Modernizing the BSA for Financial Crime in the 21st Century

All right. The subcommittee on national security, illicit finance, and international financial institutions will come to order. Without objection, the chairman is authorized to declare a recess of the committee at any time. This hearing is titled " Modernizing the Bank Secrecy Act for Financial Crime in the Twenty-First Century". Without objection, all members will have five legislative days within which to submit extraneous materials to the chairman for inclusion in the record. I now recognize myself for four minutes for an opening statement. I wanna welcome our witnesses. Thank you for participating in our hearing today and for your work in preparation for it. This hearing is the subcommittee's third hearing of the one hundred and nineteenth Congress on anti-money laundering. Last spring we examined the tools and techniques to combat fraud, and in the fall we heard from FinCEN Director Andrea Gacchia. Today we examined the Bank Secrecy Act itself and how to modernize its architecture for today's AML threat. Bank Secrecy Act was enacted in nineteen seventy to target the abuse of our financial system uh by organized crime. Over the decades, it has become a large bloated surveillance machine demanding endless s- endless reports without delivering proportional results. Every year, financial institutions file nearly five million suspicious activity reports, or SARs, and over twenty-one million currency transaction reports, CTRs, with FinCEN. That's an average of thirteen thousand SARs and fifty-nine thousand CTRs every day. The SAR is typically filed when a financial institution has a transaction, it involves, uh, or aggregates five thousand or more, and a CTR is filed on cash transactions involving more than ten thousand dollars. These rethor- reporting thresholds have never been adjusted for inflation. And, you know, go back to the nineteen seven seventies, ten thousand dollars in nineteen seventy is more than eighty thousand dollars today. Most CTRs aren't even looked at. According to a December twenty twenty four uh GAO report, law enforcement agencies accessed only five point four percent of the CTRs filed between twenty fourteen and twenty th- twenty three. So ten years of data, only five point four percent even got looked at. Meanwhile, the Bank Secrecy Act enforcement drives uh financial institutions to file copious amounts of defensive SARs that not only provide no meaningful law enforcement purpose, they increase the noise and make the signal harder to find. It's not only CTRs and SARS, however, under the Biden administration, the Corporate Transparency Act would have compelled thirty million small businesses to file beneficial ownership information with FinCEN. I'm thankful the Trump administration's rolled this back to focus on foreign ownership, and not um, you know, home ownership associations. Uh, so all all this is uh unused reporting amounts to a reflexive desire to grow the BSA haystack rather than to find the money laundering needle. So I was pleased to see Fentzen release uh its AML program notice of proposed rulemaking in April. While it is disappointing that the uh NPR does not address CTRs and SAR thresholds, it is a welcome shift away from the check-the-box defensive compliance um and it hopes to re-center AML on true risk. Furthermore, its move to increase fencing control over enforcement actions and raise the threshold for enforcement should help financial institutions trust that good faith risk-based compliance and actionable actionable intelligence will now be rewarded over a focus on volume and paperwork uh as we approach uh as we focus on risk it must also ensure that the tools, like artificial intelligence, are fully deployed to counter AI-enabled crimes of today and uh in in changes in cyber security. A wait-and-see approach uh that distrusts rapidly maturing AI systems uh will tie financial institutions' hands behind their back, letting uh, you know, bad actors continue to move money at the speed of the internet while law enforcement's stuck in the seventies. Uh, if we truly want to stop money laundering by criminals, scammers, and terrorists of this country, Not um It's the it's time that we change course. Increased reporting thresholds, AI, and a commitment to prioritizing risk, give us the tools to do so. Put simply, we can continue to pile up reports on lawful activity, or we can focus on crime and actionable intelligence. It's time we make the change. And I'll recognize the ranking member of the subcommittee, Miss Beaty, for m- four minutes for an opening statement.

