Mary John Miller, Nominee for Assistant Secretary for Financial Markets
Opening Statement As Prepared for Delivery
United States Senate Committee on Finance

Thank you, Chairman Baucus, Senator Grassley, and members of the Senate Finance Committee for giving me the opportunity to be here today.  I am honored that President Obama and Secretary Geithner have asked me to serve in the Treasury Department at this critical time for our economy and our country.

I recognize that our time today is limited, so I would like to briefly recognize the members of my immediate family that are with me today: my father James John, a professor of history at Cornell University for over 40 years, my husband of nearly 30 years, James Dabney Miller, and my oldest son, Thomas Marshall Miller, a graduate student in classics at Princeton.  My younger son, James John Miller, could not be here today as he is performing in the production of Romeo and Juliet at Cornell this evening.

Thirty-two years ago I arrived in Washington, a Cornell University graduate with a degree in Government. I worked as a Legislative Aide in the House of Representatives before I went to graduate school at the University of North Carolina at Chapel Hill.  I then spent four years as a research associate in public finance at The Urban Institute here in Washington, where I studied and wrote about the fiscal and capital needs of state and local governments.  I'm proud that for the past five years I have served as a Trustee of The Urban Institute.

In 1983 I took a job in Baltimore, Maryland, as a credit analyst in the municipal bond department of T. Rowe Price Associates, an investment management company.  I have been at T. Rowe Price for over 26 years, and today I am the director of global fixed income investments for the firm. In preparing this opening statement for the Committee I recalled that when I started at T. Rowe Price, our country was recovering from the longest recession since the Great Depression.  The unemployment rate stood at 10.2%, precisely where it stands today.  Interest rates were much higher than today's very low levels.  The Federal Funds rate then was above 8.5%, and the ten-year Treasury bond yield was above 10%.

Looking back at 1983, many people were pessimistic about the future of our economy and our country.  But, as it turned out, we were on the brink of two decades of strong growth.  Certainly there were recessions during these decades, but in general the economy and financial markets performed better than expected.  We face both similar and different challenges today to restore sound growth and financial markets.

My work over the past 26 years has been primarily in the bond market, including the Treasury bond market, although as a member of my firm's Management Committee I do share responsibility for our entire range of investments.  I have participated in the evolution of financial markets and products, as well as working through periods of severe market turmoil, including:

• Saddam Hussein's invasion of Kuwait in August 1990;
• The derivatives and currency problems ignited by the collapse of Long Term Capital Management in1998;
• The frenzy of the dot.com bubble in the late 1990s;
• The tragedy of September 11; and
• Finally, the unprecedented financial crisis of the past two years.

The opportunity before me today is to help with the recovery and restoration of confidence and capital in our financial markets. We need to ensure that our financial institutions are properly regulated, well capitalized, and built to withstand downturns in the economy without creating undue stress and illiquidity.  It is my hope that the recovery we have seen this year in financial markets can lay the foundation for broader economic recovery as we adopt these reforms.                             

If this Committee, and the full Senate, confirms President Obama's nomination of me to be Assistant Secretary of the Treasury for Financial Markets, then I will welcome the opportunity to serve in the Treasury.  I promise the Committee that, if confirmed, I will work hard and do my best to carry out my oath of office. Thank you.

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Charles Collyns, Nominee for Assistant Secretary for International Finance
Opening Statement As Prepared for Delivery
United States Senate Committee of Finance

Thank you, Chairman Baucus, Senator Grassley and distinguished members of this committee for the opportunity to appear before you today as nominee to be Assistant Secretary for International Finance at the Treasury Department. I would like to thank your staff for meeting with me last week to discuss some of the major international financial issues facing the United States at this most challenging time for the global economy.

I am greatly honored by President Obama's nomination for this position, and deeply grateful to Secretary Geithner for recommending me to the President.

