Oversight of the Financial Crimes Enforcement Network

this year.

Thank you representative Barr uh uh Dinsen would intend to um to address the question of deletion in a final rule um consistent with other rules and regulations we would need to follow including the Federal Records Act.

I I appreciate uh Chairman Davidson's leadership on this and I I do urge urgency with respect to his request thank you I yield back.

Thank you Mister Barr, the gentleman from Texas, Mister Gonzalez, is now

Thank you, Mister Chairman, and uh thank you uh Director Gacchia for joining us this morning. I wanna begin by recognizing the importance of the United States, Mexico, Canada agreement that has been transformational for trade for America and um, it last year we traded into Mexico over three hundred billion dollars of goods and services a hundred and twenty-five billion of those coming from Texas. And uh, this has been an agr uh, an agreement that's created millions of jobs and it's been transformational for our country and has positioned us in a better place globally. However, at this time, I wanna talk about some issues that have concerned me recently about, uh, Mexican cartels that are increasingly infiltrating legitimate supply lines, uh, by extorting trucking companies and exporters, moving goods and services, uh, not only in the border but throughout other portions of Mexico. And, um, in my district, recently a banker showed me a spreadsheet of uh of of of tolls they had to pay. These weren't legitimate tolls, they were proceeds that go to fund transnational organizations, uh and this is through legitimate trade. Um my question is is FinCEN does FinCEN have uh the authorities and analytical tools necessary to identify and disrupt this type of financial networks that uh that enable uh cartels, this cartel extortion? And if not, what initial authorities or resources or partnerships would help fencing better target these illicit financial flows? And are we sp- are we talking to our counterparts in Mexico? Uh, right now that we're revisiting the USMCA agreement, I think it would be a very important time to to bring these issues up. Um, I tried the last cycle and it was kind of towards the end, and and the agreement uh, obviously was ratified. And and and, you know, I'm a supporter of USMCA, but when we when we talk about free trade, uh it's not free trade if we're being extorted through other or uh criminal organizations and this comes from the largest corporations in America, down to the smallest businesses, um and it's happening not only in the border but other places and I'm curious uh what what is being done and what more can be done and what can we do here in the Congress to improve these uh conditions for American businesses that are at the end of the day are having a direct impact on not only businesses, but consumers and

Representative Gonzalez, thank you for raising this. I wanna s- note how um I share this concern, the concern of what cartels are doing to trucking companies, exporters, and the like. It's something that VINCENT is very focused on, very focused on with law enforcement. Just a few weeks ago we issued um an a an alert on f- on fiscal fuel theft, which involves the cartels,

Yeah.

you know, stealing um crude in Mexico and um selling it to complicit buyers in the United States. And we are working very closely with our Mexican counterparts. Specifically um, Fincen works very closely with uh the Mexican financial intelligence unit, the WIEF. We have regular engagement and we have a Fincen um, a Fincen liaison um in sta- stationed in Mexico City to work on these very types of issues to make sure that we are working very closely to to um to to uh highlight to stop this uh this abusive cartel activity.

Yep, because recently um I was also told that even the custom brokers on the other side of the border actually had line items that were being billed to American businesses. Um, I'd love to work with you on this issue. It I think it's very important for for for certainly for my district in Texas and the American people to to fix this. Um, I think on the our counterparts could do so much more if they really engage on what's happening right there and in places where we're transacting a lot of business. Um lastly is I I know that we've talked a lot about it uh recently um last week we sent a letter Representative Cuere Escobar and Vargas sent you a letter regarding FinCEN's continued expansion of the Southwest border uh geographic targeting order I first wanna thank you for the engagement and I appreciate September twenty fifth decision to raise the reporting threshold from two hundred dollars to a thousand dollars after hearing concerns from members and stakeholders but I remain deeply concerned that FinCEN continues to expand this order without publicly demonstrating that it's producing results. In South Texas, money service businesses are a financial lifeline for retirees, working families and small businesses. Um, we we've heard directly from many businesses that they've lost thirty percent of of their customers since the GTO took effect. Instead of making it easier to catch criminals, we may be pushing legitimate customers out of the regulated financial system altogether and I I know I'm running out of time you could respond uh to me in writing, what evidence led Finstead to conclude that expanding the GTO was justified, and can you point to a measurable law enforcement or intelligence results that outweigh the severe compliance of burdens placed on lawful businesses and families on border communities.

Thank you, Mr. Gonzalez.

Thank you, Mr. Gonzalez.

Uh, the gentleman's time has expired, and uh the gentleman, another gentleman from Texas, Mister Williams is who's the Chairman of the S small business committee uh is recognized for five minutes.

