[Senate Hearing 112-115]
[From the U.S. Government Publishing Office]
S. Hrg. 112-115
NOMINATIONS OF: DAVID S. COHEN, DANIEL L. GLASER, TIMOTHY G. MASSAD,
WANDA FELTON, AND SEAN ROBERT MULVANEY
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
NOMINATIONS OF:
David S. Cohen, of Maryland, to be Under Secretary for Terrorism and
Financial Crimes, Department of the Treasury
__________
Daniel L. Glaser, of the District of Columbia, to be Assistant
Secretary for Terrorist Financing, Department of the Treasury
__________
Timothy G. Massad, of Connecticut, to be Assistant Secretary for
Financial Stability, Department of the Treasury
__________
Wanda Felton, of New York, to be First Vice President and Vice Chair of
the Export-Import Bank of the United States
__________
Sean Robert Mulvaney, of Illinois, to be a Member of the Board of
Directors for the Export-Import Bank of the United States
__________
MAY 3, 2011
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http: //www.fdsys.gov /
_____
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Pat Grant, Counsel
Colin McGinnis, Professional Staff Member
Brian Filipowich, Legislative Assistant
Hester Peirce, Republican Senior Counsel
John O'Hara, Republican Senior Investigative Counsel
Anu Kasarabada, Deputy Clerk
Brett Hewitt, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
TUESDAY, MAY 3, 2011
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 3
WITNESSES
David S. Cohen, of Maryland, nominee for Under Secretary for
Terrorism and Financial Crimes, Department of the Treasury..... 4
Prepared statement........................................... 26
Responses to written questions of:
Chairman Johnson......................................... 31
Senator Shelby........................................... 33
Senator Schumer.......................................... 34
Senator Brown............................................ 37
Senator Vitter........................................... 37
Senator Johanns.......................................... 43
Senator Kirk............................................. 44
Daniel L. Glaser, of the District of Columbia, nominee for
Assistant Secretary for Terrorist Financing, Department of the
Treasury....................................................... 6
Prepared statement........................................... 27
Responses to written questions of:
Senator Shelby........................................... 54
Senator Brown............................................ 58
Senator Hagan............................................ 59
Timothy G. Massad, of Connecticut, nominee for Assistant
Secretary for Financial Stability, Department of the Treasury.. 8
Prepared statement........................................... 28
Responses to written questions of:
Chairman Johnson......................................... 59
Senator Shelby........................................... 62
Wanda Felton, of New York, nominee for First Vice President and
Vice Chair, Export-Import Bank of the United States............ 9
Prepared statement........................................... 29
Responses to written questions of:
Chairman Johnson......................................... 64
Senator Shelby........................................... 65
Senator Vitter........................................... 66
Sean Mulvaney, of Illinois, nominee for Member of the Board of
Directors, Export-Import Bank of the United States............. 10
Prepared statement........................................... 29
Responses to written questions of:
Chairman Johnson......................................... 73
Senator Shelby........................................... 74
Senator Vitter........................................... 75
(iii)
NOMINATIONS OF:
DAVID S. COHEN, OF MARYLAND,
TO BE UNDER SECRETARY FOR TERRORISM AND FINANCIAL CRIMES,
DEPARTMENT OF THE TREASURY;
DANIEL L. GLASER, OF THE DISTRICT OF COLUMBIA,
TO BE ASSISTANT SECRETARY FOR TERRORIST FINANCING,
DEPARTMENT OF THE TREASURY;
TIMOTHY G. MASSAD, OF CONNECTICUT,
TO BE ASSISTANT SECRETARY FOR FINANCIAL STABILITY,
DEPARTMENT OF THE TREASURY;
WANDA FELTON, OF NEW YORK,
TO BE FIRST VICE PRESIDENT AND VICE CHAIR,
EXPORT-IMPORT BANK OF THE UNITED STATES;
SEAN ROBERT MULVANEY, OF ILLINOIS,
TO BE A MEMBER OF THE BOARD OF DIRECTORS,
EXPORT-IMPORT BANK OF THE UNITED STATES
----------
TUESDAY, MAY 3, 2011
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:06 a.m. in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I call this hearing to
order. Thanks to all of you for joining us here today, and a
special thanks to our witnesses and their family members who
are with us.
Before we begin, I want to take a moment to mention the
devastation and the tragic loss of life in the wake of hundreds
of tornadoes that broke out across the Southern United States
last week. Ranking Member Shelby, I know your home town of
Tuscaloosa was among the hardest hit, and I want to convey my
condolences to all of those affected by these catastrophic
events. I was also pleased to see a quick, coordinated response
from President Obama, FEMA, and a number of Cabinet
Secretaries.
Today we consider five distinguished individuals nominated
to serve in critical positions within the Obama administration.
David Cohen and Daniel Glaser have both been nominated for key
antiterrorism positions within the Department of the Treasury.
As the President said in his address to the Nation on Sunday
night, the death of Bin Laden marks the most significant
achievement to date in our Nation's effort to defeat Al Qaeda.
But his death does not mark the end of the effort. There is no
doubt that Al Qaeda will continue to pursue attacks against us.
We must and we will remain vigilant at home and abroad.
I wholeheartedly agree with the President. Mr. Cohen's and
Mr. Glaser's nominations are critical to these ongoing efforts
to protect our homeland. Mr. Cohen has been nominated to become
the Under Secretary for Terrorism and Financial Crimes and is
currently serving in the role in an acting capacity. Mr. Glaser
has been nominated to become the Assistant Secretary for
Terrorist Financing. Timothy Massad has been nominated to serve
as Assistant Secretary for Financial Stability at the Treasury
Department, a role he is currently fulfilling in an acting
capacity. Wanda Felton and Sean Mulvaney have both been
nominated for positions at the Export-Import Bank of the United
States. Ms. Felton has been nominated to serve as the First
Vice President and Vice Chair, and Mr. Mulvaney has been
nominated to become a member of the Board. Let me say a brief
word about each of these nominees.
David Cohen has had a long and distinguished career of
public service in the public and private sector. Prior to
serving as Acting Under Secretary for Terrorism and Financial
Crimes, he was the Assistant Secretary for Terrorist Financing.
He has also worked in the Treasury Department's Office of
General Counsel and in the private sector with the law firm of
Wilmer, Cutler, Pickering, Hale & and Dorr.
Daniel Glaser also has had an outstanding career at the
Treasury Department. He currently serves as the Department's
Deputy Assistant Secretary for Terrorist Financing and
Financial Crimes. Prior to serving in this role, Mr. Glaser was
the first Director of the Executive Office of Terrorist
Financing and Financial Crimes established in 2003. Previously
he served as the Senior Counsel for Financial Crimes in the
Treasury Department's Office of General Counsel.
These nominees are providing key leadership in one of the
Treasury Department's most critical offices. Since its
creation, the Office of Terrorism and Financial Intelligence
has played an even greater role in protecting our national
security.
As the Acting Assistant Secretary for Financial Stability,
Timothy Massad heads the Office of Financial Stability which
administers the Troubled Asset Relief Program. Previously he
served as the Chief Counsel for OFS, and before joining
Treasury, Mr. Massad had a diverse corporate practice as a
partner at Cravath, Swaine & Moore. As both a special legal
adviser to the Congressional Oversight Panel for its first
report on the TARP investments and in his current capacity, Mr.
Massad has already demonstrated his commitment to TARP
transparency and maximizing taxpayer returns.
Wanda Felton and Sean Mulvaney have been nominated for
positions at the Export-Import Bank and the Official Export
Credit Agency of the United States.
Ms. Felton brings a varied and distinguished business
record to the Ex-Im Bank. She currently owns and directs MAP
Capital Advisors, a financial advisory firm. Prior to her work
at MAP, Ms. Felton was the Managing Director at Helix
Associates, a global placement agency for private equity funds.
I note that this position would be a form of homecoming for Ms.
Felton as she started her career with Ex-Im Bank as a loan
officer.
Sean Mulvaney currently serves as the Director of the
Economic Policy Program at the German Marshall Fund of the
United States. Prior to this, he worked for the U.S. Agency for
International Development, where he served until November 2008
as Assistant Administrator for Management, a Presidential
appointment and Senate-confirmed position.
It is my sincere hope that the Senate can act quickly on
all of these nominations, including Ms. Felton and Mr.
Mulvaney, since two of the three remaining members of the
Export-Import Bank's Board will conclude their terms this July.
I look forward to hearing all of our nominees' testimonies.
I now turn to Senator Shelby for any opening remarks he may
have. Senator Shelby.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Thank you, Mr. Chairman. Today the
Committee will consider several nominations.
David Cohen, as you have mentioned, has been nominated to
served as Under Secretary of the Treasury for Terrorism and
Financial Crimes. In this role Mr. Cohen will be responsible
for shaping U.S. sanctions policy. Mr. Cohen will be succeeding
Stuart Levey who has served in that position for the past 7
years. I believe it will be a challenge for Mr. Cohen to follow
in Mr. Levey's footsteps, but I believe he is up to it.
Nevertheless, he will need to refocus our efforts on the
dangers that this country and its financial institutions face
here at home, such as cash smuggling, sophisticated money
laundering, and TARP-related fraud.
Daniel Glaser has been nominated to serve as Assistant
Secretary of the Treasury for Terrorist Financing. He has been
working at the Treasury Department on terrorism financing
issues for nearly 7 years. He presently is Deputy Assistant
Secretary for Terrorist Financing. If confirmed, his background
will allow Mr. Glaser to hit the ground running.
Timothy Massad has been nominated to serve as Assistant
Secretary for Financial Stability at the Department of
Treasury. He has been working in the Office of Financial
Stability for 2 years, currently as the Acting Assistant
Secretary, and prior to this as Chief Counsel. This office was
created in October 2008 to run the Troubled Asset Relief
Program we call ``TARP.''
It is critical that the heads of these offices be committed
to greater transparency and accountability for TARP here.
Finally, there are two nominations that the Chairman
mentioned for the Board of Directors of the Export-Import Bank.
The Bank is the official export credit agency of the United
States. Wanda Felton has been nominated to serve, as he has
mentioned, as First Vice President and Vice Chair of the Board
of Directors; and Sean Mulvaney has been nominated to serve as
a Board member. It is important that these Board positions are
filled promptly to allow the Bank to operate effectively and
fulfill its missions to assist both large and small companies
export their goods and services to foreign markets. I think it
is particularly important now to have a full Board as the
Committee will be considering legislation to reauthorize the
Bank this year.
I look forward to hearing from the nominees and working
with Chairman Johnson so that we can move these nominations
through the process as quickly as possible.
Chairman Johnson. Will the panel please rise and raise
their right hand? Do you swear or affirm that the testimony
that you are about to give us is the truth, the whole truth,
and nothing but the truth, so help you God?
Mr. Cohen. I do.
Mr. Glaser. I do.
Mr. Massad. I do.
Ms. Felton. I do.
Mr. Mulvaney. I do.
Chairman Johnson. Do you agree to appear and testify before
any duly constituted Committee of the Senate?
Mr. Cohen. I do.
Mr. Glaser. I do.
Mr. Massad. I do.
Ms. Felton. I do.
Mr. Mulvaney. I do.
Chairman Johnson. You may sit down. Please be assured that
your written statement will be part of the record, so if you
could confine your remarks to 5 minutes, that would be greatly
appreciated.
Please also note that the Members of this Committee may
submit written questions to you for the record, and you should
respond to these questions promptly in order that the Committee
may proceed on your nomination.
I invite all the witnesses to introduce your family and
friends in attendance before beginning your statements. Mr.
Cohen.
STATEMENT OF DAVID S. COHEN, OF MARYLAND, TO BE UNDER SECRETARY
FOR TERRORISM AND FINANCIAL CRIMES, DEPARTMENT OF THE TREASURY
Mr. Cohen. Thank you, Chairman Johnson. I would like to
begin by introducing my wife, Susie Cohen, who is here with me
today.
Chairman Johnson, Ranking Member Shelby, and distinguished
Members of this Committee, thank you for the opportunity to
appear before you today. It is an honor to be the nominee to
serve as Under Secretary for Terrorism and Financial Crimes. I
want to thank President Obama for the confidence he has shown
in me by nominating me and Secretary Geithner for recommending
me to serve in this position.
Having served for the past 2 years as the Assistant
Secretary of Treasury for Terrorist Financing, I am keenly
aware of the very significant responsibilities assigned to the
Under Secretary for Terrorism and Financial Crimes, as well as
the consequential contributions that the Under Secretary can
make in advancing our Nation's security.
Illicit finance, in its many forms, is a threat to the
integrity of our financial system, both domestically and
internationally. Combating illicit finance not only protects
our financial system from abuse by money launderers, terrorist
financiers, weapons proliferators, and others engaged in
financial crime, but it helps to advance our most critical
foreign policy and national security objectives. The many tools
that the Treasury Department can deploy--ranging from anti-
money laundering regulatory oversight, to outreach to
counterparts overseas, to deploying targeted financial measures
focused on particular individuals and entities--play an
integral role in responding to many of the challenges we face.
Treasury's unique capacity to understand financial flows and
the operation of the financial system, to analyze financial
intelligence, to map financial and material support networks,
and to take targeted, powerful actions are key to meeting these
challenges.
I believe that my professional experience, particularly
serving as Assistant Secretary for Terrorist Financing since
May 2009, has prepared me well to undertake the
responsibilities of Under Secretary.
As Assistant Secretary, I have had the opportunity to work
very closely with the previous Under Secretary, participating
in almost all aspects of the work of the Office of Terrorism
and Financial Intelligence (TFI). This has included
coordinating closely with my colleagues in each of the
components of TFI the Office of Intelligence and Analysis, the
Office of Foreign Assets Control, the Financial Crimes
Enforcement Network, and the Treasury Executive Office for
Asset Forfeiture.
In my capacity as Assistant Secretary, I also have had the
chance to work on many of the issues in TFI, but I have focused
most intently on several key issues:
First, our use of targeted financial sanctions, as well as
outreach to the private sector and foreign governments, to
increase pressure on the government of Iran for its continued
refusal to live up to its international non-proliferation
obligations;
Second, and relatedly, our efforts to financially isolate
and apply pressure on the North Korean regime for its continued
provocative conduct;
Third, our efforts to combat the financing of terrorism,
especially financial support for Al Qaeda, the Taliban, and
other violent extremist groups in South Asia;
And, finally, the effort to ensure that information about
the true beneficial owners of corporations is available to
State and Federal law enforcement and regulators pursuing
money-laundering and terrorist-financing investigations.
Prior to serving as Assistant Secretary, I was an attorney
for close to 20 years, in both private practice and in
Government. In private practice, I represented institutions and
individuals in complex financial investigations and litigation
and counseled clients on their obligations to comply with
Treasury's anti-money laundering and economic sanctions laws
and regulations. From late 1999 to mid-2001, I served in the
Treasury's General Counsel's Office, focusing much of my
attention on anti-money-laundering law and policy.
If confirmed, I look forward to working closely with you as
the Treasury Department continues to implement the President's
priorities for safeguarding our financial system from illicit
finance. The variety and intensity of these challenges are well
known to this Committee. Effectively addressing them requires
great vigilance and constant innovation. I would welcome the
opportunity to serve our great Nation by taking on these
challenges as the leader of Treasury's critical work to fight
illicit finance.
In closing, I want to thank the Committee for the attention
it has given to my nomination. If confirmed, I intend to work
closely with you, Mr. Chairman, the other Members of this
Committee, and your staff to pursue our shared objective of
protecting national security and the integrity of the financial
system. I am deeply committed to maintaining the very
productive and close relationship that exists between this
Committee and the office that I have been nominated to lead.
Mr. Chairman, I would be pleased to respond to any
questions that you or Members of the Committee may have.
Chairman Johnson. Thank you, Mr. Cohen.
Mr. Glaser, do you have family to introduce?
Mr. Glaser. Yes, I do, Senator. I would like to introduce
my wife, Laura, and my son, Ethan; and my parents, Gary and
Lillian Glaser.
Chairman Johnson. Mr. Glaser, please proceed.
STATEMENT OF DANIEL L. GLASER, OF THE DISTRICT OF COLUMBIA, TO
BE ASSISTANT SECRETARY FOR TERRORIST FINANCING, DEPARTMENT OF
THE TREASURY
Mr. Glaser. Thank you, Chairman Johnson, Ranking Member
Shelby, distinguished Members of the Committee. Thank you for
the opportunity to appear before you today. It is a tremendous
personal and professional honor to have been nominated for the
position of Assistant Secretary of the Treasury for Terrorist
Financing. I would like to thank President Obama for the
confidence he has shown in me by nominating me and Secretary
Geithner for recommending me for this important position. If
confirmed, I will certainly work my hardest to live up to their
very high expectations.
Mr. Chairman, over the course of my career I have served in
the area of illicit finance under six Secretaries of the
Treasury across three Presidential administrations. My
positions have included serving as an attorney in the U.S.
Secret Service Chief Counsel's Office, as Senior Counselor for
Financial Crimes within the Treasury Department's Office of
General Counsel, Director of the Money Laundering and Financial
Crimes Section within Treasury's Office of Enforcement,
Director of Treasury's Executive Office for Terrorist Financing
and Financial Crimes, and since 2004, as the Deputy Assistant
Secretary of the Treasury for Terrorist Financing and Financial
Crimes within TFI. Additionally, since September 2001, I have
served as head of the U.S. Delegation to the Financial Action
Task Force--the premier international body that sets anti-
money-laundering and counterterrorist financing standards and
works for their global adoption and implementation. I believe
this experience has left me well prepared to take on this new
position.
Over the course of these years, I am proud to have been
part of the team that has built something new and unique at the
Treasury Department--a finance ministry with a central role in
the development and implementation of national security policy.
This evolution began in the late 1990s with Treasury's leading
role in the development of the first National Money Laundering
Strategies and culminated in March 2004 with the creation of
the Office of Terrorism and Financial Intelligence. TFI brings
together a broad and diverse range of Treasury's authorities
and expertise for two goals: protecting the United States and
international financial systems from abuse; and identifying,
disrupting, and dismantling the financial networks that support
terrorist groups, organized crime, weapons proliferators, and
countries that threaten the national security of the United
States. This approach has been successful. We have made it
harder for terrorist groups to raise and move funds, disrupted
the financial networks that support drug-trafficking
organizations, and applied substantial financial pressure on
regimes such as Iran and North Korea, while at the same time
making it more difficult for them to acquire the material
necessary to develop their nuclear programs.
As the central policy office within TFI, the Office of
Terrorist Financing and Financial Crimes works to develop and
implement strategies and engages with multilateral bodies,
foreign government counterparts, and private sector colleagues
to achieve all of these objectives. If confirmed, I will lead
TFFC in continuing to develop innovative approaches to
undermining illicit finance and strengthening our national
security. Challenges abound. From Iran's and North Korea's
nuclear programs and other illicit activities, to drug-
trafficking and criminal organizations in the Western
Hemisphere and Eastern Europe, to global terrorist
organizations such as Al Qaeda and Hamas, to the new challenges
posed by recent developments in the Middle East--never has it
been more important to strategically and effectively marshal
our financial tools and those of our allies in support of
international security.
In closing, I would like to thank the Committee for its
time and consideration. If confirmed, I pledge to work closely
with you, Mr. Chairman, and other Members of the Committee and
your staff on our collective goal of combating illicit finance
and protecting America. It is my immense honor to sit here
before you today, and I would be happy to respond to any
questions you or other Members of the Committee might have.
Thank you.
Chairman Johnson. Thank you, Mr. Glaser.
Mr. Massad, do you have family to introduce?
Mr. Massad. Yes, I do, Chairman Johnson. I would like to
introduce my wife, Charlotte.
Chairman Johnson. Please proceed.
STATEMENT OF TIMOTHY G. MASSAD, OF CONNECTICUT, TO BE ASSISTANT
SECRETARY FOR FINANCIAL STABILITY, DEPARTMENT OF THE TREASURY
Mr. Massad. Thank you. Chairman Johnson, Ranking Member
Shelby, and Members of the Committee, thank you for the
opportunity to appear before you today. I am honored that
President Obama has nominated me for this position, and I am
deeply grateful to Secretary Geithner for his confidence in me.
Over the last 2 years, it has been my privilege to be a
part of the Treasury Department. I joined in May 2009 as Chief
Counsel for the Troubled Asset Relief Program, and I had the
honor of working closely with former Assistant Secretary Herb
Allison, who set an outstanding example for us all. When Mr.
Allison decided to return to retirement in September of 2010,
Secretary Geithner asked me to serve as Acting Assistant
Secretary.
I was born in Louisiana, and I lived in Texas, Oklahoma,
and Connecticut as a child. All of my grandparents were
immigrants who came to this country as teenagers, barely able
to speak English and with nothing more than a suitcase. My
parents grew up during the Great Depression. Their families
struggled to make ends meet. My parents worked hard and
provided my siblings and me with many opportunities, and I have
been very fortunate as a result.
I mention this because I often think of the stories my
parents told about life during the Great Depression, because
this financial crisis has caused many American families to
suffer on a scale not seen since that time. As a result of this
crisis, millions of people have lost their jobs. Many have lost
or are still in danger of losing their homes. Many small
businesses have collapsed. Many families have lost their
retirement savings, and many young people have had to postpone
college plans. We must never forget that this human suffering
is the true cost of this financial crisis.
Congress passed the Troubled Asset Relief Program, or TARP,
in the midst of this terrible crisis in order to stabilize our
financial system. Of course, TARP could not avert or repair all
the damage caused by this crisis. However, I strongly believe
that without TARP, the suffering would have been much, much
worse. While no one liked using taxpayer funds to rescue
financial institutions, I believe that TARP--along with the
other actions our Government took--helped prevent a
catastrophic collapse of our financial system.
Today, our financial system and our economy are much
stronger, and important work remains for TARP. First, we must
exit our remaining investments in banks and other companies. We
have already recovered two-thirds of the amount of money
invested, and our economy and our financial system will be
stronger when the Government gets out of the business of owning
interests in private companies. Second, we must continue to
implement and improve our programs to help American families
stay in their homes and avoid foreclosure. And, third, we must
do both of these tasks in a manner that protects taxpayer
interests and ensures accountability.
In particular, I want to emphasize the importance of
accountability and transparency. This program must meet the
highest standards. Before joining Treasury, I helped the
Congressional Oversight Panel get started. I served as their
first special legal advisor on a voluntary basis and worked
closely with them to help write one of their first reports. If
confirmed, I will continue to work closely with the Special
Inspector General for TARP, the Government Accountability
Office, the Financial Stability Oversight Board, as well as
this Committee and other Committees of Congress to ensure that
the TARP program meets the highest standards.
It has been the greatest professional honor of my life to
serve my country during this difficult time. I have been
fortunate to lead an extremely talented and dedicated team at
the Office of Financial Stability, and I look forward to
continuing this work should the Senate choose to confirm me.
Thank you, Chairman Johnson and Ranking Member Shelby, for
this opportunity, and I look forward to your questions.
Chairman Johnson. Thank you, Mr. Massad.
Ms. Felton, do you have family to introduce?
STATEMENT OF WANDA FELTON, OF NEW YORK, TO BE FIRST VICE
PRESIDENT AND VICE CHAIR, EXPORT-IMPORT BANK OF THE UNITED
STATES
Ms. Felton. Yes, Senator, I do: my husband, Mike Owens, who
is sitting right behind me; and my mother, Maro Lester. I also
have several friends here: my best friend, Ivonia Slade, and my
dear friends, Lesley Redwine and Grace Speights, who attended
college with me.