I am also deeply grateful to my family for their strong support. Most importantly, my wife Myriam and my two daughters Carmen and Isabel have provided encouragement and love as I have sought to apply myself to public service. I am very proud of their accomplishments. Myriam came to this country from Bolivia to pursue her graduate studies and made a successful career as a translator and editor as well as nurturing her family. Carmen is now a senior at Harvard University and Isabel is a sophomore at the Wharton School of the University of Pennsylvania. I would also like to recognize my parents, who came to this country from England many years ago enticed by the opportunities and ideals that it offered. They went as far as to name each of their six sons after great American leaders-- I myself proudly carry the middle name of "Adlai" after an earlier inspirational leader from Illinois, Adlai Stevenson.

Mr. Chairman and Ranking Member Grassley, I welcome this opportunity, if confirmed, to serve our country and to join such a distinguished and talented team at the Treasury Department. I have worked over 25 years in the International Monetary Fund after completing my doctorate at Oxford University, and have gained long experience in dealing with the full range of international economic issues. During the 1980s I was involved in the IMF's efforts to deal with the Latin American debt crisis. During the 1990s I worked mainly with Asian countries grappling with their own decade of crisis, and then in the early part of this decade returned to Latin America at another difficult time for the continent. Most recently I have led the team preparing the IMF's World Economic Outlook report, and I have thus been deeply involved with the Fund's work to understand and respond to the recent global crisis.

If confirmed by the Senate, I would be greatly honored to serve my country at this very challenging time. The swift and strong response by policy makers in the United States, working closely with counterparts in major partner countries around the world, has helped stabilize the global economy following the financial crisis, and restarted growth.

 A recovery is now underway but it is essential to build on this progress to ensure future sustained, strong and balanced growth and robust jobs creation. Achieving this end will require determined, well-directed and concerted policymaking by the United States and its main partners. The Treasury Department will be called on to play a key part in leading these global efforts, and I would strive to contribute to ensuring success for this important task.

If confirmed, I promise to apply myself fully and to the best of my ability to justify your trust and confidence. Thank you for allowing me to appear before you today, and I would be pleased to answer any questions.

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Lael Brainard, Nominee for Under Secretary for International Affairs
Opening Statement As Prepared for Delivery
U.S. Senate Committee on Finance

Chairman Baucus, Ranking Member Grassley, and distinguished members of the Committee, I am honored to appear before this committee today as you consider my nomination to be Treasury Under Secretary for International Affairs.  I want to thank my family for their support:  my husband, Kurt Campbell, my parents, Al and Joanne Brainard and my daughters, Caelan and Ciara, who are here today, and my youngest daughter, Coco. 

I am honored that President Obama has nominated me for this position and, if confirmed, will be privileged to work with Secretary Geithner and the distinguished civil servants in International Affairs at the Treasury. If confirmed, I look forward to working closely with this Committee and your colleagues in Congress to advance President Obama's agenda of strengthening U.S. leadership in the global economy and restarting the great American engine of growth.

My preparation for these issues dates back to my childhood years living behind the Iron Curtain observing the power and promise of American ideals, including the power of individual initiative, dynamic markets and growing economic ties, to lift up lives and underwrite peace and security around the world.  Like many children, I was frequently told to mind my manners, but in our family it was followed by the admonition "don't forget, you are representing America."

For 25 years, my work has focused on strengthening America's leadership in the global economy.  I worked at McKinsey with US car manufacturers struggling to maintain share against Asian competitors and US financial institution clients competing in increasingly complex global markets.  As an economics professor at MIT, my students and I examined how the bracing winds of global competition shape the opportunities of working Americans.  Most recently, I had a unique opportunity to build a community of scholars at Brookings –the fifth new program in its 90 year history-- to undertake innovative work on American competitiveness, the rise of major economies such as China and India, and systemic challenges such as climate change. Throughout, I have maintained a deep interest in emerging solutions to global poverty, starting over twenty years ago working with rural micro entrepreneurs in Senegal. 

If confirmed, this would be my third time in public service – following a proud tradition on both sides of my family, including my father's service in the Army and as a diplomat during the Cold War. I would be proud to once again represent this great nation as we forge a durable and balanced recovery.  I entered public service as a White House Fellow on the eve of Mexico's financial crisis, and stayed on to serve President Clinton as Deputy Assistant to the President for International Economics through the 1997-9 financial crisis, when the groundwork for the G20 was first laid.  At that time, I also had the opportunity to work with this Committee and others in Congress to shape China's entry into the WTO and to expand trade ties with Africa through AGOA.  I also served as the U.S. Sherpa to the G8.  Two decades ago, when we celebrated the fall of the Berlin Wall, I spent an eventful year at the Council of Economic Advisers, working on the design of Poland's successful transition plan, as well as the Structural Impediments Initiative with Japan. 

