TREASURY TARGETS SUPPORTERS, BUSINESSES LINKED TO LEADER OF SINALOA CARTEL

FROM:  U.S. DEPARTMENT OF TREASURY 
Action Targets Supporters and Businesses Linked to Sinaloa Boss Ismael Zambada Garcia

 WASHINGTON – The U.S. Department of the Treasury today designated three individuals and three entities linked to Ismael Zambada Garcia, one of the principal leaders of the Sinaloa Cartel.  Those designated include Jose Antonio Nunez Bedoya, a Mexican attorney and notary public who helps to create front companies in order to conceal and launder assets on behalf of Zambada Garcia, members of Zambada Garcia’s family, and other members of the Sinaloa Cartel.  Nunez Bedoya incorporated Estancia Infantil Nino Feliz and Establo Puerto Rico on behalf of Zambada Garcia, and he notarized real estate purchases on behalf of Santa Monica Dairy, all of which were previously designated by the Treasury Department’s Office of Foreign Assets Control (OFAC) in May 2007.  Additionally, Nunez Bedoya notarized real estate purchases on behalf of Sinaloa Cartel leader Joaquin Guzman Loera and his wife, Griselda Lopez Perez, whom OFAC designated in September 2012.

“Treasury will continue to target and disrupt financial operations linked to the Sinaloa Cartel by taking action against any facilitators, legal or financial professionals, or businesses that are laundering their narcotics proceeds,” said OFAC Director Adam J. Szubin.

The cash-intensive businesses designated by OFAC today were Parque Acuatico Los Cascabeles, a Sinaloa-based water park, Centro Comercial y Habitacional Lomas, a shopping mall in Culiacan, and Rancho Agricola Ganadero Los Mezquites, a cattle ranch in Sinaloa.  Nunez Bedoya incorporated and notarized all three businesses on behalf of Zambada Garcia.

Also designated today were Tomasa Garcia Rios and Monica Janeth Verdugo Garcia, wife and daughter of deceased narcotics trafficker Jose Lamberto Verdugo Calderon.  Verdugo Calderon, who was killed by the Mexican military in January 2009, was widely identified by U.S. and Mexican authorities as a major financial operative and lieutenant for Zambada Garcia.  Tomasa Garcia Rios and Monica Janeth Verdugo Garcia own Rancho Agricola Ganadero Los Mezquites and Parque Acuatico Los Cascabeles.

Today’s action would not have been possible without critical support from the Drug Enforcement Administration.

“The Sinaloa Cartel cannot hide behind front companies like a water park or agricultural business,” said DEA Special Agent in Charge Doug Coleman.  “We are working with OFAC to expose these traffickers’ front companies for what they really are – illegal enterprises that fuel the drug trade, its violence and corruption.  As we continue to follow the money trail, we starve these traffickers of their assets and eventually put their global criminal networks out of business.”

Today’s action, pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act), generally prohibits U.S. persons from conducting financial or commercial transactions with these designees and also freezes any assets they may have under U.S. jurisdiction.  The President named Ismael Zambada Garcia and the Sinaloa Cartel as significant foreign narcotics traffickers pursuant to the Kingpin Act in May 2002 and April 2009, respectively.

Internationally, OFAC has designated more than 1,300 businesses and individuals linked to 103 drug kingpins since June 2000.  Penalties for violations of the Kingpin Act range from civil penalties of up to $1.075 million per violation to more severe criminal penalties.  Criminal penalties for corporate officers may include up to 30 years in prison and fines up to $5 million. Criminal fines for corporations may reach $10 million.  Other individuals could face up to 10 years in prison and fines pursuant to Title 18 of the United States Code for criminal violations of the Kingpin Act.

TREASURY LIFTS SANCTIONS ON COLOMBIAN SOCCER TEAM FORMERLY TIED TO CALI CARTEL

FROM: U.S. DEPARTMENT OF TREASURY

WASHINGTON – The U.S. Department of the Treasury announced today the removal of the Colombian professional soccer team America de Cali (also known as Corporacion Deportiva America) from the list of Specially Designated Nationals and Blocked Persons (SDN List). Treasury designated the America de Cali team on June 8, 1999, pursuant to Executive Order 12978 of 1995, "Blocking Assets and Prohibiting Transactions with Significant Narcotics Traffickers," because it was under the ownership or control of Cali Cartel leaders Miguel and Gilberto Rodriguez Orejuela and other designated individuals. Because that is no longer the case, the Treasury Department today is delisting America de Cali and U.S. persons will now be allowed to enter into financial transactions with the ownership of the team and any assets that they may have had in the U.S. are now unblocked.