Senator Shelby, please allow me to express my sincere
sympathies for the devastation in your State.
Chairman Johnson, Senator Shelby, and distinguished Members
of the Committee, I am honored to appear before you today as a
nominee for the position of First Vice President and Vice Chair
of the Export-Import Bank of the United States. To say that I
am deeply honored to have the opportunity to serve my country
in this capacity does not begin to capture my feelings. I am
awed and I am humbled. And I am so grateful to President Obama
for the opportunity to serve him and our country.
Briefly, I have more than 25 years of financial industry
experience. I began my career, as noted earlier, as a loan
officer at Ex-Im Bank. I understand and am committed to the
Bank's mission. Creating good-paying jobs that can sustain the
American middle class and promote the competitiveness of U.S.
companies overseas, these are imperatives in the current
economy. To my knowledge, Ex-Im Bank is the only lever
available to our Government to accomplish these goals without
burdening taxpayers. As such it is a vital tool.
However, I believe that the imperative extends beyond the
current economic cycle. Maintaining American competitiveness
over the long term is a strategic imperative. President Obama
has observed that 95 percent of the world's customers are
outside the United States. I believe that American businesses--
large and small--must capture a larger share of this market so
that our country can continue to prosper.
Under Chairman Hochberg, Ex-Im Bank's activity has
increased dramatically with many innovative programs that
stretch every dollar and leverage every resource the Bank has
available. Ex-Im Bank's support for small businesses is at an
all-time high. There are new programs that provide outreach,
training, and financing to help small businesses penetrate
overseas markets. This financing fills a void left by the
banking industry. If I am confirmed, I will be committed to
helping to build on this success.
I believe I bring a skill set that will allow me to make a
meaningful contribution. My experience in banking gives me the
tools to perform my primary duty, which is to assess the
creditworthiness of transactions that are brought before the
Board. Should I be confirmed, I will be committed to ensuring
that the Bank remains self-financing. I see the role as
fulfilling a fiduciary duty to the American taxpayer.
If confirmed, I also feel well suited to help grow U.S.
exports in Sub-Saharan Africa. I understand this is a
congressional mandate and believe that I can contribute in this
area as well. I have experience working in South Africa and
Nigeria, two of the nine countries which Ex-Im Bank has named
as primary markets. There is a growing need in Africa and many
emerging markets for equipment and services to build basic
infrastructure, telecom, transportation, and other areas. These
are needs which American businesses can and should supply. I
believe that my experience positions me well to pursue this
mandate.
For the past 15 years, I have performed due diligence on a
number of transactions involving emerging markets. For example,
in 1994, I advised CalPERS and the New York State Common
Retirement Fund as they made their first private equity
investments in post-apartheid South Africa.
Mr. Chairman and Members of the Committee, thank you for
the opportunity to seek your support for my nomination. I look
forward to answering any questions you may have for me.
Chairman Johnson. Thank you, Ms. Felton.
Mr. Mulvaney, do you have family and friends to introduce?
Mr. Mulvaney. I do, Mr. Chairman: my wife, Susan, and my
daughters, Kate and Rachel, who are right behind me.
Chairman Johnson. Welcome. Please proceed.
STATEMENT OF SEAN MULVANEY, OF ILLINOIS, TO BE A MEMBER OF THE
BOARD OF DIRECTORS, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. Mulvaney. Mr. Chairman, Senator Shelby, other Members
of the Committee, please allow me also to start by expressing
deep appreciation for the opportunity to appear before you. I
am honored to be a candidate for the Board of the Export-Import
Bank of the United States. As a former congressional staffer, I
understand and recognize the importance of the Committee and
this hearing. I would also like to thank President Obama for
nominating me to this position, as well as Senator McConnell.
If confirmed, I would welcome the opportunity to serve.
Over the course of my career, I have had several positions
that have contributed to my candidacy for the position. These
positions span the private and public sectors and include
experiences in management, U.S. trade policy, budget, and
international affairs. If confirmed, I stand ready to leverage
these experiences in support of the Bank at this critical time
during the ongoing U.S. recovery from the economic crisis.
Let me express some key commitments and priorities in this
hearing.
First, I would like to express my commitment to the Bank's
mission. While Ex-Im Bank may be a small and a lean agency, its
mission is by no means insignificant or modest. Last year, the
Bank supported over $34 billion of U.S. exports with
authorizations of over $25 billion. This financing support was
essential to sustain over 227,000 American jobs at more than
3,300 companies. Since my nomination, I have had a few
opportunities to interact with the Bank's staff. In these
initial meetings, I have quickly appreciated the Bank's
professionalism and a clear sense of purpose that emanates from
its employees. If confirmed, I would be honored to work with
the Chairman and the rest of the organization.
Second, I am committed to the Ex-Im Bank's strong
relationship with the legislative branch. The Bank has earned
the trust and confidence of this Committee and the Congress.
Even though the Bank's operations are self-sustaining, the Bank
extends the full faith and credit of the United States as it
supports U.S. exports and jobs. It is important that this trust
and confidence be preserved in the years ahead, particularly as
the Bank seeks reauthorization.
Third, I am committed to the Bank's partnership with other
Federal agencies. The Bank plays a vital complementary role to
the programming of organizations like OPIC, TDA, SBA, USTR, and
the Department of Commerce. Together, the Bank and these
agencies enable greater U.S. economic engagement in the global
economy so that the United States can secure economic growth,
job creation, and prosperity.
If confirmed, I would hope to work with Chairman Hochberg
and the Bank staff on a few areas.
First, the Bank has developed a strategic plan for 2010
that includes a number of priorities, including expanding
awareness of Ex-Im Bank services through increased outreach and
partnerships, increasing the number of small- and medium-sized
businesses using Bank services, and targeting business
development in emerging markets with high potential for U.S.
export growth. A key statistic I have come to appreciate in
this nomination process is the fact that over 20 percent of the
dollar volume and 85 percent of its transaction volume benefit
American small business.
Finally, I firmly believe in the practice of measuring for
results. I would consider it an important part of my job to
understand and improve Bank metrics that give stakeholders a
sense of its performance over time, particularly mitigating
risk in its operations to the U.S. taxpayer.
Again, I appreciate the opportunity to be here, Mr.
Chairman and Senator Shelby, and I look forward to answering
any of your questions.
Chairman Johnson. Thank you, Mr. Mulvaney.
Will the clerk put 5 minutes on the clock?
Mr. Cohen, as you noted in your statement, combating
illicit finance protects our financial system from abuse by
money launderers, terrorist financiers, weapons proliferators,
and others engaged in financial crime and helps to advance our
most critical foreign policy and national security objectives.
Can you describe the overall state of the Treasury Department's
efforts in this area and where you think we need to more
clearly focus in the coming years to ensure a more effective
counterterrorist financing effort? Are there tools that you do
not now have that you think would be useful in this fight?
Mr. Cohen. Thank you, Mr. Chairman. I would say that the
state of the overall Treasury effort to combat terrorist
financing is quite good. We have in TFI an integrated approach
to combating terrorist financing that includes the policy
developments that come from the Office of Terrorist Financing
and Financial Crimes, the office that Mr. Glaser has been
nominated to lead; the Office of Intelligence and Analysis, an
intelligence shop in the Treasury Department, and I would note
that we are fortunate to be the only finance ministry in the
world that has an in-house intelligence unit that is dedicated
specifically to the intelligence related to following the money
and combating terrorist financing and other forms of illicit
finance; the Office of Foreign Assets Control, which
administers our Counterterrorist Financing Executive Order; and
FinCEN, which also contributes by regulating the domestic anti-
money laundering market and the Bank Secrecy Act and gathering
information.
We bring all of that information together in targeting our
efforts to combat terrorist financing, and it involves both
taking specific targeted actions against terrorist financiers,
the donors, the facilitators, and others who are involved in
moving the money, but also, importantly, engaging with
counterparts overseas.
I think one of the most effective things that we as a
Department do is interacting with foreign governments, foreign
central banks, foreign financial institutions, and foreign
intelligence services, sharing information, sharing best
practices, learning from one another about the networks that
are supporting the terrorist activity.
So bringing together this integrated approach, I think we
have made some important strides in weakening, in particular,
Al Qaeda core. I think we have, obviously, work still to be
done with Al Qaeda core and with the affiliates, Al Qaeda in
the Arabian peninsula, Al Qaeda in the Islamic Maghreb, Al
Shabaab. These are all serious challenges. They all depend on
receiving financing in order to survive and we will continue to
bring to bear all of the resources that I mentioned in
attacking those problems.
Chairman Johnson. Mr. Glaser, I understand you are working
hand-in-hand with Acting Under Secretary Cohen to counter
terrorist financing, weapons proliferation, money laundering,
and similar scourges as he did with his predecessor, Stuart
Levey. I gather that part of your efforts will focus on anti-
narcotics and anti-money laundering efforts on our Southern
border. Can you describe for us the scale of the problem and
how we are combating it, including new ways being used by the
cartels to smuggle in funds and prepaid digital stored value
cards. Do you think we are winning this war, losing it, or just
holding our ground?
Mr. Glaser. Thank you, Mr. Chairman, for the question,
because I think it is a really important issue and it is an
important issue for the U.S. Treasury Department, in
particular, to be focusing on. In my opening statement, in
David's opening statement, we spent a lot of time talking about
all of the innovative work that we have done over the years in
terms of mapping out the financial networks that support
regimes such as North Korea, Iran's nuclear proliferation
networks, terrorist organizations like Hamas and Al Qaeda.
There has been a tremendous amount of effort from a systemic
level to understand those networks and then to look at the
tools that we have, sanctions, tools, regulatory tools, law
enforcement tools, diplomatic tools to attack those networks,
to disrupt and dismantle those networks.
There has not been the same type of thought process, I
think, or enough of the type of thought process that has gone
into looking at the narcotics networks and I think that that is
something that we could really innovate on, and I think that
that is something that we at Treasury could really lend our
assistance to. There has been a tremendous amount of work that
has been done by the DEA, by the Justice Department, by all our
law enforcement agencies in case-driven efforts to identify
individuals, to arrest them, to take down narcotics
organizations, and they have done heroic work on that. We
ourselves have contributed to that through our kingpin
designations. That said, I think that we can do some more
systemic work in understanding these flows.
Precisely to the question that you asked, later this month,
I am going to be traveling down to Mexico to meet with my
counterpart in the Mexican Finance Ministry and then we are
going to do something that I do not think has been done before.
He and I are going to do a joint Mexican-United States visit to
Central America, to places like Guatemala and Panama, so that
we and Mexico can work together to begin to jointly understand
precisely how these broad networks work and then look at our
array of tools, which is what we do in TFI, look at our array
of financial tools to see how we could target it.
I think that a good example of the value that we could
bring to this is an action that we at the Treasury Department
took recently with respect to Lebanese Canadian Bank. Lebanese
Canadian Bank is a bank in Beirut that is part of the global
narcotics financing network. When I first started in this job,
when we looked at the drug cartels, we looked at a system that
was limited to the Western Hemisphere. Now, it is a system that
is worldwide--Africa, the Middle East, Asia. The action that we
took in coordination with the DEA to target this bank in
Beirut, which, by the way, involved a network with ties to
Hezbollah, allowed us to really find a way to disrupt the way
these drug cartels are moving their money. I think we could do
more of that and I look forward to working on that if
nominated--if confirmed. Thank you, Chairman.
Chairman Johnson. Thank you, Mr. Glaser.
Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
Mr. Cohen, although there has been some success in
sanctioning Iranian banks, Iran's nuclear program and support
for terrorist organizations continues, I believe, unabated.
Financing for these activities must be coming from somewhere,
so my question to you is this. What role, if any, do you
believe that the Central Bank of Iran plays in supporting
Iran's nuclear proliferation activities or helping businesses
evade U.S. or U.N. sanctions on Iran, and what is the
Treasury's criteria for sanctioning the Central Bank of Iran,
if you have one?
Mr. Cohen. Thank you, Senator Shelby. I want to begin by
also extending my condolences and sympathy to you and to your
constituents.
Senator Shelby. Thank you.
Mr. Cohen. With respect to the Central Bank of Iran, we are
very, very focused on the role the Central Bank of Iran may
play in supporting Iran's nuclear program as well as its
support for terrorism. I would note that in the most recent
Security Council Resolution 1929 from last June, the Security
Council made special pains to point out that vigilance is
required with respect to the Central Bank because of its
potential role in supporting Iran's nuclear program and its
ballistic missile program.
We at the Treasury Department in several FinCEN advisories
have noted for our financial institutions the potential that
the Central Bank of Iran could be involved in that sort of
activity. The criteria that we apply for the Central Bank of
Iran is the same criteria that we would apply for any financial
institution. That is, if we have the evidence, if we have the
evidence that the Central Bank of Iran is involved in
proliferation activities or in supporting terrorism, we will
take that into account and we will, if the facts----
Senator Shelby. What do you mean when you say you will take
it into account? What are you really telling us?
Mr. Cohen. I am telling you that this is something that we
are very focused on----
Senator Shelby. OK.
Mr. Cohen. We are looking for evidence that would suffice,
and we need to take this into account in our general policy of
applying pressure on Iran.
Senator Shelby. OK. Mr. Glaser, what are the main lifelines
of Iranian financing for its nuclear and terror programs right
now? In other words, where are they getting the money? I know
they have a lot of oil and gas. We understand that.
Mr. Glaser. Thanks for the question, Senator Shelby. You
know, again, just to step back for a second, when we really
first started working on this issue in earnest at the Treasury
Department back in 2006, it was more or less outside the United
States's business as usual with Iran in terms of the financial,
international financial community. There are very few, if any,
financial institutions that were voluntarily not doing business
with Iran.
We have made tremendous progress over the years on that,
and I think a watershed moment was last summer when in very
quick succession we had 1929, U.N. Security Council Resolution
1929, CISADA, and then the very robust implementation of the
U.N. resolution by the E.U., Republic of Korea, and Japan. So
where we started, where it was business as usual, now what we
are left with there is, as your question implies, there are a
few lifelines, and the challenge now--and in some ways it is a
good challenge to have, in some ways it is making it more
challenging--is to identify those.
I think one of the more important lifelines that exists is
a bank in Europe called EIH, which I know this Committee has
focused on. It is an Iranian-owned bank in Germany which,
again, provides one of the last real broad points of access for
Iran into the European financial system. It is a bank that we
designated at the Treasury Department under our WMD
proliferation authorities some time ago and it is one that we
have been engaged very closely with the Germans and with the
European Union as a whole on because we think it is very
important that that lifeline be closed down.
Senator Shelby. What basic initiatives that you have been
dealing with have been successful against the Iranian financial
lines?
Mr. Glaser. Well, again, I think----
Senator Shelby. And I do not want to say about all of it,
not here.
Mr. Glaser. I am sorry?
Senator Shelby. I said, you might not want to disclose all
of it----
Senator Shelby. No. No. I certainly understand the
question. I think what we have really succeeded in is bringing
an international coalition together to make the international
financial system very difficult for Iran to access. I will say,
I think that Congress enacting CISAD and President Obama
signing CISAD into law was extremely effective in cooling the
willingness of banks around the world to do business with
designated Iranian banks. I think that has been extremely
effective.
Senator Shelby. OK. Mr. Massad, former Special Inspector
General for TARP Neil Barofsky wrote in a recent op-ed that he
strongly disagrees with the Obama administration's assertion
that TARP has been effective by any objective measure.
Particularly, Mr. Barofsky noted that the Home Affordable
Modification Program, HAMP, has been a colossal failure. HAMP
was announced with the promise by the Administration to help up
to four million families with mortgage modifications. However,
it is my understanding there have been only about 600,000
permanent modifications to date and more than 800,000 trial
modifications have failed and been canceled. Why has HAMP
failed to live up to the expectations? Have you done any work
there?
Mr. Massad. Yes, sir. I would be happy to answer that
question. I would say, first of all, that HAMP has not failed.
Senator Shelby. OK.
Mr. Massad. I think we have helped many, many people, both
directly and indirectly. As you point out, about 630,000 have
entered into permanent modifications. We will be coming out
with a new report later this week which will indicate
additional families----
Senator Shelby. But it has not lived up to expectations.
You have got to admit that, have you not?
Mr. Massad. Yes, sir. We will not achieve three to four
million----
Senator Shelby. OK.
Mr. Massad.----permanent modifications.
Senator Shelby. All right.
Mr. Massad. I think there are a couple of reasons for that.
One is we set eligibility criteria which provide that we do not
offer assistance to everyone. This program was never meant to
help stop every foreclosure. We do not help, for example,
people who can afford their mortgage without Government
assistance. We also do not help those that even with the
Government assistance may not be able to sustain their
situation. We do not help people in million-dollar homes and
vacation homes and vacant properties. That is factor number
one. So the eligibility pool today, for example, is about 1.4
million families.
Second, servicer implementation has been difficult and
disappointing in many ways and we have taken many steps to try
to improve that.
And finally, it is difficult to reach borrowers sometimes.
The other thing I would point out, though, is that this
program has had a very big indirect effect. Prior to the launch
of HAMP, very few modifications were getting done by the
industry and the standards that we have set have pushed the
industry to do an additional two million modifications on their
own. So I think it is important to look at both the direct and
indirect effects.
Senator Shelby. Mr. Chairman, I have a number of other
questions I would like to submit for the record, if it would
please you.
Chairman Johnson. It will be received.
Senator Shelby. Thank you.
Chairman Johnson. Senator Reed?
Senator Reed. Thank you very much, Mr. Chairman. I, too,
want to join you in offering our support and help to the
Senator from Alabama with those devastating tornadoes.
Senator Shelby. Thank you.
Senator Reed. We saw some floods in Rhode Island last
summer and we received your help and assistance, Mr. Chairman,
and we look forward to helping you.
Senator Shelby. Thank you.
Senator Reed. Mr. Cohen and Mr. Glaser, how do you measure
the effect of these sanctions? Is there a metric that they are
using? And then, second, as we impose sanctions, individuals
adapt and modify their behavior. Can you indicate in that
regard what is the most disturbing trend in terms of their
reaction to the sanctions? Both of you can deal with these
questions.
Mr. Cohen. Senator Reed, with respect to the Iran sanctions
in particular, I think we measure our success in terms of the
qualitative disruptive impact that the sanctions have on Iran's
ability to access the worldwide financial system. We have seen
over the last several years, as Mr. Glaser was mentioning, a
substantial reduction in the number and quality, frankly, of
banks around the world that are willing to transact with
Iranian banks.
It is unquestionable that that has applied pressure on the
Iranian government. It is not a pressure that I think is easily
quantifiable, but we can see it in a variety of different ways,
that this is having an impact on Iran's ability to engage in
the transactions that it needs to engage in to support its
nuclear program and to support terrorism around the world. And
it is also, just more generally, imposing pressure on the
Iranian government, which is obviously part of the dual-track
strategy that we are pursuing as an Administration.
You know, in other programs, there are other measures of
success. The Libyan program comes to mind in which we have
frozen, you know, $35 billion in assets. But that is not a
measure that is translatable across programs and it is--the
number of frozen assets is sort of not a measure that we use as
a metric because it is dependent, obviously, on so many
variables that are outside of our control, including the use of
the U.S. financial system.
So I think for each program, the measures are different,
but the goal of each of these sanctions programs is to disrupt
and to apply pressure as a sort of a coercive measure to
encourage change in behavior, and that is how we measure the
effectiveness.
Senator Reed. Mr. Glaser, you might take the second
question, which is basically you have been involved in three
Administrations. What trends, and most disturbing trends, do
you see in terms of response to these sanctions?
Mr. Glaser. Thank you, Senator, and I will focus
specifically on our Iran sanctions program, because that is
what I think your question was focused on. I think you are
right. When we think about how we are going to apply sanctions
and what tools to use with respect to Iran, we need to
understand that this is a dynamic process, that as we impose
sanctions, Iran is going to respond to it, and that then
creates challenges and opportunities for us in terms of how we
respond, and there is an inevitable cat-and-mouse game that
goes on. So as we identify banks for designation, other banks
emerge that provide Iran opportunities.
One good example of that, for example, was Post Bank. Post
Bank had never really been a particularly important bank for
Iran internationally. It is their postal bank. After the broad
international sanctions against Iran and other large state-
owned banks, all of a sudden, you start seeing a huge amount of
transactions emanating from Post Bank. Essentially, Post Bank
was stepping into the shoes of these other Iranian banks. That
was something that we saw. We responded and applied sanctions
on Post Bank. So there is an element of cat and mouse to it.
Additionally, it is important to look at other alternative
mechanisms. Is Iran looking to purchase banks surreptitiously?
Is Iran looking to use mechanisms outside of the formal
financial system? We need to be careful about that. Is Iran
looking at sort of second-tier financial centers? So now that
we have closed off Europe, we have closed off South Korea, we
have closed off Japan, is Eastern Europe something that Iran is
interested in?
I took a visit earlier this year to Albania and to Ukraine
to discuss it with them, the challenges they face with respect
to potential Iranian involvement. As we look at South Korea and
Bank Mellat-Seoul being cutoff to the Iranians, will they start
looking to Chinese financial institutions more? That is
something that we need to keep our eye on.
But I just want to conclude by saying there is more to it
than just the cat-and-mouse game. Iran has a real economy, a
large economy. They are a large country. It is--as their access
to the international financial system decreases, it is not like
the second-tier options and the third-tier options and the
fourth-tier options are perfect substitutes for the first-tier
options, and that over time is going to hopefully apply the
pressure that we need to apply to seek a change in Iranian
attitudes and policy.
Senator Reed. Thank you. Mr. Chairman, I have no further
questions, but I do want to recognize Mr. Massad. We have had
the chance to have hearings together. I support you and your
efforts and thank you, sir. And to our nominees at the Ex-Im
Bank, good luck. Thank you.
Mr. Massad. Thank you.
Chairman Johnson. Senator Johanns?
Senator Johanns. Thank you, Mr. Chairman.
Let me just start out and say to all of you,
congratulations on great careers. You have done a lot of
interesting things, served your nation and wanted to do some
more and I appreciate that.
Let me, if I might, focus, if I could. Mr. Cohen and Mr.
Glaser, I think you can see from the bipartisan questioning on
the sanctions that there is a concern that we in Congress pass
these laws, we work with the Administration, we work with
Treasury, whoever. We put something in place that gets
tremendous bipartisan support here. Just literally, by the time
it is done, there are no votes against it and no controversy,
and then it is kind of like, what is happening? Is anything
coming out of this?
So let me start with a very, very direct question, and that
is has any foreign-owned non-Iranian financial institution been
sanctioned under the Iran sanctions bill? Anyone out there?
Mr. Cohen. With respect to the law that was passed just
this past summer----
Senator Johanns. Right.
Mr. Cohen.----we have not yet sanctioned any foreign
financial institution outside of Iran under that legislation.
But I would hasten to add that that legislation has been
extraordinarily effective and very powerful and we have used it
in traveling around the world, in meeting with close to 20
foreign governments, central banks, close to 50 financial
institutions where we had a concern that the financial
institution, the foreign financial institution may be involved
in significant transactions with either designated Iranian
banks or with IRGC entities and we have had very good success
in moving those financial institutions away from interactions
with Iran.