I look forward to making a contribution as our nation navigates the most complicated economic challenges we have faced in a generation. The global economy is emerging from the most severe and synchronized crisis we have seen--in large part thanks to unprecedented global cooperation led by the United States.

More than any other nation, the United States is at the heart of the global economy with deep and broad ties to every region of the globe. The world needs America if global prosperity and security are to prevail.  And America needs the rest of the world to grow if we are to prosper again here at home. Most immediately, this requires a commitment from major economies to maintain necessary actions to get people back to work and banks back in the business of lending.  But we must also put in place measures to ensure we do not confront a crisis of this severity ever again. 

If we are to achieve more sustainable and balanced growth, we must move from global growth based on U.S. demand to growth based on global demand.  If our financial system is to be put on sounder footing, regulators in all major financial centers will need to work together to promote a race to the top. If we are to spread opportunity to the poorest communities, we must redouble our efforts to overcome food, fuel, and financial insecurity.  If America is to reach our goals of creating jobs and increasing incomes, our businesses, factories and farms must be able to sell to consumers in the dynamic economies of Asia. Just this past week, President Obama announced his intention to engage with the Trans Pacific partnership countries "with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement."  And he affirmed the importance of seeking a WTO agreement "that will open up markets and increase exports around the world."  

These are the challenges of our time.  If confirmed, I look forward to working on them closely with the members of this Committee and Congress.

Thank you, Mr. Chairman, Senator Grassley. I would be pleased to answer any questions.

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U.S. International Reserve Position

U.S. International Reserve Position

November 7, 2009
tg-358

Statement by Secretary Geithner at the G-20 Meeting of Finance Ministers and Central Bank Governors

I want to start with the state of the global economic recovery.

Yesterday's jobs numbers in the United States reinforced that this is still a very tough economic environment. The pace of job losses has slowed sharply, but unemployment is very high and still rising.  Millions of Americans are out of work, or working less than they would like.  The crisis caused enormous damage, and that damage has left consumers and businesses still cautious and tentative about the future.

We need a period of sustained economic growth to bring the unemployment rate down.

And that process of growth is now beginning.  The U.S. economy and the global economy are growing again.  Businesses are starting to invest.  And consumers are spending.  Business and consumer confidence has improved.  Global trade is expanding at an encouraging pace.

As the crisis has receded, the value of savings around the world has risen. The cost of credit has fallen. Confidence in the stability of the financial system has been reestablished. These improvements have been more rapid and more broad-based than many anticipated.

At the start of this year, the world was confronting the very real risk of a great depression, global deflation, and financial collapse.  Now, the forceful policy response of governments and central banks around the world has put out most of the financial fire and restarted growth in private activity.

Banks in the United States are repaying the government's investments with interest.  We have wound down the broad-based guarantees and large scale capital programs for banks that were essential to break the financial panic of last fall.

The consensus of private forecasts now anticipates global growth in the range of three percent next year.

With growth now underway and the financial fires winding down, the policy challenge is changing.
The first stage was the emergency rescue, providing tax cuts to boost personal and business income and public investments to help offset the fall in private demand.

The next stage is about catalyzing private demand and business investment.  This will require continued policy support.

This is why the recovery programs put in place in the United States and around the world were designed to provide support for growth over a two year period, and this is why governments around the world are committed to continue to reinforce the recovery now underway, before we shift to restraint.

That is why President Obama signed legislation on Friday expanding and extending tax cuts for businesses and supporting workers who are struggling to find jobs.

That is why we are continuing to provide targeted support for small businesses and small banks to make sure we repair and open up the financial pipes that provide credit.

That is why we will continue to support the stabilization of the housing market.

That is why we are working to build consensus with our major trading partners on ways to open global markets.