"Today’s lifting of the designation of America de Cali is a testament to the enormous efforts made in recent years by both the team and the Colombian government to completely break with the criminal influences that have overshadowed the team in the past," said Under Secretary for Terrorism and Financial Intelligence David S. Cohen. "As we continue our work with the Colombian government to combat the threat of narcotics trafficking, we will use our authorities to target those responsible for illicit behavior just as we will lift sanctions in cases where there has been a concrete change in behavior."

The soccer team’s corporate entity recently completed a transparent process of restructuring and bankruptcy procedures under the oversight of the Colombian government that included a vigorous due diligence process on all prospective shareholders and corporate officers. The results of this process demonstrated that America de Cali has cut its ties with designated parties, allowing Treasury to proceed with removing the team from the SDN List.

The removal of America de Cali from the SDN List demonstrates that entities may be, and regularly are, removed from the SDN List when circumstances warrant. A designated party may petition Treasury’s Office of Foreign Assets Control (OFAC) for the removal of its name from the SDN List. In general, proof of changes in circumstances and behavior is key to OFAC removing a person or entity from the SDN List.

TREASURY LIFTS SANCTIONS AGAINST DEFECTED SYRIAN PRIME MINISTER

FROM: U.S. DEPARTMENT OF TREASURY
WASHINGTON – The U.S. Department of the Treasury today is lifting sanctions against former Prime Minister of Syria Riyad Hijab who recently severed his ties with the Assad regime. This action is being taken because Hijab is no longer a senior official of the Government of Syria. Hijab’s name will be removed from Treasury’s Specially Designated Nationals (SDN) and Blocked Persons List, and he is no longer subject to an asset freeze.

Since the uprising against the Assad regime began last year, the United States has used a number of different authorities to target and sanction those involved in human rights abuse in Syria, senior Syrian government officials, and the Syrian government itself in an effort to hasten the removal of the Assad regime from power and end the government’s campaign of violence against the Syrian people.

"Recent civilian and military defections from the Assad regime are further indications that the government is crumbling and losing its grip on power," said Under Secretary for Terrorism and Financial Intelligence David S. Cohen. "The United States encourages other officials within the Syrian government, in both the political and military ranks, to take similarly courageous steps to reject the Assad regime and stand with the Syrian people."

On July 18, 2012, Treasury designated 29 senior officials of the Syrian government, including Prime Minister Riyad Hijab, pursuant to Executive Order 13573 of May 18, 2011 "Blocking Property of Senior Officials of the Government of Syria." Three weeks later Hijab chose to defect from the Syrian government and denounce its campaign of violence.

One of the goals of identifying and levying sanctions on specific individuals is to encourage them to reconsider their involvement with the current Syrian government. Today’s action illustrates the flexibility and responsiveness of the U.S. sanctions regime, allowing a prompt response to events on the ground. It is not too late for others who continue to provide support to the Assad regime to sever their ties and to be relieved of the burden of sanctions.

Newly appointed Prime Minister Wael Nader Al-Halqi was designated by the Treasury Department in July 2012, in his previous position as the Minister of Health. The sanctions against Al-Halqi remain in effect.

TREASURY DESIGNATED TWO EXCHANGE HOUSES WITH STORING OR MOVING MONEY FOR TALIBAN

Map Credit:  Wikimedia/CIA
FROM:  U.S. DEPARTMENT OF TREASURY 
Action Targets Terrorist Financing Linked to Hawalas
WASHINGTON – The U.S. Department of the Treasury today designated two exchange houses, the Haji Khairullah Haji Sattar Money Exchange (HKHS) and the Roshan Money Exchange (RMX), which principally operate in Afghanistan and Pakistan, pursuant to the U.S. government’s terrorism sanctions authority, Executive Order (E.O.) 13224, for storing or moving money for the Taliban. Treasury is also designating the co-owners of HKHS, Haji Abdul Sattar Barakzai and Haji Khairullah Barakzai, pursuant to E.O. 13224 for donating money and providing financial services to the Taliban.  Both HKHS and RMX operate as hawalas and have been used by the Taliban to facilitate money transfers in support of the Taliban’s narcotics trade and terrorist operations.  Today the United Nations also added Haji Abdul Sattar Barakzai, Haji Khairullah Barakzai, HKHS and RMX to its 1988 List of individuals, groups, undertakings and entities associated with the Taliban in constituting a threat to the peace, stability and security of Afghanistan.

“Today’s action, which coincides with action by the UN, is aimed at disabling two key financial hubs supporting the Taliban.  Whether financial support to the Taliban moves through banks or less formal mechanisms, like the hawalas we are designating in this action, we will continue to work alongside our partners to expose and disrupt this illicit financial activity,” said Under Secretary for Terrorism and Financial Intelligence David S. Cohen.

As a result of today’s action, all property in the United States or in the possession or control of U.S. persons in which HKHS, RMX, Haji Abdul Sattar Barakzai (Sattar), or Haji Khairullah Barakzai (Khairullah) have an interest is blocked, and U.S. persons are prohibited from engaging in transactions with them.