So as we began this effort over the summer, as Mr. Glaser
had mentioned earlier, we had seen over the preceding several
years many financial institutions stepping out of the Iranian
market, but there were still some that remained involved with
these designated Iranian banks, and CISADA has been a very
effective tool in going after many of those banks that remained
engaged with designated Iranian institutions.
That said, it has not been uniformly effective and we are
focused quite vigorously on identifying and pursuing those
financial institutions that continue to maintain significant
transactional activity with designated Iranian banks. We have
not yet designated a bank under CISADA, but that should not be
taken to mean that we will not.
Senator Johanns. I do not take it to mean we will not. I am
just curious as to, you know, some months have now passed, why
that action would not be taken if you have got banks out there
with significant financial transactions relating to Iran. Why
would we not be pursuing that leverage?
Mr. Cohen. Senator, we are pursuing the leverage. Our first
best option is to get them to stop. Our second best option is
to apply sanctions, and without getting too much into the
details of any particular investigation that we are conducting,
I can tell you that we are, I would say, close to a decision
point on several institutions.
Senator Johanns. Mr. Glaser, do you have anything to add on
that?
Mr. Glaser. Thank you, Senator. Not surprisingly, I agree
with my present and future boss----
Senator Johanns. That is a good idea.
[Laughter.]
Mr. Glaser. But----
Mr. Cohen. Not always the case, I would add.
Senator Johanns. Yes, I know.
Mr. Glaser. I do think it is--I think it is important to
emphasize that we are using the leverage that CISADA has given
us and we have seen a dramatic reduction in Iranian access to
the financial system as a result. The challenge now, as you
highlight, is to pick out the points where it remains, the
points that we have not been able to exert adequate leverage,
the banks that think that they are immune, and target them, and
that is something that we are committed to doing.
Senator Johanns. I am running out of time, but let me wrap
up and just say, this is an example of exactly what I was
saying with my opening. We passed the law. We want something
done. You do, too. I am not questioning your desire to be as
effective as you can. But there is a point at which we mess
around with these financial institutions, there is a point at
which it is time to just drop the hammer. And I can almost
assure you that here in Congress, you are going to get support
for that effort because we want these laws to be effective. So
good luck to all of you.
Chairman Johnson. Senator Bennet?
Senator Bennet. Thank you, Mr. Chairman, and I would like
to thank all of the witnesses here today for your willingness
to serve, and congratulations on the nomination.
Just to pick up where Senator Johanns left off for a
second, on the Iranian sanctions, can you give us an
impression, either of you, of whether there is a geographic
profile of the 50 or so institutions that you have been most
worried about, and how--and maybe specifically how some of
these institutions actually have modified their behavior in a
way that makes you feel confident that they do not need to be
sanctioned, they are responding to the law.
Mr. Cohen. I would say, Senator Bennet, that there is not a
particular geographic profile other than it is obviously not
the United States----
Senator Bennet. Right.
Mr. Cohen.----and largely not in Europe. ``Largely''
probably leaves too much room there. Not in Europe. What we
have are financial institutions, you know, whether it is in
Eastern Europe and in the Gulf, in Asia, a variety of
jurisdictions that have been the focus of our efforts. And what
has satisfied us, and I will say it is a trust but verify
approach, is commitments from the financial institutions that
to the extent that they were engaged in any of the transactions
that would be sanctionable under CISADA, that they are stopping
entirely. Obviously, we do not take them just at their word. We
pursue whatever information we can to assess whether their
representations are accurate. But that is what the statute
focuses on is significant transactions with designated Iranian
institutions, but I think for our purposes, we are looking for
these banks to completely exit the market.
Senator Bennet. And to shift to Al Qaeda for a second,
because you raised it, Mr. Cohen, in, I think, one of your
answers to the Chairman, I wonder--you had said that you had
had some success, you think, in interrupting the financial
networks that supported Al Qaeda, and I wonder if you could
describe that a little bit to the extent that you can in a
public hearing, the effect that Osama bin Laden's death might
have on that financing, if any. And then can you give us a
sense, either of you, of how overlapping the networks are for
Al Qaeda, Al Qaeda on the Arabian Peninsula, Hamas, or any
other terrorist organizations, just an impression of whether
you are seeing some geographic relationship here.
Mr. Cohen. The success that we have had with respect to Al
Qaeda core, to the Al Qaeda leadership in Pakistan, has been
something that has developed over a number of years and is the
result of both taking targeted actions against the facilitators
who were involved in moving money for Government-Qaeda as well
as very dedicated engagements with counterparts in the Gulf. We
have been working with governments in the Gulf to identify the
networks that are where the money is raised and the money is
moved into Pakistan, and it has really put a fair amount of
pressure, financial pressure on Al Qaeda. Frankly, some of the
other actions that the governments, you know, some of the other
things that we have been doing in Afghanistan and elsewhere has
also put pressure on Al Qaeda core.
The death of bin Laden is obviously a tremendously
important step. I think it will--it takes away a person who
was, at a minimum, a symbol that was helpful in raising money.
But I think our assessment is that it is by no means the end of
the road in terms of going after the financing.
I will just make one observation on that. Obviously, all
credit for that action goes to other components of the
Government. The Treasury Department did not play a role. But
the reports are that what led us to bin Laden was a
facilitator, an information facilitator. What we do in large
part is go after financial facilitators and use that leverage
as a way to go after the senior leadership and the
organizations themselves, and I think it does point up to some
extent the value of the approach that we pursue, which is to
sort of, much like a law enforcement agency builds its case by
going after the low-level people and building its way up, we go
after the networks and the facilitators in the networks and
that has been quite effective in disrupting the financing for
these organizations.
The question about overlapping networks, you know, there
are overlapping networks and success with respect to Al Qaeda
core does to some extent yield some success with the other
organizations. But it is also the case that over the last
several years, we have seen this franchising of the Al Qaeda
network so you have Al Qaeda in the Arabian Peninsula, you have
Al Qaeda in the Islamic Maghreb, you have Shabaab in Somalia.
They also have independent sources of financing and our efforts
to disrupt Al Qaeda core have some impact, but clearly not
complete impact on those other entities. So we need to, you
know, for each one of those and other terrorist groups, we need
to apply the same theory but different tools--but different
specific application.
Chairman Johnson. Senator Hagan?
Senator Bennet. Thank you.
Senator Hagan. Thank you, Mr. Chairman.
Sort of following up on Senator Bennet's question, Mr.
Glaser, in your testimony you stated that you would lead the
Office of Terrorist Financing and Financial Crimes in
developing innovative approaches to undermining illicit finance
and strengthening our national security. What do you see as the
most imminent threats in this area? And what are some of the
innovative approaches that you would advocate?
Mr. Glaser. Thank you, Senator, for the question. I think
the challenges that we face, I think the targets that are out
there that are imminent, are the ones that we have been focused
on around North Korea, terrorist groups, organized crime
groups, WMD proliferators.
There are emerging issues. I made reference in my opening
statement as well to recent developments in the Middle East,
and within the last month or so, the Treasury Department has
been quite active in applying financial pressure, just last
week, when President Obama announced the new Executive order
with respect to Syria. So there is a whole range of challenges
that we have; there is a whole range of international security
problems that we face.
When I talk about innovative solutions to those problems,
what I really have in mind is, again, what I think TFI, the
Office of Terrorism and Financial Intelligence, as a whole
brings to the table in all of this, which is our ability to
come at it from the perspective of a finance ministry, to look
systemically at the way these financial networks operate and
then think creatively about what sort of tools do we have to
disrupt those networks.
In my testimony already today, I think I pointed to two of
the recent, again, innovative approaches that we have taken.
Again, I could point to the recent action we took under Section
311 of the PATRIOT Act with respect to Lebanese Canadian Bank,
a bank that stood at the center of a global narcotics and
money-laundering network, again, with ties to Hezbollah,
allowing us to use authority to disrupt a network, to initiate
a process within the Lebanese Government to strengthen their
own money-laundering and financial crimes regulations, and to
demonstrate the links that all of these illicit activities have
with Hezbollah. I thought that was a very creative use of our
authority and a very effective use of our authority.
I think we would like to see--we would like to do more of
that, and I think we will do more of that as we move forward.
Senator Hagan. When you commented on weapons of mass
destruction, in this setting can you go over that in a little
bit more detail from the proliferation?
Mr. Glaser. Well, sure. I would put our actions in sort of
two broad categories. The first set of initiatives that I would
highlight would be our overall efforts with respect to North
Korea and around putting wide financial pressure on those
countries, and that is something that we have been doing for
years now. What we do in that regard is, again, marshal all of
our tools, so unilateral sanctions under Executive Order 13382,
which is the Executive order specific to WMD proliferation;
working on multilateralizing these efforts through
organizations like the Financial Action Task Force, U.N.
Security Council resolutions; and then importantly, as
important as anything else, working with the private sector to
encourage financial institutions around the world to have very,
very robust implementation of these obligations. And the goal
is to create a dynamic within the financial system that tends
to isolate these regimes, either as a matter of international
law, as a matter of domestic law, or as a matter of
international practice. And I think that we have had a lot of
success on that.
Senator Hagan. Thank you.
Mr. Mulvaney and Ms. Felton, Congress has enacted
legislation to restrict the Export-Import Bank from making
loans or providing guarantees in relation to certain projects
or companies that conduct prohibited business in or with Iran.
If confirmed, will you ensure the Export-Import Bank strictly
adhere to congressional restrictions on the provisions of funds
related to Iran?
Ms. Felton. Senator, yes. I believe, first of all, that the
Export-Import Bank takes the sanctions against Iran very
seriously, and if confirmed, I would make sure that every
transaction that came before the Board during my tenure is
compliant.
Mr. Mulvaney. Let me also say that, if confirmed, I would
follow the law as well. The Ex-Im Bank does not conduct foreign
policy. It follows the foreign policy set by the President and
directives from Congress.
Senator Hagan. Thank you, Mr. Chairman.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Mr. Cohen, you just recently returned from Turkey, as I
understand, where I also understand--and correct me if I am
wrong--you pressed the Erdogan government on Turkey's financial
ties to Iran. And for me, it is pretty clear that Iran has
turned to Turkey to conduct illicit financial transactions in
support of its nuclear program, and that it is actively seeking
to establish new financial mechanisms in Turkey to bypass and
evade U.S. and other international sanctions and gain access to
European markets.
What was the Turkish Government's response to your
concerns? And--well, let me hear the answer to that first.
Mr. Cohen. Senator Menendez, I was just in Turkey last week
raising the concerns that you just articulated. We have seen, I
think, two trends recently in Turkey. We have seen the
Government at the highest levels talking up interaction with
Iran and expanded trade with Iran and, with that, naturally
expanded financial relationships. We have also seen, on the
other hand, the financial sector in Iran--in Turkey, rather,
being much more cautious. It is in part the effect of CISADA
that I was addressing with Senator Johanns earlier, and in part
their recognition that if they want to be part of the
international financial system, they are much better off
isolating Iran.
My trip to Turkey was focused on raising the question with
the Government of the extent to which their rhetoric is
conflicting with the full compliance with their U.N. Security
Council obligations and, more generally, dissonant with the
international community's efforts to apply maximum pressure on
Iran. The reaction that I got was, you know, first of all, the
Turkish Government reaffirming strongly their opposition to the
development of a nuclear program in Iran, an acknowledgment, I
would say, of the importance of the international sanctions
regime; and, you know, a hearty discussion about the place of
Turkey both geographically and as a leader in the region, and
their desire to expand their economy, not just with Iran but
expand their economy generally.
Senator Menendez. So let me ask you this, though--I
appreciate that. But as I understand it, there are certain
Turkish financial institutions that are currently doing
business with a designated Iranian bank. Are we ready to
sanction them?
Mr. Cohen. Senator, as a matter of longstanding Treasury
policy, we cannot comment on any particular action that we may
take. I will say, though, that----
Senator Menendez. Are we ready to generically sanction
those that, notwithstanding our overtures, are still doing
transactions in violation of CISADA?
Mr. Cohen. Well, that is----
Senator Menendez. I voted for you in the Finance Committee
because I wanted to move your nomination along. But I want
someone who is going to vigorously pursue the law, and so I am
trying to get a sense from you whether you are going to
vigorously pursue the law, or are we just going to have a
sanctions law that ultimately is sitting out there unenforced
or enforced with low-level participants instead of being
enforced when there is a significant entity?
Mr. Cohen. Absolutely, Senator, and we are committed to
enforcing the law. And just as you say, generically, if we have
a financial institution that is not responsive to our overtures
and is engaged in activity that is sanctionable under CISADA,
we will pursue that very vigorously.
Senator Menendez. Let me ask you this: It is no secret that
while China eventually supported U.N. sanctions on Iran, it did
so reluctantly, and only after it succeeded in significantly
watering down the sanctions. Iran continues to use Chinese
companies to procure hardware for its nuclear and missile
programs, and Chinese companies continue to invest in Iran's
energy sector.
So what financial tools does the United States have to
press China to reduce that relationship with Iran? And why has
the United States been willing to confront China on trade
issues, but then unwilling to sanction Chinese banks or energy
companies for dealing with Iran?
Mr. Cohen. Well, with respect to the energy aspects, that
aspect of CISADA, as you know, is implemented by our colleagues
at the State Department, and they have been pursuing those
issues. You know, for the Treasury Department I can say that
there is no country that is exempt from the application of
CISADA. We have both CISADA tools as well as other tools that
can be brought to bear in the appropriate circumstance to
address whether it is Chinese financial institutions or other
Chinese businesses that may be supporting the Iranian
proliferation activity.
We have in the past used those tools, and, you know, I can
assure you that in the event that we have a good case, we will
proceed.
Senator Menendez. Mr. Chairman, I hope, I would urge the
Chair--I know you have a busy agenda, but at some point to hold
hearings on the sanctions legislation that we have passed and
its enforcement. I am seriously concerned, as one of the prime
movers of that legislation, that a sanctions regime that
ultimately goes largely unenforced or to low-level players
sends a message of a toothless tiger. And to the extent that
Congress had a real intention to see entities sanctioned that,
in fact, were violating the law, I am concerned that we are
just not seeing that type of action. So I know you have a very
busy agenda. I would just urge you at some point to consider
including that.
I have a series of other questions for all of these
witnesses, and I look forward to your answers. Your answers are
going to, you know, color my decision as to how I vote.
Chairman Johnson. Mr. Cohen, I gather that the Iranian
government has been working to craft ways to get around current
international sanctions. What are the primary ways that you are
focused on now to combat such efforts by the government of Iran
to circumvent U.S., U.N., and EU sanctions? What are we doing
to counter their efforts? Is there anything more we should be
considering to make those efforts more effective? For example,
do we need to address by statute the sophisticated barter
arrangements into which they have reportedly entered to support
certain transactions? Or can that already be used using CISADA?
Mr. Cohen. Mr. Chairman, we are very much focused on
Iranian efforts to develop alternative financial arrangements
to the financial ties that they had previously. So we are alert
to efforts of Iran to find banks in jurisdictions where they
had previously not been present that will do business with
them. We are alert to efforts by Iran to expand transactional
activity with the branches of Iranian banks that they have
overseas.
To follow up on an earlier answer to Senator Menendez, one
of the issues that I addresses in Turkey was the existence in
Turkey of branches of Bank Mellat. That is a concern that we
have that Iran will use its branches of its state-owned banks
in Turkey and in several other countries where these branches
exist to compensate for their lack of access to other financial
institutions. So we are staying alert to any efforts by Iran to
develop alternative access to the financial system.
With respect to barter arrangements, that is also something
that is on our radar screen and that we are focused on. We are
happy to work with you and your colleagues on the question of
whether additional legislative tools might be necessary to
address those issues. I am not certain that it is, but we are
very happy to engage in that effort.
Chairman Johnson. Ms. Felton and Mr. Mulvaney, in large
part due to the economic crisis, the Ex-Im Bank has seen a 70-
percent increase in its authorized transactions over the last 2
years. As the economy continues to recover, how do you think
the Ex-Im Bank will be affected?
Ms. Felton. Senator, as I stated in my opening comments, I
believe that the Ex-Im Bank plays a vital role in helping to
ensure and promote American competitiveness in international
markets as well as promoting job growth in this country and
stimulating the economy. I believe that that is a long-term
strategic goal that should not be abandoned in any market
conditions. Going forward, as the economy improves, the Ex-Im
Bank can continue to make a very important contribution to
American exporters. I believe that this country has not--let me
state it differently, had had the luxury of not paying much
attention to international markets because of the size of our
domestic market. But going forward, what we are seeing is that
many, many countries that are substantially less developed than
the United States are actively pursuing exporting as a strategy
to grow their economies, and that if the United States is to
prosper, it has to continue to promote exports.
Chairman Johnson. Mr. Mulvaney.
Mr. Mulvaney. Thank you, Mr. Chairman, for the question. I
interpreted your question as kind of eliciting a discussion of
some of the key challenges that the Ex-Im Bank faces. One of
the impressions that I had initially in interacting with the
Bank staff, which is only about 400 full-time equivalent
positions, is the enormous level of authorizations the Bank has
done in the wake of the economic crisis while its staff size
has remained the same and its admin budget has only increased
about 8 percent. So I have appreciated that the staff is
actually accomplishing a lot more with less, with the same
amount of resources. This has created a little bit of stress on
the personnel and systems of the institution, and I am
committed to going to the Bank, if confirmed, and helping the
Bank through this challenge.
Another challenge I would frame is the growing competition
in the global economy and the role that Ex-Im Bank can play in
helping U.S. exporters and supporting U.S. jobs in that
competition. When you look at the export credit activity of
other ECAs around the world, countries like Japan do $130
billion worth of export credit business, and according to some
private sector estimates, China has done about $300 billion. It
puts in perspective the competition that American exporters
face around the world.
Chairman Johnson. Thank you, Mr. Mulvaney.
I thank the witnesses for your testimony and for your
willingness to serve our Nation. We are going to submit
questions for the record to you by 12 noon this Friday, May
6th. Please submit your answers to us by the close of business
Monday, May 9, so that we can move your nominations in a timely
manner.
This hearing is adjourned.
[Whereupon, at 11:32 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF DAVID S. COHEN
Nominee for Under Secretary for Terrorism and Financial Crimes
Department of the Treasury
May 3, 2011
Chairman Johnson, Ranking Member Shelby, and distinguished Members
of this Committee: Thank you for the opportunity to appear before you
today. It is an honor to be the nominee to serve as Under Secretary for
Terrorism and Financial Crimes. I want to thank President Obama for the
confidence he has shown in me by nominating me, and Secretary Geithner
for recommending me, to serve in this position. Having served for the
past 2 years as the Assistant Secretary of Treasury for Terrorist
Financing, I am keenly aware of the very significant responsibilities
assigned to the Under Secretary for Terrorism and Financial Crimes, as
well as the consequential contributions that the Under Secretary can
make in advancing our Nation's security.
Illicit finance, in its many forms, is a threat to the integrity of
our financial system, both domestically and internationally. Combating
illicit finance not only protects our financial system from abuse by
money launderers, terrorist financiers, weapons proliferators and
others engaged in financial crime, but it helps to advance our most
critical foreign policy and national security objectives. The many
tools that the Treasury Department can deploy--ranging from anti-money
laundering regulatory oversight, to outreach to counterparts overseas,
to deploying targeted financial measures focused on particular
individuals and entities--play an integral role in responding to many
of the challenges we face. Treasury's unique capacity to understand
financial flows and the operation of the financial system, analyze
financial intelligence, map financial and material support networks,
and take targeted, powerful actions are key to meeting these
challenges.
I believe that my professional experience, particularly serving as
Assistant Secretary for Terrorist Financing since May 2009, has
prepared me well to undertake the responsibilities of Under Secretary.
As Assistant Secretary, I have had the opportunity to work very
closely with the previous Under Secretary, participating in almost all
aspects of the work of the Office of Terrorism and Financial
Intelligence (TFI). This has included coordinating closely with my
colleagues in each of the components of TFI--the Office of Intelligence
and Analysis, the Office of Foreign Assets Control, the Financial
Crimes Enforcement Network, and the Treasury Executive Office for Asset
Forfeiture.
In my capacity as Assistant Secretary, I have had the chance to
work on many of the issues in TFI, but I have focused most intently on
several key issues: First, our use of targeted financial sanctions, as
well as outreach to the private sector and foreign governments, to
increase pressure on the government of Iran for its continued refusal
to live up to its international non-proliferation obligations; second,
and relatedly, our efforts to financially isolate and apply pressure on
the North Korea regime for its continued provocative conduct; third,
our efforts to combat the financing of terrorism, especially financial
support for Al Qaeda, the Taliban, and other violent extremist groups
in South Asia; and finally, the effort to ensure that information about
the true beneficial owners of corporations is available to State and
Federal law enforcement and regulators pursuing money laundering and
terrorist financing investigations.
Prior to serving as Assistant Secretary, I was an attorney for
close to 20 years, in both private practice and in Government. In
private practice, I represented institutions and individuals in complex
financial investigations and litigation, and counseled clients on their
obligations to comply with Treasury's anti-money laundering and
economic sanctions laws and regulations. From late-1999 to mid-2001, I
served in the Treasury's General Counsel's office, focusing much of my
attention on anti-money laundering law and policy.
If confirmed, I look forward to working closely with you, as the
Treasury Department continues to implement the President's priorities
for safeguarding our financial system from illicit finance. The variety
and intensity of these challenges are well known to this Committee.
Effectively addressing them requires great vigilance and constant
innovation. I would welcome the opportunity to serve our great Nation
by taking on these challenges as the leader of Treasury's critical work
to fight illicit finance.
In closing, I want to thank the Committee for the attention it has
given to my nomination. If confirmed, I intend to work closely with
you, Mr. Chairman, the other Members of this Committee and your staff
to pursue our shared objective of protecting national security and the
integrity of the financial system. I am deeply committed to maintaining
the very productive and close relationship that exists between this
Committee and the Office that I have been nominated to lead.
Mr. Chairman, I would be pleased to respond to any questions that
you or Members of the Committee may have.
______
PREPARED STATEMENT OF DANIEL L. GLASER
Nominee for Assistant Secretary for Terrorist Financing
Department of the Treasury
May 3, 2011
Chairman Johnson, Ranking Member Shelby, and distinguished Members
of this Committee: Thank you for the opportunity to appear before you
today. It is a tremendous personal and professional honor to have been
nominated for the position of Assistant Secretary of the Treasury for
Terrorist Financing. I would like to thank President Obama for the
confidence he has shown in me by nominating me, and Secretary Geithner
for recommending me, for this important position. If confirmed, I will
certainly work my hardest to meet their high expectations.
I know time is short, but if you permit me, Mr. Chairman, I would
like to introduce the members of my family who are here today--my
parents, Gary and Lillian Glaser, my wonderful wife Laura, and our son
Ethan. Their love and support over the years have been indispensable,
and are an important part of why I am able to sit before you today.
Mr. Chairman, over the course of my career I have served in the
area of illicit finance under six Secretaries of the Treasury across
three Presidential Administrations. My positions have included serving
as an attorney in the U.S. Secret Service Chief Counsel's Office,
Senior Counselor for Financial Crimes within the Treasury Department's
Office of General Counsel, Director of the Money Laundering and
Financial Crimes Section within Treasury's Office of Enforcement,
Director of Treasury's Executive Office for Terrorist Financing and
Financial Crimes, and since 2004, Deputy Assistant Secretary for
Terrorist Financing and Financial Crimes within Treasury's Office of
Terrorism and Financial Intelligence. Additionally, I have served,
since September 2001, as the head of the U.S. Delegation to the
Financial Action Task Force--the premier international body that sets
anti-money laundering and counter-terrorist financing standards and
works for their global adoption and implementation. I believe this
experience has left me well prepared to take on this new position.
