As Prepared for Delivery
Good afternoon. I would like to extend my thanks to Representative Beatty and her team for bringing us together today and thank you to everyone here for joining us. I would also like to thank you, Representative Beatty, for your comments during Secretary Yellen’s hearing last week.
I am Brian Nelson, Treasury’s Under Secretary for Terrorism and Financial Intelligence. My office is responsible for leading U.S. government efforts to counter illicit finance and using financial tools to respond to national security threats.
Illicit finance—and the serious crimes it enables around the world—is detrimental to American cities, towns, communities, families, and individuals. And its impact often hits close to home.
In 2021, eight individuals were sentenced to prison for laundering $44 million in drug proceeds to Mexico through local cell phone store front companies based here in Columbus. In addition to other narcotics—including 34 kilograms of heroin—the investigation and prosecution found 76 grams of fentanyl.
For context, the Drug Enforcement Administration estimates that 2 milligrams of fentanyl is a potentially lethal dose—meaning 76 grams of fentanyl could equate to as many as 38,000 potentially lethal doses. Far too many American families—including far too many here in Ohio—have been devastated by the opioid crisis, and we are committed to stopping narcotrafficking funds from flowing through our borders.
Illicit finance is also detrimental to law-abiding American businesses. Shell and front companies can disrupt fair business competition, making it harder for American small business owners to make a living. In March of this year, an individual was sentenced to federal prison for using shell companies to defraud local Columbus businesses out of more than $10 million. The allegations highlighted that the individual used millions of embezzled dollars meant for legitimate business contracts to instead buy a $1.4 million yacht, a Mercedes-Benz valued at nearly $165,000, an amphibious plane, and luxury watches, among other items.
Stopping illicit finance is a whole-of-U.S. government effort, and the Treasury Department is no exception. As part of the Biden-Harris Administration’s first-ever U.S. Strategy on Countering Corruption, we are prioritizing regulatory actions necessary to curb illicit finance by increasing transparency; protecting our economy and national security; and detecting and deterring serious crimes like narcotrafficking, fraud, terror financing, and corruption. We have been hard at work to close loopholes and make sure the U.S. financial system is not a welcome mat for kleptocrats, criminals, and U.S. adversaries seeking to exploit it.
I briefly spoke about the misuse of shell and front companies earlier in the context of cases here in Columbus. Opaque corporate structures are a favorite tool of criminals to launder, hide, and store dirty money in the United States. In order to support law enforcement, national security, and intelligence efforts to uncover this illicit activity, we are prioritizing effective implementation of the bipartisan Corporate Transparency Act.
The Corporate Transparency Act requires many companies doing business here in the United States to report some basic information to the Federal government about the real people who own or control them. Centralizing this information and making it available to law enforcement will help untangle complicated corporate structures, leading to fewer dead ends in investigations. I know Director Gacki is going to speak to this in more detail, but I want to emphasize this law’s importance in helping to hold bad actors accountable, from fraudsters and tax cheats to international weapons traffickers.
America’s thriving business community is vital to our economy. As we prioritize these important national security imperatives, we have also considered business owners every step of the way to avoid introducing redundant regulations or unnecessary red tape into their day-to-day operations. We know that running a business is not easy, and we’ve taken into account feedback and comments about the potential burden of these new regulations.
Further, our efforts to reduce potential business burden are rooted in extensive research. We continue to study and assess the national security risk environment, which allows us to tailor regulations to the most salient threats. In the spirit of transparency, these risk assessments are public: Most recently this year, we published our Money Laundering, Terrorist Financing, and Proliferation Financing Risk Assessments, which highlight the significant illicit finance threats, vulnerabilities, and risks facing the United States.
In order to address these threats, we’re prioritizing a regulatory agenda that promotes transparency and closes loopholes. A key piece of this puzzle is protecting the U.S. housing market from abuse by bad actors that attempt to fly under the radar. Illicit actors often exploit American real estate, including here in Ohio, to launder or park the proceeds of corruption, drug trafficking, and other illicit activity. In fact, one study estimates that at least $2.3 billion in illicit funds flowed through the U.S. real estate market from 2015 to 2020.
This is especially concerning in the residential real estate market, given that many American neighborhoods are experiencing affordable housing crises. Earlier this year, consistent with our Congressional mandate under the Bank Secrecy Act, Treasury issued a proposal to help level the playing field for legitimate homebuyers and protect our housing market from distortion. This proposed rule would require more transparency for residential real estate transfers involving legal entities and trusts, which would support law enforcement as they investigate illicit activity. We are working expeditiously to publish a final rule.
This effort builds on years of data from our successful Geographic Targeting Order program—which has required similar transparency in certain jurisdictions—as well as extensive dialogue with the real estate industry, financial institutions, transparency groups, law enforcement, Congress, intergovernmental partners, and other key stakeholders in this effort.
Similarly, we continue to diligently track illicit finance risks in the commercial real estate sector and evaluate options to increase transparency.
Also earlier this year, Treasury published a regulatory proposal to help protect the investment adviser sector from abuse. Broadly, this proposal aims to standardize obligations across the sector that would require investment advisers to maintain programs to counter money laundering and terror financing, which help to detect and deter illicit finance. Our proposal addresses gaps and vulnerabilities that, for example, risk allowing Chinese state actors to quietly gain access to sensitive and emerging U.S. technologies by investing in early-stage companies, putting American innovation and legitimate investors at a disadvantage.
In tandem with this regulatory proposal, we published a risk assessment specific to the investment adviser sector that makes public our findings from years of closely studying national security, money laundering, and terror financing risks present in the industry. Our goal in making this information public is to support governments and the private sector in managing risk, addressing threats, and detecting and deterring illicit financial activity. We are also working quickly to publish a final rule.
As we work to implement the Corporate Transparency Act and finalize our regulatory proposals, we continue our dialogue with business owners, industry professionals, transparency groups, members of Congress, interagency experts, law enforcement, and other key stakeholders about how we can streamline processes and provide clarity.
This is truly a collective effort, and we cannot do it alone. Together with your partnership, we can stop bad actors from disadvantaging law-abiding small businesses, abusing our financial system, and putting our national security at risk.
And we are doing so in a global context. I mentioned earlier that the Biden-Harris Administration’s Strategy on Countering Corruption created a roadmap for many of our current priorities. But our objectives don’t exist in a vacuum. Because money knows no borders, we continue to engage with our counterparts around the world to set standards and best practices for fighting illicit finance and to eliminate havens for dirty money. As the world’s largest economy, we have a unique responsibility to uphold these standards and lead by example.
I know we have a lot to discuss today, so I’ll turn it over to Director Andrea Gacki, who leads the Financial Crimes Enforcement Network, or FinCEN. Thanks again for joining us, and I look forward to the conversation.
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