HOUSE FINANCIAL SERVICES COMMITTEE SUBCOMMITTEE HEARING
Overview
For questions on the note below, please contact the Delta Strategy Group team.
On April 1, the House Financial Services Committee Subcommittee on National Security, Illicit Finance, and International Financial Institutions held a hearing entitled “Following the Money: Tools and Techniques to Combat Fraud.” Witnesses in the hearing were:
- Jacqueline Burns Koven, Head of Cyber Threat Intelligence, Chainalysis
- Darrin McLaughlin, Executive Vice President – Chief BSA/AML & Sanctions Officer, Flagstar Bank, on behalf of the American Bankers Association
- Jeff Brabant, Vice President, Federal Government Relations, National Federation of Independent Business (NFIB)
- Kathy Stokes, Director, Fraud Prevention Programs, on behalf of AARP
Attached is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements.
Key Takeaways
The following is a summary of the main topics explored in the hearing, with further details in the Discussion section below.
- The discussion raised the issues around implementation and role of the Corporate Transparency Act (CTA) and Financial Crimes Enforcement Network’s (FinCEN) beneficial ownership information (BOI) reporting rule. Subcommittee Chairman Davidson (R-OH) and Representative Lucas (R-OK) praised the Trump Administration’s approach to beneficial ownership reporting on foreign-controlled entities, referencing the Repealing Big Brother Overreach Act as a legislative pathway to eliminate the reporting mandate and prevent future administrations from expanding it.
- McLaughlin and Burns Koven emphasized the need for a genuine risk-based approach, grounded in improved public-private partnerships. They called for open, transparent, and two-way communication between regulators, law enforcement, and financial institutions to align compliance efforts and allocate resources toward detection and prevention.
- Representative Sessions (R-TX) and Burns Koven discussed the importance of coordinated efforts across agencies, noting that state and local law enforcement must be better equipped to identify payment patterns and connect fraudulent networks.
- Burns Koven supported the use of sanctions as a powerful enforcement tool when paired with law enforcement actions, referencing the ability to monitor for possible rebranding while using blockchain analytics to identify and follow the money trail through iterations. She stressed the importance of clarity for cryptocurrency businesses and financial institutions in identifying exposure to sanctioned actors, emphasizing that blockchain’s inherent transparency places scammers at a disadvantage.
- Burns Koven discussed how on-chain transactions being public and permanent allows investigators to trace the movement and scale of illicit funds with greater granularity than traditional financial systems. She highlighted frozen stablecoins have enabled the seizure of scammed assets, explaining that a single scam transaction has the ability uncover hundreds more and enable disruption of large-scale fraud schemes by offering insights into scam networks and laundering patterns.
Summary
Opening Statements and Testimony
Subcommittee Chairman Warren Davidson (R-OH)
We must continually assess the effectiveness of the tools and techniques traditionally used to secure the financial system within the BSA. We must minimize the financial harm and exploitation by scammers without infringing on civil liberties or creating new ways to criminalize ordinary citizens. We need to expand and improve nationwide education on investment scams and better equip law enforcement agencies with the tools they need to pursue criminals who continue to operate unseen.
Ranking Member Joyce Beatty (D-OH)
Fraud schemes are on the rise, with bad actors finding new and creative ways to defraud consumers. Data from the Federal Trade Commission (FTC) showed that in 2024, American consumers lost more than $12.5 billion to fraud, a 25 percent increase from the previous year. We need to develop sharper tools to deter fraud and protect American consumers, while the Trump Administration’s rolled back key financial crime measures that would help us detect and deter fraud. Treasury Secretary Bessent unilaterally announced that the Department will not be enforcing the bipartisan CTA, which President Trump himself signed into law during his first term, exempting over 99 percent of the companies Congress intended the law to cover by not enforcing against U.S. citizens. Gutting the CTA eliminates a critical tool for law enforcement to detect and deter fraud cases involving anonymous shell companies, effectively making the U.S. a haven for money launderers, traffickers, and fraudsters. We need key beneficial ownership reforms, working in a bipartisan manner to ease small business compliance burdens, not unlawfully dismantling the pillars of our financial crime regulatory regime.
