United States and Canada Target Key International Fundraiser for Foreign Terrorist Organization PFLP

WASHINGTON — Today, in a joint action with Canada, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated the Samidoun Palestinian Prisoner Solidarity Network, or “Samidoun,” a sham charity that serves as an international fundraiser for the Popular Front for the Liberation of Palestine (PFLP) terrorist organization. The PFLP, which was designated as a Foreign Terrorist Organization and a Specially Designated Global Terrorist by the U.S. Department of State in October 1997 and October 2001, respectively, uses Samidoun to maintain fundraising operations in both Europe and North America. Also designated today is Khaled Barakat, a member of the PFLP’s leadership. Together, Samidoun and Barakat play critical roles in external fundraising for the PFLP. Today’s action is being taken pursuant to the counterterrorism authority Executive Order (E.O.) 13224, as amended. 

In a coordinated effort, the Government of Canada has listed Samidoun as a terrorist entity under its Criminal Code, effective Friday, Oct. 11. The listing of an entity is a public means of identifying a group or individual as being associated with terrorism. The Criminal Code prohibits certain actions in relation to terrorist groups, including those related to terrorist financing, such as knowingly dealing with any property that belongs to a terrorist.  

“Organizations like Samidoun masquerade as charitable actors that claim to provide humanitarian support to those in need, yet in reality divert funds for much-needed assistance to support terrorist groups,” said Acting Under Secretary of the Treasury for Terrorism and Financial Intelligence Bradley T. Smith. “The United States, together with Canada and our like-minded partners, will continue to disrupt those who seek to finance the PFLP, Hamas, and other terrorist organizations.”

“Canada remains committed to working with our key partners and allies, like the United States, to counter terrorist organizations and their fundraisers,” remarked the Honourable Dominic LeBlanc, Canadian Minister of Public Safety, Democratic Institutions and Intergovernmental Affairs. “Today’s joint action with the U.S. sends a strong message that our two nations will not tolerate this type of activity and will do everything in our power to ensure robust measures are in place to address terrorist financing.”

In coordination with Canada, OFAC is targeting a sham fundraiser whose efforts have supported terrorism. When terrorists and terrorist organization abuse the non-profit sector, legitimate organizations have more difficulty securing financial services. This impacts their ability to provide support for basic human needs like food, medicine, and shelter in Gaza and the West Bank. By publicly identifying sham charities, this action reduces the overall risk of the NPO sector and preserves access by legitimate humanitarian organizations to financial services. This action builds on OFAC’s recent action on October 7, 2024, which sought to expose terrorists and terrorist organizations that abuse the non-profit organization sector by raising funds under the guise of charitable work, and was also enabled by key data from Treasury’s Financial Crimes Enforcement Network (FinCEN).

THE POPULAR FRONT FOR THE LIBERATION OF PALESTINE (PFLP)

The PFLP is a terrorist group operating in Gaza and the West Bank. It has been a designated FTO since 1997 and is the second largest Palestine Liberation Organization (PLO) faction despite boycotting PLO meetings since 2018. PFLP remained committed to terrorist activity through its armed apparatus, the Martyr Abu Ali Mustafa Brigades, and the group has been active in the Israel-Hamas conflict, to include participating in the horrific attacks against Israeli civilians on October 7, 2023. PFLP has not held any leadership positions in the PLO since 2016.

PFLP FUNDRAISERS: SAMIDOUN AND BARAKAT

The Samidoun Palestinian Prisoner Solidarity Network (Samidoun), a front organization based in Vancouver, Canada and established by the PFLP, is involved in fundraising for the PFLP. Samidoun serves as a front for the group in countries where the PFLP is declared a terrorist organization. While the organization ostensibly supports Palestinian prisoners and their family members, in practice Samidoun provides financial support to the sanctioned PFLP. In addition to today’s joint action with Canada, Samidoun was also banned by Germany in a separate November 2023 action.

Khaled Barakat (Barakat) is a Canadian citizen and a member of the PFLP and serves as part of the group’s leadership abroad. His fundraising and recruitment efforts support the PFLP’s terrorist activity against Israel. Barakat has previously publicly acknowledged Samidoun’s affiliation with the PFLP, despite direction from PFLP leadership to maintain the confidential nature of the relationship.

Samidoun is being designated pursuant to E.O. 13224, as amended, for being owned, controlled, or directed by, or having acted for or on behalf of, directly or indirectly, the PFLP. Barakat is being designated pursuant to E.O. 13224, as amended, for having acted or purported to act for or on behalf of, directly or indirectly, the PFLP.

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of the designated persons described above, and of any entities that are owned directly or indirectly, 50 percent or more by them, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. 

U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons within the United States, and all U.S.-incorporated entities and their foreign branches. Non-U.S. persons are also subject to certain OFAC prohibitions. For example, non-U.S. persons are prohibited from causing or conspiring to cause U.S. persons to wittingly or unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions. Violations of OFAC regulations may result in civil or criminal penalties.

In addition, non-U.S. financial institutions and other persons that engage in certain transactions or activities with sanctioned entities and individuals may expose themselves to sanctions risk or be subject to an enforcement action. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated person, or the receipt of any contribution or provision of funds, goods, or services from any such person. 

OFAC may impose civil penalties for sanctions violations based on strict liability, meaning that a person subject to U.S. jurisdiction may be held civilly liable even if such person did not know or have reason to know that it was engaging in a transaction that was prohibited under sanctions laws and regulations administered by OFAC. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. economic sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation. For additional information on complying with U.S. sanctions and export control laws, please see Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note.

Furthermore, engaging in certain transactions with the individuals designated today entails risk of secondary sanctions pursuant to E.O. 13224, as amended. Pursuant to this authority, OFAC can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account of a foreign financial institution that knowingly conducted or facilitated any significant transaction on behalf of a Specially Designated Global Terrorist.

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the Specially Designated Nationals and Blocked Persons (SDN) List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 here. For detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.

Treasury remains committed to enabling the flow of legitimate humanitarian assistance supporting the basic human needs of vulnerable populations, while continuing to deny resources to malicious actors. Accordingly, OFAC sanctions programs contain provisions for legitimate humanitarian support to vulnerable populations, including authorizations for certain humanitarian transactions in support of nongovernmental organizations’ activities. For more information, please review relevant authorizations and guidance on OFAC’s website.

Click here for more information on the persons designated today.

Additional Treasury resources on countering the financing of terrorism and providing humanitarian assistance to the Palestinian people:

 

 

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Treasury Expands Targeted Sanctions on Iranian Petroleum and Petrochemical Sectors in Response to Attack on Israel

WASHINGTON — Today, the United States is expanding sanctions on Iran’s petroleum and petrochemical sectors in response to Iran’s October 1 attack on Israel, its second direct attack on Israel this year. This action intensifies financial pressure on Iran, limiting the regime’s ability to earn critical energy revenues to undermine stability in the region and attack U.S. partners and allies. The Secretary of the Treasury, in consultation with the Secretary of State, is identifying the petroleum and petrochemical sectors of the Iranian economy pursuant to section 1(a)(i) of Executive Order (E.O.) 13902, which allows Treasury to target a broader range of activities relating to Iran’s trade in petroleum and petrochemical products. E.O. 13902 provides authority to identify and impose sanctions on key sectors of Iran’s economy to deny the Iranian government financial resources that may be used to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence. Pursuant to this determination, the Treasury may impose sanctions on any person determined to operate in the petroleum and petrochemical sectors of the Iranian economy. 

