cannabis operations 

safer and more secure while allowing the industry to continue to 

provide medicine to patients and millions of tax dollars to State 

governments. Thus, I am greatly concerned by your testimony in a 

recent hearing before the House Financial Services Committee that 

FinCEN’s guidance was being reviewed. 

During any review of the current FinCEN guidance, will Treasury commit to taking into account the greater risk of money laundering and other crimes when State-legal cannabis businesses are 

forced to operate on a cash-only basis or otherwise denied financial 

services? 

A.21. The review of the current FinCEN guidance is being conducted consistent with FinCEN’s mission to safeguard the financial 

system from illicit use and combat money laundering and promote 

national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. We will continue to consult with the Department of Justice to 

ensure that law enforcement-related issues are addressed. 

84 

Q.22. During any review of the current FinCEN guidance, will 

Treasury collaborate with other Federal financial regulators to 

issue a joint guidance governing how financial institutions can effectively serve marijuana-related businesses? 

A.22. Since the 2014 guidance was issued, FinCEN has continued 

discussions with both the public and private sectors involved with 

State-authorized marijuana-related businesses, including the relevant financial communities, as well as State and Federal regulators and authorities. We continue to consider the feedback we 

have received. We will continue to consult with the Department of 

Justice and the appropriate Federal prudential regulators and 

other stakeholders regarding this issue. We will continue to consult 

with the Department of Justice to ensure that law enforcement-related issues are addressed. 

Q.23. During any review of the current FinCEN guidance, will 

Treasury commit to working with State governments to ensure that 

States allowing adult and medicinal use of cannabis are represented during the process? 

A.23. FinCEN works to provide as much certainty as possible with 

respect to how financial institutions must comply with FinCEN’s 

regulations consistent with the purposes of the BSA. Since the 

2014 guidance was issued, FinCEN has continued discussions with 

both the public and private sectors involved with State-authorized 

marijuana-related businesses, including the relevant financial communities, as well as State and Federal regulators and authorities. 

We continue to consider the feedback we have received. We will 

continue to consult with the Department of Justice and the appropriate Federal prudential regulators and other stakeholders regarding this issue. 

85 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

LETTER SUBMITTED BY ANDREW M. SCHAUFELE, DIRECTOR, BUREAU 

OF REVENUE ESTIMATES 


13018001.eps
86 

DEPARTMENT OF THE TREASURY 2017–2018 PRIORITY GUIDANCE 

PLAN, JOINT STATEMENT 


13018002.eps

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

October 20, 2017 

Department of the Treasury 

2017-2018 Priority Guidance Plan 

Joint Statement by: 

David J. Kautter 

Assistant Secretary forT ax Policy 

U.S. Department of the Treasury 

John A. Koskinen 

Commissioner 

Internal Revenue Service 

William M. Paul 

Acting Chief Counsel 

Internal Revenue Service 

We are pleased to amounce the release of the 2017-2018 Priority Guidance Plan. As 

descnbed below, the 2017-2018 Priority Guidance Plan se:s forth guidance priorities for 

the Department of the Treasury (Treasury) and the lntema Revenue Service (IRS) 

based on public input, and taking into account the borden;educing policies and reforms 

described in Section 1 of Executive Order 13789 (ft+lril21,2017; 82 FR 19317) and 

Executive Order 13777 (February 24, 2017; 82 FR 9339). 

The 2017-2018 Priority Guidance Plan contains guidance projects that we hope to 

complete during the twe ve-~nonth period from July 1, 2017, through June 30,2018 (the 

plan year). Part 1 of the plan focuses on the eight regulations from 2016 that were 

identified pursuant to Executive Order 13789 and our interded actions with respect to 

those regulations. Part 2 of the plan describes certain projects that we have identified 

as burden reducing and that we believe can be completed in the 814 months remaining 

in the plan year. As in the past, we intend to update the plan on a quarterly basis, and 

additional borden reduction projects may be added. Part 3 of the plan describes the 

various projects that comprise our implementation of the new statutory partnership audit 

regime, which has been a topic of significant concern and locus as the statutory rules 

go into effect on January 1, 2018. Part 4 of the plan, in line with past years' plans and 

our long-standing commitment to transparency in the process, describes spec~ic 

projects by subject area that will be the locus of the balance of our efforts this plan year. 

Many of these projects are included on the plan in response to specifiC requests !I)( 
87 


13018003.eps

guidance from interested stakeholders. In add~ion, many of these projects afford 

burden reduction by providing taxpayers and their advisers w~h clarity as to the 

application of the tax law so that businesses and individuals can signifiCantly reduce the 

time needed to plan their affairs with certainty as to their tax consequences. Finally, 

most of these projects do not involve the issuance of new regulations. Rather, they will 

provide helpful guidance to taxpayers on a variety of tax issues important to individuals 

and businesses in the form of: (1) revocations of final, temporary, or proposed 

regulations; (2) notices, revenue rulings, and revenue procedures; and (3) simplifying 

and burden reducing amendments to existing regulations. 

As in past years, we solicited comments from taxpayers to develop our Priority 

Guidance Plan, and we received many thoughtful suggestions for areas where guidance 

could clarify existing rules, eliminate umecessary complexity, and provide reliance 

authority in areas where noniJrecedentiaiiRS rules already exist. With respect to all of 

the projects described in this plan (as well any added in our quarterly updates), 

regardless of how they are categorized here, we will be guided by the burden-reducing 

principles and policies described in aforementioned Executive Orders, and focusing on 

reducing burdens and complexity wherever possible. 

As in past years, we intend to update and republish the 2017-2018 plan during the plan 

year to reflect additional items that have become priorities and guidance that we have 

published during the plan year. The periodic updates allow us flexibility to consider 

comments received from taxpayers and tax practitioners relating to additional guidance 

priorities and to respond to developments arising during the plan year. 

The published guidance process can be fully successful only if we have the benefit of 

the insight and experience of taxpayers and practitioners who must apply the internal 

revenue laws. Therefore, we invite the public to continue to provide us with their 

comments and suggestions as we develop guidance throughout the plan year. 

Additional copies of the 2017-2018 Priority Guidance Plan can be obtained from the IRS 

website at http://www.irs.gov/uacJPriority-Guidance-Pian. Copies can also be obtained 

by calling Treasury's Office of Public Affairs at (202) 622-2960. 