Haji Abdul Sattar Barakzai
Haji Abdul Sattar Barakzai is being designated today for owning, or controlling HKHS, and for providing financial, material, or technological support for, or financial, or other services to, or in support of, the Taliban.  Sattar is a co-owner and operator of HKHS.  Sattar and Khairullah have co-owned and jointly operated hawalas known as HKHS throughout Afghanistan, Pakistan, and Dubai and managed an HKHS branch in the Afghanistan-Pakistan border region.  As of late 2009, Sattar and Khairullah had an equal partnership in HKHS.  Sattar founded HKHS and customers chose to use HKHS in part because of Sattar’s and Khairullah’s well-known names.

Sattar has donated thousands of dollars to the Taliban to support Taliban activities in Afghanistan and has distributed funds to the Taliban using his hawala.  As of 2010, Sattar provided financial assistance to the Taliban.  As of late 2009, Sattar provided tens of thousands of dollars to aid the Taliban’s fight against Coalition Forces in Marjah, Nad’Ali District, Helmand Province, Afghanistan, and helped to transport a Taliban member to Marjah.  As of 2008, Sattar and Khairullah collected money from businessmen and distributed the funds to the Taliban using their hawala.

Haji Khairullah Barakzai
Haji Khairullah Barakzai is being designated today for owning or controlling HKHS, and for providing financial, material, or technological support for, or financial, or other services to, or in support of, the Taliban.  Khairullah is a co-owner and operator of HKHS.  As of late 2009, Khairullah and Sattar had an equal partnership in HKHS.  They jointly operated hawalas known as HKHS throughout Afghanistan, Pakistan, and Dubai and managed an HKHS branch in the Afghanistan-Pakistan border region.  As of early 2010, Khairullah was the head of the HKHS branch in Kabul.

As of 2010, Khairullah was a hawaladar, or hawala operator, for Taliban senior leadership and provided financial assistance to the Taliban.  Khairullah, along with his business partner Sattar, provided thousands of dollars to the Taliban to support Taliban activities in Afghanistan.  As of 2008, Khairullah and Sattar collected money from businessmen and distributed the funds to the Taliban using their hawala.

Haji Khairullah Haji Sattar Money Exchange (HKHS)
Haji Khairullah Haji Sattar Money Exchange (HKHS) is being designated today for providing financial, material, or technological support for, or financial or other services to, or in support of, the Taliban.  HKHS is co-owned by Haji Abdul Sattar Barakzai and Haji Khairullah Barakzai.  Sattar and Khairullah have jointly operated money exchanges throughout Afghanistan, Pakistan, Iran, and the United Arab Emirates (UAE).  Taliban leaders have used HKHS to disseminate money to Taliban shadow governors and commanders and to receive hawala transfers for the Taliban.

As of 2011, HKHS was a preferred method for Taliban leadership to transfer money to Taliban commanders in Afghanistan.  In late 2011, the HKHS branch in Lashkar Gah, Helmand Province, Afghanistan was used to send money to the Taliban shadow governor for Helmand Province.  In mid-2011, a Taliban commander used an HKHS branch in the Afghanistan-Pakistan border region to fund fighters and operations in Afghanistan. After the Taliban deposited a significant amount of cash monthly with this HKHS branch, Taliban commanders could access the funds from any HKHS branch.  Taliban personnel used HKHS in 2010 to transfer money to hawalas in Afghanistan, where operational commanders could access the funds.  As of late 2009, the manager of the HKHS branch in Lashkar Gah oversaw the movement of Taliban funds through HKHS.

Roshan Money Exchange
Roshan Money Exchange (RMX) is being designated today for providing financial, material, or technological support for, or financial, or other services to, or in support of, the Taliban.  RMX stores and transfers funds in support of Taliban military operations and the Taliban’s role in the Afghan narcotics trade.  As of 2011, RMX was one of the primary hawalas used by Taliban officials in Helmand Province.
In 2011, a senior Taliban member withdrew hundreds of thousands of dollars from an RMX branch in the Afghanistan-Pakistan border region to distribute to Taliban shadow provincial governors.  To fund the Taliban’s spring offensive in 2011, the Taliban shadow governor of Helmand Province sent hundreds of thousands of dollars to RMX.  Also in 2011, a Taliban member received tens of thousands of dollars from RMX to support military operations.  An RMX branch in the Afghanistan-Pakistan border region also held tens of thousands of dollars to be collected by a Taliban commander.  In 2010, on behalf of the Taliban shadow governor of Helmand Province, a Taliban member used RMX to send thousands of dollars to the Afghanistan-Pakistan border region.