OFAC is also designating 10 entities in multiple jurisdictions and identifying 17 vessels as blocked property, pursuant to E.O. 13846, for their involvement in shipments of Iranian petroleum and petrochemical products in support of the U.S.-designated National Iranian Oil Company (NIOC) and Triliance Petrochemical Co. Limited (Triliance). The U.S. Department of State is also designating six entities and identifying six vessels as blocked property pursuant to E.O. 13846 for knowingly engaging in a significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum or petroleum products from Iran. Collectively, these actions target a significant portion of the shadow fleet of tankers and illicit operators that move the Iranian regime’s petroleum exports. NIOC was designated pursuant to the counterterrorism authority E.O. 13224, as amended, on October 26, 2020, for its financial support to Iran’s Islamic Revolutionary Guard Corps – Qods Force. Triliance was designated pursuant to E.O. 13846 on January 23, 2020 for facilitating the sale of Iranian petroleum products from NIOC.

“In response to Iran’s attack on Israel, the United States is taking decisive action to further disrupt the Iranian regime’s ability to fund and carry out its destabilizing activity,” said Secretary of the Treasury Janet L. Yellen.  “Today’s sanctions target Iranian efforts to channel revenues from its energy industry to finance deadly and disruptive activity—including development of its nuclear program, the proliferation of ballistic missiles and unmanned aerial vehicles, and support to regional terrorist proxies—with dangerous consequences for the region and the world. We will not hesitate to take further action to hold Iran accountable.”

The United States is taking this action in the spirit of the Stop Harboring Iranian Petroleum Act (SHIP Act), enacted as a part of the Emergency Supplemental Appropriations for the 2024 Fiscal Year (P.L. 118-50), which imposes sanctions against foreign persons involved in the trade of petroleum and petroleum products originating in Iran and was recently delegated by the President to the Departments of the Treasury and State.

IRAN’S GHOST FLEET 

Iran’s oil exports are enabled by a network of illicit shipping facilitators in multiple jurisdictions which, through obfuscation and deception, load and transport Iranian oil for sale to buyers in Asia. United Arab Emirates (UAE)-based Max Maritime Solutions FZE (Max Maritime) has used vessels under its management to conduct multiple ship-to-ship transfers of Iranian oil with vessels affiliated with the U.S.-designated National Iranian Tanker Company (NITC), which moves Iranian oil for NIOC, and to transport that oil to refineries in the People’s Republic of China (PRC). The Max Maritime-managed BENDIGO (IMO: 9289491) and CARNATIC (IMO: 9304655) conducted nearly a dozen ship-to-ship transfers of Iranian oil with NITC-affiliated vessels in 2023 alone. Much of this oil was later shipped to refineries in the PRC. Max Maritime also manages the SALVIA (IMO: 9297319), which has also transported Iranian oil to multiple refineries in the PRC. 

Max Maritime is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC. The BENDIGO, CARNATIC, and SALVIA are being identified as property in which Max Maritime has an interest pursuant to E.O. 13846. 

The LUNA PRIME (IMO: 9174220), formerly known as the Selene and owned and managed by Hong Kong-based Cathay Harvest Marine Ltd (Cathay Harvest), has also transported Iranian oil to multiple refineries in the PRC. The vessel also conducted a ship-to-ship transfer with a NITC vessel near Singapore to transport tens of thousands of metric tons of Iranian heavy crude oil. 

Cathay Harvest is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC, a person whose property and interests in property are blocked pursuant to E.O. 13846. The LUNA PRIME is being identified as property in which Cathay Harvest has an interest pursuant to E.O. 13846.

Liberia-based Elza Shipping SA is the registered owner of the ELZA (IMO: 9221671) 

The ELZA was involved in the transfer of hundreds of thousands of barrels of condensate from a NITC vessel and also conducted a ship-to-ship transfer with a NITC vessel near Singapore to transport tens of thousands of metric tons of South Pars condensate. 

Elza Shipping SA is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC. The ELZA is being identified as property in which Elza Shipping SA has an interest pursuant to E.O. 13846. 

UAE-based Jazira Das International Oil Products Trading LLC has served as the consignee on falsified cargo documents, masking millions of barrels of NIOC Iranian crude as Emirati oil.  The company has also coordinated shipping activities for multiple NIOC oil shipments with U.S.-designated China Concord Petroleum Company, transporting millions of barrels of oil and obfuscating NIOC’s involvement in the shipments. 

Jazira Das International Oil Products Trading LLC is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC.

The Harry Victor Ship Management and Operation L.L.C. has managed a vessel that has transported multiple shipments of Iranian petrochemicals for Iran’s Triliance Petrochemical Co. Limited. Harry Victor Ship Management and Operation L.L.C. manages the vessels the GOODWIN (IMO: 9379703), ANHONA (IMO: 9354521), and WEN YAO (IMO: 9288095).

Harry Victor Ship Management and Operation L.L.C. is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Triliance Petrochemical Co. Limited. The GOODWIN, ANHONA, and WEN YAO are being identified as property in which Harry Victor Ship Management and Operation L.L.C. has an interest pursuant to E.O. 13846.

Marshall Islands-based Rita Shipping Inc is the registered owner and manager of the SPIRIT OF CASPER (IMO: 9224271). The SPIRIT OF CASPER has carried multiple shipments of Iranian oil to refineries in the PRC.

Rita Shipping Inc is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of NIOC. The SPIRIT OF CASPER is being identified as property in which Rita Shipping Inc has an interest pursuant to E.O. 13846.

PRC-based Derecttor Company Limited is beneficial owner, manager, and operator of the CRYSTAL ROSE (IMO: 9292228) and the manager and operator of the CARINA (IMO: 9240512). The CRYSTAL ROSE has transported hundreds of metric tons of Iranian oil on multiple shipments to China on behalf of NIOC and U.S.-designated China Concord Petroleum Co., Limited. The CARINA has transported shipments of Iranian oil to multiple PRC-based refineries. 

Derecttor Company Limited is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC. The CRYSTAL ROSE and the CARINA are being identified as property in which Derecttor Company Limited has an interest pursuant to E.O. 13846.

Malaysia-based Delnaz Ship Management Sdn Bhd is the manager and operator of the DIMITRA II (IMO: 9208215), which has been used by China Concord Petroleum Co., Limited to ship millions of barrels of Iranian oil from the NIOC to the PRC. The TYCHE I (IMO: 9247390), SATINA (IMO: 9308778), and CROSS OCEAN (IMO: 9251810) are additional vessels managed and operated by Delnaz Ship Management Sdn Bhd.