Thank you, Mr. Chairman, thank you for being here today. Uh, the Biden administration's BOI reporting regulations required millions of small business owners to submit personal information to a federal database. And since taking office the Trump administration has revised this disastrous rule in American businesses, or no longer required to submit uh this data and FinCEN still holds the data collected under Biden's regulations. I, like many business owners, I'm a business owner in Texas, have concerns that large federal databases of private inst uh information present a privacy risk if that database were ever breached or misused, the uh uh facts would be devastating for business across the country. I know you've answered this sometime today, I'm gonna ask you again, we'll get the same answer. Uh, when you testified before the committee last year, you told us at FinCEN would uh delete the beneficial ownership information it had collected. And I know as we've said today, my colleagues touched on this before, but can you elaborate any that FinCEN still is on track to delete this data by the end of this year twenty twenty six?

Representative Williams, thank you for this question and thank you for your engagement on these issues. Um, as noted to Chair Davidson, to um Representative Barr, and d- also to you, FinCEN is um hopes to very soon um resolve the um finalize the um beneficial ownership um interim final rule. In that final rule we expect to to address the um issue of data deletion, and we expect to uh to i- you know um assuming deletion we expect to do so consistent with law and regulation including the Federal Records Act.

In twenty twenty five, FinCEN issued a geographic targeting order for businesses along the US-Mexico border to crack down on illegal activity from drug cartels and foreign terrorist organizations. These new reporting requirements have now been in effect for a year, and I think we'll all agree that we should use every tool available to crack down on cartels but these tools must be producing results and if we're asking uh small uh uh business uh excuse me if we're asking small business uh uh to do this uh uh then we need to show leadership in that.

Thank you for thank you for that q question. And in uh and uh a um in assessing the burden against the benefit when it comes to gen geographic targeting orders like the Southwest Border um geographic targeting order is something we absolutely take into consideration.

And we're striking the right balance, I guess, between keeping our order secure without stifling small businesses. That's important. Uh lastly, FinCEN has a fine time to uh uh w- to a fine line to walk and they must protect Americans from financial crime, without crippling uh with overreaching regulations. And we've seen how hard it can be to strike that balance in initiatives like the real estate transfer rule, uh which was ultimately struck down uh in a court uh for going beyond FinCEN's statutory authority. So my last question is, Director Gacchia, as if FinCEN re-evaluates this rule, uh will you commit to in listening to industry voices to make sure any revised rules are targeted and are are reasonable.

Representative Williams, thank you. We remain open to all industry suggestions regarding the residential real estate role which we've currently paused the implementation of while the decision remains on appeal.

Thank you very much, how are you on my time?

Thank you, Mister Williams, uh the gentleman from Illinois, Mister Kasten, is now recognized for five minutes.

Thank you, Mister Chairman. Thank you, Director Gacchie. Thank you, Mister Williams, for getting so brief. Um, I I wanna follow up on on Doctor Foster's uh questions with you about crypto ATMs. The FBI reported that the Americans lost three hundred and eighty-eight million to crypto ATMs scams last year. Presumably it's much higher, that's just what they found out about. Um, last year FinCEN published a notice um acknowledging that crypto ATMs were very attractive for scammers, there were high rates of AML non-compliance. Um, the notice is great. Can I assume that you would support legislation that actually put some teeth on that? So require ATM companies to register with FinCEN as money transfer businesses, update lists of locations, verify customer identities, report fraudulent activity?

Representative Kasten, thank you for the question. I would defer to Congress on any, on any, um, on any legislation. Happy to provide, um, technical, um, support as needed.

Okay.

Um, but the uh the crypto ATMs is something FinCEN has been very focused on. You noted the the um the the alert. Um, and and um they are um uh MSBs that are required to um to register with FinCEN.

Yeah. Um, well, you know, Congresswoman Salazar and I have introduced bipartisan legislation to do that, including some daily transaction limits and a whole host more. We'll follow up with your staff about any technical guidance, you know, with on the thin chance we don't get it through the floor this term, uh, when we bring it Maybe we can tighten it up. I I wanna back up a level though of what causes people to go there in the first place, and I have to start with just a completely bonkers anecdote. Senior citizen constituent of mine, I was with her son this weekend, he he basically caught, it's a strange thing to say about your mom, was able to stop her at the UPS store. She'd taken out twenty thousand dollars in a certified check that she was going to mail to someone that she'd met through Facebook. Um, The, uh, Reuters has, has reported that ten percent of all of Facebook's, meta's revenue across all their platforms, Facebook et cetera, sixteen billion dollars comes from fraudulent ads. And to get some context, I asked the, you know, this friend of mine who was telling me this story, what he did after they got everything shut down. He said they went to local police, twenty thousand person village in Illinois. And the police officer said that it is, really hard for them to prosecute because they have to go to the FBI, they have to get a warrant, they have to have access into into Metis records, and that's a huge hassle for this small police force. But he said that in this twenty thousand person town, they deal with forty to fifty of these types of cases every month. This is bonkers. When you testified last year, we were talking about some of the efforts you were going through with way one, to try to shut down on some of these. But my understanding