Jacqueline Burns Koven, Head of Cyber Threat Intelligence, Chainalysis
With 2024 estimated as a record year for scam crypto payments, it has never been easier for scammers to access tools that make the con more convincing and scalable. The utilization of cryptocurrency, and stablecoins as freezable assets, should fundamentally place scammers at a disadvantage because cryptocurrency transactions are inherently public, and the data from those transactions is preserved on a transparent, immutable ledger. Blockchain intelligence provides insight into the entire scam supply chain and laundering patterns at a level unparalleled in traditional finance. A single cryptocurrency payment to a scam can often lead to identifying hundreds of other victim payments in a multimillion-dollar fraud scheme, allowing for more effective disruption and restitution efforts rather than just one-off criminal investigations. Scammers are exploiting the siloed nature of how the public and private sectors identify and respond to these schemes, capitalizing on our visibility gap today.
The private sector is best positioned to prevent additional victims. We need to modernize and streamline bi-directional scam reporting and response between public and private sectors to facilitate restitution and the prevention of additional victims. We must ensure law enforcement has access to blockchain analysis and training and invest in tech-driven efficiency to swiftly action intelligence and seize funds. We must utilize AI to identify early-stage scam activities, enabling financial institutions to conduct large-scale upstream detection, and support a regulatory framework that clearly delineates responsibility for oversight of businesses offering stablecoins and trading services. We need to close gaps in AML and CTF standards implementation.
Darrin McLaughlin, Executive Vice President – Chief BSA/AML & Sanctions Officer, Flagstar Bank, on behalf of the American Bankers Association
Combating fraud requires a whole-of-government approach, partnered with the private sector. Banks face the impossible choice: should the bank continue to process transactions that could possibly harm their customer and help the bad actors, or does the bank close the account to avoid inadvertently facilitating the on-going fraud? Banks and other industries cannot combat this problem alone; greater involvement by and coordination with the government is essential. Improving feedback loops to banks was one of the important reforms Congress included in the AML Act. When a bank files a SAR, it is often the end of the story as banks receive no further information on most potentially suspicious acts reported to FinCEN and rarely know whether they have identified a significant crime or are wasting resources on low-value transactions. Banks must be able to evolve detection capabilities as criminals change tactics, so we must provide transparent government feedback to banks on priority threats. Many FinCEN alerts and advisories have not been updated in decades and must be re-examined to ensure they reflect today’s threats. Some banks spend up to fifty percent of their BSA budgets on CTR compliance, while IRS data shows that many suspicious transactions fall well below the $10,000 threshold and do not take into account inflation. Simplifying forms would reduce burden without compromising enforcement, moving away from “check-the-box” compliance because minor technical issues should not distract from evaluating the effectiveness of risk-based BSA programs. A whole-of-government approach is needed; one that includes modernized rules, meaningful feedback, interagency coordination, and broader support from other sectors.
Jeff Brabant, Vice President, Federal Government Relations, National Federation of Independent Business (NFIB)
Under the CTA, small businesses with fewer than twenty employees and $5 million in revenue are required to report their beneficial ownership information to FinCEN. Federal, state, local, and international law enforcement and intelligence agencies can access this information without a subpoena or warrant. Small businesses fear their information will be targeted by criminals, politically motivated individuals, or subject to cyberattacks by U.S. adversaries that could expose their personal information to actual criminals and nefarious actors. Small businesses overwhelmingly oppose the CTA, and President Trump recognized the absurdity of beneficial ownership information reporting requirements when he called the law invasive, outrageous, and an economic menace. Congress and Treasury must immediately and permanently delete the records of the millions of U.S. small business owners who have already filed their BOI with FinCEN. Absent intervention from the courts, Congress can clean CTA mess up by passing Chairman Davidson’s Repealing Big Brother Overreach legislation to repeal the CTA so a future Administration could not revive or expand the statute.