2 
88 


13018004.eps

OFFICE OF TAX POLICY 

AND 

INTERNAL REVENUE SERVICE 

2017-2018 PRIORITY GUIDANCE PLAN 

Updated as of October 12, 2017 

Released October 20, 2017 

PART 1. E.O. 13789 -IDENTIFYING AND REDUCING REGULATORY BURDENS 

1. Wrthdrawal of proposed regulations under §2704 regarding restrictions on 

liquidation of an interest for estate, gift, and generation-skipping transfer taxes. 

Proposed regulations were published on August 4, 2016. 

2. Wrthdrawal of proposed regulations under §1 03 regarding the definition of 

political subdivision. Proposed regulations were published on February 23, 

2016. 

3. Proposed amendment of regulations under §7602 regarding the participation of 

attorneys described in §6103(n) in a summons interview. Final regulations 

were published on July 14, 2016. 

4. Proposed removal of temporary regulations under §707 conoeming treatment of 

liabilities for disguised sale purposes and review of regulations under §752 

conoeming liabilities recognized as recourse partnership liabilities. Temporary 

and proposed regulations were published on October 5, 2016. 

5. Delay and proposed removal of documentation regulations under §385 and 

review of other regulations under §385. Final, temporary, and proposed 

regulations were published on October 21, 2016. 

• PUBLISHED 08/14/17 in IRB 2017-33 as NOT. 2017-36 (RELEASED 

07/28117). 

6. Proposed modification of regulations under §367 regarding the treatmenl of 

oertain transfers of property to foreign corporations. Final regulations were 

published on December 16, 2016. 

7. Proposed modification of regulations under §337(d) regarding oertain transfers 

of property to regulated investment companies (RICs) and real estate 

investment trusts (REITs). Temporary and proposed regulations were 

published on Jllle 8, 2016. 

3 
89 


13018005.eps

8. Proposed modification of regulations under §987 on inoome and currency gain 

or loss with respect to a §987 qualified business unit Final regulations were 

published on December 8, 2016. 

PART 2. NEAR-TERM BURDEN REDUCTION 

1. Guidance removing or updating regulations that are unnecessary, create undue 

complexity, impose excessive burdens, or fail to provide clarity and useful 

guidance. 

2. Guidance under §871 (m), induding w~h respect to non-delta-one transactions. 

• PUBLISHED 08/21/17 in IRB 2017 ·34 as NOT 2017-42 (RELEASED 

08/05/17). 

3. Guidance under Chapter 3 (§§1441-1446) and Chapter 4 (§§1471-1474). 

Final and temporary regulations were published on January 6, 2017. Guidance 

may include the following: addressing withholding on gross proceeds and 

foreign passthnu payments under Chapter 4; coordinating certain 

documentation requirements for participating foreign financial institutions with 

the requirements under IGAs; revising the withholding requirements on 

insurance premiums under Chapter 4; guidance concerning certain due 

diligence requirements of withholding agents under Chapter 3, including the 

requirement to collect and report foreign taxpayer identification numbers of 

certain accountholders; and guidance on refunds and credits under Chapter 3, 

Chapter 4, and related provisions. Notice 2015·1 0 (regarding refunds and 

credits) was published on May 18, 2015. 

• PUBLISHED 10/10/17 in IRB 2017-41 as NOT2017-46 (RELEASED 

09/25/17). 

4. Regulations under §§1014(f) and 6035 regarding basis consistency between 

estate and person acquiring property from decedent Proposed and temporary 

regulations were published on March 4, 2016. 

5. Guidance under §170(e)(3) regarding charitable contributions of inventory. 

6. Final regulations under §263A regarding lhe inclusion of negative amounts in 

additional §263A costs. Proposed regulations were published on September 5, 

2012. 

7. Final regulations under §§4051 and 4071 on heavy trucks, tractors, trailers, and 

tires. Proposed regulations were published on March 31 , 2016. 

4 
90 


13018006.eps

8. Final regulations under §2642(g) describing the circ001stances and procedures 

under which an extension of time will be granted to allocate GST exemption. 

9. Regulations streamlining the §754 election statement 

• PUBLISHED 10/12/17 in FR as REG-1 16256-17 (NPRM). 

10. Guidance under §1362(D regarding the valid~y or continuation of an 

S corporation election in certain s~uations involving disproportionate 

distributions, inconsistent tax return filings, or omissions on Form 2553, Election 

by a Small Business Corporation. 

11. Guidance under §301 .91 00 regarding relief for late regulatory elections. 

12. Relief for late elections due to erroneously late-filed partnership and REMIC 

returns. 

• PUBLISHED 09/18117 in IRB 2017-38 as NOT. 2017-47 (RELEASED 

09/01/17). 

13. Final regulations under §3402(q). Proposed regulations were published on 

December 30, 2016. 

• PUBLISHED 09/27/17 in FR as TO 9824. 

14. Guidance on refunds under Combat-Injured Veterans Tax Fairness Act. 

15. Guidance under §954(c) regarding foreign currency gains. 

16. Guidance under §954, including regarding the use of foreign statement 

reserves for purposes of measuring qual~ied insurance income under §954(i). 

17. Final regulations and related guidance on closed defined benefit plans and 

related matters. Proposed regulations were published on January 29, 2016. 

• PUBLISHED 09/18117 in IRB 2017-38 as NOT. 2017-45 (RELEASED 

08/31/17). 

18. Guidance under §3405 regarding distributions made to payees, induding 

military and diplomatic payees, with an address outside the United States. 

19. Update to Revenue Ruling 67-390. 

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PART 3. BIPARTISAN BUDGET ACT OF 2015 - PARTNERSHIP AUDIT 

REGULATIONS 

1. General guidance under new partnership audit rules. 

2. Regulations addressing administrative and judicial review rules. 

3. Regulations addressing push out election by tiered structures. 

4. Regulations addressing adjustments to bases and capital accounts and the tax 

and book basis of partnership property. 

5. Regulations addressing the operation of certain international provisions in lhe 

context of the centralized partnership audit regime, including rules relating to 

the withholding of tax on foreign persons, withholding of tax to enforce reporting 

on certain foreign accounts, and the treatment of creditable foreign tax 

expenditures of a partnership. 

