HOUSE FINANCIAL SERVICES COMMITTEE
SUBCOMMITTEE HEARING
For questions on the note below, please contact the Delta Strategy Group team.
On May 21, the House Committee on Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions held a hearing entitled “Modernizing the Bank Secrecy Act (BSA) for Financial Crime in the 21st Century.” The witnesses in the hearing were:
- John Court, Executive Vice President, General Counsel and Chief Operating Officer, Bank Policy Institute
- Ari Redbord, Global Head of Policy, TRM Labs
- Nicholas Anthony, Research Fellow, Cato Institute
- Carole House, Senior Fellow, Atlantic Council
Below is a summary of the hearing prepared by Delta Strategy Group, which includes several high-level takeaways from opening statements and discussion.
Key Takeaways
- Crypto and digital asset discussions focused on the use of blockchain analytics and real-time intelligence sharing to track and freeze illicit funds, highlighting that the legal framework has not kept pace with the speed at which bad actors are moving money through digital asset networks.
- Artificial intelligence (AI) and blockchain analytics were highlighted as essential tools to identify complex financial crime patterns and build out criminal networks from Suspicious Activity Report (SAR) data. Safe harbors and Congressional messaging were identified as critical to encouraging financial institutions to adopt cutting-edge technology in their compliance programs.
- The Financial Crimes Enforcement Network’s (FinCEN’s) notice of proposed rulemaking (NPR) was characterized as a welcome but incomplete shift away from check-the-box defensive compliance toward a risk-based approach, with Currency Transaction Report (CTR) and SAR reporting thresholds identified as outdated and never adjusted for inflation since their establishment in 1970.
SUMMARY & DISCUSSION
Crypto & Digital Assets
- Chairman Davidson (R-OH) called for updated tools to counter AI-enabled crimes and changes in cybersecurity, noting that a wait-and-see approach to rapidly emerging AI systems will leave financial institutions unable to effectively combat bad actors exploiting technology faster than current frameworks can adapt.
- Redbord called for the enactment of a digital asset hold law to give modern financial institutions the same authority traditional banks have, the legal foundation to freeze illicit funds the moment intelligence demands it without fear of exposure, and for formal recognition of stablecoin financial intelligence units.
- House called for Special Measure 5 to be expanded to a Special Measure 6 under Section 311 or the 9714 authority to cover fintech and cryptocurrency transactions, discussing that law enforcement should not be arbitrarily restricted to only correspondent banking relationships.
- Representative Casten (D-IL) raised concerns about the Department of Justice (DOJ) disbanding its crypto enforcement team, the IRS cutting enforcement staff by 25 percent, and the SEC and CFTC each eliminating roughly twenty percent of their staff. He said that enforcement capacity is being dismantled at the same time bad actors are accelerating their use of digital assets.
- Representative Foster (D-IL) stated that secure digital identity (DID) infrastructure is an essential component of ensuring agentic transactions are traceable and accountable.
Blockchain & Technology
- Representative Barr (R-KY) raised the need for a new supervisory architecture that rewards institutions investing in technology to look at real risks rather than measuring compliance by volume of SAR production.
- Redbord called for funding and deployment of AI-powered investigative capabilities across federal agencies, giving investigators the same technological edge that criminal networks are exploiting, and called for codifying and funding real-time intelligence sharing connecting law enforcement agencies with platforms covering most centralized crypto volume.
- Court noted that banks trying to use technology and innovation have been met with examiners demanding that they run parallel processes, which upends the entire incentive structure for moving to innovative technologies, and expressed hope that the proposed rule would eliminate that practice.
- Redbord responded that more financial institutions are leveraging this technology, and that safe harbors and messaging from FinCEN and from Congress on the importance of using cutting-edge technology is critical to driving broader adoption.
BSA Modernization
- Chairman Davidson noted that financial institutions file nearly five million SARs and over 21 million CTRs annually, and that the CTR threshold has never been adjusted for inflation.
- Representative Lucas (R-OK) raised what it would mean practically for banks and consumers if FinCEN built on the proposed rule and modernized CTR and SAR thresholds. Court stated that while modernizing thresholds would help, the more important priority is relieving the examiner-driven compliance burden on the financial crime-fighting staff inside banks who are trying to do their jobs effectively.
- Court called for FinCEN to play a more active role in overseeing how banking agencies conduct anti-money laundering (AML) exams to ensure those exams are aligned with national security and law enforcement priorities, rather than leaving examiners to operate with no transparency.
- Anthony called for modernizing the SAR and CTR reporting thresholds to keep pace with inflation and incorporating existing FAQ and guidance documents directly into the SAR and CTR regulations to create clear and uniform standards.
- Ranking Member Beatty (D-OH) questioned whether FinCEN should take the mandated steps required by the AML Act of 2020 to enhance the effectiveness of SARs and CTRs, with House and Redbord affirming FinCEN should complete those measures and leverage technology and structured data to modernize them.