Thank you, Mister Chairman, and thank you to our witnesses for appearing t- today. to discuss the Bank Secrecy Act in light of financial crime in the twenty first century. The Bank Secrecy Act, or the BSA, which as you've already heard was enacted in nineteen seventy, remains to this day one of the strongest tools that we have to stop money laundering, to crack down on shell companies, and to combat terrorist financing, and to protect the American consumers from fraud and financial crime. We all know it exists. By helping banks and financial institutions direct, detect, and report suspicious activity that may be linked to financial crime, the BSA protects our financial system, it promotes transparency and accountability, and it develops trust in our banking institutions. In the Anti-Money Laundering Act just a few years ago of twenty twenty, Congress came together in an overwhelming operative word, bipartisan manner, to modernize and strengthen the BSA by improving information sharing, shifting towards a risk-based approach, and giving law enforcement sharper tools to pursue bad actors. Bad actors didn't go away, my friends. My colleagues may say that we don't need this, but we know fraud and everything still exists. However, the current administration has been systematically destructing the very safeguards that help prevent financial crime. For example, gutting the bipartisan corporate transparency act, suspending the residential real estate rule, suspending the investment advisory rule, and I could go on and on with the list. As we see bad actors use crypto and artificial intelligence to carry out increasingly, sophisticated scams, this administration is making it easier for drug traffickers, human traffickers, to hide their money, exploit consumers, and game the system while everyday Americans are left more vulnerable. To make matters worse, Republicans in Congress continue to push a dangerous deregulatory agenda that puts our national security and financial system at risk. For example, lowering the currency transaction report and suspicious activity report SAR, thresholds, and creating new national security risk to exploit their stable coin legislation. Just last month, the committee Republicans voted to largely repeal the CTA, making it easier for fraudsters and cartels to laundry their money through shell companies. Now, they wanna hold a hearing about fighting financial crime in the twenty-first century, while actively weakening our anti-money laundering and CFT regulatory uh framework. So let's be clear. This hearing really isn't about modernization, it's about deregulating. You know, if you wanna make a change, you have to give me something. You can't just deregulate everything. So now, more than ever, we must strengthen enforcement against financial crime and give treasury and law enforcement the tools they need to protect families' hard-earned savings and preserve the integrity of our financial system. Uh, thank you, uh, again to our witnesses. And I look forward to your testimony. Mister Chairman, I yield back.

Uh, thank the ranking member. Uh, today we welcome the testimony of Mister John Court, the Executive Vice President and General Counsel and Chief Operating Officer at Bank Policy Institute. Mister Ari Redboard, the Global Head of Policy at TRM Labs. Mister Nicholas Anthony, a Research Fellow at the Cato Institute and Miss Carol House, a Senior Fellow at the Atlantic Council. Thank each of you for taking the time to be here. Each of you will be recognized for five minutes to give an oral presentation of your written testimony. Without objection, your written statements will be made part of the record. Mister Court, you're now recognized for five minutes.

Well, thank you, Chairman Davidson, and thank you, member Beatty. Uh, I'm John Court. I'm with the Bank Policy Institute. We're a nonpartisan research, policy, and advocacy organization, whose members are the forty largest banking organizations that operate in the US. You have my written testimony, so I won't rehearse it, but just instead try to identify uh in my short time sort of the core problems with the current AML regime explain how current regulators in our view are seeking to address those problems and then identify two key areas where we think more work needs to be done uh the main problems with the current regime which I think are pretty well documented and and widely agreed upon. First, it's just an outdated inefficient framework. The regime is built on a roughly forty-five year old framework. that's been repeatedly expanded but not fundamentally modernized. As a result, the regime is poorly suited to today's illicit finance and technologies. Uh, second, it's replete with process-heavy supervisory expectations and examiners who tolerate little to no errors on low-risk matters. Banking agency examiners focus heavily on detailed processes and documentation rather than real financial crime risk. fostering a check-the-box culture and forcing banks to waste precious financial crime-fighting resources trying to satisfy examiner demands, on immaterial items. Third, it over-deputizes banks with severe penalties, creating radically perverse incentives. Banks are effectively deputized as front-line AML enforcers and face severe penalties for compliance missteps, which encourages defensive over-reporting, conservative de-risking rather than smarter, true risk-focused approaches. Fourth, it produces too much volume and not enough value for law enforcement. Banks generate massive volumes of alerts, SARs, CTRs, and very few of those filings result in law enforcement follow-up, indicating that the regime emphasizes volume over actionable intelligence and usefulness. Fortunately, there's reason for optimism. Congress set the stage for reform by enacting the AMLA in twenty twenty. Among other things, the legislation would modernize the Bank Secrecy Act framework, create a more effective risk-based innovation-friendly regime, with a mandate that banks allocate resources towards higher-risk activities and away from lower-risk activities. And now regulators, admittedly uh after some fits and starts, and six years later, have begun an effort that we think faithfully implements the core objectives of the AMLA. They recently issued a proposed AML program rule that reflects a meaningful reorientation of the AML programs towards a more effective risk-based framework, that aligns with the AMLA. We're still waiting for the Federal Reserve to approve the proposal, but the other agencies have gotten it out. Regarding the overly prescriptive one size fits all expectations in the current regime, the proposal corrects for this by moving to a principles-based framework, that gives banks discretion to design their own programs, and is intended to avoid examiner second guessing. of institution-specific risk judgments. Also, whereas the current system does not sufficiently prioritize higher risk activities, the proposal explicitly directs banks to allocate resources towards higher risk activities and away from lower risk activities. And finally, the proposal, and this is ex- this is significant and important, contains key components designed to encourage banks to utilize technological innovation to combat financial crime. Nevertheless, we think the proposal could be improved in various ways and we'll be filing a comment letter with the agencies to lay out our views. Mostly we're gonna inc- encourage the incorporation of key concepts from the proposal's preamble into the regulatory text to ensure clear uniform standards and consistent application by examiners. It'll also make the reforms more durable. We'll also recommend that FinCEN play a much more active role in overseeing how the banking agencies conduct their AML exams, to ensure those exams are aligned with the national and law enforcement, national security and law enforcement priorities of the government. Once the program rule is done, it's important to turn to two other areas of the BSA regime that we think are in critical need of reform. First, modernize the SAR and CTR reporting rules, which are currently fragmented and outdated. This can principally be accomplished in two ways. One, revise the reporting thresholds as the chairman indicated to keep pace with inflation and two, incorporate directly into the SAR CTR regulations various FAQ and guidance documents that have been issued over the years. The second is replace the existing Banking Agency FFIC BSA AML exam manual, which is voluminous, with a new one that comports with the final program rule. Finse FinCEN should lead that effort, not the banking agencies. I appreciate the subcommittee inviting me today, and I look forward to answering any questions.