PART 4. GENERAL GUIDANCE 

CONSOLIDATED RETURNS 

1. Regulations under §1.1502-36 and related provisions regarding losses on 

subsidiary stock. 

2. Regulations under §1.1502-75(d) regarding group continuation. Final 

regulations were published on September 8, 1966. 

3. Final regulations under§1.1502-76 regarding when a member joins or leaves a 

consolidated group. Proposed regulations were published on March 6, 2015. 

4. Final regulations under § 1.1502-91 regarding the redetermination of 

consolidated net unrealized built-in gain and loss. Proposed regulations were 

published on October 24, 2011. 

CORPORATIONS AND THEIR SHAREHOLDERS 

1. Updating §301 regulations to reflect statutory changes. 

2. Guidance under §305(b) regarding certain stock distributions by REITs and 

RICs 

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• PUBLISHED 08/28117 IN IRB 2017-35 as REV. PROC. 2017-45 

(RELEASED 08/11/17). 

3. Final regulations under §305(c) regarding the amount and timing of deemed 

distributions from conversion ratio adjustments on convertible debt and stock. 

Proposed regulations were published on April13, 2016. 

4. Regulations regarding transactions involving the transfer or receipt of no net 

equity value. Proposed regulations were published on March 10, 2005. 

• PUBLISHED in FR on 07/13/17 as REG-139633-08 (WITHDRAWAL). 

5. Regulations under §336(e) to revise the treatment of certain stock dispos ions 

as asset sales. Final regulations were published on May 15, 2015. 

6. Revising regulations under §1.337(d)·7 regarding the treatment of certain 

foreign corporations. Final regulations were published on August 2, 2013. 

7. Guidance regarding the application of §§355 and 361 to a distributing 

corporation's use of its controlled corporation's stock, securities, or other 

obligations to retire putative debt of the distributing corporation. 

8. Guidance regarding procedures of Pilot Program for issuing private letter 

rulings under §355. 

• PUBLISHED 10/10/17 in IRB 2017-41 as REV. PROC. 2017-52 

(RELEASED 09/21/17) 

9. Revising regulations under §368(a)(1)(F). Final regulations were published on 

September 21, 2015. 

10. Guidance regarding cont nu~y of interest under §368. Proposed regulations 

were published on December 19, 2011 . 

11. Final regulations regarding the scope and application of §597. Proposed 

regulations were published on May 20, 2015. 

EMPLOYEE BENEFITS 

A. Retirement Benefits 

1. Regulations updating the rules applicable to ESOPs. 

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2. Final regulations on the application of the normal retirement age regulations 

under §401(a) lo governmental plans. Proposed regulations were published on 

January 27, 2016. 

3. Guidance under §401 (a)(9) on the use of lump sum payments to replace 

lifetime income being received by retirees under defined benefit pension plans. 

4. Final regulations regarding Qualified Nonelective Contributions (QNECs) and 

Qualified Matching Contributions (QMACs). Proposed regulations were 

published on Janual)' 18, 2017. 

5. Announcements on hardship distributions and loans from retirement plans as a 

resuH of Hurricanes Harvey and Irma. 

• PUBLISHED 09/25117 in IRB 2017-39 as ANN. 2017·11 (RELEASED 

08/30/17). 

• PUBLISHED 10/02/17 in IRB 2017-40 as ANN. 2017-13 (RELEASED 

09/12/17) 

6. Regulations under §§219, 408, 408A, and 4973 regarding IRAs. 

7. Guidance updating regulations for service credit and vesting under §411. 

8. Regulations under §411 (a)(11) Proposed regulations were published on 

October 9, 2008. 

9. Guidance on the treatment of future interest credits and annuity conversion 

factor under a hybrid defined benefit plan and adjustments under a variable 

annuity plan for purposes of satisfying certain qualification requirements. 

10. Guidance related to church plans. 

11. Regulations on the definition of governmental plan under §414(d). An ANPRM 

was published on November 8, 2011 . 

12. Guidance regarding the aggregation rules under §414(m). 

13. Final regulations under §415 regarding §7873 treaty fishing rights income. 

Proposed regulations were published on November 15, 2013. 

14. Final regulations under §417(e) that update the minimum present value 

requirements for defined benefit plans. Proposed regulations were published 

on November 25, 2016. 

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15. Notice providing model amendments for §417(e). 

• PUBLISHED 09/05117 in IRB 2017-36 as NOT2017-44 (RELEASED 

08/18/17) 

16. Revenue procedures relating to approval for funding method changes. 

17. Final regulations and other guidance under §430(h)(3) revising the mortality 

tables used for pension funding purposes. Proposed regulations were 

published on December 29, 2016. 

• PUBLISHED 10/05/17 in FR as TD 9826. 

18. Notice on funding relief as a resuH of Hurricanes Harvey and Irma. 

• PUBLISHED 10/02/17 in IRB 2017-40 as NOT2017-49 (RELEASED 

09/12117) 

19. Revenue Procedure on multiemployer plan benefit suspensions under 

§432(e)(9) as amended by the Multiemployer Pension Reform Act of 2014. 

• PUBLISHED 07131/17 in tRB 2017-31 as REV. PROC. 2017-43 

(RELEASED 07/12/17) 

20. Regulations relating to the reporting requirements under §6057. Proposed 

regulations were published on June 21, 2012. 

21. Additional guidance on issues relating to l~etime income from retirement plans 

and IRAs. 

22. Revenue procedure mod~ying EPCRS to provide guidance with regard to 

certain corrections. 

23. Guidance on missing participants. 

B. Executive Compensation, Health Care and Other Benefits, and 

Employment Taxes 

1. Regulations under §86 regarding rules for lump-sum elections. 

2. Regulations under §§119 and 132 regarding employer -provided meals. 

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3. Updated guidance on the classification system for the line of business 

determination under §1.132-4 for purposes of qualified employee discounts and 

no-additional-cost services. 

4. Guidance under §162(m) addressing certain situations involving a short taxable 

year. 

5. Final regulations on inoome inclusion and various other issues under §409A. 

Proposed regulations were published on December 8, 2008, and on June 22, 

2016. 