Delnaz Ship Management Sdn Bhd is being designated pursuant to E.O. 13846 for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, NIOC. The DIMITRA II, TYCHE I, SATINA, and CROSS OCEAN are being identified as property in which Delnaz Ship Management Sdn Bhd has an interest pursuant to E.O. 13846.

Panama-registered Diamante Tankers Incorporated is the owner, operator, and manager of the AVENTUS I (IMO: 9280873), which has been in involved in the transfer of Iranian petroleum products.

Diamante Tankers Incorporated is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of NIOC. The AVENTUS I is being identified as property in which Diamante Tankers Incorporated has an interest pursuant to E.O. 13846.

Marshall Islands-registered Davina Shipping Inc is the owner, operator, and manager of the DAVINA (IMO: 9259367), which has delivered Iranian oil to the PRC.

Davina Shipping Inc is being designated pursuant to E.O. 13846 for, on or after November 5, 2018, having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of NIOC. The DAVINA is being identified as property in which Davina Shipping Inc has an interest pursuant to E.O. 13846.

STATE DEPARTMENT DESIGNATIONS

The U.S. Department of State is also taking action against a number of entities in multiple jurisdictions involved in the illicit movement of Iranian petroleum. 

Suriname-based Strong Roots Provider NV, Suriname-based Glazing Future Management NV, Suriname-based Engen Management NV, India-based Gabbaro Ship Services PVT LTD, Malaysia-based Alya Marine Sendirian Berhad, and Hong Kong-based Celia Armas Ltd are all being designated pursuant to E.O. 13846 for knowingly engaging in a significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum or petroleum products from Iran.

The vessel BERG 1 (IMO: 9262168) is being identified as property in which Strong Roots Provider NV has an interest pursuant to E.O. 13846.

The vessel VORAS (IMO: 9203265) is being identified as property in which Glazing Future Management NV has an interest pursuant to E.O. 13846.

The vessel HORNET (IMO: 9197844) is being identified as property in which Gabbaro Ship Services PVT LTD has an interest pursuant to E.O. 13846.

The vessels SHANAYE QUEEN (IMO: 9242118) and CAROL (IMO: 9070072) are being identified as property in which Alya Marine Sendirian Berhad has an interest pursuant to E.O. 13846.

The vessel OCTANS (IMO: 9224295) is being identified as property in which Celia Armas Ltd has an interest pursuant to E.O. 13846.

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of these targets that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. OFAC’s regulations generally prohibit all dealings by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of blocked or designated persons.

In addition, persons that engage in certain transactions with the individuals and entities designated today may themselves be exposed to sanctions or subject to an enforcement action. Non-U.S. persons are also prohibited from causing or conspiring to cause U.S. persons to wittingly or unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. sanctions, including the factors that OFAC generally considers when determining an appropriate response to an apparent violation. Furthermore, unless an exception applies, any foreign financial institution that knowingly facilitates a significant transaction for any of the individuals or entities designated today could be subject to U.S. sanctions.

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the SDN List, but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897 hereFor detailed information on the process to submit a request for removal from an OFAC sanctions list, please click here.

Click here for identifying information on the entities designated today.

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READOUT: Treasury and CFPB Roundtable on De-Risking and Consumer Protection

WASHINGTON – On Wednesday, June 26, the Department of the Treasury (Treasury) and the Consumer Financial Protection Bureau (CFPB) co-hosted a virtual roundtable to discuss federal government efforts to promote access to financial products and services while protecting the U.S. financial system from illicit actors and bolstering national security, as well as ensuring compatibility with consumer protection policies. The roundtable was led by Treasury Under Secretary for Terrorism and Financial Intelligence (TFI) Brian Nelson and CFPB Director Rohit Chopra.  Other senior leaders from the Treasury participated in the roundtable as well and helped outline U.S. Government current efforts while also identifying what further needed to be done.

Treasury’s De-Risking and Financial Inclusion Priorities and Progress

Under Secretary Nelson discussed Treasury’s 2023 National De-Risking Strategy, emphasizing that the inequitable curtailment of financial access is an area of pressing concern, while reinforcing the recommendations that Treasury laid out in the De-Risking Strategy to help address these issues.

He highlighted the 2022 statement on customer due diligence published by Treasury’s Financial Crimes Enforcement Network (FinCEN) in July 2022,[1] which reiterated Treasury’s longstanding position that no customer type represents a single level of uniform risk and that financial institutions are required to apply a risk-based approach.

He also underscored the impact of the historic general licenses issued or amended by TFI’s Office of Foreign Assets Control to support the flow of humanitarian assistance to vulnerable populations across the globe. The United States took the global lead to issue and amend these general licenses to ease the delivery of humanitarian aid and ensure a baseline of authorizations for the provision of humanitarian support across many sanctions programs.

Notably, Under Secretary Nelson discussed how Treasury soon would be proposing an update to the requirements for anti-money laundering and countering the financing of terrorism (AML/CFT) compliance programs, which would seek to help banks and other private sector firms be more effective and flexible in detecting and preventing illicit activity.   

Update:  On July 3, 2024, Treasury’s FinCEN issued a proposed rule to strengthen and modernize AML/CFT programs.  The proposed rule seeks to avoid one-size-fits-all approaches to customer risk that can lead to financial institutions declining to provide financial services to entire categories of customers. This proposal is consistent with a key recommendation in Treasury’s De-risking Strategy, which recommended proposing regulations to require financial institutions to have reasonably designed and risk-based AML/CFT programs supervised on a risk basis and taking into consideration the effects of financial inclusion. The proposed rule can be found on the Federal Register and written comments must be received on or before September 3, 2024. 

CFPB Priorities and Milestones

Director Chopra underscored the crucial importance of account access for financial inclusion and participation in society. Financial institutions have obligations to consumers under federal consumer financial law, in addition to their obligations to address fraud and illicit finance. For firms with careful, accurate programs, risk management and consumer protection are not in tension. However, overbroad policies or practices that affect ordinary consumers in addition to illicit actors may be unlawful.

As examples, Director Chopra described recent actions the CFPB has taken to address unlawful practices related to account closures, freezes, and denials. In November 2023, the CFPB took action against Citi for illegal discrimination against consumers the bank identified as Armenian American. The bank denied credit to consumers singled out as Armenian American due to a stereotype that this group of consumers was prone to crime and fraud. In December 2023, the CFPB took action against U.S. Bank for freezing tens of thousands of prepaid accounts for out-of-work consumers receiving unemployment benefits during the height of the COVID-19 pandemic, without providing people a reliable and quick way to regain access. Consumers were unable to access their accounts for weeks or more at a time.

Director Chopra expressed concerns about the role played by third-party data brokers and screening companies, given the pivotal services they provide financial institutions, and about consumers’ inability to contest unexplained account closures.

He also called for more collaboration with stakeholders to ensure consumers are able to access bank accounts and other financial services.  

