WASHINGTON — Financial Crimes Enforcement Network Director Jennifer Shasky Calvery defended the final beneficial ownership rule during a hearing Tuesday, arguing it will be critical in rooting out money laundering and terrorism financing.
In her final congressional appearance before she leaves her job at the end of this week, Calvery also advocated for passage of new anti-money-laundering laws being pushed by the Obama administration.
"The terrorist financing landscape is complex and dynamic," Calvery said during a House Financial Services Committee hearing. "We must continue our dialogue to ensure we have the right regulatory and statutory structure to prevent abuse of our financial system while striking the right balance between personal privacy and financial transparency."
But lawmakers offered pointed critiques of the beneficial ownership rule released earlier this month by the Treasury. The rule, which requires banks to demand the identity of the main principals behind any company that seeks to open a bank account, targets shareholders with a stake of more than 25%, plus one mandatory person involved in the operations of the firm.
"Allowing only managers to be named [as beneficial owners] might be a step back," said Rep. Daniel T. Kildee, D-Mich.
Calvery argued that the criticism, which echoed comments Monday at the World Bank by former Sen. Carl Levin, D-Mich., was unjustified.
"Now there's someone for law enforcement to talk to," Calvery said. Responding to accusations that bad actors could hide behind a lawyer or distant affiliates, she added, "No bad guy is going to stay very far away from the person who controls the money."
Calvery added that the definition of beneficial owner could still be modified if found lacking. "That's what the rulemaking process is for," she said.
Rep. French Hill, R-Ark., questioned the practicality of going through banks to acquire beneficial ownership data, rather than simply relying on the Internal Revenue Service's information.
"Why do we keep going back to something that's dated and not very reliable, frankly?" Hill said.
Calvery said that it's "a bank's responsibility as well to understand who their customers are and to be able to assess whether there's a suspicious activity occurring within those accounts."
Banks will also be better equipped to identify suspicious activities if they have a better knowledge of the customers they are dealing with, she added.
"If they know who the beneficial ownership is of a legal entity customer … they're going to be in a better position to understand whether the activity is the type of activity they should expect from their customer," she said.
She also highlighted the Treasury's push for legislation that would create a central clearinghouse for IRS beneficial ownership data that would be available to law enforcement when needed.
"In the tax context, there's much more limited abilities to be able to share that information with the broader" intelligence and law enforcement community, Calvery said.
Hill responded, "I think that's a problem that you need to solve."
Other questions were aimed at the fundamental objective of Fincen.
"If I took you and put you on the other side of the world tomorrow and said: 'Here's a half million dollars in cash. … Get it somewhere to someone in North America, you've got 10 days,' " said Rep. David Schweikert, R-Ariz. "It's quite doable, isn't it?"
When Calvery agreed it was, Schweikert added, "Our resources seem to focus on formal networks, and my concern is the scale of informal networks."
But Calvery also noted, in response to an earlier question, that the agency was employing technology to make its processes more effective.
There are "55,000 filings on average from financial institutions each day," Calvery said. "We need technology to get us through that data."
"From the time that a bank files a suspicious activity report and the time that we get it into the hands of law enforcement," only "maybe 24, 48 hours" go by, she said.
In terrorism threat cases, the process can take even less time, she said.
During the hearing, both Calvery and Larry McDonald, the deputy assistant secretary for the Treasury's Office of Technical Assistance, were asked what kind of additional resources they would like to see.
Calvery said Fincen would benefit from the authority to issue geographic targeting orders — which were recently issued to track certain real estate transactions in New York and Florida — for wire transfers, in addition to the movements of funds.
So far, she said, "we're able to collect information when someone uses cash or a check to purchase real estate." But, she added, wire transfers are "becoming the more and more common way people are involved in transactions."
McDonald said the Treasury could benefit from having more attachés providing technical assistance to Middle Eastern countries in their efforts to crack down on terrorism financing.
"We would welcome and benefit from additional resources not only to support additional attachés," he said, but also to cover "the rising cost of doing work" there.
The hearing sometimes had the feel of a victory lap for Calvery, who detailed Fincen's recent accomplishments. She said her agency has been particularly focused in the last leg of her tenure on "money-services businesses and their supervision."
Citing harmonized examinations and other collaborative efforts between regulators, she said, "we have been coordinating more than ever between the federal and state systems."
Asked about the role smaller financial institutions play in tracking down terrorism financing, Calvery noted that "individuals have been radicalized in all different types of communities," including "cities and rural areas."
Most of the reporting on potential terrorist activity comes from depository institutions, and commonly large ones, she added. But "some of it is also coming from small community banks and small MSBs," she added, recalling one case where a mom-and-pop convenience store had alerted authorities of suspicious activity.
Though she declined to say what her next move would be, Calvery will reportedly take on a top compliance position at HSBC.