Over the course of these years, I am proud to have been part of the
team that has built something new and unique at the Treasury
Department--a finance ministry with a central role in the development
and implementation of national security policy. This evolution began in
the late 1990s with Treasury's leading role in the development of the
first National Money Laundering Strategies, and culminated in March
2004 with the creation of the Office of Terrorism and Financial
Intelligence (TFI). TFI brings together a broad and diverse range of
Treasury's authorities and expertise for two goals: protecting the U.S.
and international financial systems from abuse, and identifying,
disrupting, and dismantling the financial networks that support
terrorist groups, organized crime, weapons proliferators, and countries
that threaten the national security of the United States. This new
approach has been successful. We have made it harder for terrorist
groups to raise and move funds, disrupted the financial networks that
support drug trafficking organizations, and applied substantial
financial pressure on regimes such as Iran and North Korea, while at
the same time making it more difficult for them to acquire the material
necessary to develop their nuclear programs.
As the central policy office within TFI, the Office of Terrorist
Financing and Financial Crimes (TFFC) works to develop and implement
strategies, and engages with multilateral bodies, foreign government
counterparts and private sector colleagues, to achieve all of these
objectives. If confirmed, I will lead TFFC in continuing to develop
innovative approaches to undermining illicit finance and strengthening
our national security. Challenges abound. From Iran's and North Korea's
nuclear programs and other illicit activities, to drug trafficking and
criminal organizations in the Western Hemisphere and Eastern Europe, to
global terrorist organizations such as Al Qaeda and Hamas, to the new
challenges posed by recent developments in the Middle East--never has
it been more important to strategically and effectively marshal our
financial tools and those of our allies in support of international
security.
In closing, I would like to thank the Committee for its time and
consideration. If confirmed, I pledge to work closely with you, Mr.
Chairman, and other Members of the Committee and your staff to advance
our collective goal of combating illicit finance and protecting
America. It is my immense honor to sit here before you today and I
would be happy to respond to any questions you or other Members of the
Committee may have.
______
PREPARED STATEMENT OF TIMOTHY G. MASSAD
Nominee for Assistant Secretary for Financial Stability
Department of the Treasury
May 3, 2011
Chairman Johnson, Ranking Member Shelby, and Members of the
Committee, thank you for the opportunity to appear before you today. I
am honored that President Obama has nominated me for this position, and
I am deeply grateful to Secretary Geithner for his confidence in me.
I would like to introduce my wife Charlotte. Her love and support
have always been critical to me. And I want to thank her in particular
for all she has done to support me in my work for the Department of the
Treasury.
Over the last 2 years, it has been my privilege to be a part of the
Treasury team. I joined in May 2009 as Chief Counsel for the Troubled
Asset Relief Program, and I had the honor of working closely with
former Assistant Secretary Herb Allison, who set an outstanding example
for us all. When Mr. Allison decided to return to retirement in
September of 2010, Secretary Geithner asked me to serve as Acting
Assistant Secretary.
I was born in Louisiana, and lived in Texas, Oklahoma, and
Connecticut as a child. All of my grandparents were immigrants who came
to this country as teenagers, barely able to speak English and with
nothing more than a suitcase. My parents grew up during the Great
Depression. Their families struggled to make ends meet. My parents
worked hard and provided my siblings and me with many opportunities,
and I have been very fortunate as a result.
I often think of the stories my parents told about life during the
Great Depression, because this financial crisis has caused many
American families to suffer on a scale not seen since that time. As a
result of this crisis, millions of people have lost their jobs. Many
have lost or are still in danger of losing their homes. Many small
businesses have collapsed. Many families have lost their retirement
savings, and many young people have had to postpone college plans. We
must never forget that this human suffering is the true cost of the
financial crisis.
Congress passed the Troubled Asset Relief Program, or TARP, in the
midst of this terrible crisis in order to stabilize our financial
system. Of course, TARP could not avert or repair all the damage caused
by this crisis. However, I strongly believe that without TARP, the
suffering would have been much, much worse. While no one liked using
taxpayer funds to rescue financial institutions, I believe that TARP--
along with the other actions our Government took--helped prevent a
catastrophic collapse of our financial system.
Today, our financial system and our economy are much stronger. And
important work remains for TARP. First, we must exit our remaining
investments in banks and other companies. We have already recovered \2/
3\ of what was invested, and our economy and our financial system will
be stronger if the Government gets out of the business of owning
interests in private companies. Second, we must continue to implement
and improve our programs to help American families stay in their homes
and avoid foreclosure. And third, we must do both of these tasks in a
manner that protects taxpayer interests and ensures accountability.
In particular, I want to emphasize the importance of accountability
and transparency. This program must meet the highest standards. Before
joining Treasury, I helped the Congressional Oversight Panel get
started. I served as their first special legal advisor on a voluntary
basis, and helped write one of their first reports. If confirmed, I
will continue to work closely with the Special Inspector General for
TARP, the Government Accountability Office, the Financial Stability
Oversight Board, as well as this Committee and other Committees of
Congress to ensure that the TARP program meets those high standards.
It has been the greatest professional honor of my life to serve my
country during this difficult time. I have been fortunate to lead an
extremely talented and dedicated team at the Office of Financial
Stability I look forward to continuing this work should the Senate
choose to confirm me.
Thank you, Chairman Johnson and Ranking Member Shelby for this
opportunity. I look forward to your questions.
______
PREPARED STATEMENT OF WANDA FELTON
Nominee for First Vice President and Vice Chair
Export-Import Bank of the United States
May 3, 2011
Chairman Johnson, Senator Shelby, and distinguished Members of the
Committee, I am honored to appear before you today as a nominee for the
position of First Vice President and Vice Chair of the Export-Import
Bank of the United States.
If I may, I would like to take a moment to acknowledge my husband,
Mike Owens, and my mother, Maro Lester. They are both in attendance. I
am also grateful to Ivonia Slade, Lesley Redwine, Grace Speights and my
cousin, Brandon Felton, for being here.
To say that I am deeply honored to have the opportunity to serve my
country in this capacity does not begin to capture my feelings. I am
awed and humbled. I am especially grateful to have the opportunity to
serve President Obama.
Briefly, I have more than 25 years of financial industry
experience. I began my career as a Loan Officer at Ex-Im Bank. I
understand and am committed to the Bank's mission. Creating good-paying
jobs that can sustain the American middle-class and promote the
competitiveness of U.S. companies overseas, are imperatives in the
current economy. To my knowledge, Ex-Im Bank is the only lever
available to our Government to accomplish these goals without burdening
tax payers. As such, it is a vital tool.
Moreover, I believe the imperative extends beyond the current
economic cycle. Maintaining American competitiveness over the long-term
is a strategic imperative. President Obama has observed that 95 percent
of the world's customers are outside the United States. I believe that
American businesses--large and small--must capture a larger share of
this market so that our country can continue to prosper.
Under Chairman Hochberg, Ex-Im Bank's activity has increased
dramatically with the introduction of innovative programs that stretch
every dollar and leverage every resource the Bank has available to it.
Ex-Im Bank's support for small businesses is at an all-time high with
programs that provide outreach, training and financing to help them
penetrate overseas markets and fill a void left by the banking
industry. If I am confirmed I will be committed to helping to build on
this success.
I believe I bring a skill set that will allow me to make a
meaningful contribution. My experience in banking gives me the tools to
perform my primary duty which is to assess the creditworthiness of
transactions brought before the Board in order to find that there is a
reasonable assurance of repayment. Should I be confirmed, I will remain
committed to ensuring that the Bank remains self-sustaining. I see the
role as fulfilling a fiduciary duty to the American tax payer.
If confirmed, I also feel well suited to help grow U.S. exports in
sub-Saharan Africa. I understand this is a congressional mandate and
believe I can contribute in this area. I have experience working in
South Africa and Nigeria, two of nine countries which Ex-Im Bank has
named as primary markets. There is a growing need for services and
equipment that can support the development of basic infrastructure,
telecom, transportation and other sectors which American businesses can
and should supply. I believe that my experience positions me well to
pursue this mandate.
For the past 15 years, I have worked on a number of transactions
involving emerging markets. A main feature of my career has involved
testing the investment merits and risks of various emerging markets.
For example, in 1994, I advised CalPERS and New York Common Retirement
Fund, as they made their first private equity investments in post-
Apartheid South Africa.
Mr. Chairman and Members of the Committee, thank you for the
opportunity to seek your support for my nomination. I look forward to
answering any questions you may have for me.
______
PREPARED STATEMENT OF SEAN MULVANEY
Nominee for Director, Export-Import Bank of the United States
May 3, 2011
Mr. Chairman, Senator Shelby, other Members of the Committee,
please allow me to start by expressing deep appreciation for the
opportunity to appear before you. I am honored to be a candidate for
the Board of the Export-Import Bank of the United States. I understand
and recognize the importance of the Committee and this hearing. I would
also like to thank President Obama for nominating me to this position
as well as Senator McConnell. If confirmed, I would welcome the
opportunity to serve.
I am accompanied here today by my wife, Susan, and daughters, Kate,
and Rachel. Other members of my family were not able to join me today
but I am grateful for their love and support, particularly my mother,
Kathryn, and my late father, James.
Over the course of my career, I have had several positions that
have contributed to my candidacy for the position of U.S. Export-Import
Bank Board member. These positions span the private and public sectors
and include experiences in management, U.S. trade policy, budget, and
international affairs. If confirmed, I stand ready to leverage these
experiences in support of the Bank at this critical time during the on-
going U.S. recovery from the economic crisis.
Let me express some key commitments and priorities in this hearing.
First, I would like to express my commitment to the Bank's mission.
While Ex-Im may be a small and lean agency, its mission is by no means
insignificant or modest. Last year the bank supported over $34 billion
of U.S. exports with authorizations of nearly $25 billion. The
financing support was essential to sustain over 227,000 American jobs
at more than 3,300 companies. Since my nomination, I have had a few
opportunities to interact with the Bank's career staff. In these
initial meetings, I have quickly appreciated the Bank's professionalism
and clear sense of purpose that emanate from its employees. If
confirmed, I would be honored to work with Chairman Hochberg and the
rest of the organization.
Second, I am committed to the Ex-Im Bank's strong relationship with
the legislative branch. The Bank has earned the trust and confidence of
this Committee and the Congress. Even though the Bank's operations are
self-sustaining, the Bank extends the full faith and credit of the
United States as it supports U.S. exports and jobs. It is important
that this trust and confidence be preserved in the years ahead,
particularly as the Bank seeks reauthorization.
Third, I am committed to the Bank's partnership with other Federal
agencies. The Bank plays a vital complementary role to the programming
of organizations like OPIC, TDA, USTR, the SBA, and the Department of
Commerce. Together, the Bank and the agencies enable greater U.S.
economic engagement in the global economy so that the United States can
secure growth, job creation, and prosperity.
If confirmed, I would hope to work with Chairman Hochberg and bank
staff on a couple of key areas.
First, the Bank has developed a strategic plan for 2010 that
includes a number of priorities, including expanding awareness of Ex-Im
Bank services through increased outreach and partnerships, increasing
the number of small- and medium-sized business using Bank services, and
targeting business development in emerging markets with high potential
for U.S. export growth. A key statistic I have come to appreciate in
this nomination process is the fact that over 20 percent of the dollar
value of Bank activities are to the benefit of small business and 85
percent of its transaction volume.
Second, I firmly believe in the practice of measuring for results.
I would consider it an important part of my job to understand and
improve Bank metrics that give stakeholders a sense of its performance
over time, particularly mitigating risk in its operations to the U.S.
taxpayer. Again, I appreciate the opportunity to be here today and look
forward to answering any questions the Committee may have.
Thank you.
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON FROM DAVIS S.
COHEN
Iran
Q.1. You indicated in the hearing that you believed the
Treasury Department was ``close to a decision point'' in making
certain CISADA-related determinations regarding designations
for certain banks. I know various factors inform that
decisionmaking process, but in general do you expect those
decisions to be made in the next month, the next 3-6 months, or
later than that?
A.1. While there are always uncontrollable and unexpected
factors that affect the timing of our work, we expect to reach
a decision on several open CISADA-related investigations within
the next month or so.
Q.2. You indicated in the hearing, in response to my question
about sophisticated barter arrangements being used by the
government of Iran to circumvent sanctions on its energy
industry, that TFI is aware of and monitoring this activity.
Can you describe in greater detail how these barter
arrangements are structured, and how you might be able to
address their use by the Iranian government to circumvent
sanctions under current law?
A.2. Treasury is aware that Iran is using a number of means to
circumvent sanctions, including bartering arrangements in which
it sells oil in exchange for goods in order to avoid accessing
the formal financial sector. We assess that Iran is forced to
turn to such mechanisms because it is increasingly isolated
from the financial sector as a result of international
financial sanctions. Treasury has been aggressive in exposing
and publicizing Iran's efforts to evade sanctions, and remains
committed to taking action in response to activity that
implicates existing U.S. or international sanctions against
Iran. We are studying whether current law adequately addresses
Iran's use of barter arrangements, and if confirmed I look
forward to working with you and your colleagues in ensuring
that U.S. law appropriately addresses this emerging issue.
Q.3. Since assessing internal bank activity, including
correspondent relationship activity, in the detail required by
CISADA is a complex undertaking for TFI, do you believe you
have sufficient intelligence resources, within the Office of
Intelligence Analysis and elsewhere within the intelligence
community, to determine what foreign banks are actually doing
in this area, and to provide information to support strict
enforcement of the new mandatory financial sanction? If you had
additional intelligence-related resources, what would you do
with them?
A.3. For reasons that I am certain you understand, there is a
limit to what I can say in this setting regarding our
intelligence resources and capabilities. TFI is fortunate to be
the only finance ministry in the world with an internal
intelligence shop, the Office of Intelligence and Analysis
(OIA), dedicated specifically to the intelligence related to
following the money and combating illicit finance. I am
impressed daily by the analysts in OIA. Their work product, as
well as the intelligence produced by OIA's sister agencies in
the intelligence community, is used daily by TFI in pursuing
our work, including implementing CISADA.
I believe the intelligence resources devoted to supporting
our policy with respect to Iran, including implementing CISADA,
are sufficient.
Libya
Q.4. I know the Administration acted quickly and effectively to
freeze approximately $36 billion in assets of the Qadhafi
government. What are the Administration's current decision
rules, to the extent you can describe them, about how and when
and to whom those funds might eventually be released? What
standards under current law will you be applying in considering
whether to seize and release any frozen assets to the Libyan
opposition? What new legal authorities, if any, might be
necessary to enable such a release?
A.4. Treasury blocked Libyan government assets within U.S.
jurisdiction under Executive Order 13566 in order to hold the
Qadhafi regime accountable for its use of violence against
unarmed civilians and to protect those assets from
misappropriation by Colonel Muammar Qadhafi and his associates.
United Nations Security Council Resolutions 1970 and 1973
affirm the intention to ensure that assets frozen under
paragraph 17 of United Nations Security Council Resolution 1970
are made available, at a later stage, as soon as possible to
and for the benefit of the people of the Libyan Arab
Jamahiriya. The Administration has drafted legislation that
would authorize the President to confiscate assets frozen under
EO 13566 and to use some or all of those assets to defray costs
related to providing humanitarian relief to and for the benefit
of the Libyan people. We have begun consulting with Congress on
this legislation and are hopeful that we can work together to
enact it as soon as possible.
Budget: BSA Enforcement
Q.5. The Administration's 2012 budget proposal proposes to
limit direct access to BSA data to only State coordinators and
to cancel scores of current direct access agreements with State
and local law enforcement and regulators, sharply limiting
their access to this critical data. I have consulted with law
enforcement and regulatory officials in my State and elsewhere,
and I believe this would be a serious mistake, and would
sharply reduce the effectiveness of State and local law
enforcement and regulatory efforts in this area. Will you work
with authorizing and appropriations Committees of Congress, and
internally with the Treasury Department, to reverse this
proposal, and to ensure full funding to provide continuing
unfettered direct access to BSA data for State and local
officials?
A.5. I fully agree that BSA information plays a critical role
in investigations and proceedings at all levels. I am committed
to working with you and your colleagues to identify a
meaningful solution that will provide a continuation of support
to State and local law enforcement and regulatory agencies.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM DAVID S.
COHEN
Q.1. In reference to Treasury's proposed rule implementing
section 104(e) of the Comprehensive Iran Sanctions,
Accountability, and Divestment Act Act of 2010 (``CISADA''),
what performance measures is the Office of Terrorism and
Financial Intelligence (``TFI'') contemplating using to satisfy
its congressional oversight obligation?
A.1. We will use Performance Measure #1, ``Impact of TFI's
Programs and Activities,'' included in the Department of the
Treasury's Fiscal Year 2010 Annual Performance Report, which
measures TFI's impact as an organization through its sanctions,
law enforcement, intelligence, regulatory and diplomatic
programs to reduce threats to U.S. national security. In doing
so, we will ensure that Congress is kept apprised of
developments pursuant to the implementation of this regulation.
In addition, if desired, we will keep the Committee apprised of
when requests for information pursuant to the rule implementing
section 104(e) are sent to U.S. banks, including the number of
U.S. banks that receive a request and the number of foreign
banks that are the subjects of the request.
Q.2.-1. In reference to CISADA and its implementation,
generally, how does Treasury interpret and execute the various
clauses to ``consult with the Secretary of State?''
More specifically, how are conflicts of policy and
intention to sanction a proven illicit financial entity
resolved?
Q.2.-2. What conflicts of policy exist in the sanctioning of a
proven illicit financial institution?
Q.2.-3. Can you provide an example of where a conflict of
policy prevented a proven CISADA violator from being
sanctioned?
A.2.1.-3. The Treasury Department has been in close contact
with the State Department throughout our CISADA implementation
efforts. Treasury and State have coordinated various outreach
events, shared information about activities of concern, and
utilized the combined resources available in our Embassies
abroad to engage with foreign counterparts.
Treasury interprets and executes the clause in CISADA that
requires the Secretary of the Treasury to ``consult with'' the
Secretary of State in the same way as similar clauses are
interpreted in Executive Orders, including E.O. 13224
(terrorism) and E.O. 13382 (WMD proliferation)--that is, we
engage with our colleagues at State (as well as our colleagues
in other Departments and agencies as appropriate) on an ongoing
and collaborative basis. As in many contexts, Executive
agencies discuss their perspectives and elevate as appropriate
to achieve resolution. As required by CISADA, Treasury consults
with State in taking steps with respect to the financial
provisions of CISADA. I am not aware of any circumstance in
which a conflict in policy has prevented sanctions from being
imposed on an entity engaged in activities that are
sanctionable under CISADA.
Q.3.-1. The Financial Crimes Enforcement Network (``FinCEN'')
can be said to be the public face of the Office of Terrorism
and Financial Intelligence (TFI). It works directly with
financial institutions, international, Federal, State, and
local law enforcement, and banking regulators, all in attempt
to be one step ahead of illicit actors intent on using our
banks to launder money or finance terror.
TFI now has a number of new regulatory initiatives in the
FinCEN pipeline, and some of them will bring entire new
industries under the purview of the Bank Secrecy Act (``Bank
Secrecy Act'') for the first time.
How have the roles and responsibilities of FinCEN been
changed or strengthened since the formation of TFI?
A.3.-1. The growth of FinCEN's responsibilities is commensurate
with the expansion of covered financial institutions subject to
the BSA, and with the increased focus on the financial
component of criminal investigations by law enforcement and
FinCEN's Financial Intelligence Unit counterparts globally. As
an integral part of TFI, FinCEN is also involved in our overall
efforts to effectively apply our sanctions and other
authorities, as well as engagement with foreign counterparts on
systemic illicit finance issues.
Q.3.-2. Are current staffing and funding levels sufficient to
maintain these new programs, without instituting cuts in other
areas of FinCEN's work, or are they lacking?
A.3.-2. I believe that FinCEN's current staff and funding
levels are sufficient to maintain these programs.
Q.3.-3. Will you ensure this Committee that Treasury will
preserve the State and local law enforcement BSA direct access
agreements, from either being curtailed or eliminated?
A.3.-3. I am committed to working with you and your colleagues
to identify a meaningful solution that will provide a
continuation of support to State and local law enforcement and
regulatory agencies so that critical law enforcement functions
are not impaired.
Q.4.-1. The central role that offshore correspondent accounts
and shell companies may play in illicit financing cannot be
underestimated.
Can you assure this Committee that it will be consulted,
briefed, and included on any efforts to reform the laws of
limited liability companies as they pertain to the jurisdiction
of this Committee?
A.4.-1. Yes, Treasury will continue to work with the Members of
this Committee on this priority of the Treasury Department.
Q.4.-2. Is Treasury actively engaged right now on any such
efforts?
A.4.-2. We continue to be engaged in efforts to address the
issue of disclosure of the beneficial owners of limited
liability companies. We have had conversations with the
Congress on legislation in this area, and have prepared our own
legislative proposal in an effort to find a meaningful solution
to this vulnerability.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SCHUMER FROM DAVID S.
COHEN
Q.1. More than 10 months after Congress enacted new Iran
sanctions, no foreign, non-Iranian, bank has been sanctioned by
this Administration pursuant to the requirements of the
Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2010. If confirmed--do you plan to shift course and
immediately sanction a non-Iranian bank(s) as the sanctions law
gives you the power do?
A.1. The Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 (CISADA) has been an enormously
effective tool in achieving the law's key objective--to
increase Iran's isolation from the international financial
system. Since the enactment of CISADA on July 1, 2010, and the
publication of the Iranian Financial Sanctions Regulations on
August 16, 2010, Treasury has been engaged in an aggressive
campaign, involving dozens of foreign countries and scores of
financial institutions, to explain the choice put to foreign
financial institutions by CISADA between continued access to
the U.S. financial system or continued involvement with Iran's
proliferation efforts, its support for terrorism, and
sanctioned Iranian-linked parties such as U.S.-designated banks
and the Islamic Revolutionary Guard Corps. The response to
Treasury's outreach has been very positive, and the great
majority of financial institutions with which we have engaged
have chosen to close their correspondent accounts with U.S.-
designated, Iranian-linked financial institutions, thus closing
off avenues that Iran's designated banks had relied upon to
engage in financial activities. Nonetheless, Treasury has
concerns that a limited number of financial institutions may be
continuing to engage in activities that could result in a
finding under CISADA. We are actively investigating those
situations, and are moving toward closure within the next month
or so.
Q.2. Treasury has also failed to impose any specific sanctions
against Bank Markazi (Iran's Central Bank) which, according to
a February 25, 2008, Wall Street Journal story, is helping
other Iranian banks circumvent the U.S. and U.N. banking
pressure. Are you able to explain Treasury's failure to
sanction Iran's Central Bank? And, if confirmed, would you take
immediate steps to finally sanction Bank Markazi?
A.2. The activities of the Central Bank of Iran (CBI) have
been, and continue to be, a focus of the Treasury Department.
