Deputy Comptroller Testifies on Artificial Intelligence

News Release 2022-52 | May 13, 2022

WASHINGTON—Deputy Comptroller for Operational Risk Policy Kevin Greenfield today testified during a hearing before the House Financial Services Committee Task Force on Artificial Intelligence (AI). He discussed the Office of the Comptroller of the Currency’s (OCC) approach to responsible innovation and its supervisory expectations for banks’ use of AI, including regulatory compliance. Greenfield also discussed the OCC’s ongoing efforts to update the agency’s technological framework to support its bank supervision mandate.

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Stephanie Collins
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Treasury Announces 2022 National Illicit Finance Strategy

Strategy Provides Roadmap to Close Loopholes Exploited by Criminals and Illicit Actors

Recommendations Include Increasing Transparency, Leveraging Partnerships, and Addressing Technological Risks

WASHINGTON – Today, the U.S. Department of the Treasury issued the 2022 National Strategy for Combatting Terrorist and Other Illicit Financing (2022 Strategy), which identifies measures to increase transparency in the U.S. financial system and strengthen the U.S. anti-money laundering/counter the financing of terrorism (AML/CFT) framework. The 2022 Strategy, prepared pursuant to Sections 261 and 262 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), addresses the key risks from the 2022 National Money Laundering, Terrorist Financing, and Proliferation Financing risk assessments and reflects the complex challenges posed by a world remade by the Covid-19 pandemic, the increasing digitization of financial services, and rising levels of corruption and fraud.

“Illicit finance is a major national security threat and nowhere is that more apparent than in Russia’s war against Ukraine, supported by decades of corruption by Russian elites,” said Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes Elizabeth Rosenberg. “We need to close loopholes, work efficiently with international partners, and leverage new technologies to tackle the risks posed by corruption, an increase in domestic violent extremism, and the abuse of virtual assets. Strengthening safeguards against money laundering and terrorist financing here in the U.S. will keep the international financial system strong.”

The 2022 risk assessments highlighted the illicit finance risk posed by the abuse of legal entities, the complicity of professionals that misuse their positions or businesses, small-sum funding of domestic violent extremism networks, the effective use of front and shell companies in proliferation finance, and the exploitation of the digital economy. The 2022 Strategy reflects the commitment of the Biden-Harris Administration to protect the U.S. financial system from the national security threats enabled by illicit finance, especially corruption.

To accomplish this, the 2022 Strategy identifies four priorities and fourteen supporting actions that will guide U.S. government efforts to effectively address the most significant illicit finance threats and risks to the U.S. financial system.

The four priority recommendations:

  1. Close legal and regulatory gaps in the U.S. AML/CFT framework that illicit actors exploit to anonymously access the U.S. financial system through the use of shell companies and all-cash real estate purchases;
  2. Continue to make the U.S. AML/CFT regulatory framework for financial institutions more efficient and effective by providing clear compliance guidance, sharing information appropriately, and fully funding supervision and enforcement;
  3. Enhance the operational effectiveness of law enforcement, other U.S. government agencies, and international partnerships in combating illicit finance so illicit actors can’t find safe havens for their operations, and
  4. Enable the benefits of technological innovation while mitigating risks, staying ahead of new avenues for abuse presented by virtual assets and other new financial products, services, and activities.

The 2022 Strategy identifies several avenues for taking action or continuing work already in progress, including legislative and regulatory action underway to enhance transparency in company formation and real estate purchases, applying AML/CFT requirements to previously uncovered financial institutions, professions, and sectors to fill gaps and reduce exemptions, clarifying the application of certain regulatory requirements to virtual asset activities, increased public awareness campaigns, more public-private partnerships to foster innovation, and collaboration with foreign partners on illicit finance issues.

In line with the recommendations of this Strategy, on May 8th, Treasury for the first time prohibited U.S. persons from providing accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation, and identified those services sectors as eligible for sanctions in the future.

The 2022 Strategy, along with the 2022 National Risk Assessments, will assist financial institutions in assessing the illicit finance risk exposure of their businesses and support the construction and maintenance of a risk-based approach to countering illicit finance for government agencies and policymakers. Treasury’s Office of Terrorist Financing and Financial Crimes prepared the 2022 Strategy, in consultation with office and bureaus in the Treasury Department, and the agencies, bureaus, and departments of the federal government that also have roles in combating illicit finance.

Click here to read the 2022 National Strategy for Combatting Terrorist and Other Illicit Financing.

