Chairwoman Waters, Ranking Member McHenry, and members of the committee, thank you for the opportunity to submit a statement for the record regarding the critical role that the Financial Crimes Enforcement Network (FinCEN) plays in protecting the U.S. economy from financial crimes, and the importance of FinCEN’s swift implementation of the Corporate Transparency Act (CTA).
I am Joanna Derman, policy analyst at the Project On Government Oversight (POGO). POGO is a nonpartisan independent watchdog that investigates and exposes waste, corruption, abuse of power, and when the government fails to serve the public or silences those who report wrongdoing. We champion reforms to achieve a more effective, ethical, and accountable federal government that safeguards constitutional principles.
FinCEN is the bureau of the Treasury Department specifically tasked with the enormous responsibility “to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.”1
FinCEN plays a crucial role in protecting the U.S. economy from foreign malign influence. To that end, it is a leading financial intelligence unit and coordinates widely with international partners to share and exchange financial information in support of U.S. and foreign financial crime investigations.2 FinCEN is also a lead implementing agency for the reforms listed in President Joseph Biden’s December 2021 inaugural strategy on countering corruption.3
“FinCEN plays a crucial role in protecting the U.S. economy from foreign malign influence.”
Recently, FinCEN has been widely discussed within the context of combatting Russian aggression against Ukraine, as the bureau endeavors to remain vigilant against potential efforts to evade the robust sanctions regime that the U.S. and our allies recently expanded with respect to both the Russian Federation and individual Russian oligarchs.4 As you, Chairwoman Waters, recently noted, bad actors in Russia “are using shell companies and other money laundering techniques to hide their money, avoid scrutiny, and evade our sanctions.”5 These actions shine a spotlight on what financial regulators have known for a long time: that kleptocrats and criminals have consistently taken advantage of gaps in the framework protecting western financial economies in order to hide their wealth from prying eyes.6 For example, last month Russian oligarch Roman Abramovich, who is subject to international sanctions, docked his two super yachts in Turkey. With each yacht worth an estimated $600 million or more, he is literally moving his money around the world while he seeks to outrun their capture.7 As another example, Russian oligarch Oleg Deripaska, who has been sanctioned by the U.S. since 2018, has reportedly used anonymous shell companies and proxies to secretly own real estate in the U.S. to this day, without fear of seizure.8 In another instance, in 2016, Russian oligarch Igor Makarov established an unregulated private trust company in Wyoming to anonymously grow and hide his wealth in the U.S financial system.9 FinCEN must continue to work with our international allies to close these loopholes in our financial system and finally bring these individuals to account.
Ensuring Increased FinCEN Fundings
Given the critical role that FinCEN plays in protecting the security of our nation’s financial systems, Congress should not hesitate to significantly increase FinCEN’s funding and fulfill President Biden’s fiscal year 2023 budget request of $210 million for FinCEN.10 With all eyes on anti-corruption efforts targeting Russian oligarchs, lawmakers must recognize that in order for FinCEN to produce meaningful enforcement efforts, they must be afforded at least the minimum amount of resources they need for staffing, technology, licensing, travel, and other operational necessities.
“Given the critical role that FinCEN plays in protecting the security of our nation’s financial systems, Congress should not hesitate to significantly increase FinCEN’s funding.”
In fiscal year 2022, Congress unfortunately fell $30 million short of President Biden’s request of $191 million for FinCEN.11 While the resultant $161 million for FinCEN that fiscal year constituted an increase from the prior fiscal year, it is clear that FinCEN is still in need of additional resources in order to fulfill its mission.
Congress must do better. Lawmakers should fully and consistently fund FinCEN, especially as Congress continues to expand FinCEN’s mandate, most recently in 2021 through the Anti-Money Laundering Act of 2020. The act added substantial responsibilities to FinCEN’s plate and highlighted certain factors that FinCEN needs to consider when prescribing the compliance framework for combatting money laundering and financial terrorism.12
FinCEN Must Swiftly Implement the Corporate Transparency Act
Signed into law on January 1, 2021, the Corporate Transparency Act (CTA) requires corporations, limited liability companies, and similar entities to report their true beneficial owners to FinCEN, and directs FinCEN to house and maintain this information in a central registry so authorized law enforcement and financial institutions can use it to crack down on criminal and illicit financial exchanges and money laundering.13
FinCEN should fully and expeditiously implement the CTA. Currently, the Treasury Department is beyond its statutory timeframe of one year to implement the law. It has been in the process of implementing the CTA for the past year, issuing the first of what will be three Notices of Proposed Rulemaking in December 2021.14 Treasury Secretary Janet Yellen said before this committee on April 6, 2022, that the Treasury Department expects a second rule “this year, within the coming months.”15
POGO encourages the Treasury Department to see through its commitment to this schedule, and urges the department to ensure that CTA implementation be finalized and take effect no later than January 1, 2023. The administration should move to quickly issue the second and third proposed rulemakings for the CTA, and to make effective final regulations.
POGO recently submitted an appropriations request to that effect to Congress, requesting reporting language that encourages the Treasury Department to swiftly implement the CTA.
Priorities in CTA Rulemaking
In response to the Treasury Department’s CTA rulemaking process, POGO submitted two comments, both of which are enclosed in this document and include recommendations on how to implement the law most effectively.
First, POGO submitted a comment to the Treasury Department’s Advanced Notice of Proposed Rulemaking published in the federal register on April 5, 2021.16 We recommended that FinCEN adhere closely to the statutory language in the CTA, paying close attention to how accessible the beneficial ownership database is to law enforcement. For the database to be as “accurate, complete, and highly useful” as possible, FinCEN must craft the database in a manner that allows for timely access to information and push for the use of unique, non-proprietary identifiers for each company in the database to make it easier to monitor and track illicit transactions.
Second, POGO submitted a comment to the Treasury Department’s Notice of Proposed Rulemaking published in the federal register on December 8, 2021.17 We recommended that FinCEN retain its strong definitions of both a reporting company and a beneficial owner, retain its proposed reporting requirements, and retain its efforts to minimize cost of compliance. Additionally, we recommended that FinCEN clarify the exemption policy for subsidiaries of reporting companies, require mandatory Legal Entity Identifier numbers, and take additional steps to strengthen the accuracy and usefulness of reported information.
We look forward to reviewing FinCEN’s forthcoming rule regarding the CTA.
POGO is grateful to the committee for holding this important hearing, and we urge you to act to increase FinCEN funding, swiftly implement the CTA, and continue to take concrete steps that ensure bad actors are unable to make illicit financial transactions that harm our national security.