6. Revenue ruling under §419A on the definition of post-retirement medical 

benefits. 

7. Regulations amending §1.419A-2T relating to oollectively-bargained welfare 

benefit funds. 

8. Final regulations under §457(fj and related guidance on ineligible plans. 

Proposed regulations were published on June 22, 2016. 

9. Guidance on the application of §409A to compensation deferred prior to 2009 

and includible in inoome under §457 A no later than 2017. 

10. Final regulations under §512 explaining how to oompute unrelated business 

taxable inoome of volul'ltary employees' beneficiary associatiOI'Is described in 

§501(c)(9). Proposed regulations were published on February 6, 2014. 

11. Guidance on the application of §1402(a)(13) to limited liability oompanies. 

12. Guidance under §3402 to remove aHemative method of figuring withholding 

based on oombined inoome, employee social security, and employee Medicare 

tax w~hholding tables. 

13. Guidance on certain transactions involving welfare benefrt funds. 

14. Guidance on issues under §4980H. 

15. Regulations under §49801 regarding the excise tax on high oost employerprovided ooverage. 

16. Guidance on procedures under §7436. 

17. Guidance under §9831(d) on qual~ied small employer health reimbursement 

arrangements (QSEHRAs) as added by section 18001 of the 21st Century 

Cures Act 

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EXCISE TAX 

1. Guidance under §48.4041-7 on dual use of taxable liquid fuel. 

2. Guidance on the defin~ion of compressed natural gas for purposes of §§4041 

and 6426. 

3. Guidance on claims for dyed fuel relief under Notice 2017-30. 

4. Regulations under §4261(e)(3)(C) regarding the application of the domestic air 

transportation excise tax under §4261 to the purchase of mileage awards. 

5. Guidance on whether gasoline blendstocks combined w~h taxable fuel qualify 

for the alternative fuel mixture credn under §6426(e). 

6. Final regulations under ACA §901 0 regarding retrospectively rated insurance 

contracts. 

7. Guidance on the allocated fee amount under ACA §9010 for the 2019 fee year. 

8. Final regulations for ACA §9010 on def11ition of a covered entity 

EXEMPT ORGANIZATIONS 

1. Update revenue procedures on grantor and contributor reliance under §§170 

and 509, including update to Revenue Procedure 2011-33 for EO Select Check. 

2. Final regulations on §509(a)(3) supporting organizations. Proposed regulations 

were published on February 19, 2016. 

3. Guidance under §512 regarding methods of allocating expenses relating to dual 

use facilities. 

4. Guidance on §529(c)(3)(D) on the recontribution within 60 days of refunded 

qualified higher education expenses as added by section 302 of the Protecting 

Americans from Tax Hikes Act of 2015. 

5. Final regulations under §529A on Qualified ABLE Programs as added by 

section 102 of the ABLE Act of 2014. Proposed regulations were published on 

June 22, 2015. 

6. Guidance under §4941 regarding a private foundation's i1vestment in a 

partnership in which disqualified persons are also partners. 

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7. Update to Revenue Procedure 92-94 on §§4942 and 4945. 

• PUBLISHED 10/02/17 in IRB 2017-40 as REV. PROC. 2017-53 

(RELEASED 09/14/17). 

8. Guidance regarding the excise taxes on donor advised funds and fund 

management. 

9. Final regulations under §6104{c). Proposed regulations were published on 

March 15, 2011. 

10. Final regulations designating an appropriate high~evel Treasury official under 

§7611. Proposed regulations were published on August 5, 2009. 

FINANCIAL INSTITUTIONS AND PRODUCTS 

1. Regulations relating to the definition of registered form under §§149(a) and 

163(0. 

• PUBLISHED 09/19/17 in FR as REG-125374-16 (NPRM). 

2. Guidance under §166 on the conclusive presumption of worthlessness for bad 

debts. Notice 2013-35, which requested comments on the existing rules, was 

published on JLile 10, 2013. 

3. Regulations under §249 relating to the amount of a repurchase premium 

attributable to the cost of bcrrowing. 

4. Guidance under §§446, 1275, and 6050H to address the treatment and 

reporting of cap~alized interest on modified home mortgages. 

5. Guidance addressing issues relating to mark-to-market accounting under §475. 

6. Final regulations under §851 relating to investments in stock and securities. 

Proposed regulations were published on September 28, 2016. 

7. Guidance regarding application of the cure provisions under §851(i) for 

regulated investment companies (RICs) and §856(cX7) and (g)(5) for real 

estate investment trusts (REITs). 

8. Guidance clarifying the defin~ on of income in §856(c)(3) for purposes of the 

REIT qual~ication tests. 

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9. Guidance under §856(c)(5)(J) to determine whether Subpart F income and 

passive foreign investment company (PFIC) inclusions are treated as qualifying 

income for purposes of §856(c). 

10. Regulations under §1001 on the modification of debt ilstnuments, including 

issues relating to disregarded entities. 

11. Guidance on the constant yield election under §1276(b). 

12. Regulations under §7872. Proposed regulations were published on August 20, 

1985. 

13. Guidance on the exchange of mortgage-backed secur~ es. 

14. Guidance on the treatment of fees relating to debt instruments and other 

secur~ies. 

GENERAL TAX ISSUES 

1. Guidance under §§24, 25A, and 32 pursuant to section 208 of the Protecting 

Americans from Tax Hikes Act of 2015. 

2. Final regulations on the allocation of the research ed~ to corporations and 

trades or businesses under common control for purposes of §41(q(1). Final, 

temporary, and proposed regulations were published on April 3, 2015. 

3. Final regulations under §42 relating to compliance monitoring, including issues 

identified in Notice 2012-18. Proposed and temporary regulations were 

published on February 25, 2016. 

4. Final regulations under §45D that revise and clarify certain rules relating to 

recapture of the new mall<ets tax Cfedit as well as other issues. Proposed 

regulations were published August 11 , 2008. 

5. Marginal well production Cfedit under §451 for natural gas. 

• PUBLISHED 10/02/17 in IRB 2017-40 as NOT. 2017-51 (RELEASED 

9/12/17) 

6. Guidance under §47 concerning the rehabilitation Cfedit and 2017 disaster 

relief. 