That is why we are providing very substantial incentives for basic science, research and development, for job training and education, for new energy technologies.

And that is why we are trying to reduce the costs and burdens our existing health care system imposes on American families and businesses.

Government policy has to provide a bridge to growth led by the private sector.  We're now in the middle span of that bridge.

As growth strengthens and financial headwinds diminish, we will be able to begin the essential process of restoring balance to public finances and fully removing the broad backstop still in place for credit markets.

This will require a delicate balance.

If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater.

Our citizens and businesses and investors around the world must be confident that we will find the political will to restore fiscal responsibility and balance when recovery is in place.  If that confidence ebbs,  the recovery will be weaker, and we will have less flexibility to provide the reinforcement that the economy and the financial system may still require in the near term.

We need to reinforce growth to create jobs and get businesses investing again to underpin the recovery in the housing market and to repair the credit markets.  It is too early to start to lean against recovery.  The classic mistake in past crises was to put on the brakes too quickly.  But we all recognize that confidence in our ability to reduce future deficits and to exit from the extraordinary monetary policy and financial emergency measures is very important to confidence in the sustainability of recovery.

Today's G-20 statement reflects a very broad consensus that growth remains the dominant policy imperative across our economies.  And we are bringing the same commitment to cooperation and coordination we demonstrated in the crisis to the agenda of reforms we outlined in London and Pittsburgh.

These reforms are directed at the critical priorities of laying the foundation for stronger, more balanced and more sustainable growth, at financial reforms that will create a more stable system with stronger rules to constrain risk-taking and at building stronger international financial institutions.

These are all global challenges.  They are important to our national economic interest, but they cannot be addressed by the United States alone.

We made important progress on all these fronts today and look forward to advancing these reforms in the months ahead.

Let me conclude by thanking Prime Minister Brown, Chancellor Darling and his colleagues for bringing us to this beautiful country and for their leadership of the G-20 this year.  That role now moves to Canada and Korea.

Thank you.

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REPORTS

• Communiqué

Treasury Designates Bank Mellat Subsidiary and
Chairman Under Proliferation Authority

WASHINGTON – The U.S. Department of the Treasury today designated First East Export Bank (FEEB), a Bank Mellat subsidiary located in Malaysia, under Executive Order (E.O.) 13382 for being owned or controlled by Bank Mellat. Treasury also designated the Chairman of Bank Mellat, Ali Divandari, for acting on behalf of Bank Mellat. E.O. 13382 freezes the assets of designated proliferators of weapons of mass destruction and their supporters and prohibits U.S. persons from engaging in any transactions with them.

Iran's state-owned Bank Mellat has facilitated the movement of millions of dollars for Iran's nuclear program and was designated under E.O. 13382 in October 2007 for its role in providing financial services to the Atomic Energy Organization of Iran (AEOI) and Novin Energy Company (Novin).  Specifically, Bank Mellat has serviced and maintained AEOI bank accounts, mainly through Novin, which acted as AEOI's financial conduit.  On October 12, 2009, the United Kingdom also took financial action against Bank Mellat for its role in Iran's nuclear program. As Chairman of Bank Mellat, Ali Divandari plays a significant role in Bank Mellat's activities and decision-making processes.

"Today's action will help to protect the integrity of the U.S. financial system and ensure that banks and regulators around the world are aware that First East Export Bank is in fact an arm of Bank Mellat, an institution that has supported Iran's nuclear program in violation of UN Security Council resolutions," said Under Secretary for Terrorism and Financial Intelligence Stuart Levey.

AEOI and Novin were previously sanctioned by the U.S. government under E.O. 13382 and by the UN Security Council under Resolutions 1737 and 1747, respectively.  AEOI, which reports directly to the Iranian president, is the main Iranian government organization for research and development activities in the field of nuclear technology. Novin, an AEOI front company, has transferred millions of dollars on behalf of AEOI to entities associated with Iran's nuclear program.