Thank you, Mr. Court. Mr. Redboard, you are now recognized for five minutes.

Chairman Davidson, Ranking Member Beatty, and distinguished members of the subcommittee. My name is Ari Redboard. I appear before you today on behalf of TRM labs, where we work every day with law enforcement, regulators, financial institutions, and national security agencies to detect, investigate, and disrupt illicit activity. I spent more than a decade as a federal prosecutor at the Department of Justice, and later as an official at Treasury's Office of Terrorism and Financial Intelligence, confronting terrorist financiers. sanctions evaders, narcotics traffickers, and transnational criminal enterprises. I have seen how these criminal networks operate and how they exploit every gap we leave open. We must close those gaps, and we must do so by innovating faster than our adversaries. The Bank Secrecy Act was built for a world where illicit funds moved over weeks. This world no longer exists. The illicit actors, rogue states, and terrorist financiers we are trying to stop today are moving at machine speed. According to TRM's open-source reporting platform, Chain Abuse, AI-enabled scam activity rose five hundred percent over the last year. Artificial intelligence has changed the economics of financial crime entirely. North Korea stole more than two billion in digital assets last year and has already stolen about six hundred million in the first months of twenty twenty six. Pig butchering networks stripped tens of billions from American families last year using AI tools to run industrial scale fraud operations. The solution to the criminal abuse of AI is not to ban or stifle the technology. It is to use it and use it wisely. We must stay a step ahead of illicit actors by leveraging the same innovations they use for harm for good. At TRM we have built exactly that. AI-native investigative systems that fuse blockchain intelligence, sanctions data, open-source intelligence, cyber-threat data, and other data sets into a unified environment where an investigator can start with a single wallet address, a phone number, or a SAR narrative, and within minutes have a living network map of connected entities, transactions, and criminal infrastructure. that would have taken a team of analysts weeks to build. Beacon network, TRM's real-time information sharing and interdiction platform, puts that capability to work at scale, connecting one hundred law enforcement agencies with platforms covering eighty-five percent of centralized crypto volume, so that when illicit funds hit an exchange, an alert fires in real time. The T three financial crime unit has frozen more than four hundred and fifty million in illicit assets across twenty-three jurisdictions since l- since launching less than two years ago not through a SAR and a sixty day review cycle, through real time intelligence and coordinated action. And let me be clear, this is not a crypto story. Finance itself is moving on-chain. Stablecoins, tokenized securities, and deposits The same programmable infrastructure that makes real-time interdiction possible today will define how we fight financial crime across the entire financial system tomorrow. A modernized BSA must be built for that world. The tools work. What we need are the laws to match. Fund and deploy AI-powered investigative capabilities across every federal agency, giving our investigators the same technological edge that criminal networks are already exploiting against us. Ensure that compliance teams are leveraging cutting edge AI tools by providing safe harbors and other incentives to leverage game-changing technology. Codify and fund beacon-style real-time intelligence sharing, interdiction, and disruption as core pillars of US AML policy. Enact a digital asset hold law to give modern financial institutions the same authority traditional banks have held for decades, the legal foundation to freeze illicit funds the mo- moment the intelligence demands it without fear of exposure. Formally recognized stablecoin financial intelligence units, like T three, that can leverage programmable money infrastructure to freeze, burn, and reissue tokens in real time, a tool that has no equivalent anywhere in traditional finance. Modernize the SAR framework around network-level intelligence rather than transaction-level volume, so that so that when reach so that when it reaches law enforcement, it's an actionable insight rather than just noise. And do it all while protecting the privacy of lawful Americans. The answer to financial crime in the age of AI is smarter tools and bed- better targeted data not bigger databases. that become honeypots for the ransomware groups and state-sponsored hackers that seek to do us harm. We do not have to choose between privacy and security. With the right legal framework and the right technology, we can have both. I welcome your questions.