 

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READOUT: At Strategic Dialogue on Illicit Finance, United States and Mexico Agree to Work on Anti-Corruption, Revitalize Illicit Finance Cooperation

MEXICO CITY – The United States and Mexico committed to establish a working group on anti-corruption, focused primarily on a high-level strategic response to public corruption and in line with current Treasury efforts and the Biden Administration’s December 2021 “U.S. Strategy on Countering Corruption.” In May 2022, delegations from the United States and Mexico convened the Strategic Dialogue on Illicit Finance (SDIF) to advance anti-money laundering and countering the financing of terrorism (AML/CFT) goals established under the U.S.-Mexico Bicentennial Framework. In support of the U.S.-Mexico Bicentennial Framework, officials agreed to continue expanding information-sharing to bolster bilateral efforts to counter illicit finance.

Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg co-chaired the meeting with Mexico’s Financial Intelligence Unit (UIF) Director Pablo Gomez Alvarez.  The U.S. delegation to the SDIF included Financial Crimes Enforcement Network (FinCEN) Acting Director Himamauli Das, representatives from the Department of Justice, Internal Revenue Service, and other U.S. government agencies.  Mexico has been one of the United States’ closest partners in combatting illicit finance and the dialogue, first established in 2014, has been a key bilateral operational forum for law enforcement and AML supervisory and policy officials. This was the first in-person SDIF since the start of the COVID-19 pandemic.

At the dialogue, participants discussed how to move forward on major issue areas such as narcotics smuggling, evolving illicit finance threats, human smuggling and trafficking, corruption, and virtual assets. Assistant Secretary Rosenberg reaffirmed Treasury’s commitment to work with Mexican partners to target the financial networks of transnational criminal organizations and corrupt individuals.  Officials also agreed to revitalize joint work to target human traffickers and trade-based money launderers given the threat they pose to both countries.

READOUT : Deputy Secretary of the Treasury Wally Adeyemo’s Meeting with Foreign Financial Institutions

NEW YORK – Deputy Secretary of the Treasury Wally Adeyemo met with representatives from several foreign financial institutions at the Institute of International Bankers’ (IIB) New York offices today to discuss the unprecedented sanctions imposed on Russia for its war against Ukraine. Deputy Secretary Adeyemo highlighted the important work to date of financial institutions in implementing U.S. sanctions and emphasized Treasury’s focus on stopping sanctions evasion. He conveyed the risks of facilitating sanctions evasion, including the risk of sanctions exposure for providing material support to a sanctioned entity. As part of a risk-based approach to compliance, Treasury’s Office of Foreign Assets Control (OFAC) expects all financial institutions to do their own due diligence to ensure they are not transacting with a sanctioned person. The Deputy Secretary heard about IIB Members’ efforts to improve sanctions implementation and ways in which they are adapting their business and compliance operations in response to the effects of Russia’s war against Ukraine.

Acting Comptroller Discusses Expanding Diversity and Inclusion, Minority Homeownership

News Release 2022-51 | May 12, 2022

WASHINGTON — Acting Comptroller of the Currency Michael J. Hsu today discussed the Office of the Comptroller of the Currrency’s efforts to reduce barriers to homeownership and promote financial inclusion in remarks at the Asian Real Estate Association of America Diversity and Fair Housing Summit. The Acting Comptroller highlighted the work of Project REACh to support affordable homeownership, expand alternative credit, and revitalize minority depository institutions. He also discussed the growing interest in cryptocurrency investments and other digital assets.

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Stephanie Collins
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READOUT: Secretary of the Treasury Janet L. Yellen’s Meeting with Vietnamese Prime Minister Pham Minh Chinh

WASHINGTON – Yesterday, U.S. Secretary of the Treasury Janet L. Yellen met with Vietnamese Prime Minister Pham Minh Chinh and his delegation.  Secretary Yellen affirmed the United States’ commitment to a strong economic relationship with Vietnam, and discussed shared policy objectives with the Prime Minister, including securing a strong and inclusive economic recovery, combatting climate change, and facilitating a just energy sector transition.  Secretary Yellen also welcomed the close and constructive engagement over the last year between Treasury and the State Bank of Vietnam regarding currency practices. 

Remarks by Under Secretary for Domestic Finance Nellie Liang at the Federal Reserve Bank of Atlanta

WASHINGTON – U.S. Undersecretary of the Treasury for Domestic Finance Nellie Liang made the following remarks during a panel discussion at the Federal Reserve Bank of Atlanta’s Financial Markets Conference.