Bank Mellat received a license from Malaysian financial authorities to establish FEEB in Labuan, Malaysia in late 2008, and the Malaysian government publicly listed FEEB as an official offshore bank in April 2009.  FEEB is the first overseas subsidiary of an Iranian bank to open for business since the Financial Action Task Force (FATF), the world's premier standard-setting body for combating money laundering and terrorist financing, called in February 2009 for all jurisdictions to impose countermeasures to protect against the risks posed by Iran to the international financial system.  FATF also advised jurisdictions at that time to take these risks into account when considering requests by Iranian financial institutions to open branches and subsidiaries.

Today's actions are consistent with United Nations Security Council Resolutions on Iran, including UNSCR 1803, which calls on Member States to exercise vigilance over activities between their financial institutions and all banks domiciled in Iran, and their branches and subsidiaries abroad, in order to avoid such activities contributing to the proliferation of sensitive nuclear activities, or to the development of nuclear weapon delivery systems.

Identifying Information

Entity:             First East Export Bank, P.L.C. Unit Level 10 (B1), Main Office Tower, Financial Park Labuan, Jalan Merdeka, 87000 WP Labuan, Malaysia; Business Registration Number LL06889 [NPWMD]

Individual:      Ali Divandari, c/o Bank Mellat, Tehran, Iran; DOB: 1 July 1967; POB Ghoochan, Khorasan, Iran; Nationality: Iranian [NPWMD]

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Written Testimony of Assistant Secretary for
Terrorist Financing David S. Cohen
Senate Committee on Homeland Security and Governmental Affairs
“Business Formation and Financial Crime:
Finding a Legislative Solution”

I.                    Introduction

Chairman Lieberman, Ranking Member Collins, distinguished members of the Committee, thank you for inviting me to testify today.   I am pleased to have the opportunity to present the Department of the Treasury's views on the global challenge of enhancing access to beneficial ownership information in order to combat the abuse of legal entities by those engaging in financial crime. 

I would like to begin by thanking Senator Levin for his leadership on this important and pressing topic, and for raising awareness in the U.S. and globally of an issue that is of paramount importance in our efforts to combat financial crime.  I would also like to extend my appreciation to colleagues across the government and private sector, here at home and internationally, who have worked with the Department of the Treasury and invested a tremendous amount of time and energy in attempting to address the challenges of making beneficial ownership information more readily available. 

My colleagues across the Department of the Treasury, including from the Office of Terrorism and Financial Intelligence, Domestic Finance, International Affairs and Tax Policy, have all contributed to Treasury's thinking on how best to require the disclosure of beneficial ownership information in a way that effectively combats the criminal misuse of legal entities while, at the same time, ensuring that we do not unduly complicate the company formation process, which plays such an important role in our nation's economic prosperity.  I look forward today to outlining Treasury's approach to this critically important and difficult challenge, explaining the basis for our current thinking, and offering the Administration's views on S. 569, the "Incorporation Transparency and Law Enforcement Assistance Act". 

At the outset, it is important to recognize a number of key considerations that have informed our thinking:

First, the ability of criminal and other illicit actors to form corporations in the United States without disclosing their true identity presents a serious vulnerability.  It creates a pathway for criminal actors to gain access to the international financial system, and creates significant obstacles in our ability to investigate financial crime.  As I will explain, there is ample evidence that criminal organizations and others who threaten our national security exploit this vulnerability. 

Second, information on the true beneficial ownership of a legal entity – at the time a business is formed, as ownership changes during its lifespan, and when it seeks to open accounts at financial institutions – is critical to stopping the exploitation of legal entities by criminal actors.

Third, the challenge of enhancing access to the beneficial ownership information of legal entities is complex and requires a global solution.  While we work within the Administration and with Congress to address this issue domestically, Treasury is also working with our foreign counterparts to improve global understanding and capability to address this challenge worldwide.

Fourth, in seeking to make beneficial ownership information available in ways that effectively address the misuse of legal entities, we are keenly aware of the need to preserve an efficient and straightforward entity formation process in the United States, and not to create unnecessary impediments to accessing the financial system for the vast majority of new and existing businesses that pose no threat whatsoever.

Finally, because we are starting from a situation in which beneficial ownership information is not required at the time of company formation, we believe that even incremental progress in this area is likely to yield substantial positive results. 