Thank you, Mr. Redbourne. Um, now recognize Mr. Anthony for five minutes.

Chair Davidson, Ranking Member Beatty, and members of the subcommittee, thank you for the opportunity to testify. The fourth amendment to the US Constitution says the right of the people to be secure in their persons houses papers and effects against unreasonable searches and seizures shall not be violated everyone in this room knows this but it bears repeating because there are too many problems with the Bank Secrecy Act for me to describe all of them in just five minutes there's inflationary surveillance transnational repression a lack of oversight shifting goal posts and much more frankly I even take issue with the fact that FBAR is an abbreviation that stands for Report on Foreign Bank and Financial Account. But I don't have enough time to cover every issue, and will leave many comments to my written testimony. Instead, I wanna leave you with three numbers. Fifty nine billion, twenty eight million, and two hundred and seventy five. In a single year, US financial institutions spend an estimated fifty-nine billion dollars complying with the Bank Secrecy Act. This regime forced them to file twenty-eight million reports on their customers. And yet, those reports only tipped off two hundred and seventy-five investigations by the IRS. Fifty-nine billion dollars in compliance costs, twenty-eight million privacy violations, only two hundred and seventy-five leads. It is as clear as thunder on a summer's night that we have a problem. And as the Grateful Dead might say, if the thunder don't get you, the lightning will. Eighty-three percent of Americans said that the government should need a warrant to access their financial records. And seventy-nine percent said banks sharing records without a warrant is unreasonable. Yet financial surveillance is expanding. ThinCent adjusts its penalties for inflation, but never its reporting thresholds. The ten thousand dollar currency transaction report threshold has not been touched since nineteen forty-five. When the Bank Secrecy Act codified it in nineteen seventy, ten thousand dollars bought two new Corvettes. Today, barely buys the engine. No bills are passed, no regulations are open to public comment, yet the inflationary wheel is turning. The Bank Secrecy Act swallows up more transactions every year. Recognizing what has happened, representatives Beatty, Loudermilk, Hill, Stile and Williams all pointed out the need for change during a twenty twenty-two oversight. Yet, FinCEN has been silent on this issue. Beyond inflation, FinCEN has dramatically expanded financial surveillance at the border by lowering the ten thousand dollar threshold to just two hundred dollars. One small business estimated that it would likely go from filing nine reports to fifty thousand reports per week. A Texas court said the order defies common sense, likely violates the fourth amendment, and is like using a blunderbuss to target a fly. The system's also being weaponized. In addition to researching financial surveillance, I'm also affected by it. As a co-founder of a small human rights nonprofit, the activist ATLAS, public filing requirements have effectively handed my address to authoritarians on a silver platter. The danger isn't hypothetical. Authoritarians recognize that the Bank Secrecy Act has created the perfect system to surveil and control their opposition. For example, the Russian government branded the Anti-Corruption Foundation as a terrorist group, and banks bound by zero tolerance rules debanked its employees here in the United States. The Nicaraguan government branded human rights defender Felix Maradiaga as a terrorist for organizing peaceful protests against the Ortega regime. After being debanked, Maradiaga warned that, quote, " democratic governments are being made unwitting accomplices to dictatorships." As such regimes cynically manipulate financial surveillance systems set up to fight crime and terrorism, misusing the Bank Secrecy Act to harass, spy on, and hamper dissidents at home and abroad. The good news is that momentum is building. Ideas like the Biden administration's proposal to monitor bank accounts with as little as six hundred dollars, the global rise of central bank digital currencies, and the recent expansion of surveillance along the border, has more Americans than ever realizing that financial privacy in the United States is little more than an illusion. Now is the time to reclaim that freedom. The fourth amendment does not expire with inflation, it does not pause at the border, and it does not bend to whichever crisis the government invokes this decade. It's time for Americans to know that the Bank Secrecy Act is really the Bank Surveillance Act, and it's time to fix it. Thank you, and I welcome your questions.

Thank you, Mr. Anthony. Miss House, you are now recognized for five minutes.