Kathy Stokes, Director, Fraud Prevention Programs, on behalf of AARP
The sophistication and scale of today’s transnational crime rings have made them a national security threat. These enterprises leverage a vast array of tools to commit their crimes, and there is no single solution to the fraud crisis; it will take a whole-of-society approach. Financial institutions must continue to innovate on fraud mitigation as tech companies build safety and security into product design and manufacturing and find a way to stop scams over the networks from reaching Americans, with industry and law enforcement working together. We must address fraud by supporting resources for state and local law enforcement to hire and train staff and secure tools that combat fraud crime, improving fraud reporting systems so law enforcement can prioritize cases, reinstating the casualty and theft loss deduction to address the taxation of stolen assets, and passing legislation to limit the damage of crypto ATMs.
Discussion
Subcommittee Chairman Davidson (R-OH): Have efforts expanded on combatting fraud or increased regulatory pressure to disclose and report? What elements of fraud prevention are working? McLaughlin: The increased importance and pressure placed on financial institutions to identify and report suspicious activity and fraud has grown alongside the rising number of fraud cases. What has been working is the increased investment within the public sector in education and in advanced technologies to catch fraud “at the front door.” We could be better at strengthening the public-private relationship, specifically, improving the flow of information between the government and the regulated financial institutions.
Subcommittee Chairman Davidson (R-OH): Is it normal for a bank to be asked by the FBI to report on their customers without a warrant or subpoena? McLaughlin: Yes, we have a good relationship with law enforcement. We provide as much data upfront to law enforcement, but it is a very burdensome process, especially for smaller institutions.
Subcommittee Chairman Davidson (R-OH): Did Administration’s approach to beneficial ownership reporting requirements on foreign entities, present an improvement? Brabant: Yes, it is an improvement. When you are looking at the 32.6 million reports FinCEN is expecting in a year, that is not a risk-based approach; it is a needle-in-a-haystack approach. Refining it down to a smaller, more risk-based approach should be more successful.
Ranking Member Beatty (D-OH): How does the CTA relate to fraud prevention as well as explain how it and the beneficial ownership database would be critical fraud prevention tools? How does Treasury’s recent decision to exempt more than ninety-nine percent of the companies that Congress intended to cover weaken fraud prevention efforts, and what are the effects of social media? Stokes: Information is critical to getting to the bottom of cases; anything that takes away from that is an additional challenge in preventing and confronting financial crime. Anything that reduces information that can be actionable by law enforcement, especially when it comes to the fraud crisis, is very problematic.
Representative Lucas (R-OK): What trends are you seeing today in financial fraud, and how can we proactively address these issues to stay ahead of the industry? Koven: llicit actors of all types seek out jurisdictions with weak AML and CTF standards; they look for the path of least resistance. By closing those gaps through capacity building and by applying pressure to jurisdictions that are willingly turning a blind eye to the use of their platforms for laundering, we can better identify and prevent these illicit actors
Committee Ranking Member Waters (D-CA): What are your thoughts on President Trump’s memecoins and affiliations with the cryptocurrency industry as an elected official? What are your concerns about shell companies that are used to launder funds from cryptocurrency investment scams? Stokes: When cryptocurrency is in the news, the criminals follow with seemly attractive investment opportunities that are crypto investment schemes.
Representative Sessions (R-TX): What has federal law enforcement done to address financial fraud, and which agency would you look to as the lead in these efforts? Has Congress made it clear through the law about who to go to in each circumstance, and have we streamlined this process effectively? Koven: More can be done to streamline reporting and modernize it so that we can connect the dots from a one-off investigation to understanding the entire scheme to increase recovery and restitution. We have had spectacular seizures by U.S. government of cryptocurrency assets.