7. Guidance on the modification, extension, and phase out of the investment tax 

credit (lTC) for solar energy property under §48. 

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8. Revenue Ruling under §102 regarding whether contributions of money received 

through a crowdfunding site to pay for medical expenses under §213 are 

excludable from income because the contributions are g~ts 

9. Final regulations under §152 regarding dependency deduction. 

10. Guidance facilitating leave-donation programs in areas affected by Hurricane 

and Tropical Storm Harvey. 

• PUBLISHED 0912512017 in IRB 2017-39 as NOT. 2017-48 (RELEASED 

09/05/17). 

11. Guidance facilitating leave-donation programs in areas affected by Hurricane 

and Tropical Storm Irma. 

• PUBLISHED on 10/0212017 in IRB 2017-40 as NOTICE 2017-52 

(RELEASED 09/14/17). 

12. Guidance extending relief originally provided in Notice 2011·14, 2011·11 1.R.B. 

544, for the Treasury Department's Housing Finance Agency Innovation Fund 

for the Hardest·H~ Housing Markets (HFA Hardest Hit Fund). 

• PUBLISHED 08/0712017 in IRB 2017-32 as NOT. 2017-40 (RELEASED 

07/31/17) 

13. Guidance under §167 regarding a safe harbor for normalization. 

• PUBLISHED 09/18117 in IRB 2017-38 as REV. PROC. 2017-47 

(RELEASED 09/0712017) 

14. Final regulations under §170 regarding char~ab e contributions. Proposed 

regulations were published on August?, 2008. 

15. Final regulations under §199 regarding allocation of W-2 wages in a short 

taxable year and in an acquisition or disposition. Proposed and temporary 

regulations were published on August27, 2015. 

16. Regulations under § 199 relating to computer software. 

17. Guidance on qualified films under §199. 

18. Guidance clamying whether the business use of an aircraft by a lessee that is a 

five percent owner or related party of the lessor of the aircraft is qualified 

business use for purposes of §280F. 

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19. Final regulations under §468A involving the decommissioning costs of a nuclear 

power plant 

20. Final regulations under §1411 regarding issues related to the net investment 

income tax. Proposed regulations were published on December 2, 2013. 

21. Guidance under §7701 providing criteria for treating an entity as an integral part 

of a state, local, or tribal government 

GIFTS AND ESTATES AND TRUSTS 

1. Guidance on basis of grantor trust assets at death under §1014. 

2. Final regulations under §2032(a) regarding imposition of restrictions on estate 

assets during the six month aHernate valuation period. Proposed regulations 

were published on Novembef 18, 201 1. 

3. Guidance under §2053 regarding personal guarantees and the application of 

present value concepts in determining the deductible amount of expenses and 

claims against the estate. 

INSURANCE COMPANIES AND PRODUCTS 

1. Final regulations under §72 on the exchange of property for an annu~y contract. 

Proposed regulations were published on October 18, 2006. 

2. Guidance under §§807 and 816 regarding the determination of life insurance 

reserves for life insurance and annuity contracts using principles-based 

methodologies, induding stochastic reserves based on conditional tail 

expectation. 

INTERNATIONAL 

A. Subpart F/Deferral 

1. Guidance on the treatment of upfront payments on swaps under §956. 

Temporary and proposed regulations were published on May 8, 2015. 

2. Guidance on the treatment lllder §956(c) of certain property tempci(arily stored 

in the United States following Hurricane Irma or Hurricane Maria. 

3. Guidance under §§1295, 1297, and 1298 on passive foreign investment 

companies. Proposed regulations regarding foreign insurance companies were 

published on April24, 2015. 

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B. Inbound Transactions 

1. R99ulations under §§897 and 1445 relating to changes in the Protecting 

Americans from Tax Hikes Act of 2015. 

C. Outbound Transactions 

1. R99ulations under §367. Notice 2016-73 regarding the treabnent of certain 

triangular reorganizations involving foreign corporations, and the amount of an 

income inclusion required in certain inbound nonrecognition transactions was 

released Deoember 6, 2016. Notice 2014-32 regarding triangular 

reorganizations involving foreign corporations was released April 25, 2014. 

2. Guidance on transfers of property to partnerships with related foreign partners 

and controlled transactions involving partnerships. Temporary and proposed 

regulations were published on January 19, 2017. 

D. Foreign Tax Credits 

1. Guidance under §901, including on the allocation of foreign tax imposed on 

disr99arded enmies and partnerships. 

2. Final r99ulations under §901 (m) on covered asset acquisitions. Temporary and 

proposed r99ulations were published on December 7, 2016. 

3. Guidance under §905, including final r99ulations under §905(c) on foreign tax 

redetenninations. Temporary and proposed r99ulations were published on 

November 7, 2007. Notice 2016-10 was released on January 15, 2016. 

E. Transfer Pricing 

1. Guidance under §482, including with respect to the treatment and allocation of 

risk. Temporary and proposed r99ulations were published on September 16, 

2015. 

2. Annual Report on the Advance Pricing Agreement Program. Announcement 

2017 .()3 was released March 27, 2017. 

F. Sourcing and Expense Allocation 

1. R99ulations and other guidance under §861 r99arding the allocation and 

apportionment of interest expense, including guidance related to interest 

expense attributable to certain loans to related partnerships. 

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2. R99ulations under §861 on the character of income, including income arising in 

transactions involving intellectual property and the provision of digital goods and 

services. 

G. Treaties 

1. Guidance under §894 and treaties, including r99arding the application of 

various treaty provisions to hybrid entities and instruments. 

H. Other 

1. Guidance on the physical presence of certain individuals in the Commonwealth 

of Puerto Rico or the United States Virgin Islands under §937(a) following 

Hurricane Irma or Hurricane Maria. 

2. Guidance under Chapter 3 (§§1441-1446) and Chapter 4 (§§1471-1474), 

including regulations on verification requirements for sponsoring entities for 

Chapter 4 purposes, and regulations regarding the withholding obligations on 

deemed distributions from conversion ratio adjustments on convertible debt and 

stock. Final, temporary, and proposed r99ulations under chapters 3 and 4 were 

published on January 6, 2017. Proposed regulations (r99arding verification 

requirements for sponsoring entities) were published on January 6, 2017. 