Thank you, Representative Kasten. You know, the, and let me just back up and say, you know, the um the way um fraud um attacks um elderly citizens in the United States is um is of great concern to me personally, but uh you know I think appalling to all of us. It's something that Vincent's very focused on. And one way in which we do it is, is we use tools given to us by Congress to go after some of the um some of the central nexus points way one group being one of them um there we used um authority under s under three eleven to go after this payment group um it has been very effective. Um but we've had to redeploy it again as way one tries to pivot. create new names and tries to evade the controls put out um uh under. Um, it is um, we we d we do the best we can with the authorities we have.

Okay. Um, well, and I'd say we're getting near the end of time, but I I think Congress has on a bipartisan basis been, I think, good at giving you tools where they're going after, w once we've identified the crime, so if there's fentanyl trafficking, if there's Russian sanctions evasion, we're we're working on legislation right now that I'd like to give you the tools, so that you can actually go after people who are committing financial fraud without first having to h have some understanding of where they're going after, so that you're we're not waiting for all these procedures. And I I see you nodding your head for the record, but I I hope if you could just work with our staff, we'd love to get some technical knowledge on how to do that in a way that sharpens it and and gives you a little bit more cover to shut this down sooner.

Absolutely will do.

Thank you, Director Geicke. You'll bet.

Thank you, Mr. Kasten. The General Lady from California, Miss Kim, is now recognized for five minutes.

Thank you, Chairman Davison, for holding today's hearing. Director Geicke, good to see you again. Um, I wanna thank you again for joining me at the Nixon Library early this year, when you and your team came out for a um discussion on residential real estate transfer role and the damaging impacts it would have on small businesses. We did receive positive feedback from those who attended, and so I really wanted to thank you. I'll touch on that uh topic a little later, but I wanna start my questioning with you regarding the student aid uh fraud. And I know you've been leading the investigation at the treasury department on that topic. So let me s share some statistics that we know. In two thousand twenty four, one in every three California community college applications was fake. As a result of that, ten million dollars in federal taxpayer dollars and three million in state taxpayer funds were stolen. And between January and March of two thousand twenty five, nearly five point six million in federal student aid and nearly one million in state uh student aid were stolen as well. So last year I led a letter to Department of Education calling for a federal investigation into that crisis because Gavin Newsom and the California government were failing to address that issue. Uh, so Director Gecky, uh, can you talk to us about, uh, what, you know, what you can share regarding the status of your investigation into that, uh, student aid fraud?

Well, Representative Kim, thank you for that question. I also wanna thank you for welcoming me and my team to your district and the Nixon Library, um, uh, um, a few months ago. Um, So, and thank you for your leadership on the issue of student aid fraud. Um, you know what Vincent has found is that fraud rings are using stolen and fraudulent identities to enroll in educational institutions and unlawfully acquire federal student aid and the schemes are resulting as you noted to um, losses to the federal student aid programs and sometimes real students face difficulties enrolling in classes because of it. And uh, you know, in order to uh d- you know, we see scammers creating ghost students. Fraudsters can illegally obtain PII to impersonate someone and pose as a legitimate student. And um, often victims whose identities are leveraged um, are unaware that these um, scammers are um, doing this. This is something we are actively involved in, um, and working with international f- uh, financial intelligence units as well. um were were trying to um root out the fraud at their source.

I commend you for that diligent work on that matter because every dollar that goes to one of these scammers is a dollar that could have gone to real student in need of that aid to receive education. Um and it's especially important for the uh counties that I represent in the fortieth district that's Orange San Bernardino and Riverside counties. So let me shift the gears now to residential real estate Even though the rule was only in place for three weeks, my constituents reported, and you heard, significant struggles in collecting data and complying with the uh rule making. So, since we hosted you at the Nixon library, what further efforts have you made to connect with the stakeholders? And what kind of uh feedback did you receive on the rule making and educate them on the implementation process?