As Prepared for Delivery

Thank you for the invitation to moderate this opening panel on “Which CBDC, if any, is right for the United States?”.  To start, I will offer a broad framing for this discussion.

Digital assets has become a topic of great interest to policymakers in the U.S..  Digital assets are a financial instrument that may be transferred on a distributed ledger, sometimes with a blockchain technology for record keeping.  This system enables payments and other financial transactions to occur possibly without intermediaries.  In March, President Biden issued an Executive Order calling for a coordinated and comprehensive government approach to digital assets.  With this executive order, government agencies will analyze how to ensure the responsible development of digital assets, recognizing the potential benefits of innovation but also the risks. 

Today’s panel will focus on digital assets for money and payments, and in particular, digital currency issued by a central bank, or CBDC.  We will leave aside cryptocurrencies with highly volatile prices, which are encompassed in the executive order, because they are a less likely or useful option for payments on a widespread basis. 

To provide context for the discussion, it’s helpful to look at some current money and payment systems.  As you can see in the first two rows of a simplified table, today’s payment systems include a blend of public and private provision of services.  In broad terms, consumers and businesses use paper currency, which is a bearer instrument issued by the central bank, and use bank deposits, which are transferred by a range of technologies.  Banks are usually involved in some part of the distribution or clearing of payments, and final settlement often ultimately takes place on the books of the central bank. 

Money and payments have changed over time because of innovations to address market failures or to provide a public good.  For example, in the 1800s, privately-issued bank notes often failed to trade at par and were subject to runs that generated financial instability.  This was a market failure, the government stepped in and provided the public good of a uniform currency.  Currently, new technology offered by FedNow aims to provide more real-time and more efficient payments to depository institutions, but does not create new monetary instruments.  It will rely on the existing banking system and use deposit money. 

In contrast, the next row in the table, stablecoins — a digital asset pegged mainly to the US dollar and could be used for payments — resurface old risks and market failures.  Stablecoins are bearer instruments issued by nonbanks.  They have the potential to generate destabilizing runs if the value of the assets backing the stablecoin decline abruptly.  They may also introduce novel payment system risks related to distributed ledger technology.  The President’s Working Group, or PWG, along with the OCC and FDIC, produced a report on stablecoins and highlighted these prudential risks, and recommended Congress pass legislation to address them.   

Against this backdrop, we can ask “What does CBDC offer?  What is the market failure that the public good of a CBDC could address?”  The next slide highlights some key values expressed in the Executive Order which are relevant to the future of money and payments.  Global financial leadership to reflect our democratic values, and national security are prominent.  Other values include economic growth and financial stability, including global competitiveness; technology advances, including the ability to protect privacy; financial inclusion because of lack of access to financial services or high costs; and payment system efficiency.  As you can see, there are many public goods on this list, which suggests that greater efficiency of the payment system may not be sufficient to justify a CBDC.   

The executive order also calls on the Fed to separately continue to research and report on a potential CBDC and design features, to consider implications for the efficiency of payments and the ability to conduct monetary policy.  This work will build on the recently-issued Federal Reserve paper on money and payments, which seeks public comments on the benefits and risks associated with issuing a CBDC. 

We have a substantive set of issues to explore today.  We will start with Professor Charles Kahn, University of Illinois, who has written a paper for this conference to provide insights from the experiences of other countries with CBDC.  Then David Mills, Federal Reserve Board, will discuss the Fed paper and considerations for the US central bank; and Paul Kupiec, from AEI will offer a specific proposal for a new money and payments system.  We then will open it up for a general discussion among the panelists and questions from the audience.

Which CBDC, If Any, is Right for the U.S. 

Statement for the United States by Andy Baukol Performing the Duties of Under Secretary for International Affairs U.S. Department of the Treasury

31th Annual Meeting of the Board of Governors
European Bank for Reconstruction and Development

May 12, 2022

On behalf of the United States, I would like to thank the people and government of Morocco for their warm hospitality in hosting these meetings.  We are pleased that we are once again able to come together in person, while also offering our deepest sympathies to all those whose lives and livelihoods have been and continue to be affected by the COVID-19 pandemic.

The United States stands resolutely with the Ukrainian government and the Ukrainian people.  We condemn, in the strongest terms, Russia’s illegal, unprovoked war against Ukraine.  We demand that Russia immediately ceases its use of force against Ukraine.  Russia’s war against Ukraine has massive humanitarian consequences, and detrimental repercussions for the global economy through direct and indirect channels.  