Proposed regulations (regarding conversion ratio adjustments) were published 

on April13, 2016. 

3. R99ulations under §§6039F, 6048, and 6677 on foreign trust reporting and 

reporting with respect to foreign gifts, and r99ulations under §§643(i) and 679 

relating to certain transactions between U.S. persons and foreign trusts. 

4. R99ulations and other guidance under §7701. 

5. R99ulations under § 1256(g)(2) regarding the definition of a foreign currency 

contract, in light of the decision in Wright v. Commissioner, 809 F.3d 877 (6th 

Cir. 2016). 

PARTNERSHIPS 

1. Final r99ulations under §1.337(d)-3 relating to partnership transactions 

involving a corporate partner's stock or other equity interests. Final, temporary, 

and proposed regulations were published on June 12, 2015. 

2. Final r99ulations under §469(h)(2) concerning limited partners and material 

participation. Proposed r99ulations were published on November 28, 2011 . 

3. Final r99ulations on the fractions rule under §514(c)(9)(E). 

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4. R99ulations to update the securities partnership aggr99ation rules under 

§704(c). 

5. Final r99ulations under §§704, 734, 7 43, and 755 arising from the American 

Jobs Creation Act of 2004, r99arding the disallowance of certain partnership 

loss transfers and no reduction of basis in stock held by a partnership in a 

corporate partner. Proposed r99ulations were published on January 16, 2014. 

6. Guidance under §707 on disguised sales of partnership interests. 

7. Final r99ulations under §732(n regarding aggr99ation of basis for partnership 

distributions involving equ~y interests of a partner. Proposed regulations were 

published on June 12, 2015. 

8. Final r99ulations under §752 regarding related person rules. Proposed 

regulations were published on December 16, 2013. 

9. Final r99ulations under §§761 and 1234 on the tax treatment of 

noncompensatory partnership options. Proposed r99ulations were published 

on February 5, 2013. 

10. Guidance under §7704(d)(1)(E) regarding qualifying income derived from 

fertilizer for publicly traded partnerships. 

TAX ACCOUNTING 

1. Guidance under §§167 and 168 for determining whether certain assets used by 

a wireline telecommunication service provider are primarily used for providing 

one-way or two-way communication services. 

2. Revenue procedure under §263(a) r99arding the cap~alization of natural gas 

transmission and distribution property. 

3. Guidance regarding the treatment of deferred revenue in stock acquisitions. 

4. R99ulations under §453A regarding contingent payment sales. 

5. R99ulations under §472 r99arding dollar-value last-in, first-out (LIFO) 

inventories, including rules for combining pools as a result of a change in 

method of accounting, certain corporate acquisitions, and certain 

nonrecognition transactions. 

6. Final r99ulations amending §1.472-8 regarding the inventory price index 

computation (IPIC) method. 

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TAX ADMINISTRATION 

1. Guidance under §6011. 

2. Guidance under §§25A, 60505, and 6724(1) relating to changes made by 

sections 804 and 805 of the Trade Preferences Extension Act of 2015 regarding 

education tax cred s and related information reporting. Proposed regulations 

were published on August 2, 2016. 

3. Update to §§6051 and 6052 regarding truncated taxpayer idenWcation 

numbers. 

• PUBLISHED 09120/17 in FR as REG-105004-16 (NPRM) 

4. Guidance under section 2006 of the Fixing America's Surface Transportation 

Act of 2015 regarding due dates and extensions for certain forms. 

• PUBLISHED 07120/17 in FR as REG-128483-15 (NPRM) 

• PUBLISHED 07120/17 in FR as TO 9821 (FINAL and TEMP) 

5. Finalize removal of automatic extension of time to file certain information 

returns. Proposed and temporary regulations were published on August 13, 

2015. 

6. Regulations under §§6662, 6662A, and 6664 regarding accuracy-related 

penalties relating to understatements. Notice 2005-12, which provided interim 

guidance, was published on February 14, 2005. 

7. Final regulations under§6707A, as amended by section 2041(a) of the Small 

Business Jobs Act of 2010, regarding the penalty for failure to disclose 

reportable transactions. Proposed regulations were published on August 28, 

2015. 

8. Guidance on safe harbors for de minimis errors on information returns and 

payee statements under section 202 of the Protecting Americans from Tax 

Hikes Act of 2015. 

9. Guidance under §7123 concerning alternative dispute resolution. 

10. Guidance under §7345. 

11. Update to Revenue Procedure 2007-56 (Combat Zone and Disaster Relief). 

12. Update to the whistleblower regulations. 

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13. Guidance on user fees. 

• PUBLISHED 07/19/17 in FR as TD 9820. 

TAX-EXEMPT BONDS 

1. Guidance on remedial actions for tax-advantaged bonds under §§54A, 54AA, 

and 141. 

2. Guidance on private activ~y bonds under §141. 

3. Regulations on public approval requirements for private activity bonds under 

§147(Q. Proposed regulations were published on September 9, 2008. 

• PUBLISHED 09/28/17 in FR as REG-12884Hl7 (NPRM). 

4. Guidance on rebate overpayment under §148. 

• PUBLISHED 09/11/17 in IRB 2017-37 as REV. PROC 2017-50 

(RELEASED 08/25117) 

5. Regulations on bond reissuance under§ 150. 

APPENDIX- Regularly Scheduled Publications 

JULY 2017 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288, and 7520. 

• PUBLISHED 07/03117 in IRB 2017-27 as REV. RUL. 2017-14 

(RELEASED 06/16/17). 

2. Notice setting forth updates for the corporate bond yield curve for plan years 

beginning in July 2017, the 24-month average segment rates, the funding 

segment rates applicable for July 2017, the spot segment rates for June 2017 

that are used for determining minimum present values, and the 30-year 

Treasury rates. 

• PUBLISHED 07/31/17 in IRB 2017-31 as NOT. 2017-39 (RELEASED 

07/13117). 

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3. Revenue ruling providing lhe average annual effective interest rates charged by 

each Farm Credit Bank District. 

• PUBLISHED 08/28117 in IRB 2017-35 as REV. RUL. 2017-16 

(RELEASED 08/25/17). 

AUGUST2017 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288, and 7520. 