The RMX branch in Lashkar Gah, Helmand Province, has been used by the Taliban to transfer funds for operations to Helmand Province.  In 2011, a Taliban sub-commander transferred tens of thousands of dollars to a Taliban commander through the RMX branch in Lashkar Gah.  The Taliban also sent funds to the RMX branch in Lashkar Gah for distribution to Taliban commanders in 2010.  Also in 2010, a Taliban member used RMX to send tens of thousands of dollars to Helmand Province and Herat Province, Afghanistan, on behalf of the Taliban shadow governor of Helmand Province.
In 2009, a senior Taliban representative collected hundreds of thousands of dollars from an RMX branch in the Afghanistan-Pakistan border region to finance Taliban military operations in Afghanistan.  In 2008, a Taliban leader used RMX to transfer tens of thousands of dollars to Afghanistan.

The Taliban also uses RMX to facilitate its role in the Afghan narcotics trade.  As of 2011, Taliban officials, including the shadow governor of Helmand Province, transferred hundreds of thousands of dollars from an RMX branch in the Afghanistan-Pakistan border region to hawalas in Afghanistan for the purchase of narcotics on behalf of Taliban officials.  Also in 2011, a Taliban official directed Taliban commanders in Helmand Province to transfer opium proceeds through RMX.  One Taliban district chief transferred thousands of dollars from Marjah, Helmand Province, Afghanistan to an RMX branch in the Afghanistan-Pakistan border region.

U.S. DEPARTMENT OF THE TREASURY TARGETS DRUG KINGPINS

FROM:  U.S. DEPARTMENT OF TREASURY
Sanctions directed against a Son and Wife of Chapo Guzman Loera
WASHINGTON – The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced the designation of two key Sinaloa Cartel operatives, Maria Alejandrina Salazar Hernandez  and Jesus Alfredo Guzman Salazar, a wife and son of drug lord Joaquin “Chapo” Guzman Loera, respectively.  Today’s action, pursuant to the Foreign Narcotics Kingpin Designation Act (Kingpin Act), prohibits U.S. persons from conducting financial or commercial transactions with these two individuals, and also freezes any assets they may have under U.S. jurisdiction.

“Today marks the sixth time in the past year that OFAC has targeted and exposed operatives of the Chapo Guzman organization,” said OFAC Director Adam J. Szubin.  “This action builds on Treasury’s aggressive efforts, alongside its law enforcement partners, to target individuals who facilitate Chapo Guzman’s drug trafficking operations and to pursue the eventual dismantlement of his organization, which is culpable in untold violence.”

OFAC is designating Jesus Alfredo Guzman Salazar and Maria Alejandrina Salazar Hernandez for their roles in the operations of Guzman Loera’s drug trafficking organization and the Sinaloa Cartel.  Jesus Alfredo Guzman Salazar, along with his father Joaquin “Chapo” Guzman Loera, was indicted on multiple drug trafficking charges in the U.S. District Court for the Northern District of Illinois in August 2009.  Maria Alejandrina Salazar Hernandez provides material support to the drug trafficking activities of her husband Guzman Loera and the Sinaloa Cartel.

Guzman Loera and the Sinaloa Cartel were identified by the President as significant foreign narcotics traffickers pursuant to the Kingpin Act in 2001 and 2009, respectively.
Today’s action would not have been possible without the key support of the Drug Enforcement Administration as well as that of the ICE Homeland Security Investigations directorate.

Internationally, OFAC has designated more than 1,100 businesses and individuals linked to 97 drug kingpins since June 2000.  Penalties for violations of the Kingpin Act range from civil penalties of up to $1.075 million per violation to more severe criminal penalties.  Criminal penalties for corporate officers may include up to 30 years in prison and fines up to $5 million. Criminal fines for corporations may reach $10 million.  Other individuals could face up to 10 years in prison and fines pursuant to Title 18 of the United States Code for criminal violations of the Kingpin Act.

DEPUTY SECRETARY OF THE TREASURY SPEAKS BERORE SENATE COMMITTEE ON WALL STREET REFORM

FROM:  U.S. DEPARTMENT OF TREASURY
Testimony by Deputy Secretary Neal Wolin before the Senate Committee on Banking, Housing, and Urban Affairs on “Implementing Wall Street Reform: Enhancing Bank Supervision and Reducing Systemic Risk”

As prepared for delivery
WASHINGTON – Chairman Johnson, Ranking Member Shelby, and members of the Committee, thank you for the opportunity to appear here today to discuss progress implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).

The Dodd-Frank Act represents the most significant set of financial reforms since the Great Depression.  Its full implementation will help protect Americans from the excessive risk, fragmented oversight, and poor consumer protections that played such leading roles in bringing about the recent financial crisis.

That crisis, and the recession that accompanied it, cost nearly 9 million jobs, erased a quarter of families’ household wealth, and brought GDP growth to a low of nearly negative 9 percent.

Today, our economy has improved substantially, although more work remains ahead.  More than 4.3 million private sector jobs have been created over the past 27 months and, since mid-2009, our economy has grown at an average annual rate of 2.4 percent.