Russia’s actions are also in clear violation of the EBRD’s mission—a commitment to open markets, entrepreneurship, multiparty democracy, and pluralism.  Russia’s invasion of Ukraine is a direct affront to the principles that underpin the very creation of the EBRD in 1991 and seeks to dismantle the progress the institution has painstakingly fostered.  The EBRD’s response has been immediate and strong.  The United States joined the overwhelming majority of EBRD Governors in voting to suspend Russia’s and Belarus’s access to EBRD resources.  The ideals of the EBRD’s founders have been reaffirmed – the future belongs to open, market economies.  We strongly support EBRD Management’s decision to close its offices in Moscow and Minsk.  

There is no escaping that Ukraine’s economic needs are massive and urgent.  Our resolve to come together and support Ukraine must be just as strong as our unprecedented and united international response against Russia.  The EBRD is uniquely positioned—with its large presence on the ground, intimate knowledge of the country, and strong connections to the private sector—to support economic continuity and vital infrastructure in Ukraine.  

The United States strongly supports the EBRD’s Resilience and Livelihoods Framework for Ukraine and affected countries.  We applaud countries that have opened up their homes and hearts to welcome the over seven million Ukrainian refugees.  The EBRD also has a role in supporting them as they shoulder new responsibilities.  We appreciate Management’s flexible approach and ability to take risk on the Bank’s own balance sheet.  We welcome the decision to adjust the ratio of risk coverage between the Bank and donors.  We urge Management to coordinate closely with key development partners given the immensity of Ukraine’s needs including on plans for reconstruction.

The Biden-Harris Administration has requested $8.5 billion from our Congress to provide further economic assistance to Ukraine, including $7.5 billion in direct budget support and $500 million to support EBRD interventions to counteract economic vulnerabilities caused by the war, including on the ground in Ukraine now and for reconstruction.  This request is a strong signal of our support to Ukraine and other countries affected by Russia’s war on Ukraine, and of our confidence that the EBRD has a vital role in helping Ukraine’s energy and food security and bolstering the private sector.

Russia’s war against Ukraine has also imperiled the global recovery from the pandemic and aggravated inflation, with vulnerable populations across the world feeling the effects of steeply rising commodity, energy, and food prices.  The EBRD must address the impact of Putin’s war of choice on all countries of operations, including rising food insecurity.  We urge the EBRD to work with other international financial institutions on an effective and coordinated action plan to tackle food insecurity. 

We live in a world of multiple shocks and crises.  So, we ask EBRD to do even more, on numerous fronts, building on the strong 2021 financial and operational results that have allowed the Bank to tackle the new challenges in 2022 head on.  We look forward to the implementation of the new five-year Strategies for the Promotion of Gender Equality and Equality of Opportunity and the Digital Approach that is relevant across all the sectors in which the EBRD works.

We appreciate the EBRD’s continued leadership on climate, and in particular welcome the commitment made to double total private capital mobilization by 2025, with at least half of that going to climate finance.  Now is the time to redouble efforts on our climate goals, particularly in the face of fossil fuel price spikes.  The EBRD must remain committed to helping countries accelerate the achievement of energy security through renewable energy investments.  As a leader in this area, it is critical for EBRD to continue establishing an effective process for achieving alignment with the goals of the Paris Agreement, particularly in private sector operations and working through financial intermediaries.  

Continued investments in infrastructure are critical to the economic recovery from COVID.  We appreciate President Renaud-Basso’s recent participation in a roundtable on scaling infrastructure investment that Secretary Yellen hosted.  We look forward to the EBRD joining other MDBs to support and amplify the high-quality infrastructure initiative launched by the United States and the G7.  The EBRD has a strong role in advancing infrastructure investments in countries of operation in the areas of climate, health, digital technology, and gender equity.  Such investments will connect people with opportunities and contribute to economic growth, greater social inclusion, and climate resilience.  We call on the EBRD to implement new ways to mobilize private finance and to accelerate the use of innovative financing tools that leverage and crowd in significant amounts of private capital while also working to improve countries’ investment enabling environment.  

Building on its track record of bringing its distinct value proposition to new markets, we recognize the significant value EBRD can bring to sub-Saharan Africa—including trade finance and lending to smaller businesses, quality infrastructure, green transitions, and policy work to improve business-enabling environments.  We see this as clearly consistent with the Bank’s transition mandate.  We fully support Governors reviewing a proposal on an Article 1 amendment at the EBRD’s 2023 annual meetings.  