Treasury has noted previously that the CBI and Iranian
commercial banks have requested that their names be removed
from international payment messages to make it more difficult
for intermediary financial institutions to determine the true
parties to the transaction, and we remain concerned that the
CBI may be facilitating transactions for sanctioned Iranian
banks.
While the CBI has not been designated under our
proliferation authorities, under the Iranian Transactions
Regulations U.S. financial institutions are prohibited, with
only limited exceptions, from doing business directly or
indirectly with all Iranian banks, including the CBI. As
highlighted in UNSCR 1929, we remain vigilant over the
activities of the CBI and other Iranian financial institutions,
and the United States will continue to highlight its concerns
with foreign governments and the private sector. We have been
diligent in exposing and publicizing Iran's deceptive
practices, as a result of which many in the private sector--
unable to distinguish between Iran's legitimate and illicit
transactions--have become increasingly wary of engaging in any
business with Iran, including business with the CBI.
Financial Crimes Enforcement Network
Mr. Cohen, I understand that the Department of Treasury has
submitted a budget to Congress that would cut direct local and
State access to the Bank Secrecy Act database. Doing this would
save about $1.3 million in your budget. While I fully
appreciate and take seriously the need to save money, I am very
concerned that this measure would be penny-wise and pound-
foolish. In fact, I wrote to my colleagues on the
appropriations committee to ask them to restore full funding
for access to the BSA database in the FY 2012 budget.
Here are my questions for you:
Q.3.-1. In 2009, the GAO issued a report in which 16 out of 20
law enforcement agencies said that direct access to the BSA
database was the most useful part of FinCEN's services. Do you
agree that the BSA database is a major force multiplier that
has no substitute at the State or Federal level?
A.3.-1.Yes.
Q.3.-2. In New York, many law enforcement agencies routinely
rely on direct access to this information to conduct
sophisticated investigations into terror financing, mortgage
fraud, drug trafficking, and other serious crimes that involve
hiding financial proceeds. I understand that the plan to cut
direct access, as conceived, would replace direct access with a
middleman, through whom all search requests would have to be
funneled. How will this affect the speed and quality of the
searches that are now conducted by the on-the-ground
investigators who are directly involved with local cases?
A.3.-2. I do not believe there are any specific metrics that
would capture the impact of this budget reduction on individual
case investigations, but I acknowledge that there would likely
be some impact. I am committed to working with you and your
colleagues to identify a meaningful solution that will provide
a continuation of support to State and local law enforcement
and regulatory agencies so that critical law enforcement
functions are not impaired.
Q.3.-3. I hope that this funding will be restored through the
budget process.
Would you support the full restoration of funding?
A.3.-3. As noted, I am committed to working with you and your
colleagues to identify a meaningful solution that will provide
a continuation of support to State and local law enforcement
and regulatory agencies.
Q.3.-4. If it is not restored, will you work to make sure that
neither the quality nor quantity of information is restricted
for local enforcement agencies that need it?
A.3.-4. Yes.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM DAVID S.
COHEN
Q.1. Are you investigating foreign banks today for possible
violation of CISADA?
A.1. Yes, we are currently investigating several foreign banks
for activities that may result in findings under CISADA.
Q.2. If a foreign central bank is supporting Iran's
proliferation activities or facilitating the activity of
entities under U.S. or U.N. sanctions, would it be
sanctionable?
A.2. Yes, a foreign central bank, like any other person or
entity, may be subject to designation or other sanctions under
U.S. law for supporting Iran's proliferation activities or
providing material support to persons designated under U.S.
counter-proliferation sanctions.
Q.3. What financial tools does the United States have to press
China to reduce its relationship with Iran?
A.3. China voted for all relevant United Nations Security
Council Resolutions relating to Iran, and has publicly
committed to implementing them. Treasury has actively engaged
with the Chinese government on this basis, encouraging a broad
interpretation of both the letter and spirit of the
Resolutions, and providing specific information to enable a
robust Chinese implementation. Moreover, Treasury has
communicated directly with large Chinese banks through their
offices in the United States to ensure that they understand the
risks they face from financial activities with Iran. We believe
this ongoing engagement with China has been productive. Beyond
this engagement, Treasury retains the same diverse set of tools
it has available to protect the U.S. financial system from all
illicit activity, including anti-money laundering authorities
grounded in the Bank Secrecy Act and USA PATRIOT Act and
sanctions authorities grounded in the International Emergency
Economic Powers Act (IEEPA) and CISADA.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER FROM DAVID S.
COHEN
Q.1.-1. In your role as a Senior U.S. Treasury official and
Acting Undersecretary for Terrorism and Financial Intelligence,
you recently traveled to France and Turkey to discuss ongoing
measures against the regimes in Iran and Libya. Including
multilateral sanctions, and in your own words to ``urge full
and robust implementation of U.N. Security Council resolution
1929 against Iran.''
Given your statement, do you believe that current efforts,
including those of the Treasury Department are falling short of
FULL implementation?
A.1.-1. The international community has responded to UNSCR 1929
with an unprecedented and comprehensive framework of new
sanctions against Iran. In particular, the EU Council Decision
of July 2010 provided a model that has been replicated by other
major jurisdictions throughout the world, including Japan,
South Korea, Australia, and Switzerland, among others. As Iran
continues to seek new ways to evade international sanctions and
continues to defy the international community, the Treasury
Department and the broader U.S. Government will continue to
work aggressively to impose our own sanctions as well as with
our international partners to identify and implement measures
that are consistent with and strengthen the multilateral
sanctions framework.
Q.1.-2. If nominated would you consider the imposition of
sanctions, as required under CISADA, against Turkish financial
institutions that are currently doing business with designated
Iranian banks?
A.1.-2. Yes.
Q.2.-1. As I understand it, the rate of issuing the draft rule
appears to be abysmal with disregard to the severity of the
situation should the sanctions fail to be fully utilized to
impede Iran from achieving nuclear capabilities. I have serious
concerns over the Treasury's apparent lack of enforcement of
Comprehensive Iran Sanctions Accountability and Divestment Act
(CISADA). The recent draft rule to implement Section 104(e) of
the Comprehensive Iran Sanctions and Divestment Act (CISADA)
published by the Treasury Department was not published until
over 10 months after being signed by President Obama.
What does your department need to expedite the enforcement
for CISADA?
A.2.-1. Our initial CISADA implementation efforts focused on
issuing a regulation implementing section 104(c) of CISADA. On
August 16, 2010, the Office of Foreign Assets Control (OFAC)
published the Iranian Financial Sanctions Regulations, which
implement that section.
Section 104(e) of CISADA complements section 104(c). It
requires the Secretary to prescribe regulations to establish
one or more of four specific requirements (set out in section
104(e)(1)(A)-(D)) for U.S. financial institutions maintaining
correspondent accounts for foreign financial institutions. The
time it took to publish the proposed rule does not reflect a
lack of seriousness on our part; rather, it reflects a desire
to craft a rule that will best achieve our policy aims in this
complex and novel context. Because we are mindful of the need
to obtain the information targeted by the section 104(e) rule
as expeditiously as possible, we issued the proposed rule with
a 30-day comment period (quite often, proposed rules have 45-
or 90-day comment periods). You have my assurance that, once
the comment period closes on June 1, we will move to publish a
final rule as quickly as possible, and, if confirmed, I will
ensure that the tool created by the rule is used aggressively.
Q.3. When Congress passed the 1996 Iran-Libya Sanctions Act, it
did so with the aim to compel foreign companies to diverge from
trading with Iran. Yet, over the past 15 years despite
additional international sanctions and the CISADA being signed
last year, a failure to enact sanctions has produced an
unmistakable message and precedent of allowing foreign
companies to do business as usual with Iran. Additionally, I
have seen reports that Iran circumvents current laws by
altering the material grade of its gasoline, and continues to
use foreign countries that regularly do business with the
United States.
What policies are you currently developing to track
documentation of cocktail blends of gasoline to determine
whether products originated in Iran?
A.3. The State Department is responsible for implementing the
Iran Sanctions Act and the energy related provisions of CISADA,
and as a result, I must defer to the State Department on any
questions regarding energy-related sanctions.
Q.4.-1. Additionally, I have concerns over the Treasury
Department's interpretation of Section 104(e). As I understand
it, the draft rule published by Treasury in the Federal
Register on April 27, 2011, has misinterpreted Section 104(e)
as discretionary and infrequent.
Please spell out the scope of the agency's authority to
issue and implement these comprehensive sanctions?
A.4.-1. Please see below answer.
Q.4.-2. Please explain your understanding of Section 104(e) as
well as what institutions this section will be applied?
A.4.-2. Treasury does not interpret section 104(e) to be
discretionary. To the contrary, we understand section 104(e) to
require the Secretary to prescribe regulations mandating that
domestic financial institutions take one or more actions, one
of which is to provide requested reports to Treasury, and we
believe that the proposed rule reflects this understanding.
We have proposed to target this reporting requirement on
those foreign banks that the Department has reason to believe
may be engaged in activities that may be sanctionable under
section 104(c) of CISADA. We considered requiring every U.S.
bank to provide periodic reports from every foreign bank for
which they maintain correspondent accounts, but concluded that
we would be better served by a rule that focused on those
foreign banks that are of interest for purposes of CISADA. By
requiring reports from those U.S. banks that maintain
correspondent accounts with the specific foreign banks that are
of interest to Treasury for purposes of CISADA implementation,
we believe that Treasury will receive the information needed
without generating a multitude of unnecessary and uninformative
reports.
The reporting requirement in the proposed rule, moreover,
is scalable. Based on the circumstances, it permits Treasury to
expand the number of U.S. banks that would be required to file
reports, as well as the number of foreign banks from which
information would be sought. For instance, if Treasury were
unsure which U.S. bank maintains a correspondent account with a
specific foreign bank, the requirement to file reports could be
expanded to cover a broader number of U.S. banks to ensure that
the information sought is captured.
Q.4.-3. What actions were taken during the last 10 months to
backlog and track transactions that violate Section 104(e)?
A.4.-3. Since the enactment of CISADA on July 1, 2010, and the
publication of the Iranian Financial Sanctions Regulations
(IFSR) on August 16, 2010, Treasury has been engaged in an
aggressive campaign, involving dozens of foreign countries and
scores of financial institutions, to explain the choice put to
foreign financial institutions by CISADA between continued
access to the U.S. financial system or continued involvement
with Iran's proliferation efforts, its support for terrorism,
and sanctioned Iranian-linked parties such as U.S.-designated
banks and the Islamic Revolutionary Guard Corps. The response
to Treasury's outreach has been very positive, and the great
majority of financial institutions with which we have engaged
have chosen to close their correspondent accounts with U.S.-
designated, Iranian-linked financial institutions, thus closing
off avenues that Iran's designated banks had relied upon to
engage in financial activities. CISADA, in short, has proven to
be a very powerful tool to further isolate and pressure Iran--
precisely what we understand Congress intended in enacting the
law. Nonetheless, Treasury has concerns that a limited number
of foreign financial institutions may be continuing to engage
in activities that could result in a finding under CISADA. We
are actively investigating those situations, and are moving
toward concluding our investigations within the next month or
so.
Q.4.-4. As the language mentioned above is draft language, do
you intend to modify the language to more clearly reflect the
intention of CISADA?
A.4.-4. Fully implementing CISADA, and the Administration's
sanctions strategy more broadly, to hold Iran accountable for
its persistent refusal to comply with its international non-
proliferation obligations and its continued illicit conduct is
an obligation we take very seriously. We crafted the proposed
rule with that in mind, and are fully prepared to modify the
rule before it is issued in final form to more effectively
support this overarching objective. We will review all of the
public comments we receive on this proposed rule and assess
whether any changes to the proposed rule should be made based
on those responses.
Q.4.-5. What policies are being considered to improve Congress
oversight of this implementation?
A.4.-5. We will use Performance Measure #1, ``Impact of TFI's
Programs and Activities,'' included in the Department of the
Treasury's Fiscal Year 2010 Annual Performance Report, which
measures TFI's impact as an organization through its sanctions,
law enforcement, intelligence, regulatory and diplomatic
programs to reduce threats to U.S. national security. In doing
so, we will ensure that Congress is kept apprised of
developments pursuant to the implementation of this regulation.
In addition, if desired, we will keep the Committee apprised of
when requests for information pursuant to the rule implementing
section 104(e) are sent to U.S. banks, including the number of
U.S. banks that receive a request and the number of foreign
banks that are the subjects of the request.
Q.5.-1. Trade continues to be increasingly used to disguise
illegal activities of rogue states and money laundering to
support illicit nuclear programs. Other than proposing a new
international standard with the Financial Action Task Force and
assisting the Department of Homeland Security and State
Department with the Trade Transparency Unit program, what
initiatives has the Treasury Department implemented to address
trade based money laundering?
A.5.-1. Treasury works closely with Immigration and Customs
Enforcement (ICE) and other interagency partners, including the
Drug Enforcement Agency, to combat trade based money laundering
(TBML).
One recent example involves an action taken by Treasury in
February 2011, when we identified the Lebanese Canadian Bank
(LCB) in Beirut, Lebanon as a financial institution of
``primary money laundering concern'' under Section 311 of the
USA PATRIOT Act for its role in facilitating the money
laundering activities of an international narcotics trafficking
and money laundering network. This network moved drugs from
South Africa to Europe and the Middle East via West Africa and
laundered hundreds of millions of dollars monthly through
accounts held at LCB, as well as through TBML involving
consumer goods throughout the world.
Treasury also conducts targeted outreach to key countries
on the dangers of the trade system being abused by WMD
proliferators. For example, Treasury, in conjunction with the
State and Commerce Department, worked with Malaysia during the
development of Malaysia's implementing regulations for its
Strategic Trade Act in an effort to establish financial
controls to guard against WMD proliferation through its trade
sector. In addition, Treasury has presented at State's Export
Control and Related Border Security Program (EXBS) conferences
to raise awareness of WMD proliferation financing and possible
ways to combat such financing.
Q.5.-2. Do foreign trade zones (FTZs) have the proper level of
vigilance necessary to mitigate illicit and potentially
dangerous cargo slipping into a country?
A.5.-2. Activities that take place within free trade zones
(FTZs) as well as the laws and regulations governing FTZs vary
greatly by jurisdiction. The Financial Action Task Force has
published a typology of potential money laundering and
terrorist financing vulnerabilities associated with FTZs
including the inconsistent application and enforcement of anti-
money laundering and counter-terrorist financing laws within
FTZs.
Q.5.-3. Additionally, please expand on any trade ties that you
see as potential to provide Iran cover to mask illicit
transactions.
A.5.-3. The Treasury Department has consistently cautioned that
all business with Iran carries a risk of supporting Iran's
illicit activity, and as such requires an extremely high level
of scrutiny and due diligence to ensure that Iran is not using
seemingly legitimate activity to mask illicit transactions. The
current international sanctions regime, however, does not call
for a trade embargo on Iran, thus legitimate trade with Iran
continues to occur. The U.S. Government has reached out to
countries, such as Turkey, that have expressed a desire to
expand trade with Iran to share with them the importance of
great vigilance in all trade with Iran. This outreach
emphasizes that, as Iran is increasingly isolated from major
trading centers, those countries that maintain or increase
their trade ties with Iran are at a greater risk of being used
by Iran to conceal proliferation-related transfers amidst
legitimate trade flows.
Q.6.-1. As part of sanctions against Iran, U.S. financial
systems may freeze out banks involved in significant
transactions with proscribed Iranian banks.
Do you know of any instances where the United States is
aware of but not currently implementing full use of this?
A.6.-1. No, I am not aware of any such instances.
Q.6.-2. Has the Treasury Department sanctioned any foreign,
non-Iranian bank pursuant to the Comprehensive Iran Sanctions
Accountability and Divestment Act (CISADA)?
A.6.-2. To date, the Treasury Department has not sanctioned any
foreign, non-Iranian bank pursuant to CISADA. Nonetheless,
Treasury has concerns that a limited number of financial
institutions may be continuing to engage in activities that
could result in a finding under CISADA. We are actively
investigating those situations. While there are always
uncontrollable and unexpected factors that affect the timing of
our work, we expect to reach a decision on several open CISADA-
related investigations within the next month or so.
Q.7. The Treasury Department, as well as the U.S. Congress,
have repeatedly raised concerns about the role of the Central
Bank of Iran--that it facilitates Iran's illicit financial
activities--and has warned banks to exercise extreme caution in
dealing with it. In September, the Treasury Department
sanctioned the bank EIH, incorporated in Germany, for allegedly
providing financial services to Iranian WMD proliferators and
facilitating transactions on behalf of other sanctioned Iranian
banks. Secretary Cohen, in your testimony to the Finance
Committee last month, you said the United States is ``working
aggressively to try and shut down the Iranians' ability to use
that financial institution [EIH].''
Why hasn't the United States taken more action against
foreign banks that continue to work with EIH as required by
CISADA?
A.7. Treasury has been working closely with our European
allies, particularly Germany, to urge them to take action
against EIH to ensure that this U.S.-designated, Iranian-owned
institution can no longer serve as Iran's key access point to
the European financial sector, and we believe that our European
partners understand the threat posed by EIH's continued
operation. Moreover, as Treasury has become aware of instances
in which foreign financial institutions engage in transactions
with EIH, Treasury has informed these foreign financial
institutions and their regulators of the potential consequences
under CISADA of engaging in such transactions.
Q.8. Additionally, I have concerns about the potential sale of
the New York Stock Exchange to Deutsche Boerse; specifically I
am concerned about the activity of Deutsche Boerse's subsidiary
Clearstream Banking S.A. in Iran. I am also troubled that
Luxembourg's lax anti-money laundering laws have allowed
Clearstream to engage in questionable activity. While
Luxembourg has implemented regulations over the past year to
improve enforcement after the Financial Action Task Force
(FATF) questioned its practices, much greater steps must be
taken.
Have Treasury Department officials raised concerns with
officials from Luxembourg about Iranian money laundering
efforts?
A.8. Treasury has long maintained a close and cooperative
dialogue with the Luxembourg government and its banking
regulators. Within the context of that relationship, senior
Treasury officials have engaged the government of Luxembourg
about the risks of doing business with Iran. Most recently,
former Under Secretary Stuart Levey traveled to Luxembourg in
January 2011 for consultations with the Luxembourg government
about Iran, among other issues.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR JOHANNS FROM DAVID S.
COHEN
Q.1. Despite the Administration's description of Syrian
President Bashar Assad's regime as ``barbaric,'' why has
President Assad himself not been sanctioned since the beginning
of the unrest?
A.1. On April 29, the President signed Executive Order 13572
targeting those responsible for human rights abuses in Syria,
including those related to repression. Several high-ranking
Syrian officials, the Syrian General Intelligence Directorate
and the Iranian Islamic Revolutionary Guard Corps--Qods Force
were listed in the Annex to E.O. 13572. Included in this
listing is Syrian President Bashar Assad's brother Mahir, a
brigade commander in the Syrian Army's 4th Armored Division,
who has played a leading role in the Syrian regime's
reprehensible actions in Dar'a, where protesters have been
killed by Syrian security forces. While we do not comment on
prospective actions, we continue to monitor the situation in
Syria closely and are actively developing new designation
targets. The Statement issued by the White House Press
Secretary on Friday, May 6, put it well:
Absent significant change in the Syrian government's current
approach, including an end to the government's killing of
protestors and to the arrest and harassment campaigns of
protestors and activists, coupled with a genuine political
reform process responsive to the demands of the Syrian people,
the United States and its international partners will take
additional steps to make clear our strong opposition to the
Syrian government's treatment of its people.
Q.2. Is there evidence that Syrian financial institutions have
conducted sanctionable activities with Iranian organizations or
with the Lebanese Hezbollah? If they have, how have they been
sanctioned?
A.2. In 2004, Treasury identified the Commercial Bank of Syria
(CBS), along with its subsidiary Syrian Lebanese Commercial
Bank, as a financial institution of ``primary money laundering
concern'' under Section 311 of the USA PATRIOT Act. This action
was based on information that CBS had been used by terrorists
and their sympathizers, in addition to having acted as a
conduit for the laundering of proceeds generated from the
illicit sale of Iraqi oil. In February 2011, Treasury
identified the Lebanese Canadian Bank in Beirut, Lebanon, as a
primary money laundering concern for the bank's role in
facilitating the money laundering activities of an
international narcotics trafficking and money laundering
network. U.S. Government information indicates that Hizballah
derived financial support from the network's criminal
activities. Additionally, Treasury has sanctioned regional
banks affiliated with Hizballah, including the 2006 designation
of Bank Saderat Iran, which had funneled $50 million to a
Hizballah-controlled institution. We will continue to take
aggressive measures in Syria, or anywhere we identify financial
connections to Iran or Lebanese Hizballah.
Q.3. Elements of Turkey's recent foreign policy have been
extremely unhelpful, such as its involvement with the Gaza
flotilla incident last May and its resistance to new sanctions
on Iran. How would you describe Turkey's cooperation with the
U.S. sanctions regime on Iran in general and CISADA in
particular?
A.3. As part of Treasury's ongoing global engagement on Iran, I
traveled to Turkey recently to meet with senior Government
officials to discuss global efforts to impose sanctions against
Iran for its failure to live up to its international non-
proliferation obligations. Turkish officials emphasized their
desire to prevent Iran from acquiring nuclear weapons
capability and their commitment to fully implementing UNSCR
1929. Because several of the key financial provisions in UNSCR
1929--in particular, paragraphs 21 and 23--call upon Member
States to take steps beyond what is explicitly mandated by the
Resolution, e.g., freezing the assets of specifically
designated institutions, I emphasized for my Turkish
counterparts the importance of adhering not just to the letter,
but also to the spirit, of UNSCR 1929. Thus far, the Turkish
authorities have not adopted an approach to the implementation
of UNSCR 1929 that reflects this view. Treasury will continue
to encourage Turkey's leadership to ensure a robust
implementation of the international sanctions regime and to be
vigilant concerning Iranian efforts to take advantage of Iran's
commercial ties with Turkey to abuse the Turkish financial
system.
With regard to CISADA, Treasury has been in contact with
the Turkish government and its banking regulators about CISADA-
related concerns. The response from the government and the
regulators has been quite positive in terms of recognizing how
the law functions and the importance of Turkish banks
maintaining access to the U.S. financial system.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR KIRK FROM DAVID S.
COHEN
Background: On March 28, 2011, Senator Kyl, Senator Lieberman
and I sent a letter to Secretary Geithner along with a
classified annex detailing specific concerns about sanctionable
activities involving energy investments in Iran, the provision
of refined petroleum to Iran, financial relationships with
Iran, as well as the regime's proliferation activities. To
date, we have not received any specific responses to each
individual activity detailed in our annex.
Q.1. While I appreciate your recent unclassified response, when
will the Treasury Department be providing written classified
responses to each sanctionable activity outlined in our March
28th letter?
A.1. As a matter of longstanding policy, Treasury does not
comment on any possible or pending law enforcement
investigation, including possible designations or sanctions.
Accordingly, it would not be appropriate for me to comment on
any particular financial institution, entity or person that may
be under investigation until a final determination has been
made regarding a designation or similar action. As noted in my
response dated May 2, 2011, I am very familiar with the
finance-related issue addressed in the classified annex to your
letter, and my team and I are pursuing that matter--as well as
several other similar matters--with a great sense of urgency.
Q.2. Why have no banks been sanctioned under the Comprehensive
Iran Sanctions and Divestment Act (CISADA)? Is it your
contention that no foreign, non-Iranian bank has engaged in
sanctionable activity pursuant to Section 104 of CISADA?