These considerations inform and shape our views on S. 569.  This bill addresses a key issue – namely, helping ensure that information on the beneficial ownership of legal entities created in the United States is readily available to law enforcement for investigative purposes.  As I will explain in detail, the Administration believes that S. 569 is an important step in the right direction on this issue, and provides a useful platform on which to construct an effective legislative solution, provided that it is amended and modified in the manner that I describe below.  We are fully committed to working with the Congress and our interagency partners to craft legislative text to amend the Bill in order to address our concerns. 

My testimony will focus on the following three areas:

(i)                  The ways in which lax company formation laws are abused by criminals to perpetrate crime while hiding behind the corporate form;

(ii)                Treasury's comprehensive approach to enhance access to information on the beneficial ownership of legal entities; and

(iii)               Our views on S. 569, in particular the amendments and modifications that we think are necessary to craft legislation that will effectively and efficiently enhance the availability of beneficial ownership information of legal entities created in the United States.

II.            Challenges Posed by the Misuse of Legal Entities

In order to develop an effective way forward in combating the criminal abuse of legal entities through enhanced access to beneficial ownership information, it is essential at the outset to recognize and balance the substantial threat presented by the abuse of legal entities to facilitate financial crime, and the countervailing importance of maintaining efficient processes in creating legal entities and in promoting access to financial services.

The substantial threat presented by abuse of legal entities to facilitate financial crime

Criminal organizations abuse legal entities to obscure the beneficial ownership and control of businesses they operate.  This allows criminal actors to gain access to the international financial system – because the true risk associated with providing accounts to these entities is masked – and thus facilitates financial crime.  Years of research and law enforcement investigations have conclusively demonstrated the link between the abuse of legal entities, on the one hand, and, on the other hand, WMD proliferation, terrorist financing, sanctions evasion, tax evasion, corruption and money laundering for virtually all forms of serious criminal activity.^[1] 

As these reports and investigations indicate, this abuse is particularly prevalent with respect to legal entities created in the United States.  We know how easy it is for illicit actors around the world to create a legal entity in the United States.  And we know that these actors then use the presumed legitimacy of a US-based entity to gain access to the international financial system and disguise the source of their funds or the purpose of their financial transactions.  We also know that some disreputable company formation agents in the United States have facilitated this activity by promoting the ease of setting up a legal entity – in some cases it can be done in a matter of minutes – together with techniques that legally enable individuals behind the legal entity to maintain anonymity even when the legal entity becomes the subject of a criminal investigation. 

These practices have been highlighted in a number of public reports, such as the 2006 GAO Report on Company Formation, the 2006 Financial Crimes Enforcement Network (FinCEN) Guidance on Potential Money Laundering Risk Related to Shell Companies, and the 2007 National Money Laundering Strategy.  The two prior hearings on beneficial ownership held by this Committee and the Permanent Subcommittee on Investigations also provided detailed testimony from the Department of the Treasury, the Department of Justice, the Department of Homeland Security, the New York District Attorney and others on the extent of this problem. 

These reports, and the testimony previously presented to this Committee and its subcommittee, are replete with examples of how criminals and other illicit actors abuse the lax company formation processes in the United States to facilitate their endeavors.  These reports and prior testimony from the Treasury Department and other agencies describe in great detail how our existing company formation laws undermine efforts to promote transparency across the international financial system and impede investigations of significant cases of money laundering, terrorist financing, and other financial crime. 

It is important to note, however, that the United States is not alone in grappling with this question.  Jurisdictions all over the world continue to struggle to find ways of making meaningful beneficial ownership information about legal entities available to relevant authorities.  The Financial Action Task Force (FATF), the international policy and standard-setting body for combating financial crime, has issued an international standard stating that "[c]ountries should ensure that there is adequate, accurate, and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities."  Out of over 125 jurisdictions assessed against this standard by the FATF, FATF-Style Regional Bodies, the International Monetary Fund or the World Bank, the overwhelming majority have failed to substantially comply.  In the case of legal entities created in the United States, the FATF has stated that "there are no measures in place to ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities."  Bringing our company formation laws in line with FATF's standards is an important objective, especially when, as here, it reinforces a clearly articulated law enforcement priority.