Ultimately, the EBRD’s success will be clear when countries have made sufficient progress on their transition journey to rely on capital markets and on their own resources to continue their path, independent of investments from the Bank.  We recognize that progress is not always linear and strongly supported the revisions to the post-graduation operational approach.  

We thank EBRD staff and Management for their commitment and professionalism during another trying year.  We hope colleagues previously working in Ukraine will be able to return home soon.  The United States remains committed as a strong partner with the EBRD as it extends private sector-led economic opportunities and democratic values across its countries of operation during this time of continued challenges.  Quite simply, the EBRD was made for this moment.
 

Agencies Release Revised Interagency Questions and Answers Regarding Flood Insurance

News Release 2022-50 | May 11, 2022

Joint Release

Board of Governors of the Federal Reserve System
Farm Credit Administration
Federal Deposit Insurance Corporation
National Credit Union Administration
Office of the Comptroller of the Currency

Five federal regulatory agencies today jointly issued revised questions and answers (Q&As) regarding federal flood insurance law and the agencies’ implementing regulations. These Q&As replace those originally published by the agencies in 2009 and 2011 and consolidate Q&As proposed by the agencies in 2020 and 2021. The revised Q&As reflect significant changes to the flood insurance requirements made by federal law in recent years.

The Q&As cover a broad range of technical flood insurance topics, including the escrow of flood insurance premiums, the detached structure exemption to the flood insurance purchase requirement, force placement procedures, and private flood insurance.

In addition, the agencies reorganized the Q&As by topic to make it easier for users to find and review information related to flood insurance.

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Federal Reserve Board
Laura Benedict
(202) 452-2955

FCA
Emily Yaghmour
(703) 883-4056

FDIC
LaJuan Williams-Young
(202) 898-3876

NCUA
Ben Hardaway
(703) 518-6330

OCC
Brian Walch
(202) 649-6870

Remarks by Secretary of the Treasury Janet L. Yellen at the Atlantic Council’s Distinguished Leadership Awards

As Prepared for Delivery

I am deeply honored to present the Distinguished Leadership Award to my friend and long-time colleague, a gifted economist and a tireless civil servant—the Prime Minister of Italy, Mario Draghi.

I really got to know Mario over dozens of dinners at the Bank for International Settlements during the time that he served as the Governor of the Bank of Italy and then as President of the European Central Bank.

This was no easy time in the world of central banking. The global economy was shaken by a financial crisis and the ensuing Great Recession. Mario was chosen as the first Chair of the Financial Stability Board, a consortium created to build a stronger global financial system—one that would be less crisis prone.

Mario also charted a course to save the European economy and the euro itself, relying on his unique ability to bring people together—to forge consensus. He is known for a famous line in central banking history, declaring amid the European debt crisis that the ECB would “do whatever it takes” to preserve the euro. It is often said that those four words cemented the future of the eurozone. But it was the following statement—“And believe me, it will be enough”— that signaled Mario’s confidence and credibility. Financial markets, Europeans, and the world knew that he and the ECB could be trusted to deliver.

The United States was fortunate to have Mario as a partner then, and we are grateful to have him as a partner once again.

Mario jumped back into public service becoming Prime Minister of Italy in early 2021 amid an unrelenting global pandemic and deep economic strains. In his first year, he oversaw Italy’s swift vaccination campaign, a series of relief measures to help workers and businesses, and a number of politically challenging reforms to modernize and green Italy’s economy. And on top of all that, he led a successful G20 year—a true testament to his commitment to multilateralism.

Now in the face of Russia’s brutal and unjustified war against Ukraine, the United States has only strengthened our cooperation with Italy, and with the rest of our European and global partners, to stand firmly in support of Ukraine and the values that underpin our global economic order. As we have rolled out a historic package of sanctions, I have found great comfort in having a partner who deeply understands firsthand the plumbing of the international financial system. Who fully internalizes the impacts and intricacies of the consequential actions we are taking. I have deeply appreciated Mario’s counsel and wisdom throughout this latest challenge we are facing together.

Mario, thank you for your service to Italy, to Europe, and to all of us.  I am honored to have worked so closely with you and look forward to our continued partnership.

Without further ado, I ask you to join me in congratulating his excellency, Prime Minister Mario Draghi, as I present to him the Atlantic Council’s Distinguished Leadership Award.

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