A.2. Since the enactment of CISADA on July 1, 2010, and the
publication of the Iranian Financial Sanctions Regulations
(IFSR) on August 16, 2010, Treasury has been engaged in an
aggressive campaign, involving dozens of foreign countries and
scores of financial institutions, to explain the choice put to
foreign financial institutions by CISADA between continued
access to the U.S. financial system or continued involvement
with Iran's proliferation efforts, its support for terrorism,
and sanctioned Iranian-linked parties such as U.S.-designated
banks and the Islamic Revolutionary Guard Corps. The response
to Treasury's outreach has been very positive, and the great
majority of financial institutions with which we have engaged
have chosen to close their correspondent accounts with U.S.-
designated, Iranian-linked financial institutions, thus closing
off avenues that Iran's designated banks had relied upon to
engage in financial activities. CISADA, in short, has proven to
be a very powerful tool to further isolate and pressure Iran--
precisely what we understand Congress intended in enacting the
law. Nonetheless, Treasury has concerns that a limited number
of foreign financial institutions may be continuing to engage
in activities that could result in a finding under CISADA. We
are actively investigating those situations, and are moving
toward concluding our investigations within the next month or
so.
Q.3. Are you currently investigating foreign banks for possible
violation of CISADA and do you expect determinations to be made
soon?
A.3. Yes, we are currently investigating several foreign banks
for activities that may result in findings under CISADA. These
investigations involve obtaining data from multiple sources,
engaging in dialogue with the financial institutions and/or
their home-country regulators, and using official channels to
highlight the seriousness of the situation. We expect that
several investigations will reach their conclusion within the
next month or so.
Background: Last week, the Financial Crimes Enforcement Network
(FinCEN) issued a proposed rule to implement key requirements
of the Comprehensive Iran Sanctions Accountability and
Divestment Act (CISADA). Under the proposal, U.S. banks would
be required to inquire of their foreign correspondent banks
whether they maintain correspondent relations with Iranian
banks under U.S. sanctions--but only when specifically asked to
do so by the Treasury Department. Under such circumstances, the
U.S. bank would also be required to ask whether that foreign
bank has processed transfers of funds on behalf of the IRGC in
the past 90 days. At the end of this process, U.S. banks would
then be required to report this information back to FinCEN.
Q.4. Why under the proposed rule are U.S. banks that maintain
foreign correspondent accounts only required to provide FinCEN
with information about foreign partners when the Treasury
Department makes an inquiry?
A.4. We have proposed to target this reporting requirement on
those foreign banks that the Department has reason to believe
may be engaged in activities that may be sanctionable under
section 104(c) of CISADA. We considered requiring every U.S.
bank to provide periodic reports from every foreign bank for
which they maintain correspondent accounts, but concluded that
we would be better served by a rule that focused on those
foreign banks that are of interest for purposes of CISADA. By
requiring reports from those U.S. banks that maintain
correspondent accounts with the specific foreign banks that are
of interest to Treasury for purposes of CISADA implementation,
we believe that Treasury will receive the information needed
without generating a multitude of unnecessary and uninformative
reports.
The reporting requirement in the proposed rule, moreover,
is scalable. Based on the circumstances, it permits Treasury to
expand the number of U.S. banks that would be required to file
reports, as well as the number of foreign banks from which
information would be sought. For instance, if Treasury were
unsure which U.S. bank maintains a correspondent account with a
specific foreign bank, the requirement to file reports could be
extended to a broader number of U.S. banks to ensure that the
information sought is captured.
Q.5. Do you or do you not believe U.S. banks that maintain
foreign correspondent accounts [should] be required to ensure
their foreign partners are not conducting business with
prohibited entities in Iran at all times?
A.5. Under section 312 of the USA PATRIOT Act and its Bank
Secrecy Act (BSA) implementing regulations, every U.S. bank is
required to ``establish a due diligence program that includes .
. . policies, procedures, and controls that are reasonably
designed . . . to detect and report, on an ongoing basis, any
known or suspected money laundering activity conducted through
or involving any correspondent account established, maintained,
administered, or managed by such covered financial institution
in the United States for a foreign financial institution.'' In
addition, U.S. banks monitor the transaction activity that is
conducted through the U.S. banks' correspondent accounts with
foreign banks in order to comply with the Office of Foreign
Assets Control's (``OFAC'') regulations. Because of the due
diligence U.S. banks conduct over their foreign correspondent
accounts to comply with the BSA and OFAC regulations, a foreign
bank should not be utilizing its U.S. correspondent account to
conduct transactions with designated entities in Iran. Indeed,
it would be a violation of law and OFAC regulations for a U.S.
bank to process any non-exempt, unlicensed transactions with
any Iranian bank.
In the normal course of business, however, U.S. banks are
not likely to be in a position to monitor transactional
activity between a foreign bank and its non-U.S. customers--
that is, transactions not involving the U.S. bank's
correspondent account, including transactions with U.S.-
designated Iranian-linked financial institutions or with the
Islamic Revolutionary Guard Corps (IRGC) or its U.S.-designated
agents or affiliates. In proposing a rule to implement section
104(e) of CISADA, Treasury tentatively determined that the most
sensible way for U.S. banks to determine whether foreign banks
are doing business with those designated persons (transactions
that almost certainly would not transit through the U.S.
correspondent account) would be to require the U.S. banks to
ask the foreign bank to certify that it is not doing business
with those persons, or to report to the U.S. bank on any such
business it is doing. We have chosen a targeted approach to
requesting information regarding certain foreign banks both
because we thought it would be the most efficient way to
collect this information and because the mere act of asking may
pressure those targeted foreign banks to discontinue business
with U.S.-designated Iranian-linked financial institutions or
with the IRGC or its U.S.-designated agents or affiliates.
Q.6. Do you or do you not believe U.S. banks should be required
to provide such information to the Treasury Department as soon
as they are aware of it to enable swift and appropriate
enforcement action?
A.6. U.S. banks are already monitoring the transaction activity
that is conducted through the U.S. banks' correspondent
accounts with foreign banks under both OFAC and the BSA
regulations, and a variety of regulations require or result in
U.S. banks reporting any improper activity in their
correspondent accounts promptly to the Treasury Department. As
noted above, however, in the normal course of business U.S.
banks are not likely to be in a position to monitor
transactional activity between a foreign bank and its non-U.S.
customers, unless the foreign bank conducts transactions for
those customers through the foreign bank's correspondent
account with the U.S. bank. Requiring U.S. banks to obtain this
information with regard to foreign banks that are of interest
to the Treasury Department will provide Treasury with
information that Treasury may use in taking action under CISADA
or other applicable authorities, and we have drafted the
proposed rule implementing section 104(e) to accomplish this
goal.
Q.7. Your proposed regulation refers to the invocation of the
reporting requirement ``as necessary.'' Could you please
explain why FinCEN has made optional a requirement mandated by
CISADA and can you describe a situation when this requirement
would not be necessary?
A.7. We have proposed to target this mandatory reporting
requirement on those foreign banks that the Department has
reason to believe may be engaged in sanctionable activities
under section 104(c) of CISADA. We considered requiring every
U.S. bank to provide periodic reports from every foreign bank
for which they maintain correspondent accounts, but concluded
that we would be better served by a rule that focused on those
foreign banks that are of interest for purposes of CISADA. By
requiring reports from those U.S. banks that maintain
correspondent accounts with the specific foreign banks that are
of interest to Treasury for purposes of CISADA, we believe that
Treasury will receive the information needed without generating
a multitude of unnecessary and uninformative reports. There are
a number of foreign banks that maintain correspondent accounts
with U.S. banks, many of which the Department has no reason to
suspect are doing business that implicates CISADA.
Q.8. The proposed rule requires banks to report whether the
foreign bank has correspondent relations with sanctioned Iran
bank or has processed fund transfers on behalf of the IRGC in
the past 90 days. But under CISADA, the reporting requirement
also includes transactions with any entity under U.N. sanction
that has assisted Iran's proliferation activity. Why is the
reporting requirement under the proposed rule limited to only
part of the requirement outlined by the statute?
A.8. In our proposed rule, Treasury determined that obtaining
information regarding whether a foreign bank is conducting
transactions with a U.S.-designated, Iranian-linked financial
institution or with Iran's Islamic Revolutionary Guard Corps or
any of its U.S.-designated agents or affiliates is the most
useful information Treasury can obtain in the most workable
manner. Your question, however, raises an important point that
we will consider in preparing the final rule.
Background: In a 2010 report entitled Iran's Dirty Banking and
sourced to Bankers' Almanac, Mr. Avi Jorisch detailed a list of
44 international banks providing services to Iranian-linked
banks designated by the Treasury Department under Executive
Order 13382. The report also listed 18 U.S. banks conducting
business with international banks that service designated
Iranian banks in possible violation of Section 104 of the
Comprehensive Iran Sanctions and Divestment Act.
Q.9. Which of the following international financial
institutions ceased all of its business dealings, including but
not limited to providing correspondent banking services, with
Iranian-linked banks designated under Executive Order 13382?
LAmeriabank CJSC (Armenia)
LRaiffeisen Zentralbank Osterreich AG (Austria)
LUniCredit Bank Austria AG (Austria)
LAlubaf Arab International Bank BSC (Bahrain)
LFuture Bank BSC (Bahrain)
LSonali Bank Limited (Bangladesh)
LFortis Bank SA/NV (Belgium)
LDanske Bank A/S (Denmark)
LSociete Generale (France)
LBHF-BANK Aktiengesellschaft (Germany)
LCommerzbank AG (Germany)
LDeutsche Bank AG (Germany)
LLandesbank Baden-Wurrttemberg (Germany)
LUniCredit Bank AG (Germany)
LING NV (Holland)
LHabib Bank Limited (India)
LState Bank of India (India)
LUnited Bank Ltd (India)
LBank of the Middle East Iraqi Investment (Iraq)
LTrade Bank of Iraq (Iraq)
LIntesa Sanpaolo SpA (Italy)
LMizuho Corporate Bank Ltd (Japan)
LSumitomo Mitsui Banking Corporation (Japan)
LThe Bank of Tokyo-Mitsubishi UFJ Ltd (Japan)
LDnB NOR Bank ASA (Norway)
LNordea Bank Norge ASA (Norway)
LBankMuscat SAOG (Oman)
LQatar National Bank SAQ (Qatar)
LVTB Bank (Russia)
LRiyad Bank (Saudi Arabia)
LAresbank SA (Spain)
LBanco Santander SA (Spain)
LBanque Marocaine du Commerce Exterieur
International SA (Spain)
LBank of Ceylon (Sri Lanka)
LNordea Bank AB (Sweden)
LSkandinaviska Enskilda Banken AB (Sweden)
LSvenska Handelsbanken AB (Sweden)
LBanque de Commerce et de Placements SA (Switerland)
LUnited Bank AG (Switzerland)
LZurcher Kantonalbank (Switzerland)
LTurkiye Halk Bankasi AS (Turkey)
LTurkiye IS Bankasi AS (Turkey)
LDubai Islamic Bank PJSC
LEmirates NBD Bank PJSC
A.9. Treasury understands that Mr. Jorisch obtained the
information for his 2010 report from the Bankers Almanac, a
financial industry resource that, among other services, prints
profiles of most of the world's banks. These profiles are based
on information provided by the banks themselves, and include
details such as the bank's correspondent and settlement
partners. The information presented in Bankers Almanac is not,
to our knowledge, assessed for accuracy before it is published,
nor do we have any reason to believe that Mr. Jorisch
independently sought to verify the accuracy of the information
that he republished in his report.
With respect to the list of banks in Mr. Jorisch's article,
the Bankers Almanac profiles of several banks indicated that
they maintained correspondent accounts for U.S.-designated
Iranian-linked financial institutions, such as Bank Sepah or
Bank Melli. We determined, however, that at the time CISADA was
enacted, many of those profiles were inaccurate, and that the
relevant Iranian banks had far fewer correspondent banks than
indicated. Moreover, in the Bankers Almanac profiles of some of
the U.S.-designated Iranian-linked financial institutions,
several of the banks listed above were listed as
correspondents. Investigation by Treasury has similarly
revealed out of date information for accounts long since closed
or frozen.
Since the enactment of CISADA and the promulgation of the
IFSR, Treasury has been in contact with the majority of the 44
banks listed above and/or their regulators to discuss any
relationships maintained for U.S.-designated Iranian-linked
financial institutions. The great majority of financial
institutions that Treasury has focused on with CISADA-relevant
concerns have indicated that they already have closed, or will
immediately close, any correspondent accounts they previously
maintained for U.S.-designated Iranian-linked banks. As noted
above, however, Treasury has concerns that a limited number of
financial institutions may be continuing to engage in
activities that could result in a finding under CISADA. We are
actively investigating those situations.
Q.10. Are there any other financial institutions not on the
list provided in the previous question that are currently doing
business, including but not limited to providing correspondent
banking services, with Iranian-linked banks designated under
Executive Order 13382?
A.10. Relying on a wide variety of information sources, we are
following available leads in order to identify and investigate
any institution that may be engaging in activity that may be
sanctionable under section 104(c) of CISADA. As noted above,
until we complete any such investigation and make the
determination to take action, we are unable to comment on the
identity of any financial institution that may be a target of
our efforts. I can assure you, however, that my team and I are
aggressively pursuing investigations that may lead to action
under CISADA or our other sanctions authorities.
Q.11. What is the current status of your investigations into
each of the following U.S. financial institutions that may be
in violation of Section 104 of CISADA?
LBank of America NA
LThe Bank of New York Mellon
LThe Bank of Tokyo-Mitsubishi UFJ Ltd
LCitibank
LCommerzbank AG
LCredit Suisee AG
LDeutsche Bank Trust Company Americas
LHabib American Bank
LHSBC Bank USA NA
LIntesa Sanpaolo SpA
LJPMorgan Chase Bank NA
LMashreqBank PSC
LMizuho Corporate Bank USA
LSociete Generale
LStandard Chartered Bank
LState Bank of India
LSumitomo Mitsui Banking Corporation
LWells Fargo Bank NA
A.11. U.S. branches of foreign financial institutions, like
financial institutions headquartered in the United States, are
U.S. persons for the purposes of U.S. sanctions laws.
Accordingly, U.S. branches of foreign financial institutions
are required to comply with the regulations and restrictions
that apply to U.S. persons conducting business with Iranian
banks and other entities under sanctions programs administered
by Treasury, including the Iranian Transactions Regulations and
Executive Order 13382 pertaining to Weapons of Mass Destruction
Proliferators and Their Supporters. These restrictions include
the prohibition on maintaining correspondent accounts for, or
generally providing financial services to, Iranian banks and
U.S.-designated individuals and entities. In our regulatory
role, we maintain vigilance over U.S. persons and are prepared
to act quickly if we detect any action that implicates any of
our sanctions programs. As noted above, we are unable to
comment on the identity of any financial institution that may
currently be a target of our investigations or enforcement
efforts.
Background: As you know, the Central Bank of Iran (CBI)
facilitates Iran's illicit financial activities. According to a
banking advisory issued by FinCEN on March 28, 2008 (and
updated on June 22, 2010), the CBI is listed as an Iranian bank
that is engaged in ``illicit and deceptive activity.'' Banks
have been warned to exercise extreme caution in dealing with
virtually every Iranian-linked financial institution, including
the CBI. As the United States and some of our allies have
sanctioned individual Iranian banks, Iran's Central Bank has
reportedly taken over many of the illicit activities of the
sanctioned entities.
Q.12. Do you believe the Central Bank of Iran is supporting
Iran's proliferation activities or facilitating the activity of
entities under U.S. or U.N. sanction? If so, why hasn't the
U.S. designated the Central Bank of Iran?
A.12. The activities of the Central Bank of Iran (CBI) have
been, and continue to be, a focus of the Treasury Department.
Treasury has noted previously that the CBI and Iranian
commercial banks have requested that their names be removed
from international payment messages to make it more difficult
for intermediary financial institutions to determine the true
parties to the transaction, and we remain concerned that the
CBI may be facilitating transactions for sanctioned Iranian
banks.
While the CBI has not been designated under our
proliferation authorities, under the Iranian Transactions
Regulations U.S. financial institutions are prohibited, with
only limited exceptions, from doing business directly or
indirectly with all Iranian banks, including the CBI. As
highlighted in UNSCR 1929, we remain vigilant over the
activities of the CBI and other Iranian financial institutions,
and the United States will continue to highlight its concerns
with foreign governments and the private sector. We have been
diligent in exposing and publicizing Iran's deceptive
practices, as a result of which many in the private sector--
unable to distinguish between Iran's legitimate and illicit
transactions--have become increasingly wary of engaging in any
business with Iran, including business with the CBI.
Background: In September, the Treasury Department sanctioned
the Iranian-owned bank EIH, incorporated in Germany, for
providing financial services to Iranian weapons proliferators
and facilitating transactions on behalf of other sanctioned
Iranian banks. Secretary Cohen, in your testimony to the
Finance Committee last month, you said the United States is
``working quite, quite aggressively to try and shut down the
Iranians' ability to use that financial institution [EIH].''
Q.13. Can you please be more specific--what steps are you
taking to shut down Iran's ability to use EIH?
A.13. On September 7, 2010, Treasury designated EIH pursuant to
Executive Order 13382, which blocks the property of designated
weapons of mass destruction proliferators and their supporters.
To suspend EIH's access to the EU financial system, however,
either Germany or the EU must take similar action and add EIH
to its own list of designated entities. Treasury has been
working closely with our European allies, particularly Germany,
to urge them to take action against EIH to ensure that this
U.S.-designated, Iranian-owned institution can no longer serve
as Iran's access point to the European financial sector, and we
believe that our European partners understand the threat posed
by EIH's continued operation.
Q.14. What steps will you be taking to stop foreign banks that
continue to work with EIH despite Treasury's designation?
A.14. As Treasury has become aware of instances in which
foreign financial institutions engage in transactions with
EIH--a U.S.-designated, Iranian-linked financial institution
for purposes of CISADA--Treasury has informed these foreign
financial institutions and their regulators of the potential
CISADA consequences of engaging in such transactions. In
addition, as noted in the response to the previous question,
Treasury has been working with Germany and other EU member
states to have EIH designated by either Germany or the EU,
which, we believe, would effectively end EIH's ability to
operate at all.
Q.15. Why has the Treasury Department not taken action against
foreign banks that continue work with EIH as required by
CISADA?
A.15. Treasury is aggressively pursuing investigations of
possible activity that may be sanctionable under CISADA or our
other authorities designed to bring economic and financial
pressure to bear on Iran. As noted above, Treasury does not
comment on any specific possible or pending law enforcement
investigations, including possible designations or sanctions.
Background: In July 2010, Germany designated its affiliate of
the Turkish group IHH as a terrorist organization due to its
close ties to Hamas. Last week, the Dutch government also
designated its IHH affiliate as a terrorist group and froze its
assets. I understand the Israeli Government has provided the
Treasury Department extensive evidence detailing the IHH's ties
to Hamas, a U.S.-designated foreign terrorist organization, and
the ``Union of the Good,'' which was designated by the Treasury
Department under Executive Order 13324 in November 2008 and
referred to by the Department as ``an organization created by
Hamas leadership to transfer funds to the terrorist
organization.'' As you know, Hamas is responsible for the
murders of at least 26 American citizens.
Q.16. Why are you delaying designation of the IHH as a
terrorist entity despite evidence demonstrating the group's
ties to the Hamas terrorist organization and the Union of the
Good terrorist entity?
A.16. Although I cannot comment on any possible or pending
designation of IHH, I can assure you that my team and I are
fully committed to taking action against sources of support for
terrorist organizations. With respect to Hamas, Treasury has
actively sought to disrupt its financing through a number of
methods, including: designating individuals and entities
raising funds on behalf of the organization; engaging and
sharing information with the Palestinian Authority to disrupt
Hamas' charitable infrastructure in the West Bank and Gaza; and
pressing European allies to take corresponding action.
Specifically:
LTreasury has designated a number of charities for
providing support to Hamas, being owned or controlled
by it, or acting for or on its behalf, including the
Union of Good (November 2008), Al Salah Society (August
2007), Interpal/The Palestinian Relief and Development
Fund (August 2003), Commite de Bienfaisance et de
Secours aux Palestiniens and the Association de Secours
Palestinien (August 2003), the Palestinian Association
in Austria (August 2003), the Al-Aqsa Foundation (May
2003), and the Holy Land Foundation for Relief and
Development (December 2001).
LThe Treasury Department engages regularly with
senior Palestinian Authority (PA) officials on illicit
finance issues, including sharing information on Hamas-
controlled charities and NGO's operating in the West
Bank and Gaza. Since 2007, the PA has taken significant
steps to rid the charitable sector in the West Bank of
Hamas influence, including the dissolution and
reformation of Zakat committees (Islamic charitable
organizations) that received financial support from
Union of Good member organizations.
LPressing the Europeans to crack down on Hamas
fundraising in Europe has been one of our priorities.
Together with our State Department colleagues, we have
been specifically pushing both the EU and European
member states to designate the Union of Good. Recently,
Treasury participated in a delegation led by the State
Department's Coordinator for Counter-Terrorism,
Ambassador Benjamin, to press our European partners on
these issues.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM DANIEL L.
GLASER
Q.1.-1. China is always at the center of a sanctions
controversy, whether it be related to North Korea, or Iran. The
United States has recently sanctioned a North Korean bank and
tightened sanctions prohibiting the import of goods, services
and technology from North Korea.
How does the revival in commerce between China and North
Korea compare to U.S. efforts to isolate North Korea? Are U.S.
sanctions working here, or is the back door to China overcoming
U.S. efforts?
A.1.-1. U.N. Security Council Resolutions 1718 and 1874 provide
the foundation for the international sanctions framework
against North Korea. These instruments are supplemented by the
recent warning by the Financial Action Task Force of the risks
to the international financial system of North Korea's failure
to comply with international anti-money laundering standards.
The United States has taken a broad interpretation of the
financial provisions of these instruments, and relying on these
and our other authorities, our implementation has gone beyond
them. Just last month, President Obama signed Executive Order
13570 continuing our broad import restrictions on North Korea.
In August 2010, President Obama signed Executive Order 13551,
authorizing Treasury, in consultation with State, to impose
sanctions on the financial networks that facilitate North
Korean trafficking in arms and related materiel, procurement of
luxury goods, and engagement in other illicit activities, such
as money laundering and counterfeiting. Treasury has put this
authority to good use, targeting not just North Korean
government entities such as Office 39 and the Reconnaissance
General Bureau, but also important nodes in their respective
financial networks such as Daesong Bank and Bank of East Land.
Treasury has also targeted numerous North Korean entities
pursuant to our WMD sanctions authorities under Executive Order
13382, and has issued several advisories to our financial
institutions warning of the risks presented by North Korea's
illicit financial activities. These formal measures have been
accompanied by an aggressive outreach campaign, both to foreign
governments and the private sector. I have personally traveled
throughout Asia and the Middle East, providing both general and
specific information to governments and banks to assist them in
protecting themselves from illicit North Korean financial
activity. To date, our efforts have been effective in
significantly restricting North Korea's access to the
international financial and commercial systems.