• PUBLISHED 08107/17 in IRB 2017-32 as REV. RUL. 2017-15 

(RELEASED 07/18117). 

2. Notice setting forth updates for lhe corporate bond yield curve for plan years 

beginning in August 2017, the 24-monlh average segment rates, the funding 

segment rates applicable for August 2017, the spot segment rates for July 2017 

that are used for determining minimum present values, and the 30-year 

Treasury rates. 

• PUBLISHED 08128117 in IRB 2017-35 as NOT 2017-43 (RELEASED 

08/11/17) 

3. Revenue procedure providing the domestic asseUiiability percentages and the 

domestic investment yield percentages for taxable years beginning after 

December 31, 2015, for foreign companies conducting insurance business in 

the United States. 

• PUBLISHED 08128117 in IRB 2017-35 as REV. PROC. 2017-44 

(RELEASED 08111/17). 

SEPTEMBER 2017 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288, and 7520. 

• PUBLISHED 09/05/17 in IRB 2017-36 as REV. RUL. 2017-17 

(RELEASED 08116/17) 

2. Revenue ruling under §6621 regarding lhe applicable interest rates for 

overpayments and underpayments of tax for the period October through 

December 2017. 

• PUBLISHED 09/25/17 in IRB 2017-18 as REV. RUL. 2017-18 

(RELEASED 09/08117). 

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3. Notice seHing forth updates for the corporate bond yield curve for plan years 

beginning in September 2017, the 24-month average segment rates, the 

funding segment rates applicable for September 2017, the spot segment rates 

for August 2017 that are used for determining minimum present values, and the 

30-year Treasury rates. 

• PUBLISHED 10/02/17 in IRB 2017-40 as NOT. 2017-50 (RELEASED 

09/13117). 

4. Notice under §274 regarding the deemed substantiation of travel expenses 

using per diem rates. 

5. Update of Notice 2004-83 to add approved applicants for designated private 

delivery service status under §7502(f). Will be published only if any new 

applicants are approved. 

6. Notice identifying the counties that experienced exceptional, extreme, or severe 

drought during the preceding 12-month period ending August 31 , 2017, for 

purposes of determining whether the replacement period within which to 

replace livestock sold on acoount of drought is extended under §1033(e)(2)(B) 

and Notice 2006-82. 

7. Revenue ruling setting forth the terminal charge and the standard industry fare 

level (SIFL) cents-per-mile rates for the second haK of 2017 for use in valuing 

personal flights on employer-provided aircraft. 

8. Notice on annual adjustment in the fee imposed to fund the Patient Centered 

Outcomes Research Trust Fund. 

OCTOBER 2017 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288 and 7520. 

• PUBLISHED 10/10/17 in IRB 2017-41 as REV. RUL. 2017-20 

(RELEASED 09/19/17). 

2. Notice seHing forth updates for the corporate bond yield curve for plan years 

beginning in October 2017, the 24-month average segment rates, the funding 

segment rates applicable for October 2017, the spot segment rates for 

September 2017 that are used for determining minimum present values, and 

the 30-year Treasury rates. 

3. Revenue procedure under §1 and other sectioos of the Code regarding inflation 

adjusted items for 2018. 

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4. Revenue procedure providing the loss payment patterns and discount factors 

for the 2017 accident year to be used for oomputing unpaid losses under §846. 

5. Revenue procedure providing the salvage disoount factors for the 2017 

accident year to be used for oomputing discounted estimated salvage 

reooverable under §832. 

6. Update of Revenue Procedure 2005-27 listing the tax deadlines that may be 

extended by the Commissioner under §7508A in the event of a Presidentiallydeclared disaster or terrorist attack. Will be published only if there are any 

updates. 

7. Guidance providing the amounts of unused housing credit carryover allocated 

to qualified states under §42(h)(3)(0) for the calendar year. 

8. Guidance providing the calendar year inflation adjustment factor to be used in 

determining the cred~ for carbon dioxide (C02) sequestration under §450. 

NOVEMBER 2017 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 127 4, 1288 and 7520. 

2. Revenue ruling providing the 'base period T-Bill rate' as required by §995(~ 4). 

3. Revenue ruling setting forth oovered compensation tables under §401(1)(5)(E) 

that are used for purposes of applying the perm~ted disparity rules under 

§401(1) to defined benefrt plans for the 2018 plan year. 

4. Notice setting forth updates for the oorporate bond yield curve for plan years 

beginning in November 2017, the 24-month average segment rates, the funding 

segment rates applicable for November 2017, the spot segment rates for 

October 2017 that are used for determining minimum present values, and the 

30-year Treasury rates. 

5. Update of Revenue Procedure 2016-13 regarding adequate disclosure for 

purposes of the §6662 substantial understatement penaHy and the §6694 

preparer penalty. Will be published only if there are any updates. 

6. Notice setting forth cost-of living adjustments effective January 1, 2018, 

applicable to the dollar limits on benefits under qualified defined benefit pension 

plans and other provisions affecting certain plans of deferred oompensation. 

7. Federal Register Notice on Railroad Retirement Tier 2 tax rate. 

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8. Notice under §27 4 regarding the 2018 optional standard mileage rates. 

9. Notice setting forth required amendment deadlines for §401 (a) plans with 

respect to certain changes in qual~ica on requirements. 

10. Notice providing guidance for public power providers to submit applications 

relating to reallocations of New Clean Renewable Energy Bonds under §54C. 

DECEMBER 2017 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 127 4, 1288, and 7520. 

2. Revenue ruling under §6621 regarding the applicable interest rates for 

overpayments and underpayments of tax for the period January through March 

2018. 

3. Notice setting forth updates for the corporate bond yield curve for plan years 

beginning in December 2017, the 24-month average segment rates, the funding 

segment rates applicable for December 2017, the spot segment rates for 

November 2017 that are used for determining minimum present values, and the 

30-year Treasury rates. 

JANUARY 2018 

1. Revenue procedure updating the procedures for issuing private letter rulings, 

determination letters, and information letters on specifiC issues under the 

jurisdiction of the Chief Counsel. 

2. Revenue procedure updating the procedures for furnishing technical advice, 

including technical exped~ed advice, to certain IRS offices, in the areas under 

the jurisdiction of the Chief Counsel. 