Chairman, ranking member, and distinguished members of the subcommittee, thank you for this hearing and for the invitation to testify. National security today is being fought in the economic domain. Adversaries seeking to undermine American power are targeting the trust, transparency, and integrity of the financial system that underwrites our alliances, funds our foreign policy, and gives the dollar its meaning. The AML framework is among the most consequential national security tools that we have for defending that terrain, and for ensuring that when adversaries try to exploit it, we can see them, stop them, and hold them accountable. Our adversaries are already exploiting seams in our financial system faster than our frameworks are adapting. Chinese military-linked procurement routes controlled semiconductors through anonymous US shell companies. Iranian, Russian, and DPRK sanctions evasion is exploiting offshore dollar denominated stable coins outside direct US supervision. Retirees are losing their life savings in a trillion dollar shadow war to pig butchering scams run from compounds in Southeast Asia and Africa. The proceeds from fentanyl that's killing tens of thousands of Americans flow through anonymous shell companies mirror banking networks, and real estate transactions. The AML framework exists to address exactly these threats that have been prioritized by this Congress and even in most cases by this administration. This subcommittee is aptly considering how to drive modernization, how to build it smarter, and whether we're mistaking dismantling capability for reform. Getting this balance right matters. This framework implicates real democratic values, privacy, personal liberty, and the genuine burden that compliance places on businesses and families. Privacy here means calibrated access for those with lawful authority, not the absence of records. Done right, burden reduction and stronger security are not intention. Better infrastructure and smarter standards improve both simultaneously. But reducing visibility without replacing it with stronger capability is not modernization or efficacy, it becomes strategic abdication. The dollar's enduring role in global commerce rests on confidence, confidence that the American financial system is governed by rule of law, that it serves legitimate commerce, and that those who abuse it face consequences. When that foundation erodes, when company ownership hides behind anonymous structures, when enforcement arrives years after the fact, when dollar-denominated networks operate beyond accountability frameworks, our adversaries are taking notes. AML frameworks provide recourse for victims and critical tools for national security and for law enforcement. Whether IRSCI searching BSA data in ninety-four percent of their cases, FinCEN publishing strategic tendon network analysis, a trend analysis for the benefit of industry, or records relied upon to recover stolen funds. This isn't a compliance statistic, it's load-bearing infrastructure. Now on technology, which is shaping illicit finance both as threat and defender. The threats are real and accelerating. Generative AI has industrialized fraud and identity manipulation at near zero marginal cost. Digital assets and agentic financial systems through real-time automation and questionable points of accountability are creating scaled evasion vectors that current compliance is not yet effectively addressing. As intermediation transforms in digital markets, accountability does not and should not disappear. It must redistribute across technology stacks, infrastructure, and governance layers. equally real and genuine modernization must address both. Machine learning detection is supercharging ability to identify complex financial crime patterns. Public blockchain ledgers can provide investigative visibility that can be difficult to replicate in traditional finance. Authoritative digital identity infrastructure can simultaneously reduce compliance burden and improve fraud prevention and trustworthiness. Structured machine readable financial crime data standards could do for illicit finance what we learned in cyber security. turning siloed institutional filings into networked collective intelligence in real time. Genuine modernization, invests in governance, and R and D that captures this opportunity while addressing the threat. So let me close with what I feel Congress should prioritize. To address identity and trust, restore and drive requirements around beneficial ownership, investment, real estate, and key enabler infrastructure as Congress intended in AMLA. Build the digital identity infrastructure that makes knowing your customer reliable and less burdensome to all. To improve what can be seen, finalize the action the AMLAS SAR sharing pilot, clarify the three fourteen B sharing framework to cover underlying critic, criminal offenses, and build the structured data standards that transform fragmented institutional filings into collective real-time intelligence. To enhance what can be actioned, define outcomes-oriented supervision in measurable terms, make enforcement early and calibrated, sector shaping, not sector breaking. resource FinCEN, commensurate with its mandate, and modernize the special measures authorities for the digital era. Thank you. I welcome your questions.

Uh, thank you, Miss House. We'll now turn to member questions, and I recognize myself for five minutes of questions. Uh, Mister Anthony characterizes the Bank Secrecy Act, uh, geographic targeting orders, the third-party doctrine, really as an unconstitutional surveillance scheme. And sitting right next to Mister N- Anthony, Miss House. seems to acknowledge that it is in fact a surveillance system. Uh, but it's a good. In fact, uh, Ms. Halstead, in your statement you say, uh, quote, as Natalie Lobner has argued in her open banker framework, VSA data is a public good currently trapped in private silos. Could you explain what you mean by that?

Absolutely. So the the purpose of the Bank Secrecy Act to provide critical transparency and records, not just for AML but also in in other use cases, whether it's for revenue and taxes, whether it's for fraud measures, there's a huge number of them.

Well, so to clarify, like, eh, my bank records, my financial traction transactions are a public good?