The Director encouraged attendees who encounter problems with account denial, closure, or freezing to submit a complaint to the CFPB. 

Feedback from the Community

Community leaders and consumer advocates – representing Muslim and Arab Americans, New Americans, justice-involved individuals and other individuals, business and non-profit organizations – shared remarks with Director Chopra and Under Secretary Nelson regarding their personal and community experiences with account denial, freezes or closures, and discussed steps that policymakers and financial institutions could take to address these issues. For account opening, speakers discussed how institutional customer identification protocols can create barriers to account access for consumers who may have difficulty obtaining state-issued ID but can establish their identity through other means. For the impact of de-risking practices on consumers with bank accounts, speakers highlighted how account freezes and closures can cause significant financial harm to consumers, non-profit organizations, and small businesses. They expressed concern about third-party entities providing inaccurate and biased information used by financial institutions. They also described difficulties with learning why their accounts were frozen or closed and being left with no opportunity for meaningful recourse with their financial institution. Stakeholders noted that the exclusion of consumers from basic, mainstream financial products such as deposit accounts can spread fear and uncertainty in communities and likely lead consumers to rely on higher-cost alternative providers that may present greater risks.  

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The roundtable concluded with Under Secretary Nelson stating that he welcomed comments on the proposed rule for AML programs after publication through the public comment process available online, and confirmed how informative he found the dialogue to be in shaping his understanding around de-risking. Director Chopra equally praised the information and context he gained during the roundtable, and reiterated the ask for individuals to reach out to the CFPB and submit a consumer complaint when they feel they might be the victim of discrimination or other unlawful practices.

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U.S. Department of the Treasury Guarantees $498 Million in Bond Funding for Projects in Low-Income Communities, Marking Largest Bond Issuance in Program History

WASHINGTON – The U.S. Department of the Treasury’s Community Development Financial Institutions Fund (CDFI Fund) announced an agreement to issue three guarantees worth $498 million under the CDFI Bond Guarantee Program, the largest issuance in the program’s history.

The CDFI Bond Guarantee program provides long-term, fixed-rate capital for projects in low-income urban, rural, and Native communities, and the guarantees will be issued on behalf of 10 Eligible CDFIs under the fiscal year (FY) 2024 program round. Nearly $3 billion has been guaranteed since the program began in 2010.

“Community Development Financial Institutions play an essential role to help businesses and organizations get off the ground and expand all over the country. Today’s historic announcement will increase their access to capital to help realize projects that expand housing supply, grow small businesses, and ensure access to health care and child care,” said U.S. Secretary of the Treasury Janet L. Yellen. “Under the Biden-Harris Administration, we’ve made access to capital a top priority and worked with the CDFI Fund to significantly expand its efforts to help all communities grow and thrive.”

The FY 2024 program participants include:

Opportunity Finance Network will issue $173 million in bonds on behalf of the following seven Eligible CDFIs that will use funding for rental or owner-occupied housing, commercial real estate, day care centers, small businesses, and nonprofit organizations. Uses for housing funding include construction lending, mortgages, refinancing, and financing the development of rental housing and homeownership.

  • Renaissance Community Loan Fund, Inc. (RCLF) will receive a $20 million bond loan to fund owner-occupied homes in Mississippi and Alabama. RCLF is headquartered in Biloxi, Mississippi, and is a first-time recipient of a bond loan. 
  • Greater Minnesota Housing Fund (GMHF) will receive a $25 million bond loan to fund rental housing in Minnesota. GMHF’s home office is in Saint Paul, Minnesota. GMHF has received three prior bond guarantees in 2017, 2019, and 2022. 
  • Community Loan Fund New Jersey (LFNJ) will receive a $33 million bond loan to fund rental housing and commercial real estate, as well as fund small businesses, daycare centers, nonprofit organizations, and charter schools. LFNJ is headquartered in New Brunswick, New Jersey. LFNJ has received two prior bond loans in 2015 and 2019.
  • Florida Community Loan Fund (FCLF) will receive a $30 million bond loan to fund rental housing and commercial real estate, health care facilities like urgent care centers and physicians’ offices, nonprofit organizations, and rental housing within the state of Florida. FCLF is headquartered in Orlando, Florida, and received one prior bond loan in 2017.
  • Homewise will receive a $15 million bond loan to build commercial real estate and owner-occupied homes within the state of New Mexico, primarily Santa Fe and Albuquerque. Homewise is headquartered in Santa Fe, New Mexico, and received one prior bond loan in 2017.
  • Community First Fund (CFF) will receive a $20 million bond loan to build rental housing and commercial real estate, as well as fund small businesses, daycare centers, nonprofit organizations, and charter schools in Pennsylvania. CFF is headquartered in Lancaster, Pennsylvania, and received one prior bond loan in 2017.
  • Nonprofit Finance Fund (NFF) will receive a $30 million bond loan to build rental housing and commercial real estate, as well as fund small businesses, daycare centers, nonprofit organizations, and charter schools. NFF is headquartered in New York City with geographic presence in New York, Philadelphia, Los Angeles, Boston, and Oakland. NFF is a first-time applicant to the bond guarantee program.

Community Reinvestment Fund, USA (CRF) will issue a $150 million bond on behalf of the Community Development Trust (CDT). CDT plans to use the bond proceeds to fund charter schools and rental housing throughout the United States. CDT’s home office is in New York City and has received one prior bond issue in 2013.

CRF will also issue $175 million in bonds on behalf of the following two Eligible CDFIs:

  • The Reinvestment Fund (TRF) will receive a $100 million bond loan to fund rental housing, commercial real estate, day care centers, health care facilities, nonprofit organizations, small businesses, and charter schools in Philadelphia, Atlanta, and Baltimore. TRF is headquartered in Philadelphia, Pennsylvania. TRF has received two prior bond issues in 2014 and 2016.
  • IFF will receive a $75 million bond loan to fund rental housing, commercial real estate, day care centers, health care facilities, nonprofit organizations, small businesses, and charter schools in Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Ohio, and Wisconsin. IFF is headquartered in Chicago, Illinois, and has received one prior bond issue in 2014.

Established by the Small Business Jobs Act of 2010, the CDFI Bond Guarantee Program responds to a critical market need—low-cost, long-term capital to spur economic growth and jump start community revitalization. Under the program, Qualified Issuers (CDFIs or their designees) apply to the CDFI Fund for authorization to issue guaranteed bonds worth a minimum of $100 million in total. The bonds provide Eligible CDFIs with access to substantial long-term, fixed-rate capital to reignite the economies of distressed communities.

The program enables Eligible CDFIs to execute large-scale projects, including the development of housing, commercial real estate, charter schools, daycare or health care centers, and rural infrastructure projects, among other asset classes. As of July 31, 2024, more than $1.7 billion in bond proceeds has been disbursed in 32 states and the District of Columbia.