Representative Kim, thank you. And we um a as noted um the round table that you convened, um we received a lot of good feedback on ways to improve the regime,

Mm-hmm.

and to improve um the uh the ways in which um we um we messaged and um gave guidance on the reporting regime the residential reporting role though having now been challenged and vacated by the district court in um in Texas um that decision is in litigation it's something Pincetta is appealing through the Department of Justice And we will work through the legal system to resolve that. In the meantime, however, um, I remain open to all suggestions to, um, to, uh, um, improve the regime, though it remains, um, not being enforced and under challenge.

Can you talk about the the op of the many reports that were filed? How many of them have actually contributed to an, uh, investigation or resulted in a prosecution?

Thank you for that question, Representative Kim. It's something I'd like to get back to you on. I don't have

Thank you. Definitely there needs to be a delicate balance in that rule making and consider feedback from market participants and law enforcement to ensure that we are not overburdening our small businesses but also providing information that law enforcement actually utilizes so appreciate the work that you do and look forward to continuing to work with you and your team thank you I yield back.

Um thank you, Miss Kim. Uh the gentleman from California, Mister Liccardo, is now recognized for five minutes.

Uh thank you. Uh Director Gawki, thank you very much for your work uh as Director of FinCEN on behalf of the American people. Uh fair to say your job and that of your two hundred and seventy employees uh is on safeguarding the financial system that the public relies on from illicit activity, uh countering money laundering and and financing of terrorism. Is that fair?

Indeed. Thanks Representative Liccardo, that's true.

So, uh, as we look at how illicit finance works in our world, um, we often see the laundering of proceeds and funding of terrorism and and crime, through shell companies. Is that right?

Yes, we do.

And some of those shell companies may obscure the identity of of criminals, um, and they may be based abroad, and some may be based in the United States.

Yes.

And in fact if If you're a crook, you might prefer a shell company that's based in the United States, if your illicit activity, your crime is in fact in the United States.

I think that is a typology we have observed, yes.

So, the Corporate Transparency Act, which was passed with overwhelming bipartisan majorities, I think at twenty or twenty one, uh helps law enforcement to identify the beneficial owners of those companies, uh, by requiring individuals who exercise substantial control or substantial ownership of those companies uh to to register. Is that right?

Uh, that that is, yes.

Now in March of last year, the Trump administration uh announced it will not enforce any penalties or fines against US citizens, domestic reporting uh companies, or their beneficial owners, essentially exempting about thirty-two million corporations from any reporting under the corporate transparency act. Is that right?

Yes, Representative Licata, we issued an interim final rule, um, striking a different balance on that rule.

Yeah.

And the report from the GAO that came out in May indicated that more than ninety nine percent of the entities covered by the CTA have now been exempted by treasury enforcement.

I I don't remember the GAO report off the top of my head, but I um I believe what you told me.

Okay. So, I I just want to be clear, based on the rule that you described in your prior answer, uh, are we still not enforcing the law or any penalties as to US companies under the CTA?

Well, Representative Licata, let me um thank you for this question. And just stepping back for a second, the Corporate Transparency Act actually required the Treasury Department to assess the burden on small business in implementing the the um and the law. And in um in uh this administration, treasury leadership decided that the balance needed to be restruck, that um that the typology of of um of shell companies did not justify placing such a burden on millions of law abiding businesses um t uh under the Corporate Transparency Act and so in the interim final rule um using authority granted by the Corporate Transparency Act to um to um authorize exemptions. There's uh the treasury department in with the.

Director, I'm sorry, I don't have a lot of time. Are US companies exempt or not?

Uh, US companies are not required to report beneficial ownership.

Okay. And as you indicated, there's no question that criminal organizations use US companies, the shell companies, to hide their illicit proceeds and move their funds.

That is true, but I'd like to elaborate.

Does does does this make FinCEN's job easier or harder to protect? the financial system from the act criminal activity and terrorist activity related in moving illicit money.

Um, I would say that the United States continues to have the most robust, most effective, illicit finance, anti-finance money laundering regime in the world. And FinCEN has a number of different tools.

Does it make your job harder or easier?

I have no um, it it is it is uh it does not make our job um uh i have no uh let me get back to you on that i have no i have no answer on that

ok well as i see it this administration has decided that it's gonna launch a global naval strategy and exempt the pacific ocean because apparently no american companies are involved in illicit activity even though for example one company named world liberty financial owned by trump and his sons in fact engages in massive transactions with uh for example Chinese nationals who have been prosecuted and pled guilty uh for violations of the Bank Secrecy Act I find this entire thing uh unbelievable and I can't believe folks are just standing by whistling. I yield.

Thank the gentleman. Uh gentleman from Iowa, Mister Nunn is now recognized for five minutes.