The importance of maintaining efficient processes in creating legal entities and in promoting access to financial services

In working to enhance access to beneficial ownership information, Treasury is also mindful of the very significant interests in preserving efficient processes in creating legal entities and in promoting access to financial services, both of which are essential to a well-functioning economy and the efficient operation of the domestic and international financial system.  Foreign and domestic persons with legitimate economic interests rely upon the ability to create legal entities quickly and easily for a variety of entirely beneficial and lawful reasons.  In addition, ensuring the ability of legal entities to open bank accounts and otherwise access financial services facilitates entrepreneurship, economic growth and development.  In considering ways to enhance the availability of beneficial ownership information of legal entities, we must be careful not to infringe on these entirely legitimate, and fundamentally important, interests. 

III.           Treasury's Comprehensive Approach to Enhance Access to Beneficial Ownership Information of Legal Entities

The Department of the Treasury has been focused for several years on the question of how best to enhance access to beneficial ownership information to combat the abuse of legal entities, and we are currently pursuing a three-pronged approach to advance these interests.  Our approach generally balances the need to enhance access to beneficial ownership information of legal entities with the need to maintain efficient processes in creating legal entities and in promoting access to financial services.  Our comprehensive approach includes the following elements:

• Enhance the availability of beneficial ownership information of legal entities created in the United States:  Promote legislation that requires (a) the submission of beneficial ownership information at the time of company formation; (b) the obligation to keep that information updated throughout the entity's existence; and (c) the availability of that information upon proper request by law enforcement.  To ensure compliance, the legislation must impose significant penalties for failure to abide by these requirements.  We are focusing our current efforts on working with our interagency partners and the Congress to amend S. 569 so that it more effectively and efficiently accomplishes these goals.
• Clarify and strengthen customer due diligence requirements for U.S. financial institutions with respect to the beneficial ownership of legal entity accountholders:  Treasury is currently working with the federal financial regulatory agencies to consider guidance for U.S. financial institutions that will clarify when and how financial institutions should identify and verify beneficial ownership as a component of conducting customer due diligence of accountholders that are legal entities.  We are also working with the regulatory and law enforcement communities, and consulting with the private sector, to determine whether and, if so, how such due diligence requirements should be strengthened through rulemaking or otherwise.
• Clarify and facilitate global implementation of international standards regarding beneficial ownership:  In 2003 the FATF reviewed and updated its 40 Recommendations for jurisdictions to implement appropriate countermeasures against money laundering.  Three of those Recommendations – Recommendations 5, 33 and 34 – specifically address obtaining beneficial ownership information.  These Recommendations, however, have created implementation challenges for the overwhelming majority of jurisdictions around the world.  As we move forward in addressing the issue of beneficial ownership in the United States, we are also working with our counterparts in the FATF to ensure that its standards evolve in a way in which compliance is both achievable and effective.  Even if we make progress domestically, failure to achieve consistency internationally will merely shift the locus of the problem to another jurisdiction and fail to address the problems that flow from lack of beneficial ownership transparency.

IV.          Amending S. 569 to Enhance the Availability of Beneficial Ownership Information of Legal Entities Created in the United States

The Treasury Department clearly recognizes the need for federal legislation to enhance the availability of beneficial ownership information of legal entities created in the United States.  The gravity and complexity of the ongoing abuse of legal entities by a broad spectrum of criminals and others who threaten our national security demand nothing less.  And we view S. 569 as a productive step in the direction of requiring the availability of meaningful beneficial ownership information about legal entities created in the United States.  We believe that with modifications, S. 569 could serve as the appropriate legislative vehicle to address this issue.

I also want to be clear that Treasury recognizes that there is no perfect solution to this complex problem.  Whatever action we take will not prevent all criminals from misusing legal entities to perpetrate financial crime.  And whatever action we take will entail some cost and burden in the company formation process.  Our goal is meaningful progress, capitalizing on what we have learned over the past few years in studying this problem, and laying the groundwork for future action if it proves necessary.