Is it? The the BSA is a public good, yes. And the like information being available so that

Uh.

citizens can have available recourse when they aren't.

Is is that what the Constitution says?

Um, I I think there's a lot of authorities that are

That's not what it says. All right, so, look, I I think one of the best statements, Freedom surrendered is rarely reclaimed, and I mean we're here to do a little reclaiming of freedom today. I think we have a reasonable expectation that our government would protect our country. I mean, I think uh the Atlantic Council would, as uh Secretary of State Blinken liked to refer to it, defend the quote " rules-based order", uh that the globalists love so much. And the Bank Secrecy Act could be a useful tool to impose a rules-based order, but it's not perfect. They're working to modernize it. Uh, you know, they're they're trying to complement it with uh central bank, digital currency, and digital ID, which, Alice, you support, you support digital ID, right?

Um, I supported digital identity, privacy preserving and dignity pers preserving, yes.

Uh, I was encouraged to see you mention privacy enhancing tools in your testimony, so that's one nod to civil liberties and I appreciate that. Mister Redboard, you talk about privacy enhancing tools and you talk about the challenge of technology. I I really appreciated uh, your your written testimony and the work that you're doing to show, hey, just because this stuff is on a blockchain or other things, it's actually in a lot of ways even easier to follow the money. Uh, we do need to modernize our framework. You laid out a series of those things. How can you do that and protect privacy versus turning, uh, my bank records into a public good?

It's the mo- it's the most important and fundamental question, Mister Chairman. What we need to do is ensure that lawful actors are able to transact in a secure and private manner. And we can do that with technology. We can ensure that a financial institution has the least amount of information that they need on an individual customer in order to make a decision, a decision that they are not engaging with an illicit actor. And we can use technology to ensure that today.

Yeah, thank you. Uh, you know, Mister Kort, you're representing banks and the Bank Policy Institute uh people that have to go out and execute it. Uh, you know, one of the piece of data, just the total compliance cost and, you know, only five, five point four percent of this in the past decade has even used it all. Uh, Mister Anthony cites, you know, two hundred and eighty-seven cases, uh, that were created out of it. We, we all see public things. In my home state of Ohio, we're looking at, uh, shell companies that are apparently doing lots of Medicaid business, but, uh, you know, hundreds of companies with one mailbox and no apparent employees. How are we missing the signal in real crimes here? uh, and, uh, for all the noise.

Yeah, certainly the, the framework that we have today deputizes the banks to look at all of their customers, to know their customers, to engage in transaction monitoring, to, to know their customers' beneficial owners. I mean, the banks clearly have been deputized to collect a tremendous amount of information and to analyze and process, process that information almost on a real-time basis. Um, it's just

Yeah, thank you. I mean, that seems to be one of the conditions. If you'll spy on your customers, force will let you run a bank, If you'd fail to do that, you can get into a lot of trouble. Uh, a as a bank, uh, you can lose your charter, you can even face uh challenges for the employees of the bank. Yet we don't seem to catch some of this, and it's it's not just that we don't catch things that are uh, you know, cryptocurrency, the the vast majority of crime is traditional um, you know, account-based money laundering, not just duffle bags of cash, but account-based money laundering or account-based illicit activity. So, Uh, I think it's really timely that we focus on modernizing it, I mean it i- i- and I i- you know, Mister Redboard, I thought you did a nice job of saying, look, we're not just talking about a number, whether it's, you know, ten thousand dollars uh in nineteen seventy, that's eighty-two, eighty-three thousand dollars uh today, uh and changing that, but looking at uh activity-based patterns, you think about credit cards, you used to get denied charges every now and then. They've gotten much more sophisticated models to analyze, this really is you, you are transacting everywhere. And I look forward to working with you all to modernize this framework in law. My time's expired and I now recognize uh the ranking member Miss Betty of Ohio for five minutes.

Thank you, Mr. Chairman. Uh, let me start with you, Miss House, and uh you, Mister Redboy. Um, My my first question uh is on suspicious activity reports, or SARs, as they're more commonly um called. SARs compliance, as you know, is one of the concerns that I hear from banks and credit unions in my home state, same state as our chair. And it's one of the key areas that we uh targeted in the anti-money laundering act of twenty twenty. Instead of simply changing the thresholds, we aim to streamline the SARS form to reduce the burden on financial institutions without compromising law enforcement's needs. Unfortunately, there's been no resolution to this issue since we've passed the anti- Money Laundering Act uh into law. So, should FinCEN take the mandated steps as required by the Anti-Money Laundering Act to enhance the effectiveness of SAR and CTRs? What do you think?