As part of our broader efforts to strengthen the economy, Treasury is focused on fulfilling its role in implementing the Dodd-Frank Act to build a more efficient, transparent, and stable financial system—one that contributes to our country’s economic strength, instead of putting it at risk.

The Dodd-Frank Act’s reforms address key failures in our financial system that precipitated and prolonged the financial crisis.  The Act’s core elements include:

Tougher constraints on excessive risk-taking and leverage across the financial system.  To lower the risk of failure of large financial institutions and reduce damage to the broader economy in the event a large financial institution does fail, the Dodd-Frank Act provides authority for regulators to impose tougher safeguards against risks that could threaten the stability of the financial system and the broader economy.

The Federal Reserve has proposed new standards to require banks to hold greater capital against risk and fund themselves more conservatively.  New rules restricting proprietary trading under the Volcker Rule and limits to the size of financial institutions relative to the total financial system have been proposed or will be proposed in the coming months.  Safeguards against excessive risk-taking and leverage will not only apply to the biggest banks, but also designated nonbank financial companies.  Importantly, the bulk of these requirements do not apply to small and community banks, and help level the playing field for these smaller participants by helping eliminate distortions that previously favored the biggest banks that held the most risk.

The Dodd-Frank Act also established the Financial Stability Oversight Council (the Council) to coordinate agencies’ efforts to monitor risks and emerging threats to U.S. financial stability, and the Office of Financial Research (OFR) to collect and standardize financial data, perform essential research, and develop new tools for measuring and monitoring risk in the financial system.

Orderly liquidation authority.  The Dodd-Frank Act created a new orderly liquidation authority to resolve a failed or failing financial firm if its failure would have serious adverse effects on the financial stability of the United States.  The statute makes clear that taxpayers will not be put at risk in the event a large financial firm fails.  Investors and management, not taxpayers, will be responsible for the cost of the failure.

The FDIC has completed most of the rules necessary to implement the orderly liquidation authority, and is engaging in planning exercises with Treasury and other regulators to coordinate how it would work in practice.  This summer, the largest bank holding companies will submit the first set of “living wills” to regulators and the Council.  These documents will lay out plans for winding down a firm if it faces failure.

Comprehensive oversight of derivatives.  The Dodd-Frank Act created a new regulatory framework for over-the-counter derivatives markets to increase oversight, transparency, and stability in this previously unregulated area of the financial system.

Regulators have proposed almost all the necessary rules to implement comprehensive oversight of the derivatives markets, and we expect most to be finalized this year.  We are already seeing signs of standardized derivatives moving to central clearing, and substantial work is being done to build out new financial infrastructure to move trades into clearing and onto electronic trading platforms.

Stronger consumer financial protection.  The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB) to consolidate consumer financial protection responsibilities that had been fragmented across several federal regulators into a single institution dedicated solely to that purpose.  The CFPB’s mission is to help ensure consumers have the information they need to make financial decisions appropriate for them, enforce Federal consumer financial laws, and restrict unfair, deceptive, or abusive acts and practices.

The CFPB is currently working to improve clarity and choice in consumer financial products through the Know Before You Owe project, which aims to simplify mortgage forms, credit card disclosures, and student financial aid offers.  The CFPB is also focused on helping improve consumer financial protections for groups like servicemembers and older Americans, as well as bringing previously unregulated consumer financial institutions, like payday lenders, credit reporting bureaus, and private mortgage originators, under federal supervision for the first time.  Earlier this year, the CFPB commenced its supervision of debt collectors and credit reporting agencies.

Transparency and market integrity.  The Dodd-Frank Act included a number of measures that increase disclosure and transparency of financial markets, including new reporting rules for hedge funds, trade repositories to collect information on derivatives markets, and improved disclosures on asset-backed securities.

This summer, the largest hedge funds and private equity funds will be required to report important information about their investments and borrowing for the first time, helping regulators understand exposures at these significant investment vehicles.  New swaps data repositories are being created that will provide regulators and market participants with a stronger understanding of the scale and nature of exposures within previously opaque derivatives markets.

Treasury’s core responsibilities in implementing the Dodd-Frank Act include the Secretary’s role as Chairperson of the Council, standing up the Office of Financial Research and Federal Insurance Office, and coordinating the rulemaking processes for risk retention for asset-backed securities and the Volcker Rule.

The Financial Stability Oversight Council
The Dodd-Frank Act created the Financial Stability Oversight Council to identify risks to the financial stability of the United States, promote market discipline, and respond to emerging threats to the stability of the U.S. financial system.