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Remarks by Under Secretary for International Affairs Jay Shambaugh on the Essential Role of the International Financial Institutions for the Global and U.S. Economies

As Prepared for Delivery 

Thank you, Josh, for your kind introduction, and to the Atlantic Council for having me. It is a pleasure to be here today.

In ten days, we’re going to have nearly the entire global financial policymaking apparatus descend on Washington, D.C. for the IMF and World Bank Annual Meetings. Gatherings like these are a good reminder of the various times policymakers have come together for a big cause.  And, while international economic policy can be a contentious space, allow me to start with something we can all agree on: it’s important to remember your anniversary.

The anniversary I’d like us to remember today is of a previous gathering of finance ministers and financial policymakers: the anniversary of Bretton Woods. Eighty-years ago, a group of 730 delegates representing 44 countries met at the Mount Washington Hotel in Bretton Woods, New Hampshire to hash out the future of the global economy. This was remarkably bold. The end of World War II was more than a year away. Paris was still under the grip of the Nazis. Yet even as they remained squarely focused on winning the war, the delegates at Bretton Woods understood that without planning, without reimagining the global economy and international system, they risked losing the peace. 

So today I’d like to reflect on the importance of the Bretton Woods institutions (The International Monetary Fund and the World Bank) and the international financial institutions writ large to U.S. economic security: that is, how they have lifted up the global economy and supported American strength and prosperity since their founding, how they stepped up through the crises of the past four years, and how we see their role in driving growth and prosperity in the years to come.

Why the Global Economy Matters to US Growth

When U.S. policymakers led in the creation of the Bretton Woods institutions, there was an altruistic motive to be sure.  Helping ensure robust global growth would be good for billions of people.  And that is still true.  Global growth has been the greatest anti-poverty program ever. As the world economy grew more than 250% over the last four decades, global extreme poverty rates fell from over 40% of the population to under 10%. But there was clearly a self-interested rationale as well. By supporting growth and helping fight crises, these institutions would help generate a more stable world. The hope was they could help prevent the economic collapse that came in the decades after World War I that many believe contributed to the rise of fascism and the start of World War II. 

And, a strong and stable global economy was seen as essential for a strong U.S. economy. The U.S. economy is the largest in the world. It is broad and diverse and can provide many of its needs – for example food and energy – domestically. But even the U.S. economy is not an island. 

Time and time again, the decades since Bretton Woods have corroborated this basic intuition of our predecessors at that conference about the importance of the global economy for U.S. growth. U.S. export growth, for example, has tracked growth in foreign GDP quite closely for many decades. This macroeconomic pattern reflects an existential imperative for U.S. businesses with significant exposures to global growth. This includes our largest firms, with for instance as much as 40 percent of all S&P 500 firms’ revenues derived from foreign markets in recent years.  Workers at these firms benefit from this
exposure: jobs in export industries have been shown to pay a wage premium of as high as 20 percent.

It is not just trade or foreign investment that depends on what happens in the rest of the world.  Our own investment levels are in many ways affected by global growth. There is strong empirical evidence that business investment follows an “accelerator” model in which increases in investment depend on increases in the rate of economic growth. To the extent that U.S. firms depend on the rest of the world for much of their revenues, their investment levels will depend on what they see as potential growth abroad.  And the evidence is that this effect of global growth on investment dynamics is significant (OECD 2015). 

The U.S. is roughly 16% of the global economy in purchasing power parity (PPP) terms and contributed 0.4 percentage points to real global growth in 2023. The strength of the U.S. economy was an upside surprise last year and helped drive global growth forward.  But, even in that circumstance, we comprised less than one seventh of total global growth. In addition, over the next half century, the UN estimates that virtually all population growth will occur in countries that are currently low- or lower-middle-income countries. It is essential that the global economy generate jobs and incomes where people are living.

We have also come to understand quite viscerally how crises that begin by threatening economies overseas ultimately impact American workers, families, and businesses. With the COVID-19 pandemic, a viral outbreak across the globe led to the sharpest drop to GDP since the Great Depression. It left many economies around the world smaller than they would have been on their pre-crisis growth trajectories – particularly when compounded by the effects of Russia’s unlawful war against Ukraine on global food and energy prices. Without a strong rebound in growth, we could simply be left poorer going forward than expected prior to these shocks. It is essential that we have institutions able to help the global economy rebound when a slowdown strikes.

Global financial markets are also obviously linked. A shock in the British bond market or yen borrowing or the near failure of a Swiss bank have all reverberated through global markets in the last two years.  And, financial crises with major global impacts have begun on nearly every continent over the last four decades at one time or another. 

The Global Economic Landscape

While the global economy has shown resilience over the last two years, it faces numerous challenges. There are geopolitical risks, changing demographics, and slow productivity growth in many economies. The United States has seen productivity growth rebound – even slightly above its pre-COVID rates – but that is an atypical experience across richer economies. The Biden-Harris Administration has placed an emphasis both on trying to recover from the COVID recession rapidly – generating a return to pre-recession trends faster than in previous recessions and faster than other major economies. It has also emphasized growth over the medium term.  Secretary Yellen has referred to this strand of policymaking as modern supply side economics, focusing on the ways in which proactive government policy can boost long run growth through investments, including in labor supply, human capital, public infrastructure, R&D, and sustainability. 

The world also faces a challenge coming from China’s current economic model. Having a very large economy with such high savings can cause spillovers unless there are domestic uses for much of that savings. Recently, China has been directing large sums towards investment in manufacturing, despite already being over 30% of global manufacturing. And, there appears to be a lack of domestic demand driving growth, potentially leading to a return to a reliance on exports for growth. A very large economy growing above the global growth rate based on exports is both unlikely to be successful and likely to cause spillovers to others. By focusing on manufacturing via nonmarket tools and subsidies despite China’s already outsized role, this also means China may be closing what has been a typical development path to many other countries eyeing low-cost manufacturing as the next stage of their development.  And by channeling the saving to particular sectors, this increases the likelihood of overcapacity and spillovers to other countries. 

It is critical that we use all the tools we have to combat forces that might be pushing the global economy towards slower growth. Global economic growth and stability are essential to our economic security, and the Bretton Woods institutions have played an important role in supporting these since their inception.

Historic, Conventional Role of the IFIs

The International Monetary Fund has earned the moniker of the world’s “financial firefighter,” stepping in to offer financing and policy advice to countries in times of economic crises. It is easy to look back and debate the Fund’s successes or missteps, but unquestionably, the global economic system we have today would have an IMF-shaped vacuum in its absence. If it did not exist today, we would create something just like it. It is worth recognizing how an institution initially charged with maintaining a system of fixed exchange rates has evolved to respond to generation-defining events, from the international debt crisis of the 1980s, the fall of the communist bloc and Asian financial crisis in the 1990s, to the global financial crisis and Eurozone crisis in recent decades. Beyond these global shocks, however, the Fund has also stepped in to help individual member countries at pivotal times – as they emerged from conflict or looked to respond to economic downturns, instability, and other shocks.