Yes, absolutely, Congresswoman. I think these are critical tools, um, that based on the rule of law and supporting other authorities in the Constitution, like regulating interstate commerce, I think that it's necessary. It helps to build towards that that public good to help law enforcement and national security authorities detect these adversaries who are exploiting our financial sector in order to hurt Americans. So yes, FinCEN should finish those those measures, um, and should engage with Congress and with the public on their completion, and work to modernize them, like you said, in a way that streamlines and helps to automate and use structured data. There's a huge amount of opportunity to leverage data and technology in a way to modernize these.

Mister Redhouse.

Miss Petey, I strongly uh agree with Mrs. H uh Miss House's last point about technology. I was a prosecutor for many years, I was on a SAR task force out of the US attorney's office in DC, and it was like a needle in a haystack, we'd be culling through hundreds, thousands of of SARs in order to to f- to find the signal. And the reality is today that we have technology that could, that we can run over these data sets in order to find that signal, and we should be leveraging that entirely. Um, I think it's that combined with taking the burden off, ensuring that, you know, we talk about a ri about a risk-based approach a lot, I'm not sure we actually have one in practice, and that is what are the real risks that your financial institution is is dealing with, and let's make sure we're filing SARS on only those.

Okay, thank you, and let the record show that the other two witnesses were uh also nodding, and I appreciate that. Uh, let me do a follow-up. I if so, Ms. House, what are some of the options to streamline the process while maintaining the utility uh to law enforcement?

Oh, um, a few options, that's great. Uh, so besides I think you can leverage some of this technology to do things like, let's imagine structuring SARS. This was a great opportunity where banks and others have expressed concerns there. FinCEN could publish um uh an attachment format with the the column headers, or basically the different data fields that they want to help automate, banks being able to export that data and not having to w- to spend time ch- generating narratives. I think that there are some of those opportunities for allowing for greater automation, ingesting of the raw data files and the authoritative sources, in a way that can be used better by AI and other capabilities, um ingested by law enforcement as well as by FinCEN. I think that um requiring FinCEN to also enrich data like SAR filing when making that available to law enforcement will benefit them. Um so I think data file uh data file structures and standards, modernizing the form to reflect um you know more harmonization and less overlap between different fields would be really valuable.

Let me kind of follow up with that, Miss House, fraud prevention is top of the mind for m- many of us. on this committee, given the huge financial losses our constituents are suffering. In some cases, uh, we get calls where people, their entire life has been wiped away, and thank you again for uh witnesses nodding on that. Uh, and since there is such a strong bipartisan support on this issue, can you discuss how our AML and CFT framework is related to our efforts to disrupt fraud operations?

Absolutely.

Or if there are any tools or infrastructure we could use.

Absolutely. Fraud is a predicate offense to money laundering, um, so ultimately the the requirement for there being records, um, and the and and reporting allows for there to be both, um, the mechanism for financial institutions to try to follow those funds flows and be able to disrupt them potentially on their own, using information sharing authorities like three fourteen B, which this Congress has given the financial sector, um, but then also it allows for, um, investigators like law enforcement to be able to come in after the

Uh, thank you. Uh, thank you. Uh, thank you. I'll circle back later with the others. My time is up for now.

Um, thank you, Miss Beaty. I now recognize the Chairman of our Task Force on Monetary Policy, Mister Lucas of Oklahoma, for five minutes.

Thank you, Mister Chairman, and thank you to our witnesses for testifying today. Mister Anthony, let's begin with the good news. What progress does last month's notice of proposed rulemaking on the status quo of the ALM program?

Well, I'm afraid to say it's a mixed bag. It's good because it's talking about starting modernization, starting to change the way that we go about this process. But one of the big problems is partly what Representative Beatty had mentioned, or I apologize, Ranking Member Beatty, um, had mentioned where FinCEN really hasn't upheld the Any Money Laundering Act of twenty twenty, and one of the core things of that that Congress asked it to do was, in collaboration with other agencies, provide data on how this information is used. It provides some reports, but not nearly to the letter of the law, and that information needs to be the foundation of all modernization processes. We need to be able to see where it works, where it doesn't, and where a gray area might be before we build. So, good that they're starting the process of modernization, and giving banks the ability to change how they do business, but still there's a lot of work to be done.

Turning to you, Mr. Cort. Certainly the proposed rule is an improvement. What would it mean practically for banks and consumers if FinCEN built on this program and modernized the CTR and the SAR thresholds?