Well, thank you, Mr. Chair. Thank you, Director Gacchia, for joining us again. Thank you for taking the time to come to my district and actually hear from my own ones. Look, here's the reality. Uh, you were pointed out in the Biden administration, I'm a Republican, but we found ways to work together and I think that's really important. That's what most Americans want. Now, I appreciate my friend, Mr. Liccardo's argument here that the CTA is something that should go after shell companies. We've identified nearly forty thousand shell companies with Chinese designators. We should absolutely empower you and Fincent to be able to aggressively hold those folks accountable. But I would also offer what we should not be doing is going after thirty-two million American businesses, small businesses, requiring them to file unprecedented levels of regulatory requirement. And if they get it wrong, we fine them. We fine them five hundred dollars a day per infraction. It's the exact reason the Treasury was tasked with saying, what is the implication here and how do we hold these guys accountable? So let's work together across the aisle in the same way you and I have, on being able to find out who these shell companies are, but let's not put the burden back on small businesses and fine and fee America because the good guys are already given the information that we need. It's the bad guys who are clearly lying on these forms. I wanna highlight here a couple of things. Following a round table that you had with us in Iowa, we were able to pass my small business from excessive paperwork act out of the house. I think that's a good start and it goes directly to what we just highlighted here, on making sure good guys are taken care of. Not only that, but the Treasury Department paused implementation, as was noted here, of its burdensome ownership reporting requirements for Main Street. Unfortunately, that doesn't seem to be the case in everything. We've seen a similar theme play out in residential real estate rule, which requires small businesses to shoulder similar burdensome reporting requirements. I'd ask that FinCEN continue to implement rulemaking and encouraging your team to make sure we narrow the approach by targeting criminals trying to exploit the financial system not burying all of our law abiding businesses in unnecessary paperwork. Now one of the things we came together today on the National Security Subcommittee is to address what's going on in fraud. This has been massive. In my home state of Iowa, I just talked with the sheriff of Appanoose County, it's Farm County. There's an individual there, Mister Chair, who saw his entire life savings bled out by a pig butchering act. Thought he had a romantic relationship, gave hundreds of thousands of dollars, and this materialized into real-world physical assault. Once the attackers from overseas knew that he had money on his farm, they sent mercenaries from New York City to drive all the way to Iowa. There they held him up in a machine shed, they fired shots. Three individuals engaged by local law enforcement, all there to steal money that they had solicited them from a pig butchering scheme in Southeast Asia. These things matter. It's one of the reasons I'm proud to be working with you on real bills, things like the GARD Act, which passed out of this committee uh with overwhelming support, to be able to provide real resources to our local law enforcement officers. Our next bill up is the TRAPS Act. This is being able to bring both the intelligence, law enforcement and private sector partners together, to be able to hold these accountable. In Iowa, it's often our seniors who are being targeted by these criminals for their hard-earned savings. I understand Finston has been tracking elder financial exploitation closely. Could you share some of the latest data that we're looking at here on the scale of elder abuse being targeted by scams?

Representative Nunn, thank you, thank you for welcoming to me to your district, um, some time ago now, and, um, and for your comments, and for your leadership on these issues. On, um, when it comes to, um, um elder financial fraud is indeed a huge problem which I know um you um you well recognize. FinCEN in twenty twenty two issued an elder fraud um exploitation advisory, it remains among the most referenced advisories that financial institutions use to report suspicious transactions to uh to us. To date financial institutions have uh have filed more than eight hundred and fifty thousand SARs totaling more than four hundred and forty three billion dollars in reported suspicious activity. And we see that older adults are often targeted in theft and confidence schemes. This is an area of sustained attention of of highest priority at um FinCEN, and it's something we are engaging with law enforcement very um very um very robustly in order to make sure that we're supporting their efforts here.

Director Gehege, I wanna say thank you to the FinCEN team. You've been at the forefront of this, I think pairing up both our law enforcement both at the federal level but certainly at the local level, gives us the best opportunity not only to protect our seniors, but, Chairman, to help protect our communities. This is a broad bipartisan support. I wanna continue to work with you on this. Uh, guard and traps are two of the best bills that are out there right now that have great bipartisan support with um Mister Himes here. I think we can get these done. Thank you very much, Mister Chair. I yield my time.

Uh, thank you, Mister Nunn. Uh, Director Gacchia, thank you for your testimony here today. Without objection, all members will have five legislative days to submit additional written questions. uh for the witness to the chairman. Questions will be forwarded to the witness for her response. Director Gacke please respond no later than August twenty-fifth uh of this year. This hearing is adjourned.