The Council is actively engaged in these activities and has begun to institutionalize its role.  To date, the Council has held 17 principals meetings, four since I last testified in December.  In recent months, the Council’s principals have come together to share information on a range of important financial developments as the Council, its members, and staff have actively engaged in monitoring the situation in Europe, in housing markets, the interaction of the economy and energy markets, and the lessons to be drawn from recent errors in risk management at several major financial institutions, including the failure of MF Global and trading losses at JPMorgan Chase.  In addition to regular engagement at the principals level, the Council has active staff discussions through twice monthly deputies level meetings and ongoing staff work on individual committee and project workstreams.

The Council expects to release its second annual report on financial market and regulatory developments and potential emerging threats to our financial system in July.  In addition to providing new recommendations, the report will include an update on the progress made on last year’s recommendations, which focused on enhancing the integrity, efficiency, competitiveness, and stability of U.S. financial markets, promoting market discipline, and maintaining investor confidence.

One of the duties of the Council is to facilitate information-sharing and coordination among its members regarding rulemaking, examinations, reporting requirements, and enforcement actions.  Through meetings among principals, deputies, and staff, the Council has served as an important forum for increasing coordination among the member agencies.  Some argue that the Council should be able to ensure particular outcomes in independent agencies’ rules, or perfect harmony between rules with disparate statutory bases.  While the Council serves a very important role in bringing regulators together, the Dodd-Frank Act did not eliminate the independence of regulators to write rules within their statutory mandates.

Nonetheless, the Dodd-Frank Act implementation process has brought about unprecedented cooperation among agencies in writing new rules for our financial system.  As Chair of the Council, Treasury continues to make it a top priority that the work of the regulators is well-coordinated.

The Treasury Secretary, as Chairperson of the Council, is coordinating the rulemaking required for the Dodd-Frank Act’s risk retention requirements, which are designed to improve the alignment of interests between originators of risk and securitizers of, and investors in, asset-backed securities.  After the proposed rule was released, the rule-writers received over 13,000 comment letters, and they are continuing to review feedback as they work towards a final rule.

The Council has also made progress on two of its direct responsibilities under the Dodd-Frank
Act: designating financial market utilities (FMUs) and nonbank financial companies for enhanced prudential standards and supervision.

In July 2011, the Council finalized a rule setting the process and criteria for designating FMUs and, in August, began working to identify FMUs for consideration in accordance with the statue and the rule.  In January 2012, an initial set of FMUs were notified that they would be under consideration for designation.  In May, the Council unanimously voted to propose the designation of an initial set of FMUs as systemically important.  This vote is not a final determination, and FMUs may request a hearing before the Council to contest a proposed designation.  The Council expects to make final determinations on an initial set of FMU designations as early as this summer.

In April 2012, the Council issued a final rule and interpretive guidance establishing quantitative and qualitative criteria and procedures for designations of nonbank financial companies.  The Council has begun work to apply the process described in the guidance.  The Council recognizes that the designation of nonbank financial companies is an important part of the Dodd-Frank Act’s implementation and intends to proceed with due care as expeditiously as possible.

The Dodd-Frank Act also provides for limits on the growth and concentration of our largest financial institutions.  The Council has released a study and recommendations on the effective implementation of these limitations, and the Federal Reserve is expected to propose a rule to implement concentration limits later this year.

The Office of Financial Research
The Dodd-Frank Act established the Office of Financial Research to collect and standardize financial data, perform essential research, and develop new tools for measuring and monitoring risk in the financial system.

In December 2011, President Obama nominated Richard Berner to be the OFR’s first Director.  I appreciate this committee’s support of Mr. Berner’s nomination.  Confirmation by the full Senate is important to ensure the OFR can fulfill its critical role.

A key component of the OFR’s mission is supporting the Council and its member agencies by analyzing financial data to monitor risk within the financial system.  Currently, the OFR is working on a number of projects with the Council, including providing analysis related to the Council’s evaluation of nonbank financial companies for potential designation for Federal Reserve supervision and enhanced prudential standards; providing data and analysis in support of the Council’s second annual report on financial market and regulatory developments and potential emerging threats to our financial system; and, in collaboration with Council member agencies, developing metrics and indicators related to financial stability.

To avoid duplicating existing government collection efforts or imposing unnecessary burdens on financial institutions, the OFR is focused on ensuring it relies on data already collected by regulatory agencies whenever possible.  The OFR is working with regulators to catalogue the data they already collect, along with exploring ways it could promote stronger data sharing for the regulatory community to generate efficiencies and improved interagency cooperation.

As part of its mission, the OFR is also promoting standards to improve the quality and scope of financial data, which in turn should help regulators and market participants mitigate risks to the financial system and provide firms with important efficiencies and cost-savings.  One ongoing priority is establishing a Legal Entity Identifier (LEI), or unique, global standard for identifying parties to financial transactions, to improve data quality and consistency.  The OFR is playing a lead role in the international process coordinated by the Financial Stability Board (FSB) to develop an LEI.  Just last week, the FSB endorsed recommendations the OFR developed in conjunction with its international counterparts to establish a global LEI system.  This recognition allows market participants to begin preparing for the implementation of the global LEI next year.