Yeah, mo- modernizing the thresholds would certainly help, right? I mean, c- currently we have thresholds that are way too low that are creating just too much volume too much noise. Um, I I would say further though, that that is probably on the margins, honestly. What what the proposed rule is trying to do and what the AMLA instructed the government to the federal government to do six years ago was to try to get the boot of the federal bank examiner off the neck of the people inside the banks who are trying to fight financial crime and unfortunately you've had six years where nothing was done uh so we've been living with this status quo this proposal gives us the opportunity hopefully for the first time to to to redirect the regulation um that instructs the examiners My my fear, though, of course, is that the examiners uh will will entrench and continue uh a pace the the what what they're used to doing and and I don't mean to ascribe uh bad ins uh intentions on anyone it's just the way the system is set up, it's the way the incentives are are set up, which is why we encourage a much more active role for Finsen and the Treasury Department to have oversight about what the bank examiners are doing.

GAO has recommended that Finsen take steps, reduce the number of unused, CTRs. Mister Redford, from your experience, how would treasury and law enforcement agencies benefit from reduced collection of low-risk information?

I think it would, excuse me, I think it would certainly help uh find the signal in the noise. We'd have fewer SARs, but they would be more targeted, more focused. I think with technology we can do this much, much better also. I mean, just think about your standard SAR narrative. It involves one case, one transaction. It gives you, you know, uh the to, the from, you know, uh, uh, a little bit of of data around that. What we could do today is build out networks with SARS. We could really focus on where the true risks are to the financial system and to that financial institution. So so so my my my piece would be we we should certainly file fewer CTRs in SARS. Um, the threshold certainly helps, but we could do so much more with technology today to really build out criminal networks.

Mister Cort, can you expand on your testimony, how can banks benefit from emerging technological tools used to identify suspicious activity? And how can FinCEN recognize such benefits in their compliance regime?

So obviously the incentive inside the bank is to have the most effective financial crime fighting apparatus as possible at the least cost. Uh, and one way to do that is to leverage technology and innovation. Um, the proposed rule really encourages banks to do that, um, and implies that they wouldn't, they won't be second-guessed. Unfortunately, what we've been living with, including for the last six years, is banks trying to use technology and innovation, but examiners demanding that the banks like run processes in parallel, which just upends the entire incentive structure for moving to the to the innovative technologies. So we're we're hopeful under this proposal that that will be eliminated.

Absolutely. Thank you, Mr. Court. With that, Mr. Chairman, I yield back the balance of my time.

Thanks, Mr. Lucas. I now recognize the ranking member of our task force on monetary policy, Mr. Vargas, of California, for five minutes.

Thank you very much, Chairman, and ranking member and also all the witnesses here today, I appreciate it. Um, couple things, I guess the first thing that came to mind from your testimony was the issue of surveillance, the the rights that we have under the f fourth amendment. Um, and and the reason I'm I wanna comment on it myself is, you know, when I I've been here for a while now and I always hear my colleagues on the other side talk about deficit and debt and how we shouldn't increase the deficit, and how we shouldn't increase the debt, and of course immediately when they're in power they increase it by an incredible amount, even the ones that say I'd never vote for it, never vote for it, and then they get the call from the Supreme Leader, and they immediately vote for it. You know, and all of a sudden we're, you know, the debt gets tagged with another five trillion dollars with their big ugly bill. Well, the same thing sort of with this surveillance, I mean, I I hear wonderful things, you know, and I and I actually agree that, you know, the fourth amendment should protect us the w- the way it should protect us, again, to be secure in our person. And that's why you can't have these unreasonable searches and seizures without, warrant, without probable cause. It makes sense to me. And then we have the acting director of ICE that comes and says the opposite. You know, no, you can in fact go into people's homes without a warrant, without probable cause, arrest people to find out what's going on. And I don't hear a peep out of my friends on the other side, even though they're defending this notion that you have to have warrants through privacy uh all of this well hell it's nice when they talk about it but they don't do anything about it we complain left and right and we don't hear a peep out of them and it's their administration it's the supreme leader again that's doing this so anyway i i have to bring that up because again i i do think that um the government is surveilling too much i i believe in that i do And I and I think we have to again respect the rights of people, and I don't think we're doing it right now. So I agree with some of the things you said, Mister Anthony, in particular, and I'm glad you mentioned the border, because we have a surveillance like you won't believe. So, with all that being said, um, I do wanna ask, Miss House, I mean one of the things that does seem to me correct, or or at least a problem is that, yeah, in nineteen seventy-two when you have this act that comes forward, they set a limit at ten thousand dollars, if you do put it in, inflation calculator and if you look at the cumulative inflation to today it would be like seventy nine thousand six hundred and some thousand dollars i mean uh you were wrong someone was wrong though about two corvettes and an engine you couldn't buy a corvette engine today for ten i'm a car guy i can tell you you cannot buy a corvette oh no engine for ten thousand dollars