China also voted for UNSCRs 1718 and 1874. China, however,
has taken a narrower approach to the implementation of the
financial provisions of these instruments, and continues to
maintain a unique relationship with North Korea, both
financially and commercially. Given North Korea's financial
isolation from much of the rest of the world, these financial
ties with China are of increasing importance to North Korea.
Treasury has, therefore, actively engaged with the Chinese
government, encouraging a broad interpretation of both the
letter and spirit of the resolutions, and providing specific
information to enable robust Chinese implementation. Moreover,
Treasury has communicated directly with large Chinese banks
through their offices in the United States to ensure that they
understand the risks they face from their financial activities
with North Korea.
Q.1.-2. Generally, what is behind the perception that Chinese
banks and energy companies comply with U.N. sanctions but
appear to violate CISADA?
A.1.-2. As with the domestic financial sanctions regimes of
many of our allies, the financial provisions of CISADA go
significantly beyond the provisions of the relevant U.N.
Security Council resolutions. For example, the U.N. applies
full targeted sanctions on only two banks--Bank Sepah and First
East Export Bank. In contrast, the U.S. targeted sanctions, and
by extension the financial provisions of CISADA, apply to many
more Iranian-linked banks, including Bank Melli, Bank Mellat,
Export Development Bank of Iran, Bank Saderat, Post Bank, and
Europaisch-Iranische Handeslbank (EIH). It is therefore
possible for a foreign bank to be acting consistent with its
domestic laws and U.N. sanctions, and nevertheless be engaged
in conduct that implicates CISADA.
Since the passage of CISADA in 2010, Treasury has engaged
the Chinese government and its banking regulators to discuss
CISADA-related concerns and to raise awareness of the potential
consequences that Chinese financial institutions may face under
CISADA should they engage in sanctionable activity. As partners
in the P5+1 process, we believe that China shares our concern
about Iran's nuclear program and would not want its banks to be
engaged in activity that could support Iranian proliferation-
related activities.
The State Department is responsible for implementing the
Iran Sanctions Act and the energy related provisions of CISADA,
and as a result, I must defer to the State Department on any
questions regarding energy-related sanctions.
Q.1.-3. Are U.N. sanctions working perversely to provide cover
to cheat on U.S. sanctions with respect to either China or
North Korea?
A.1.-3. U.N. Security Council Resolutions provide an important
foundation and baseline for the international sanctions regime
against North Korea and Iran. Given deep international concerns
regarding North Korean and Iranian behavior, many countries
have gone beyond this baseline. Equally as important, given
long-standing international concerns about the illicit
financial activities of Iran and North Korea, financial
institutions throughout the world--including many in China--
have eliminated or severely restricted their dealings with
entities from those jurisdictions beyond what is required under
their domestic law. It is certainly possible for a financial
institution to be in compliance with a strict reading of the
UNSCRs, but nevertheless be engaged in conduct inconsistent
with U.S. sanctions, and the sanctions regimes of many of our
allies. In the case of China, the challenge has been to
encourage a broad interpretation of both the letter and spirit
of the relevant U.N. resolutions, and to provide specific
information to enable robust Chinese implementation. I have
spent time with the Chinese doing precisely this. Moreover, we
must continue to encourage the dynamic among private sector
financial institutions--including Chinese financial
institutions--to take strong measures to protect themselves
from illicit Iranian and North Korean financial conduct.
Q.2. What is the current status of the report authorized by
section 6303 of the 2004 Intelligence Reform and Terrorist
Prevention Act? What are the problems involved with its
production?
A.2. Terrorist financing is constantly evolving, both in terms
of sources and methodologies and in terms of international and
domestic efforts to combat it. It is important that Congress be
kept informed on developments in this area. One way of doing so
is through broad reports such as the one authorized by section
6303 of the 2004 Intelligence Reform and Terrorist Prevention
Act, and, if confirmed, I will work to see that it is completed
expeditiously. Moreover, I commit to make myself available to
you, other members of the Committee, and your staff to ensure
that as an ongoing matter your specific questions and concerns
related to terrorist financing are being addressed.
Q.3.-1. The result of Treasury policies and increased law
enforcement have forced a good deal of financing into informal
channels like hawala, and the use of charities.
Is charitable financing of terror a growing problem, or
more of a manageable constant? And, is the problem different in
the Gulf, Europe and here at home?
A.3.-1. The financing of terrorism and extremism by charities
remains a concern to which Treasury devotes considerable
effort. Charities are not just attractive vehicles by which
terrorist organizations can raise funds, but they also provide
opportunities to legitimize the organizations and radicalize
populations. Domestically, we have made significant progress.
Of course, only an extremely tiny fraction of the 1.8 million
charitable organizations in the U.S. have ever presented a
significant risk of terrorist financing. However, since 9/11 a
combination of law enforcement actions and sustained dialogue
with the charitable community has ensured that the U.S. is not
a favorable environment for terrorist fundraising. Globally, we
have also made progress, though much work remains to be done.
In the Gulf, certain charities continue to support a wide range
of terrorist organizations from Al Qaida to Hamas. In combating
these organizations, we have over the last several years
significantly improved our counter-terrorist financing
cooperation and information sharing with partners such as Saudi
Arabia and the UAE, even as we look for improvements in
countries such as Qatar and Kuwait. The designation of groups
such as the Revival of Islamic Heritage Society (RIHS)
demonstrates that a continued focus on certain charities in the
Gulf is required. In Europe our focus has been more
specifically on Hamas fundraising. We consistently work with
our partners in Europe and in the Middle East to try to block
the flow of funds from charities in Europe that support Hamas--
most notably charities affiliated with the U.S.-designated
Union of Good.
Q.3.-2. It is impossible to put a dollar figure on money moving
through hawala, but is that system financing the majority or
minority of terrorist activity in the world, and are our
counter threat financing measures sophisticated enough to make
a difference in this area?
A.3.-2. The Treasury Department has long-recognized the
vulnerability of informal value transfer systems to illicit
finance. As noted in the question, specific measurements are
impossible, though by any account hawala continues to be among
the most significant mechanisms through which terrorist
organizations move funds. Hawalas can be an attractive transfer
mechanism for terrorists for two primary reasons: (i) hawala
networks often provide basic financial services to communities
and regions that are not reached by more modern financial
service providers, and (ii) if not adequately regulated,
hawalas provide the opportunity for non-transparent financial
activity.
Treasury has worked to address the vulnerabilities
presented by informal value transfers through a four-pronged
approach: targeted financial sanctions and other enforcement
actions; systemic regulation; outreach; and international
engagement. The international component of this strategy is
discussed in greater detail below, but includes standard
setting through FATF, targeted sanctions on such illicit actors
as the New Ansari Network in Afghanistan, and encouragement to
countries such as Pakistan to strengthen their regulatory
regimes.
Domestically, hawalas, like all other money services
businesses, are required to register with FinCEN, and we have
worked to establish a transparent financial system with
appropriate anti-money laundering and countering the financing
of terrorism (AML/CFT) requirements on informal financial
service providers. Where these requirements are not observed,
it is important that we act. In the last 5 months FinCEN has
taken civil enforcement actions against three unregistered
money transmitters. Treasury is also working to ensure that our
domestic regime is as robust as possible. Treasury is currently
conducting a broad analysis of hawalas operating in the United
States to better understand domestic hawala users and the money
flows associated with their transactions. Moreover, Treasury is
also engaging in rulemaking to impose cross-border reporting
requirements on all cross-border transfers above one thousand
dollars for all money transmitters. This will enhance our
understanding of cross-border money flows through the industry
and inform our outreach, enforcement and regulatory compliance
efforts.
Q.3.-3. How effective are either international efforts through
the Financial Action Task Force (``FATF'') or international law
enforcement measures on informal value systems?
A.3.-3.The Financial Action Task Force (FATF) sets
international AML/CFT standards and works for their global
implementation. The FATF standards require that informal value
systems be licensed or registered, and subject to transparency
requirements. These standards provide an important baseline for
global efforts in this area. In particular, FATF--in
cooperation with the IMF, World Bank, and FATF's regional
affiliates--has undertaken a global initiative to assess the
compliance of virtually every country in the world with the
FATF standards.
International standard setting, however, is necessary but
insufficient to protect the U.S. financial system from illicit
informal value transfer networks. As noted above, it must be
combined with adequate regulation domestically and robust
enforcement action as necessary. In February 2011, for example,
Treasury designated the New Ansari Money Exchange, a major
Afghan hawala and money laundering vehicle, and 15 affiliated
individuals and entities under the Foreign Narcotics Kingpin
Designation Act. These actions exposed a primary money
laundering network that transferred billions of dollars into
and out of Afghanistan and the neighboring region, including
proceeds of narcotics trafficking and corruption and funds used
to support insurgency financing. More broadly, Treasury has
worked with the Pakistani government to improve its AML/CFT
regime, including with respect to informal value transfer
systems such as hawalas.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM DANIEL L.
GLASER
Q.1. Are you investigating foreign banks today for possible
violation of CISADA?
A.1. Yes, Treasury is currently investigating several foreign
banks for activities that may result in findings under CISADA.
Q.2. If a foreign central bank is supporting Iran's
proliferation activities or facilitating the activity of
entities under U.S. or U.N. sanctions, would it be
sanctionable?
A.2. Yes, a foreign central bank, like any other person or
entity, may be subject to designation under U.S. law for
supporting Iran's proliferation activities or providing
material support to persons designated under U.S. counter-
proliferation sanctions.
Q.3. What financial tools does the United States have to press
China to reduce its relationship with Iran?
A.3. China voted for all relevant United Nations Security
Council resolutions relating to Iran, and has publicly
committed to implementing them. Treasury has actively engaged
with the Chinese government on this basis, encouraging a broad
interpretation of both the letter and spirit of the
resolutions, and providing specific information to enable
robust Chinese implementation. Moreover, Treasury has
communicated directly with large Chinese banks through their
offices in the United States to ensure that they understand the
risks they face from financial activities with Iran. We believe
this ongoing engagement with China has been productive. Beyond
this engagement, Treasury retains the same diverse set of tools
it has available to protect the U.S. financial system from all
illicit activity, including anti-money laundering authorities
grounded in the Bank Secrecy Act and USA PATRIOT Act and
sanctions authorities grounded in the International Emergency
Economic Powers Act (IEEPA) and CISADA.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR HAGAN FROM DANIEL L.
GLASER
Q.1. During your testimony, you mentioned that you plan to
visit Panama during a joint Mexican-United States visit to
Central America later this month in an attempt to better
understand the networks that narcotics organizations use to
launder money and finance illicit activities. It is my
understanding from testimony provided to the Senate Armed
Services Subcommittee on Emerging Threats and Capabilities that
one of the predominant challenges that exists in Panama is its
weak anti-money laundering regime and its inability to go after
illicit finance.
What is your assessment of Panama's current anti-money
laundering regime? How involved are Panamanian financial
institutions in the financing of narcotics activity throughout
the world? What steps has Panama taken in recent years to limit
these activities?
A.1. Like many other countries in the region, Panama's AML
regime has deficiencies that make it vulnerable to money
laundering activity related to narcotics trafficking.
Deficiencies of particular concern include the lack of AML
regulation and supervision in the Colon Free Zone and the
opaque company formation options available in the jurisdiction.
These deficiencies and others make the Panamanian financial
system vulnerable to being exploited by bad actors. Through the
South American FATF Style Regional Body (GAFISUD), we are
working with Panama to remedy these deficiencies. A recent step
Panama has taken to address transparency issues is the
ratification of a tax information exchange agreement with the
United States. During my upcoming trip, I hope to discuss
additional steps Panamanian authorities can take to protect
themselves and their financial institutions from money
laundering predicated on narcotics trafficking.
Q.2. In your testimony, when discussing Central America's
financial institutions, you referenced the Lebanese Canadian
Bank. Was it your implication that similar institutions support
the global narcotics financing network from Panama?
A.2. Lebanese Canadian Bank (LCB) was an important financial
node in a narcotics money laundering network with links in the
Western Hemisphere, Asia, Africa, and the Middle East. Though
it was not my intention to imply that there are financial
institutions in Panama that are precisely analogous to LCB,
clearly narcotics trafficking organizations have financial
networks in the Western Hemisphere and it is important that we
target them. An important part of my upcoming visit to Panama
will be to seek Panamanian government assistance in identifying
and disrupting these financial networks.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON FROM TIMOTHY
G. MASSAD
Q.1. Mr. Massad, since our last hearing on TARP oversight (3/
17/11), you quickly responded to concerns I and others raised
regarding HAMP with announced changes to the program, including
a new servicer scorecard that includes penalties for non-
compliance. What impact do you expect these changes to have?
A.1. Recently, Treasury announced two enhancements to the
Making Home Affordable (MHA) program implementation and
reporting practices, which will be implemented soon. First, we
will require servicers to establish a single point of contact
with potential HAMP-eligible borrowers who will serve as a
relationship manager to assist with the borrower's
communications with the servicer. Treasury recognizes that too
often homeowners receive conflicting information from their
servicer and cannot gain access to someone knowledgeable about
their case. This program enhancement is aimed at addressing
that problem.
Second, we will be enhancing MHA reporting by expanding our
disclosure of the results of our servicer compliance reviews.
Treasury has a robust compliance program, with compliance
agents performing reviews as often as monthly in the largest
servicers. The top priority of our compliance program has been
to ensure that homeowners are appropriately assisted under MHA
and that servicers are meeting their obligations under the
program. In doing so, we require remedial action where needed
to correct areas of non-compliance.
To further bolster these efforts, Treasury is developing
and plans to release next month more information regarding
compliance reviews for each of the ten largest MHA
participating servicers. This will provide more information
regarding each of those ten largest servicers' respective
compliance with MHA requirements, and is designed to provide
greater transparency for the public regarding servicer
performance. Under the contracts associated with MHA, Treasury
will begin withholding financial incentives for servicers whose
performance is deemed to be materially insufficient.
The number of homeowners who will benefit from these
enhancements to the program depends upon numerous variables,
including the performance of participating mortgage servicers,
the impact of any future changes to program terms and
procedures, and the overall state of the economy and the
housing market. That said, by requiring a single point of
contact, Treasury expects servicers to improve their
performance resulting in better communication with homeowners,
fewer situations where homeowners feel their servicer is not
responsive, more people in the program, fewer lost documents,
and greater homeowner understanding of their mortgage
mitigation options. Similarly, we believe that expanded
reporting on compliance will enhance servicer performance
overall. Approximately 1.4 million homeowners are currently
estimated to be eligible for the program, in addition to the
670,000 homeowners who have already received permanent
modifications.
Q.2. In a Bloomberg poll last year, 60 percent of Americans
said they believe most of the TARP money to the banks is lost.
What is the current state of TARP repayments, and what steps
will you take to ensure the administration of TARP is
transparent to Congress and the American people?
A.2. Congress originally authorized $700 billion for TARP. We
will spend no more than $475 billion. Of the $411 billion
disbursed to date, we have already received back a total of
$296 billion. Taxpayers have now recovered an amount equal to
72 percent of total TARP disbursements, and I am hopeful that
we will recover most of the outstanding amount within the next
few years, market conditions permitting. Moreover, taxpayers
have now recovered more than 100 percent ($251.6 billion) of
the $245.1 billion in total funds disbursed for TARP
investments in banks (inclusive of dividends, interest, and
other income). Every additional dollar recovered from banks
will constitute a positive return to taxpayers. Indeed,
Treasury currently estimates that bank programs within TARP
will ultimately provide a lifetime positive return of over $21
billion. CBO's latest estimate puts the overall cost of TARP at
approximately $19 billion--just a fraction of the initial
estimate of $356 billion.
To address the second part of your question, Treasury has
taken many steps that have made TARP one of the most
transparent programs in the Federal Government. Our website has
a daily TARP tracker that shows the amount of funds disbursed,
still outstanding, and returned by program. This is updated
every day. We also provide a full report on TARP funds returned
and outstanding in our monthly report to Congress (pursuant to
Section 105(a) of the Emergency Economic Stabilization Act of
2008 (EESA)), which details how TARP funds have been used, the
status of recovery of such funds by program, and information on
the estimated cost of TARP. In addition, Treasury has published
hundreds of comprehensive reports and other information about
TARP, so that the public knows how its money was invested, who
received it and on what terms, how much has been repaid, and
how much income has been earned from investments. This
information is posted on our website, FinancialStability.gov,
and includes:
LThe daily TARP tracker and the monthly 105(a)
report to Congress referenced above;
LA monthly housing report containing detailed
metrics on the housing programs;
LA quarterly report on the PPIP program that
provides detailed information on the funds, their
investments, and returns;
LA report on each transaction (such as an investment
in or repayment by an institution) within two business
days of its completion;
LA quarterly report that details all dividend and
interest payments;
LPeriodic reports on the sale of warrants, including
information on auctions as well as on how the sale
price was determined in the case of any repurchase of
warrants by a TARP recipient;
LMonthly lending and use-of-capital surveys that
contain detailed information on the lending and other
activities of banks that have received TARP funds;
LA list of all the institutions participating in
TARP programs and of all the investments Treasury has
made; and
LEvery contract and financial agency agreement it
has entered into.
Further, pursuant to EESA, Treasury prepares separate, audited
financial statements for TARP. In its first 2 years of
operations, TARP's financial statements received unqualified
(``clean'') audit opinions from the Government Accountability
Office (GAO), and separate reports on internal control over
financial reporting were unqualified and found no material
weakness-unprecedented achievements for a startup operation
with an extraordinary emergency mission. As a result of these
efforts, the Office of Financial Stability (OFS) just received
its second Certificate of Excellence in Accountability and
Reporting award from the Association of Government Accountants.
Q.3. Former Senator Ted Kaufman testified before our panel on
TARP, saying the program ``has become one of the most
thoroughly scrutinized Government programs in U.S. history.''
Has TARP oversight been helpful to Treasury in administering
the program? Will you continue to be responsive to concerns and
suggestions Congress and the oversight bodies have to improve
TARP?
A.3. OFS has a very cooperative relationship with our oversight
bodies, and their reports and recommendations have made
important contributions to the development, strength, and
transparency of TARP programs. To date, we have responded to 80
reports from GAO, the Congressional Oversight Panel, and the
Special Inspector General for TARP (SIGTARP); have participated
in more than 30 Congressional hearings on TARP; and have
adopted more than 120 of the recommendations made by the
oversight bodies. If confirmed, I will continue to be
responsive to and will work closely with this Committee and
other Committees of Congress, SIGTARP, GAO, and the Financial
Stability Oversight Board to ensure that TARP meets the highest
standards.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM TIMOTHY G.
MASSAD
Q.1. Last month, the Government Accountability Office (GAO)
issued a report entitled, ``Improvements are Needed in Internal
Control Over Financial Reporting for the Troubled Asset Relief
Program.'' The report described deficiencies that the GAO had
identified in the Office of Financial Stability's internal
control over its accounting and financial reporting processes.
What steps have you taken to remedy these deficiencies? What
plans do you have for ensuring that TARP assets are properly
valued?
A.1. Before addressing what action we have taken, it is
important to put the report in context. Treasury has taken many
steps that have made TARP one of the most transparent programs
in the Federal Government. Pursuant to the Emergency Economic
Stabilization Act of 2008 (EESA), Treasury prepares separate,
audited financial statements for TARP. In its first 2 years of
operations, TARP's financial statements received unqualified
(``clean'') audit opinions from the GAO. In addition, GAO
issued separate reports on internal control over financial
reporting that were unqualified and that found no material
weakness. These are unprecedented achievements for a startup
operation. Those clean opinions demonstrate that the Office of
Financial Stability (OFS) has accurately valued and reported on
TARP assets since the program's inception.
The deficiencies noted by GAO were related to recommended
improvements regarding internal control over financial
reporting, not the accuracy of OFS's financial statements or
the valuation of OFS assets. After its fiscal year 2010 report,
GAO sent OFS a management letter with specific recommendations
relating to improvements to specific internal control
processes. With those recommendations as a guide, OFS
anticipates that by the end of June, OFS will have corrective
actions in place that will address each of the issues
identified by GAO. GAO's overall conclusion concerning the
quality and accuracy of fiscal year 2010 OFS statements was as
follows:
OFS's financial statements for TARP, including the accompanying
notes, present fairly, in all material respects, in conformity
with U.S. generally accepted accounting principles, OFS's
assets, liabilities, and net position as of September 30, 2010,
and 2009, and its net cost, changes in net position, and
budgetary resources for fiscal years 2010 and 2009.
As a result of these efforts, OFS just received its second
Certificate of Excellence in Accountability and Reporting award
from the Association of Government Accountants.
On April 18, 2011, GAO sent OFS a management report (the
``Report'') based on GAO's fiscal year 2010 audit of OFS's
financial statements and its audit of internal control over
OFS's financial statements. The Report makes nine individual
recommendations to OFS to correct one significant deficiency
and two lesser control deficiencies. For example, the Report
recommends that OFS take corrective action to ensure that only
designated officials conduct and review period-end
reconciliations; that journal entry review properly considers
supporting documentation before entry into the general ledger;
and that asset valuations only reflect amounts outstanding at
fiscal year end.
OFS is working hard to develop a corrective action plan
(``CAP'') to address each of the nine recommendations. However,
because we received the Report only 3 weeks ago, the CAP is not
yet complete. Nonetheless, the CAP will provide the following:
it will list GAO's findings and related recommendations; it
will describe OFS's planned activities; and it will identify
target completion dates. Moreover, the OFS Chief Financial
Officer has identified and has assigned individual OFS staff
members to address each of the nine recommendations. These
staff members will develop corrective actions, which will be
compiled and reviewed by OFS's Internal Control Program Office
and senior management relative to GAO's findings. The
corrective actions, in turn, will be entered into the
Department of the Treasury tracking system and progress will be
monitored by OFS leadership, Treasury's Deputy Chief Financial
Officer staff, and the GAO. Corrective actions will not be
closed until they have been resolved successfully and there is
sufficient documentation of that fact. OFS anticipates that by
the end of June we will have corrective actions in place that
will address each of the recommendations made by GAO.
Additionally, you specifically ask about our plans to
ensure that TARP assets are valued properly. We agree that this
is an important issue, and as noted above, we are working hard
to develop a CAP to address all of GAO's recommendations,
including areas GAO identified in which controls regarding the
estimation process could be improved. In particular, during its
review of interim estimates, GAO found that the Governmentwide
discounting tool--which OFS is required to use--has limitations
in making adjustments to exclude future disbursements that are
separately needed for budget formulation purposes. Therefore,
GAO recommended that OFS only include cash-flows related to
outstanding investment balances. In addition, GAO noted several
instances where documentation was insufficient involving the
rationale for model changes and assumptions. In response to
these recommendations, OFS is strengthening its testing,
procedures, and documentation to ensure that estimates continue
to be accurate and fully supported. We will make sure that
these corrective actions taken will be described in our CAP and
supporting materials.
While OFS is committed to implementing each of the nine
recommendations set forth in the GAO's Report, we are pleased
with GAO's overall conclusion that OFS's financial statements
``present fairly, in all material respects, in conformity with
U.S. generally accepted accounting principles, OFS's assets,
liabilities, and net position as of September 30, 2010, and
2009.'' In its first 2 years of operations, TARP's financial
statements received unqualified (``clean'') audit opinions from
the GAO. In addition, GAO issued separate reports on internal
control over financial reporting that were unqualified and that
found no material weakness. As a result of these efforts, OFS
just received its second Certificate of Excellence in
Accountability and Reporting award from the Association of
Government Accountants.