A more comprehensive understanding of the largest and most complex financial firms’ exposures is critical to identifying risks to the financial system and mitigating future crises.  However, some have expressed concerns about the OFR—involving its accountability, access to personal financial information, and ability to secure sensitive data—that are unfounded.

First, Congress has oversight authority over the OFR, and the statute requires the Director to testify regularly before Congress.  Consistent with requirements under the Dodd-Frank Act, the OFR will provide the Congress with its first Annual Report on its activities this summer and a second report, on the Office’s human resources practices, later this year.  In addition, the Dodd-Frank Act provides authority for Treasury’s Inspector General, the Government Accountability Office, and the Council of Inspectors General on Financial Oversight to oversee the activities of the OFR.

Second, regarding data collection, the Dodd-Frank Act does not contemplate and the OFR will not collect personal financial information from consumers.  The OFR, like other banking regulators, only has the authority to collect information from financial institutions, not individual citizens.  The OFR will only utilize data required to fulfill its mission—assessing threats to stability across the financial system.

Lastly, data security is the highest priority for the OFR.  As an office of the Department of the Treasury, the OFR utilizes Treasury’s sophisticated security systems to protect sensitive data.  The OFR is also implementing additional controls for OFR-specific systems, including a secure data enclave within Treasury’s IT infrastructure.  Access to confidential information will only be granted to personnel that require it to perform specific functions, and the OFR will regularly monitor and verify its use to protect against unauthorized access.  In addition, the OFR is working in collaboration with other Council members to develop a mapping among data classification structures and tools to support secure collaboration and data sharing. Such tools include a data transmission protocol currently used by other Council members that will enable interagency data exchange and a secure collaboration tool for sharing documents.

The Federal Insurance Office
The Dodd-Frank Act created the Federal Insurance Office to monitor all aspects of the insurance industry, identify issues or gaps in regulation that could contribute to a systemic crisis in the insurance industry or financial system, monitor the accessibility and affordability of non-health insurance products to traditionally underserved communities, coordinate and develop federal policy on prudential aspects of international insurance matters, and contribute expertise to the Council.

As a member of the Council, FIO, in addition to two additional Council members that focus on insurance, has been actively involved in the rulemaking establishing the process for the designation of nonbank financial companies.  FIO will be engaged in the review of nonbank financial companies as this process moves forward.

Until the establishment of FIO, the United States was not represented by a single, unified federal voice in the development of international insurance supervisory standards.  FIO is providing important leadership in developing international insurance policy.  Recently, FIO assumed a seat on the executive committee of the International Association of Insurance Supervisors (IAIS).  The IAIS, in cooperation with the Financial Stability Board (FSB), is developing the methodology and indicators to identify global systemically important insurers, and FIO is actively engaged in that process.  Additionally, FIO established and has provided necessary leadership in the EU-U.S. insurance dialogue regarding such matters as group supervision, capital requirements, reinsurance, and financial reporting.  FIO also participated in the recent U.S.-China Strategic and Economic Dialogue in Beijing.  Importantly, FIO has and will continue to work closely and consult with state insurance regulators and other federal agencies in its work.

Priorities Ahead
Under the Dodd-Frank Act, Treasury is charged with coordinating the implementation of the Volcker Rule.  Treasury is actively engaged with the independent regulatory agencies in their work to finalize the Volcker Rule and make sure it is implemented effectively to prohibit proprietary trading activities and limit investments in and sponsorship of hedge funds and private equity funds.

The five Volcker Rule rulemaking agencies released substantially identical proposed rules, which reflect the commitment of Treasury and the regulators to a coordinated approach.  The comment periods for all five rulemaking agencies are now complete, and we are reviewing and analyzing over 18,000 public comment letters.  Treasury is hosting and actively participates in weekly interagency meetings to review those comments, and remains committed to fulfilling our coordination role and working with the rulemaking agencies to achieve a strong and consistent final rule.

Regulators are still in the process of conducting their evaluation of what happened with respect to recent losses at JPMorgan Chase, and why.  The lessons learned from the recent failures in risk management at JPMorgan are an important input into the ongoing efforts to design strong safeguards and reforms, including, of course, those in the Volcker Rule.

The Volcker Rule, as reflected in the statutory language enacted as part of the Dodd-Frank Act and in the proposed rule, explicitly exempts from the prohibition on proprietary trading the ability of firms to engage in “risk-mitigating hedging activities in connection with and related to individual or aggregated positions…designed to reduce the specific risks to the banking entity.”  To that end, the final rule should clearly prohibit activity that, even if described as hedging, does not reduce the risks related to specific individual or aggregate positions held by a firm.