And the Fund’s role in the international monetary system goes far beyond responding in times of crisis. Through economic surveillance, technical assistance, and precautionary lending facilities, the Fund has also helped promote stability within the international monetary system, offered growth-catalyzing policy guidance, and bolstered countries’ resilience to shocks.

Similarly, The World Bank, initially established to support postwar reconstruction, has evolved to become an essential partner for countries. The World Bank Group’s constituent institutions have emerged as key sources of development finance. Its International Bank for Reconstruction and Development (IBRD) is a key provider of financing, policy advice and technical assistance to middle-income countries across the globe. Its International Development Association (IDA) is the largest source of critical concessional financing and grants for low-income countries, including those affected by fragility and conflict.  And the Bank’s International Finance Corporation (IFC) is a critical investor in developing country private sectors, and key player – along with the Bank’s insurance arm, the Multilateral Investment Guarantee Agency (MIGA) – in mobilizing private investment in those countries.

Often working complementarily with the IMF, the World Bank is also a key purveyor of policy advice and technical assistance to help reduce poverty and advance sustainable and inclusive development. World Bank funding and support has translated into material quality of life improvements for billions of people across the globe, with just those projects currently underway at the Bank yielding improved educational and job opportunities for 280 million people, stronger food and nutrition security for 156 million, and more inclusive access to electricity for 100 million people, just to name a few. Their advice is likely just as important. A finance minister once said to me, “I need the financing, but the most important thing, I need to know where to spend the money and how to grow.”

And although they are not officially Bretton Woods institutions, the regional development banks – primarily founded in the 1950s and 1960s – have become critical sister institutions to the World Bank and the IMF, complementing and deepening the impact of the Bretton Woods system. 

The Last Four Years at the IFIs: Health, IMF, MDBs, Debt 

The importance of the IFIs to U.S. interests and U.S. economy continues, of course, today. There are those who have suggested the U.S. withdraw from these institutions; this would be a step backward for our economic security. Without U.S. leadership at the IFIs, we would have less influence and we would weaken these institutions. We cannot afford that. Consider how the IMF and World Bank sprung into action during the two crises that have defined the global economy the past four years – COVID-19 and Russia’s criminal war on Ukraine. 

Without the urgent work of the IFIs in responding to the pandemic and preparing for future ones, I am certain that the outcomes of the COVID-19 pandemic would have been even more terrible and the economic aftershocks worse. 

The World Bank made over $275 billion in new commitments between mid-2020 to mid-2024, with more than half of those going to the poorest countries in the form of highly concessional loans or grants.  As part of this effort, the Bank made available $10.1 billion specifically for the purpose of getting vaccines to those who needed them. The urgent work of the World Bank also drew attention to the need to establish a permanent body that could respond to the world’s health crises the way financial authorities respond to the world’s financial crises. With our partners in Italy, Indonesia, and elsewhere, we answered that call by seeding this fund – the Pandemic Fund. As of today, the Pandemic Fund has approved over $450 million in funding for more than 40 countries. 

The IMF’s Poverty Reduction and Growth Trust (PRGT), which lends to the world’s poorest countries, has provided $30 billion in zero-interest loans to 50 countries over the past four years alone. This funding helped stabilize vulnerable countries as the global economy was grinding to a halt due to the pandemic, and as inflation and interest rates spiked following Russia’s invasion of Ukraine. The PRGT also helped make sure that even as other creditors withdrew from the developing world, and as private creditors pulled out too, the IMF was there to help. Today’s financing pressures for developing economies would have likely been much worse absent the extraordinary financing support that IFIs extended since the onset of the pandemic. From 2020 to 2022, this collective support accounted for nearly 60 percent of the total net debt inflows to developing countries.

Earlier this year, Congress authorized us to lend to the PRGT at very little cost to taxpayers, and that loan will help this critical work continue in the years ahead.

The IMF has also innovated in the last four years, creating the Resilience and Sustainability Trust (RST) to help countries deal with balance of payments shocks that can stem from longer-term challenges such as climate change and pandemic preparedness. We are encouraged that the IMF, World Bank, and World Health Organization recently announced principles of cooperation for supporting country RSF[1] programs for pandemic preparedness, and we look forward to them operationalizing these quickly. The IMF also created the temporary food shock window in the wake of Russia’s invasion of Ukraine and the subsequent spike in food insecurity around the globe.  

These institutions play an essential role that world governments on their own could not fill in a timely way. 

Recent Innovations Still Underway

Another essential innovation at these institutions in the last four years has come from the “MDB Evolution” agenda to make the world’s leading providers of development finance – i.e., the multilateral development banks (MDBs), bigger and better. In just two years, there has been substantial progress.  The World Bank has declared a new mission – eliminating extreme poverty and boosting shared prosperity on a livable planet – that recognizes the global challenges we face together and the way the MDBs must be at the forefront of meeting these challenges. MDBs have been hard at work on reforms to their visions, incentives, operations, and financial capacity, all of which are essential to responding to global challenges with sufficient speed and scale, and the G20 has estimated that reforms already identified could enable over $350 billion more in additional lending over the next decade across the MDB system. 

There is still much to be done, particularly in creating institutional incentives for realizing the Bank’s updated mission; improving pandemic prevention, preparedness, and response; addressing fragility and conflict; and boosting private capital mobilization, among other priorities. An additional important ongoing step in Evolution is deepening the work of MDBs as a system. 

Another important change in the international financial architecture in the last few years comes in the form of a new way to handle debt restructuring. The Common Framework, launched by the G20 in November of 2020, is intended to be a method to bring together creditors across the range of official bilateral and private creditors to finalize debt restructurings for low-income countries. The process has been frustratingly slow, especially at the start. Extensive effort has continued to work on the technical details of debt restructurings to make the process more transparent and swift. From our perspective, it would be helpful to have even more explicit timelines and procedures – so countries in distress know how they will be treated – as well as debt service suspensions during negotiations to avoid having delays lead to growing burdens. All creditors need to do their part in making sure a restructuring can occur in the timeliest and fairest manner possible. The World Bank and IMF play important roles both in anchoring the process with their debt sustainability analyses as well as providing crucial financial support to countries going through restructuring. 

The Work Ahead

As noted above, there are many risks to global growth going forward. As countries look to chart paths for their economies, it will be important for the World Bank and IMF to provide the critical advice countries need as to how they can navigate the near term, but also how they can take the steps they need to boost their long run potential. The IMF and World Bank will also need to provide deft policy surveillance and advice to address spillovers from China’s current economic policies.

An urgent issue we at the Treasury Department have been working with our partners to address is the financing challenges facing low- and middle-income countries. We see this work as being urgent: there are pressing needs for investment in these countries to support sustainable development, but recently, funds have been flowing out of – not towards – far too many countries.  

Low-income countries’ average annual spending on debt service has jumped from $20 billion between 2010 and 2020, to $60 billion today. As some of these countries face significant principal repayments in the months ahead, they – and the global debt architecture – may be put under significant strain.