Representative Vargas (D-CA): Are you saying you are not confident in some of the information that the government holds? Brabant: If the beneficial ownership information database moves forward, it would contain small business owners’ driver’s licenses; a hacker’s dream. AML and fraud professionals have a responsibility to our customers to collect data and identify illicit threats, including through efforts like transaction monitoring. The concerns are with the secure transmission of information that has been used in a financial crime outside of the institution that we are employed by.
Representative Williams (R-TX): What trends are you seeing in how technology is used to evade AML controls, and how are you working with the private sector and law enforcement to stay ahead of these evolving threats and effectively track down these criminals? Koven: We are able to track cartels purchasing fentanyl precursors from Chinese dealers, who are primarily operating in cryptocurrency. Illicit actors are adopting cryptocurrency for the same reasons it is used legitimately: it is stable, liquid, and fast. We need to better equip state and local law enforcement to understand how to handle these cases, connect a single fraud victim to a wider criminal network, and increase the chances of disruption and recovery; McLaughlin: Applying more regulatory pressure on institutions that are flagrantly abusing or flouting regulatory frameworks is important. Closing gaps in AML standards and addressing jurisdictional arbitrage is critical to reducing this kind of illicit activity.
Representative Kim (R-CA): What did your research find on Hui One’s enlisted activity, and how did Chainalysis leverage blockchain technology? Koven: We have been tracking Hui One for a long time, and, since 2021, it has processed $70 billion worth of cryptocurrency. It operates as a peer-to-peer marketplace, allowing vendors and buyers to connect and collect a fee from those transactions. It also offers exchange capabilities and functions as a one-stop shop for scammers, providing everything they need to conduct scams at scale and at low cost. Blockchain revealed a highly detailed story, far more granular than what we would typically obtain through traditional financial institution investigations, and it paints a vivid picture of the platform’s illicit exposure. We see that many scams are using it as a common denominator: a place to launder stolen funds and to reinvest the proceeds into materials used to target additional victims.
Representative Kim (R-CA): Are sanctions an effective tool? Koven: Sanctions are a powerful tool to add to the toolbox. More clarity would enable financial institutions and cryptocurrency businesses that leverage our data to better understand their exposure level, such as whether their customers are sending funds to or receiving funds from Hui One. Sanctions essentially cut off the mainstream crypto ecosystem and have been most effective when coordinated with law enforcement. Representative Casten (D-IL): Should stablecoin issuers be subject to the same compliance rules as banks, regardless of how those rules may change? Did stablecoins account for 63 percent of all illicit transactions tracked and are sanctioned entities are increasingly using them due to the difficulty of using the U.S. dollar? McLaughlin: Yes, any product, service, industry and technology that is responsible for moving funds between customers or citizens must be subject to regulation to ensure customer protection; Koven: Stablecoins are the most transacted cryptocurrency today. We must establish regulatory frameworks across stablecoin issuers, with robust and consistent standards across this growing market.
Representative McClain (R-MI): How could blockchain analytics or other technological solutions help streamline the filing and analysis of SARs and CTRs? Koven: Blockchain analytics already is enriching SAR and CTR quality, leveraging the insights to file their SARS and CPRs. Current monitoring processes and reporting of information sharing are painfully slow even though cryptocurrency and the blockchain enable tracing and freezing.
Representative McClain (R-MI): How can FinCEN improve communication and feedback mechanisms following SARs and CTR submissions? Is there any resistance to public-private partnership, and what roadblocks are there? McLaughlin: We need to create an open, transparent, and two-way line of communication between the public and private sectors so we can begin focusing the resources we have on the actual threats our customers face. Working with FinCEN would allow us to start aligning and conducting data analytics based on what the government, law enforcement, and the private sector would do to create a true risk-based approach for financial crimes. Collaborative engagement between the public sector, private industry, and law enforcement would allow us to define the actual requirements, such as the FFIEC manual and the revisions underway. This would allow us to clearly point to the specific crimes we are trying to detect and prevent.