The exposures accumulated by JPMorgan, in the words of its executives, resulted in potential losses that exceeded its internal limits and those estimated by its internal risk management systems.  This raises concerns that go well beyond the scope of the Volcker Rule.  Among other things, regulators should require that banks’ senior management and directors put in place effective models to evaluate risk, strengthen reporting structures to ensure risks are assessed independently and at appropriately senior levels, and establish clear accountability for failures in risk management.  Regulators should make sure that they have a clear understanding of exposures and that banks and their senior management are held accountable for the thoroughness and reliability of their risk management systems.  To further accountability, there should also be appropriate public transparency of risk management systems and internal limits.

Ultimately, the true test of reform is not whether it prevents firms from taking risk or from making mistakes, but whether our financial regulatory system is tough enough and designed well enough to prevent those mistakes from hurting the broader economy or costing taxpayers money.  We all have an interest in achieving this outcome.

I emphasize the broader framework of reforms because our ability to protect the economy from financial mistakes in banks depends on the authority and resources we have to enforce tougher capital, leverage, and liquidity requirements on banks and the largest, most complex nonbank financial companies.

It depends on our ability to put in place the full framework of protections in the Dodd-Frank Act on derivatives, from margin requirements and central clearing of standardized derivatives to greater transparency into risks and exposures.

It depends on the resources available to the SEC, the CFTC, the CFPB and the other enforcement authorities to police and deter manipulation, fraud, and abuse.

It depends on our ability to protect taxpayers from future financial failures, in particular our ability to safely unwind a large firm without the broad collateral damage and risk to the taxpayer that we experienced in 2008.

And it depends on making sure that no exception built into the law is allowed to swallow the rule, frustrate the core purpose of the legislation, or otherwise undermine the impact of the tough safeguards we need.

The challenges our economy continues to experience since the financial crisis in 2008 only increase our commitment to make sure we meet our responsibility to the American public to implement lasting financial reform.

Recent events provide an additional reminder that comprehensive reform must continue to move forward.  The Administration will continue to resist all efforts to roll back reforms already in place or block progress for those that remain to be implemented.  The lessons of the financial crisis should not be left unlearned or forgotten, nor should American workers—or American taxpayers—be left unprotected from the consequences of future financial instability.

I appreciate the opportunity to discuss the priorities and progress associated with our work implementing the Dodd-Frank Act, and the leadership and support of this committee in those efforts.

Thank you.

PRESIDENT SIGNS NEW EXECUTIVE ORDER TARGETING FOREIGN SANCTIONS EVADERS

FROM:  U.S. DEPARTMENT OF TREASURY
FACT SHEET: New Executive Order Targeting Foreign Sanctions Evaders
WASHINGTON – Today the President signed an Executive Order (E.O.), “Prohibiting
Certain Transactions with and Suspending Entry into the United States of Foreign Sanctions Evaders with Respect to Iran and Syria,” providing the U.S. Treasury Department with a new authority to tighten further the U.S. sanctions on Iran and Syria.

This E.O. targets foreign individuals and entities that have violated, attempted to violate, conspired to violate, or caused a violation of U.S. sanctions against Iran or Syria, or that have facilitated deceptive transactions for persons subject to U.S. sanctions concerning Syria or Iran. With this new authority, Treasury now has the capability to publicly identify foreign individuals and entities that have engaged in these evasive and deceptive activities, and generally bar access to the U.S. financial and commercial systems.

“The foreign sanctions evaders E.O. provides Treasury additional means to impose serious consequences on foreign persons who seek to evade our sanctions and undermine international efforts to bring pressure to bear on the Iranian and Syrian regimes. Whoever tries to evade our sanctions does so at the expense of the people of Syria and Iran, and they will be held accountable,” said Under Secretary for Terrorism and Financial Intelligence David S. Cohen.

Upon Treasury’s identification and listing of a foreign sanctions evader, U.S. persons will generally be prohibited from providing to, or procuring from, the sanctioned party goods, services, or technology, effectively cutting the evader off from the U.S. marketplace. This provides Treasury with a powerful new tool to prevent, deter, and respond to the risks posed by sanctions evaders to the U.S. and global financial system. It also will help prevent U.S. persons from unwittingly engaging in transactions with foreign individuals and entities that pose a particular risk of running afoul of U.S. sanctions concerning Iran or Syria.

The foreign sanctions evaders E.O. is the latest in a broad-based and escalating series of steps taken by the United States and its international partners targeting the governments of Iran and Syria with respect to their abuse of human rights, support for terrorism, and proliferation and development of weapons of mass destruction. The foreign sanctions evaders E.O. follows by one week the Executive Order Blocking The Property And Suspending Entry into the United States of Certain Persons with Respect to Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology (the “GHRAVITY E.O.”), which targeted the provision and use of information and communications technology to facilitate computer or network disruption, monitoring, or tracking that could assist in or enable serious human rights abuses by or on behalf of the Government of Iran or the Government of Syria.