That’s why we think it’s critical for the international community to establish a new Pathway for Sustainable Growth, a process for managing liquidity pressures as they arise. To be clear: if a country needs to restructure its debt, it should. But for the countries that are struggling under temporary financing challenges but for whom debt is sustainable over time, we are working with partners and the international financial institutions to find a better path. If you are a country committed to sustainable development and if you are willing to engage with the IMF and MDBs to unlock significant financing alongside significant reform measures, there needs to be a financing package from bilateral, multilateral, and private sector sources to bridge your liquidity needs in a way that is supportive of your sustainable long-run development. Some creditors may provide net present value-neutral reprofilings, other partners may provide new liquid budget support. We can also use the many tools at the MDBs or at many bilateral development finance institutions to encourage the private sector to stay invested on sustainable terms. It will be important for countries to step up with their own financing by mobilizing domestic resources. The World Bank and IMF can also help with domestic resource mobilization in important ways, as can technical assistance from many countries including Treasury’s Office of Technical Assistance.

For a plan like this to work, it will require hard work and innovation at the International Financial Institutions, and it is encouraging that the institutions have been thinking through these topics lately and putting out papers and blogposts on the ideas. The Annual Meetings represents a real opportunity to make concrete progress. It will be important for countries to have a better understanding of the tools that exist to help them through liquidity challenges, essentially a decision tree that lets countries and creditors understand what is available to countries under different conditions.

The IFIs will need to design their programs in a way that avoids having temporary fiscal adjustments lead to permanent harm due to cuts to important investments. Countries and IFI country teams need to be clear about what investments need to be protected, and they need to be confident the international financial system will step up and provide the required funding. It will be important for the IMF to emphasize when financing assurances are needed from creditors to smooth through a temporary financing challenge even when debt is sustainable. Creditors need to do their part, but in today’s complex sovereign debt landscape, the IMF plays the critical role of guide, and sometimes referee and air traffic controller. The World Bank, other MDBs, and the IMF will also need to use their new financing headroom to aggressively but responsibly support countries.

The responsibility will also fall to the shareholders of these institutions to support them. Many countries – including the United States – need to finalize domestic passage of the 16th general review of quotas that puts the IMF’s resources on a more durable footing. The IMF and its shareholders must also come together to return the PRGT subsidy account to a self-sustaining model. Utilizing the earned income of the IMF above what is needed for precautionary balances presents a real opportunity to make sure that low-income countries have access to critical financing when they need it.

At the World Bank, countries need to follow through on commitments to boost the concessional lending capacity of the Bank. This fall, a crucial task will be securing a robust and impactful replenishment of IDA, the World Bank’s financing arm for low-income countries. The challenges of the past few years – particularly COVID and the spillovers from Russia’s invasion of Ukraine – have put tremendous pressure on IDA’s borrowers. IDA has risen to this occasion, successfully scaling up disbursements by over 70% over the past four years and providing nearly $20bn in net positive financing flows last year. But all of this has also put pressure on IDA, too. It will take both donors stepping up and financial creativity to optimize the balance sheet to make sure we can deliver on this important goal.

Conclusion

The United States benefits immensely from growth abroad. We have an array of tools we use, from USAID’s direct support and programs, to DFC’s investments, to the Millenium Challenge Corporation’s large grants, to State Department engagement, and to technical assistance from Treasury and other agencies that help propel that growth. We use multilateral settings like the G7 and G20 to work with other countries to navigate crises and support policies that drive growth over time. We also help propel world economic growth through our trade and investment relationships with other countries and by pursuing strong economic policy in the United States as well.

But, the institutions created 80 years ago at a meeting in the mountains of New Hampshire remain essential to the mission of seeing living standards rise around the world. These institutions cost the United States very little in budgetary terms, especially relative to spending on defense or other global spending. Yet, they deliver immense value to the United States and to the world. One reason they are still so relevant is the constant re-invention – or evolution – of these institutions. They have made important strides in the last four years, and now we need to continue to challenge them and ourselves to create a better international financial architecture going forward.

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[1] Resilience and Sustainability Facility.

OCC Issues Cease and Desist Order, Assesses $450 Million Civil Money Penalty, and Imposes Growth Restriction Upon TD Bank, N.A. for BSA/AML Deficiencies

WASHINGTON—The Office of the Comptroller of the Currency (OCC) today announced a cease and desist order and a $450 million civil money penalty against TD Bank, N.A. and TD Bank USA, N.A. (bank), for deficiencies in the bank’s Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program. Today’s action also imposes a restriction on the growth of the bank and a measure designed to ensure that the bank invests sufficient resources to remediate its BSA/AML deficiencies in a timely manner.

“TD Bank’s persistent prioritization of growth over controls allowed its employees to break the law and facilitate the laundering of hundreds of millions of dollars. The bank’s blatant risk management failures attracted illicit actors and are egregious and unacceptable,” said Acting Comptroller of the Currency Michael J. Hsu. “The OCC’s coordinated and comprehensive action, including the imposition of an asset cap, will ensure that the bank focuses on building proper controls commensurate with its risk profile.”

The OCC determined that the bank failed to develop and maintain a BSA/AML program reasonably designed to assure and monitor compliance with the BSA and its implementing regulations. Deficiencies in the bank’s BSA/AML program included those related to internal controls and risk management practices; risk assessments; customer due diligence; customer risk ratings; suspicious activity identification, evaluation, and reporting; governance; staffing; independent testing; and training, among others.

The OCC found that the bank had significant, systemic breakdowns in its transaction monitoring program. The bank processed hundreds of millions of dollars of transactions with clear indicia of highly suspicious activity, creating a potential for significant money laundering, terrorist financing, or other illicit financial transactions. The bank repeatedly failed to take appropriate and timely corrective action to address the highly suspicious activity and failed to properly emphasize BSA/AML compliance.

The bank had a systemic breakdown in its processes to identify and report suspicious activity, and a pattern or practice of noncompliance with the suspicious activity report filing requirement, resulting in numerous violations. The bank also violated currency transaction reporting requirements on numerous occasions.

The OCC action is being taken in coordination with concurrent actions by the Department of Justice, the Board of Governors of the Federal Reserve System, and the Financial Crimes Enforcement Network. The OCC-assessed penalty will be directed to the U.S. Treasury.

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U.S. Department of the Treasury Highlights $4.8 Million Award to Help Mississippi Small Businesses Grow and Hire

WASHINGTON – Today, the U.S. Department of the Treasury (Treasury) highlighted the Mississippi Development Authority (MDA)’s $4.8 million award to support small business growth. This award is one of 14 recently announced through the Biden-Harris Administration’s State Small Business Credit Initiative (SSBCI) Investing in America Small Business Opportunity Program (SBOP). Mississippi’s initiative will be supported by $2.2 million in matching funds from Innovate Mississippi.  

As part of the Biden-Harris Administration’s economic agenda, this $75 million program provides funding to connect underserved and very small businesses to the capital needed to participate in key Investing in America supply chains, including electric vehicle manufacturing, semiconductor manufacturing, construction, transportation, clean energy generation, and more. The SBOP was designed to catalyze additional private sector investment by supporting small business technical assistance services like accounting and legal services.  