------
RESPONSE TO WRITTEN QUESTIONS OF WANDA FELTON FROM CHAIRMAN
JOHNSON
Q.1. Congress has mandated that at least 20 percent of the
Export-Import Bank's annual authorizations go toward small
business transactions. How can the Export-Import Bank work to
exceed the 20 percent mandate moving forward?
A.1. One of Ex-Im Bank's mandates is to ``aid, counsel, assist,
and protect, insofar as is possible, the interests of small
business concerns in order to preserve free competitive
enterprise.'' It is my understanding that Ex-Im Bank treats
this mandate seriously--recognizing that small business is the
engine that drives job creation. Under Chairman Hochberg, the
Bank has announced its intent to achieve the following goals
with respect to small business activity:
Lincrease the cumulative value of authorized small
business transactions to at least $30 billion by fiscal
year 2015;
Lsupport a total of $44.1 billion in small business
export sales; and
Ladd 5,000 small business clients.
A variety of tools are available to increase support for
small businesses. These include:
Proactive Outreach and Training (road shows, seminars and webinars) To:
Lincrease awareness of the Bank's programs;
Lencourage small businesses to begin exporting; and
Ltrain small businesses in how to access and utilize
its programs.
Innovative Products Tailored To Meet the Specific Needs of Small
Businesses
LProvide access to competitively priced capital.
LStreamline the application process.
LReduce response time.
Leverage All Available Resources To Maximize Impact
LDesign products that will attract bank and
insurance company participation.
LLeverage other agencies such as the SBA.
LUse Board members to get the message out.
It is my understanding that, through these efforts, Ex-Im Bank
authorized nearly 3,100 small businesses transactions, which
accounted for more than 87 percent of the Bank's total
transactions in fiscal year 2010.
Q.2. The Export-Import Bank's decisions occasionally gain the
attention of interested parties that do not necessarily
interact with the Bank. What is your view on how the Export-
Import Bank can best receive input from various stakeholders
who will be impacted by the decisions it makes?
A.2. It is reasonable to expect that Ex-Im Bank's decisions may
affect many parties, including industry participants, Congress
and its constituents, and other Government agencies. The Bank's
primary mission is to promote U.S. job creation through
exports. However, the Bank is required to fulfill this mandate
while considering other policy objectives such as promoting
renewable energy. Ex-Im Bank should anticipate the impact of
its activities in the context of these broader considerations
and undertake reasonable efforts to engage interested parties
to seek their input, when appropriate. Ex-Im Bank's charter
stipulates that it must notify Congress of authorized
transactions of $100 million or more. In addition, there is a
duty to seek input from the Department of Treasury, the State
Department, and the National Security Council in connection
with transactions with perceived implications for foreign
policy, national security, and environmental policy as well as
competitive factors which are perceived as potentially harmful
to domestic interests.
Ex-Im Bank has established internal due diligence
procedures and policies to promote compliance and flag
potential issues. Moreover, the Bank's staff is highly
professional and experienced. To the extent that additional
input is needed, Board members and staff can engage external
resources. It is the Board's fiduciary responsibility to make
its best efforts to weigh the various implications of its
actions.
If confirmed, I would have an open door policy regarding
transactions pending before the Board. I would welcome and
encourage input from individuals, industry and the Congress
regarding transactions large and small.
RESPONSE TO WRITTEN QUESTION OF WANDA FELTON FROM SENATOR
SHELBY
Q.1. The duties of Board members of the U.S. Export-Import Bank
(Ex-Im Bank) are not defined or explained in Ex-Im Bank's
Charter. It is largely up to each Board member to determine how
they want to have an impact on Ex-Im Bank.
What will each of your priorities be as Board members?
Taking into consideration the Chairman's set of priorities and
those mandated by Congress, which aspects of Ex-Im Bank's
operations would you each request to focus on, and why?
A.1. If confirmed, I feel confident that my priorities will be
consistent with Ex-Im Bank's Charter, the Bank's Congressional
mandates, and by extension, the Chairman's priorities. I am
strongly committed to the Bank's mission. Certainly, the
ability to promote American competitiveness in foreign markets
to protect jobs, without burdening tax payers, is a unique and
valuable tool in less robust economic cycles. However, I
believe that Ex-Im Bank serves a critical need irrespective of
economic conditions and that utilizing every resource to
promote American competitiveness would serve the nation's long-
term strategic interests. As President Obama has observed, 95
percent of consumers are outside the United States. U.S.
businesses must position themselves to compete for these
consumers.
The Bank has also been directed by Congress to meet other
important objectives, including providing access to capital to
small business (including minority- and women-owned
enterprises); promoting renewable energy; and promoting U.S.
exports to sub-Saharan Africa. I believe that my background
would allow me to make a meaningful contribution in bolstering
American exports in Africa. Ex-Im Bank has identified nine
countries which should be the focus of attention by virtue of
the size of their markets, their projected economic growth, and
substantial need for equipment and services to build basic
infrastructure. I have prior business experience in two of the
targeted countries in sub-Saharan Africa (Nigeria and South
Africa) and believe I can be of value in this effort.
In addition, while the Bank has made reaching out to small
business a significant priority, there may be an opportunity to
address the needs of middle-market companies which have also
experienced a significant withdrawal of bank financing in the
current down economic cycle. Again, I have been active in this
arena by virtue of my prior business experience and I believe I
have an understanding of how to approach this task. I believe
that I can help raise general awareness of Ex-Im Bank through
speaking engagements and other outreach.
Finally, I am interested in specific tasks such as helping
to plan Ex-Im Bank's next annual conference. I have previously
been active in investor relations and helped plan annual
conferences and have a network that may be valuable in
attracting high quality speakers.
------
RESPONSE TO WRITTEN QUESTIONS OF WANDA FELTON FROM SENATOR
VITTER
I do not have personal knowledge of the issues you raised. If I
am confirmed, I will request to be briefed on them and will be
happy to continue to work with you on these issues of concern.
In the meantime, the Ex-Im Bank staff has provided the
following information on the questions you asked.
Q.1. Please provide a list of all loans or other financial
support over the last decade that have gone to foreign state-
owned energy companies that have been utilized in projects for
their domestic energy production or to increase refining
capacity.
A.1. See attached spreadsheet.
Q.2. Please provide a list of the top 5 U.S. companies that
have been financial beneficiaries of Ex-Im Bank financing over
the last decade in terms of total dollar support.
A.2. See attached spreadsheet.
Q.3. Of the initial request for Ex-Im Bank financing by
Petrograd based on the May 7, 2009 preliminary commitment of $2
billion how many companies have filed documentation to qualify?
A.3. There is no process of qualification for a preliminary
commitment, since the Bank acts on actual transactions, not
non-binding preliminary commitments. We are close to finalizing
a $308 million credit guarantee facility as part of the
preliminary commitment. Bank transactions are individually
evaluated on the bases of ``reasonable assurance of repayment''
and, where applicable, the Bank's environmental guidelines. In
other words, the great majority of the Bank's credit
evaluations involve foreign buyers of U.S. exports, in both the
public and private sectors.
Q.4. What metrics does Ex-Im Bank use in analyzing the return
on investment before approving loans?
A.4. The Ex-Im Bank is not a traditional bank or a for-profit
business. Bank transactions are individually evaluated on the
basis of ``reasonable assurance of repayment.'' Other return on
Ex-Im Bank transactions that is important can be measured, when
possible, in U.S. jobs. Our measurement is that, on average,
every $1 billion in U.S. exports supports approximately 7,400
U.S. jobs. The Bank's primary mission is to support jobs
through exports. Through prudent management the Bank has been
self-sustaining since fiscal year 2008, meaning that revenues
have exceeded losses and expenses. The Bank has returned more
than $3.4 billion over the past 5 years. In addition, Congress
recently rescinded $275 million of the Bank's excess funds as
part of the fiscal year 2011 Continuing Resolution, which is
additional money that benefits the U.S. taxpayers.
Q.5. What is the minimal return on investment Ex-Im Bank
requires before issuing a loan or any other form of financial
support?
A.5. The Federal Credit Reform Act of 1990 requires Ex-Im Bank
to set aside reserves for all transactions at the time of
authorization or commitment. If funds are not available at that
time, the Ex-Im Bank is legally prohibited from approving a
transaction. Since fiscal year 2008, Ex-Im Bank has been self-
sustaining where the fees charged on its transactions have paid
for both prudent loan loss reserves as well as the Bank's
administrative expenses. Again, Bank transactions are
individually evaluated on the bases of ``reasonable assurance
of repayment'' and the other return on Ex-Im Bank transactions
that is important can be measured, when possible, in U.S. jobs.
By the congressional mandate in its charter, Ex-Im Bank must
find a reasonable assurance of repayment before it can approve
a transaction. Transactions must also comply, where applicable,
with the Bank's environmental guidelines. The return on
investment is measured in U.S. jobs supported.
Q.6. Please provide a list of all Ex-Im Bank financing in which
GE was the beneficiary over the last decade.
A.6. See attached spreadsheet.
Q.7. Please provide a list of all financial arrangements that
have gone bad or not been repaid and by what companies and in
what countries over the last decade.
A.7. See attached spreadsheet.
Q.8. What is the total dollar amount of all outstanding Ex-Im
Bank financing obligations and what is the estimated annual
return on investment for each year over the next 5 years.
A.8. The Export-Import Bank has been self-sustaining since
fiscal year 2008, and expects to be self-sustaining going
forward. As a self-sustaining agency, Ex-Im Bank pays for all
annual costs from receipts or fees that it charges on the
supported transactions. The following chart shows that Bank's
self-sustaining results since fiscal year 2008.
Export-Import Bank of the United States
Self-Sustaining Results
FY 2008-FY 2010
(dollars in millions)
----------------------------------------------------------------------------------------------------------------
FY Authorized Amount Revenue Expenses Net
----------------------------------------------------------------------------------------------------------------
2008............................ $14,398.9 $122.8 $103.4 $19.4
2009............................ $21,021.1 $292.1 $118.5 $173.6
2010............................ $24,467.8 $479.4 $126.8 $352.6
----------------------------------------------------------------------------------------------------------------
As a result of its self-sustaining, the Bank in fiscal year
2009 returned to the U.S. Treasury $136 million as negative
subsidy, and in fiscal year 2011 the U.S. Congress rescinded
$275 million in unobligated balances.
During the past 5 years, the Bank has returned $3.4 billion
to the U.S. Treasury.
The Ex-Im Bank is a demand driven agency and we forecast
total exposure growth of approximately 12 percent per year. In
fiscal year 2010, Ex-Im Bank's total exposure was $75.2 billion
and by the end of fiscal year 2014, the Bank forecasts exposure
to be $125 billion. The exposure increase is driven by the
significant increase in new authorizations. Since fiscal year
2008, new authorizations have increased an average of 25
percent per year. Based on the Bank's new authorization
pipeline and other factors, it forecasts growth in new
authorization at 15 percent per year after fiscal year 2010.
The Bank will continue to be self-sustaining during this time
and forecasts revenue of $468 million compared to expenses of
$201 million during fiscal year 2012. By FY 2014, the Bank
forecasts revenue to grow to approximately $1.0 billion with
expense levels slightly higher than the fiscal year 2012
levels.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN JOHNSON FROM SEAN
MULVANEY
Q.1. The President has called for a doubling of our nation's
exports by 2015. In your view, what role should the Export-
Import Bank play in that effort?
A.1. Trade is a very important part of the American economy.
Some estimates put trade as contributing a quarter of U.S. GDP
growth over the last decade. In 2008, total trade (exports plus
imports) represented more than 30 percent of U.S. GDP. In 1947,
when the GATT was launched, it represented only 7.5 percent of
U.S. GDP. Exports represent 12.5 percent of U.S. GDP. Over the
last 13 years, total U.S. exports have increased 6.8 percent
per year (1995-2008).
The President has called for a doubling of our nation's
exports by 2015 as part of his National Export Initiative
(NEI). It is an ambitious goal that will require wide ranging
efforts across the public and private sector. The Export-Import
Bank of the United States plays an important role contributing
to overall U.S. Government efforts. First, the Bank enables
U.S. companies--large and small--to turn export opportunities
into real sales that help maintain and create U.S. jobs and
contribute to a stronger national economy. In fiscal year 2010
the Bank supported over $34 billion of U.S. exports with
authorizations of direct loans, guarantees, and export
insurance of nearly $25 billion.
Second, the Bank influences U.S. Governmentwide public
awareness efforts about export opportunities. The Bank has more
than 60 city/State partners in 40 States with a mission of
expansion, promotion, and creation of jobs in a given region by
helping to make available export financing and entrepreneurial
services. The Bank cooperates with other Federal organizations
such as OPIC, TDA, the Commerce Department, and USTR in
providing leadership to this public awareness effort.
And third, the Bank is a member of the Trade Promotion
Coordinating Committee, the U.S. Government inter-agency
process that deliberates on U.S. trade policy and supports
executive branch leadership on trade issues in conjunction with
the Congress. Tools of the Bank to support U.S. exports under
the National Export Initiative will need to be complemented by
other public and private sector efforts such as bilateral trade
agreements to remove barriers to U.S. exports (FTAs with
Panama, Colombia, and South Korea) and regional trade
liberalization efforts as the Trans Pacific Partnership.
Private sector efforts to innovate and invest will be
critically important as well to meeting America's export goals.
Q.2. Information technology is an important tool in ensuring
that the Export-Import Bank is operated effectively and
transparently. According to the Export-Import Bank's 2010
annual report, the Bank has taken several steps to improve its
website and outreach efforts for customers and the public. How
do you propose to work to further these initiatives?
A.2. Prior to this position, I served as the Assistant
Administrator for Management, a Presidentially appointed and
Senate-confirmed position, at the U.S. Agency for International
Development. In this position, I supervised the Agency's Chief
Information Officer (CIO) and secured Agency approval of an IT
strategic plan. Through this experience, I developed an
understanding of key enterprise architecture and IT change
management issues as organizations undergo substantial
renovation or modernization of their IT infrastructure.
If confirmed, I would make every effort to bring this
experience to the Bank's management. I would work with the
Chairman and other Board members in oversight efforts that the
Board might undertake as the Bank aims to implement IT
improvements across its operations, particularly outreach
efforts to customers and the general public.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM SEAN
MULVANEY
Q.1. The duties of Board members of the U.S. Export-Import Bank
(Ex-Im Bank) are not defined or explained in Ex-Im Bank's
Charter. It is largely up to each Board member to determine how
they want to have an impact on Ex-Im Bank.
What will each of your priorities be as Board members?
A.1. If confirmed, my primary responsibility and priority will
be to exercise the fiduciary duty and Board oversight
responsibility as requested by the President of the United
States and expected under the law. The primary elements of this
will be to assess the largest transactions considered by the
Bank. In my nomination statement, I identified two priorities,
including supporting the Bank's strategic plan developed in
2010 and improving Bank metrics that give stakeholders a sense
of its performance over time.
The Bank completed a strategic review in July, 2010. The
plan identified ways to expand awareness of Bank services
through increased outreach and partnerships, and ways to
improve turn-around time of transactions. Four key programmatic
priorities were developed, including increase the number of
small- and medium-sized businesses using Bank services, support
for environmentally beneficial exports with a particular focus
on renewable energy, target business development with high
potential for U.S. export growth, and build expertise and
product offering in industries with high potential for export
growth.
Finally, if confirmed, I would like to help the Bank
leadership and management explore opportunities to fill trade
finance gaps facing U.S. service exporters. Between 1992 and
2009, U.S. services exports increased by 183 percent, reaching
$502 billion in 2009 according to the Commerce Department. The
services industry is the largest component of the U.S. economy,
employing 8 of 10 Americans. U.S. service exports constitute 30
percent total value of all U.S. exports. The Bank currently
supports about $2.5 billion in services exports, a modest
percentage of its annual total program authorizations. The
services portfolio of the Bank may have the potential to grow
thereby enhancing U.S. service exports and job creation.
Q.2. Taking into consideration the Chairman's set of priorities
and those mandated by Congress, which aspects of Ex-Im's
operations would you each request to focus on, and why?
A.2. As part of its charter and authorization approved by
Congress and the President, the Bank has a number of
priorities. Board Members will undertake priorities and
initiatives from time to time that are prescribed by the Bank's
President that further the Bank's mission. These could include
business development (international or domestic), priorities
identified by Congress, and special projects. Priorities from
the latest authorization agreed to by the President and the
Congress include small business, women and minority-owned
businesses, environmentally beneficial technologies and
renewable energy, and Sub-Saharan Africa. Board members are
expected to collaborate with the Chairman and select one of
these areas and devote considerable effort in promoting and
furthering the Bank's activities therein.
Working in partnership with the Chairman's office, the Bank
directors are expected to select one or more target
international markets for outreach and engagement. Ex-Im Bank
has identified nine focus countries, including Brazil,
Colombia, India, Indonesia, Mexico, Nigeria, South Africa,
Turkey, and Vietnam. In addition, Board members are expected to
select one or more key exporting sectors and conduct outreach
to exporters in that sector domestically.
At this point, I have had no conversations with Chairman
Hochberg so it is premature for me to firmly identify areas of
priority since I need to work with him and the other Board
members. I also would like to work with Bank staff to
understand where there are needs to be filled. However, if
confirmed, I believe that some of my skills and experiences
could support Bank efforts to meet congressional directives
relating to small business or perhaps Sub-Saharan Africa.
Country or regional areas where I might add value to the Bank's
mission include Turkey, South Africa, or Latin America.
Potential sector areas where I might support the bank would
include information and communication technology (that often
include a services component) as well as medical technology. My
earlier U.S. trade and development policy positions as well as
private sector experience in the health care industry could be
leveraged across these areas of Bank activity. For example, a
number of countries in Latin America are partnered with the
United States in either bilateral or regional trade agreements.
Moreover, a number of these countries are either lower or
middle income countries with significant opportunities for
infrastructure development.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR VITTER FROM SEAN
MULVANEY
I do not have personal knowledge of the issues you raised. If I
am confirmed, I will request to be briefed on them and will be
happy to continue to work with you on these issues of concern.
In the meantime, the Ex-Im Bank staff has provided the
following information on the questions you asked.
Q.1. Please provide a list of all loans or other financial
support over the last decade that have gone to foreign state-
owned energy companies that have been utilized in projects for
their domestic energy production or to increase refining
capacity.
A.1. See attached spreadsheet.
Q.2. Please provide a list of the top 5 U.S. companies that
have been financial beneficiaries of Ex-Im Bank financing over
the last decade in terms of total dollar support.
A.2. See attached spreadsheet.
Q.3. Of the initial request for Ex-Im Bank financing by
Petrobras based on the May 7, 2009 preliminary commitment of $2
billion how many companies have filed documentation to qualify?
A.3. As senior Bank officials explained to your staff at your
office on May 6th, there is no process of qualification for a
preliminary commitment, since the Bank acts on actual
transactions, not non-binding preliminary commitments. We are
close to finalizing a $308 million credit guarantee facility as
part of the preliminary commitment. Bank transactions are
individually evaluated on the bases of ``reasonable assurance
of repayment'' and, where applicable, the Bank's environmental
guidelines. In other words, the great majority of our credit
evaluations involve foreign buyers of U.S. exports, in both the
public and private sectors.
Q.4. What metrics does Ex-Im Bank use in analyzing the return
on investment before approving loans?
A.4. Ex-Im Bank is not a traditional bank or a for-profit
business. Bank transactions are individually evaluated on the
bases of ``reasonable assurance of repayment.'' Other return on
Ex-Im Bank transactions that is important can be measured, when
possible, in U.S. jobs. Our measurement is that, on average,
every $1 billion in U.S. exports supports approximately 7,400
U.S. jobs. The Bank's primary mission is to support jobs
through exports.
Through prudent management the Bank has been self-
sustaining since fiscal year 2008, meaning that revenues have
exceeded losses and expenses. The Bank has returned more than
$3.4 billion over the past 5 years. In addition, Congress
recently rescinded $275 million of the Bank's excess funds as
part of the fiscal year 2011 Continuing Resolution, which is
additional money that benefits the U.S. taxpayers.
Q.5. What is the minimal return on investment Ex-Im requires
before issuing a loan or any other form of financial support?
A.5. The Federal Credit Reform Act of 1990 requires Ex-Im Bank
to set aside reserves for all transactions at the time of
authorization or commitment. If funds are not available at that
time, the Ex-Im Bank is legally prohibited from approving a
transaction. Since fiscal year 2008, Ex-Im Bank has been self-
sustaining where the fees charged on our transactions have paid
for both prudent loan loss reserves as well as the Bank's
Administrative expenses. Again, Bank transactions are
individually evaluated on the bases of ``reasonable assurance
of repayment'' and the other return on Ex-Im Bank transactions
that is important can be measured, when possible, in U.S. jobs.
By the congressional mandate in our charter, Ex-Im Bank must
find a reasonable assurance of repayment before it can approve
a transaction. Transactions must also comply, where applicable,
with our environmental guidelines. The return on investment is
measured in U.S. jobs supported.
Q.6. Please provide a list of all Ex-Im financing in which GE
was the beneficiary over the last decade.
A.6. See attached spreadsheet.
Q.7. Please provide a list of all financial arrangements that
have gone bad or not been repaid and by what companies and in
what countries over the last decade.
A.7. See attached spreadsheet.
Q.8. What is the total dollar amount of all outstanding Ex-Im
financing obligations and what is the estimated annual return
on investment for each year over the next 5 years.
A.8. The Export-Import Bank has been self-sustaining since
fiscal year 2008 and expects to be self-sustaining going
forward. As a self-sustaining agency, Ex-Im Bank pays for all
annual costs from receipts or fees that we charge on the
supported transactions. The following chart shows that Bank's
self-sustaining results since fiscal year 2008.
Export-Import Bank of the United States Self-Sustaining Results
FY 2008-FY 2010
(dollars in millions)
----------------------------------------------------------------------------------------------------------------
FY Authorized Amount Revenue Expenses Net
----------------------------------------------------------------------------------------------------------------
2008............................ $14,398.9 $122.8 $103.4 $19.4
2009............................ $21,021.1 $292.1 $118.5 $173.6
2010............................ $24,467.8 $479.4 $126.8 $352.6
----------------------------------------------------------------------------------------------------------------
As a result of our self-sustaining, The Bank in fiscal year
2009, Bank returned to the U.S. Treasury $136 million as
negative subsidy and in fiscal year 2011, the U.S. Congress
rescinded $275 million in unobligated balances. During the past
5 years, the Bank has returned $3.4 billion to the U.S.
Treasury.
The Ex-Im Bank is a demand driven agency and we forecast
total exposure growth of approximately 12 percent per year. In
fiscal year 2010, Ex-Im Bank's total exposure was $75.2 billion
and by the end of fiscal year 2014, the Bank forecasts exposure
to be $125 billion. The exposure increase is driven by the
significant increase in new authorizations. Since fiscal year
2008, new authorizations have increased an average of 25
percent per year. Based on the Bank's new authorization
pipeline and other factors, we forecast growth in new
authorization at 15 percent per year after fiscal year 2010.
The Bank will continue to be self-sustaining during this time
and forecasts revenue of $468 million compared to expenses of
$201 million during fiscal year 2012. By fiscal year 2014, the
Bank forecasts revenue to grow to approximately $1.0 billion
with expense levels slightly higher than the fiscal year 2012
levels.