While Treasury fully supports the objective of enhancing law enforcement access to beneficial ownership information of legal entities created in the United States, in order for us to support S. 569, we believe it must be amended to address the following key issues:

• Clarify and limit the beneficial ownership definition and corresponding information disclosure requirements:  Under S. 569 as currently drafted, the ambiguity and breadth of the definition of beneficial ownership, coupled with burdensome disclosure requirements, makes compliance uncertain, time-consuming and costly.  The definition and application of beneficial ownership information requirements should be sufficiently straightforward and simple in application to work for the full range of covered legal entities – from small, start-up businesses to large, complex legal entities – and regardless of whether the applicant is a foreign or U.S. person. 
• Eliminate expansion of anti-money laundering obligations to company formation agents in favor of broader civil and criminal federal liability for noncompliance:  As currently drafted, S. 569 would effectively require Treasury to subject attorneys who provide company formation services for their clients to anti-money laundering regulation, thereby raising substantial legal, policy and practical challenges.  Subjecting company formation agents in general to such regulation would also present tremendous administrative challenges for Treasury, largely due to the lack of an existing functional regulator for this industry.  We believe S. 569 should not attempt to regulate company formation agents under the Bank Secrecy Act, but instead should establish clear and significant federal criminal and civil liability for persons who fail to provide accurate beneficial ownership information as required by law.      
• Establish documentation requirements: As currently drafted, S. 569 does not establish any documentation requirements for beneficial owners who are U.S. persons, although it does require foreign persons to provide a copy of a passport page on which the beneficial owner's photograph appears.  In our view, S. 569 should require robust documentation for all beneficial owners, foreign and domestic, to be held within the State and made available upon proper demand by law enforcement.  Generally, that documentation would be a credible and legible copy of government-issued photographic identification, such as driver's license or a passport. 
• Require further study of illicit finance vulnerabilities associated with the transfer of legal entities and potential solutions for updating beneficial ownership information:  S. 569 allows for company formation applicants to update their beneficial ownership information in an annual filing with the State.  This time gap introduces a significant vulnerability for abuse upon the transfer of a legal entity and requires further study.
• Preserve State Homeland Security Grant funds:  As currently drafted, S. 569 authorizes States to use State Homeland Security Grant funds to carry out the obligations imposed by the Bill.  These funds, however, are already relied upon by States to finance first responders in preparing for and responding to emergency situations.  In our view, S. 569 should not authorize States to draw from the State Homeland Security Grant program to defray the costs of implementation.

Based on recent discussions with our interagency partners and the Congress, we firmly believe that S. 569 can be amended to address these key issues.  We are fully committed to working with our interagency partners and the Congress to make this happen, and we have already begun to draft proposed legislative text to address the five concerns I have described above. 

V.            Conclusion

Looking ahead, Treasury intends to make progress on each of the elements of our comprehensive beneficial ownership strategy to address the abuse of legal entities in facilitating all forms of financial crime: 

• Treasury will work in earnest with the Congress and our interagency partners to have S. 569 amended along the lines described above in order to enhance the availability of beneficial ownership information of entities created in the United States in an effective and workable manner.
• In consultation with the federal financial regulators, Treasury will be considering guidance to the financial community, and will consider engaging in rulemaking, to clarify and enhance customer due diligence obligations for financial institutions regarding the identification and verification of beneficial ownership information of legal entity accountholders under a risk-based approach.
• Treasury will continue to work with the Financial Action Task Force to clarify and facilitate implementation of international standards addressing beneficial ownership, building from our domestic experience.

Although we know that there is still much to do, we have seen tremendous progress over the last several years.  We have developed and are moving forward with a comprehensive approach to address the challenges of beneficial ownership.  With respect to the particular challenge of enhancing the availability of beneficial ownership information of legal entities created in the United States, we have moved from discussions about the problem to discussions about solutions.  This is no simple accomplishment, especially considering that the issue involves the highly sensitive issue of modifying the process by which corporate entities are created.

On behalf of the Department of the Treasury, I would like to thank the Committee for inviting me to testify today, and I look forward to answering your questions.     

U.S. International Reserve Position

U.S. International Reserve Position