3. Revenue procedure updating the previously published list of ·no-rule' issues 

under the jurisdiction of certain Associate Chief Counsel (Corporate), Associate 

Chief Counsel (FinanciallnstMons and Products), Associate Chief Counsel 

(Income Tax and Accounting), Associate Chief Counsel (Passthroughs and 

Special Industries), Associate Chief Counsel (Procedure and Administration), 

and Associate Chief Counsel (Tax Exempt and Government Entities) on which 

advance letter rulings or determination letters will not be issued. 

4. Revenue procedure updating the procedures for issuing determination letters 

and letter rulings on issues under the jurisdiction of the Office of the 

Commissioner, Tax Exempt and Government Ent~ es Division, Employee Plans 

Rulings and Agreements Office. 

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5. Revenue procedure updating the procedures for issuing determination letters 

under the jurisdiction of the Office of the Commissioner, Tax Exempt and 

Government Entities Division, Exempt Organizations Rulings and Agreements 

Office. 

6. Revenue procedure updating the previously published list of ·no-rule' issues 

under the jurisdiction of the Associate Chief Counsel (International) on which 

advance letter ruling or determination letters will not be issued. 

7. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 127 4, 1288, and 7520. 

8. Revenue ruling providing the dollar amounts, increased by the 2018 inflation 

adjustment, for §1274A. 

9. Revenue procedure under §280F providing limitations on depreciation 

deductions for owners of passenger automobiles first placed in service during 

the calendar year and amounts to be included in income by lessees of 

passenger automobiles first leased during the calendar year. 

10. Notice setting forth updates for the corporate bond yield curve for plan years 

beginning in January 2018, the 24-month average segment rates, the funding 

segment rates applicable for January 2018, the spot segment rates for 

December 2017 that are used for determining minimum present values, and the 

30-year Treasury rates. 

11. Revenue procedure under § 143 regarding average area purchase price. 

12. Notice providing the maximum allowable value for use of the fleet-average 

value and vehicle-cents-per-mile rules to value employer-provided automobiles 

first made available to employees for personal use in the calendar year. 

13. Revenue ruling setting forth the prevailing state assumed interest rates 

provided for the determination of reserves under §807 for contracts issued in 

2017 and 2018. 

FEBRUARY 2018 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288, and 7520. 

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2. Notice seHing forth updates for the corporate bond yield curve for plan years 

beginning in February 2018, the 24-month average segment rates, the funding 

segment rates applicable for February 2018, the spot segment rates for January 

2018 that are used for determining minimum present values, and the 30-year 

Treasury rates. 

3. Notice under §911 on the Housing Cost Amount for 2018. 

4. Notice providing the inflation adjustment factor for renewable electricity 

(revised). 

MARCH 2018 

1. Revenue procedure providing annual indexing required under §368. 

2. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288, and 7520. 

3. Guidance providing the 2018 calendar year resident population estimates used 

in determining the state housing credit ceiling under §42(h) and the private 

activity bond volume cap under § 146. 

4. Revenue ruling under §6621 regarding the applicable interest rates for 

overpayments and underpayments of tax for the period April through June 

2018. 

5. Revenue ruling setting forth the terminal charge and the standard industry fare 

level (SIFL) cents-per -mile rates for the first ha~ of 2018 for use in valuing 

personal flights on employer-provided aircraft. 

6. Notice seHing forth updates for the corporate bond yield curve for plan years 

beginning in March 2018, the 24-month average segment rates, the funding 

segment rates applicable for March 2018, the spot segment rates for February 

2018 that are used for determining minimum present values, and the 30-year 

Treasury rates. 

7. Revenue procedure providing the annual update to the List of Automatic 

Changes for taxpayer changes in method of accounting. 

APRIL 2018 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288, and 7520. 

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2. Revenue procedure providing a current list of countries and the dates those 

countries are subject to the §911(d)(4) waiver and guidance to individuals who 

fail to meet the eligibility requirements of §911(d)(1) because of adverse 

conditions in a foreign country. 

3. Notice setting forth updates for the corporate bond yield curve for plan years 

beginning in April 2018, the 24-month average segment rates, the funding 

segment rates applicable for April 2018, the spot segment rates for March 2018 

that are used for determining minimum present values, and the 30-year 

Treasury rates. 

4. Guidance providing the calendar year inflation adjustment factor and reference 

prices for the renewable electricity production credit under §45. 

MAY 2018 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current mooth for purposes of §§42, 382, 1274, 1288, and 7520. 

2. Notice setting forth updates for the corporate bond yield curve for plan years 

beginning in May 2018, the 24-mooth average segment rates, the funding 

segment rates applicable for May 2018, the spot segment rates for April2018 

that are used for determining minimum present values, and the 30-year 

Treasury rates. 

3. Revenue procedure providing guidance for use of the national and area median 

gross income figures by issuers of qual~ied mor1gage bonds and mortgage 

credit certificates in determining the housing cosVincorne ratio under §143. 

4. Revenue procedure under §223 regarding the inflation adjusted items for 2019. 

5. Revenue procedure under §5000A concerning the 2018 national average 

premium for a bronze level of coverage. 

6. Guidance providing the inflatioo adjustment factor to be used in determining the 

enhanced oil recovery credit under §43 for tax years beginning in the calendar 

year. 

7. Notice regarding marginal productioo rates under §613A for oil and gas well 

depletion. 

JUNE 2018 

1. Revenue ruling setting forth tables of the adjusted applicable federal rates for 

the current month for purposes of §§42, 382, 1274, 1288, and 7520. 

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2. Revenue ruling under §6621 regarding lhe applicable interest rates for 

overpayments and underpayments of tax for the period July through September 

2018. 

3. Notice setling forth updates for lhe corporate bond yield curve for plan years 

beginning in June 2018, the 24-monlh average segment rates, the funding 

segment rates applicable for June 2018, the spot segment rates for May 2018 

that are used for determining minimum present values, and the 30-year 

Treasury rates. 

4. Notice setling forth the 2015 §45K(d)(2)(C) reference price for the 

nonconventional source production cred~. 

5. Notice setling the inflation adjustment factor for the cred~ for carbon dioxide 

(C02) sequestration under §450 for calendar year 2017. 

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