“The Biden-Harris Administration’s economic agenda is focused on continuing the historic small business boom by helping entrepreneurs across the country succeed,” said U.S. Deputy Secretary of the Treasury Wally Adeyemo. “With this new funding, Mississippi will increase access to capital and customers for both high growth startups and Main Street small businesses, and will allow businesses to seize new opportunities created by investments in advanced manufacturing.”   

“Today’s announcement to fund critical small business technical assistance programs will help ensure that more small businesses can thrive, as part of the Biden-Harris Administration plan that is powering a small business boom with a record 19 million new business applications so far,” said National Economic Advisor Lael Brainard.   

“This award is an opportunity to increase small business participation in Mississippi. It’s very much needed, and I look forward to full-throated engagement with the small business community”, said U.S. Representative Bennie Thompson. 

“Small business is the backbone of the Mississippi economy, and these federal funds will further enhance Mississippi’s already strong support of this part of our economy,” said Mississippi Development Authority Executive Director Bill Cork.  

MDA was selected for the SBOP award through a competitive process. MDA will work alongside the Mississippi Small Business Development Center Network (MSBDCN) and Innovate Mississippi (Innovate MS) to assist Mississippi companies in preparing for growth funding. Using this $4.8 million, as well as $2.2 million in matching funds from Innovate Mississippi, MDA will launch ConnectMS, a project aimed to address gaps in the state’s entrepreneurial ecosystem, focusing on helping very small businesses (VSBs) and underserved businesses prepare to raise capital. 

The ConnectMS project will span all of Mississippi’s 82 counties, utilizing state-wide regional clusters to scale business programming and increase access to capital for startups and VSBs. The project will include a five-step approach, which includes the FoundersPlus and CoBuilders Accelerator. FoundersPlus will offer entrepreneurial education and a weekly webinar series, and the CoBuilders Accelerator will provide a multi-week virtual program that will support access to venture capital for startups. The program will also establish a Virtual Small Business Incubator, helping traditional businesses access funding through workshops, one-on-one counseling, pitch events, and tailored technical assistance. 

Selected SBOP jurisdictions will build or expand technical assistance programs focused on connecting very small and underserved businesses to financing available through SSBCI, or other state or federal small business programs, including in the infrastructure, manufacturing, clean energy, or climate resiliency space. Jurisdictions have been selected based on their plans to create innovative, high-impact models of small business technical assistance delivery that demonstrate a vision to improve access to capital for historically overlooked businesses across the nation.   

A fact sheet summarizing all 14 SBOP awards can be found here.

The American Rescue Plan Act reauthorized and expanded SSBCI, which provides nearly $10 billion to support small businesses and empower them to access the capital needed to invest in job-creating opportunities. SSBCI provides funds to states, the District of Columbia, territories, and Tribal governments to promote American entrepreneurship, support small business ownership, and democratize access to capital across the country, including in underserved communities. Through the SSBCI Capital Program, Treasury has approved plans for small business financing programs totaling over $8.7 billion and representing every state and territory, the District of Columbia, and 280 Tribal governments. 

In addition to today’s announcement, Treasury has announced the approvals of SSBCI Technical Assistance grants allocated by formula to states, the District of Columbia, territories, and Tribal governments, representing $145 million for 48 jurisdictions. Treasury anticipates additional approvals of applications to follow. See the full list of approved formula SSBCI Technical Assistance programs here.  

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U.S. Department of the Treasury Releases Fact Sheet Detailing Investments in the Latino Community

WASHINGTON – Today, in recognition of Hispanic Heritage Month, the U.S. Department of the Treasury (Treasury) released a fact sheet detailing the critical contributions of Latinos to the U.S. economy and benefits of the Administration’s economic agenda for Latino families, small businesses, and communities. 

When President Biden and Vice President Harris came into office at the height of the COVID-19 pandemic, the health and economic crisis for Latino and other underserved communities was exacerbated by a lack of investment. Long-standing underinvestment limited economic opportunities and contributed to disparities, including lower home ownership rates. Over the past four years, Treasury’s work to deliver a broad-based economic recovery has delivered results for the Latino community and expanded opportunities for all Americans to fully participate and compete in the 21st century economy.  

Currently, Latinos make up approximately 20% of the total U.S. population, with around 65 million Latinos in the United States. In 2021, Hispanic-owned companies employed 3 million people and paid over $124.4 billion in annual payroll.  

The Biden-Harris Administration’s actions have resulted in strong outcomes for Latino families:

  • The Biden-Harris Administration’s economic agenda has created 5 million jobs for Latino workers—achieving a historically low 5.5% Latino unemployment rate through August 2024, down from 8.6% when the Biden-Harris Administration took office. 
  • The average annual real wage for Latinos grew 4% from December 2019 to June 2024.   
  • Latino business ownership is up 40%, growing at the fastest rate in 30 years.  
  • The number of Latino workers that were self-employed—a measure of entrepreneurship—increased by over 30% from 2019 to 2024.     
  • Latino net worth is up 47% between 2019 and 2022 and the Latino-white wealth gap is at its narrowest level in nearly 30 years.  

Building on this success, the Treasury is:  

  • Growing Latino-owned small businesses: Treasury’s State Small Business Credit Initiative (SSBCI) is supporting underserved entrepreneurs. In addition to direct capital support, SSBCI provided $125 million to support a “Capital Readiness Program” through the Minority Business Development Agency (MBDA), which is building a nationwide network of 43 technical assistance providers to enable underserved entrepreneurs to access government capital programs like SSBCI. As of July 2024, SSBCI has announced $145 million in technical assistance awards to states, territories, Washington D.C., and Tribal governments to support access to capital for underserved and very small companies.1 During September, Treasury began to announce awards for the Investing in America Small Business Opportunity Program, a competitive grant program that will support innovative, high-impact models of providing underserved and very small companies with access to financial advisory, legal, and accounting services as they prepare to apply for capital. 
  • Doing business with Latino owned companies through procurement: Procurement with government agencies plays an important role for many minority-owned businesses. The Administration in 2021 set a goal to increase the federal government’s contracts with minority-owned and small and disadvantaged businesses to 15% by 2025. Since the commitment was made, Treasury’s contracts to Latino-owned businesses have increased by 87%, from $100 million in FY2020 to $187 million in FY2023. Treasury has also designated two minority-owned financial institutions as financial agents of the government. 
  • Economic Opportunity Coalition data: The Economic Opportunity Coalition (EOC), launched by Vice President Harris in July 2022, is a group of over 30 companies that have committed to make investments in underserved communities to address economic disparities and jumpstart local economic activity. To date, the EOC has placed more than $850 million in deposits to Community Development Financial Institutions (CDFIs) and Minority Depository Institutions (MDIs) through partnerships with private companies.    
  • Emergency Capital Investment Program (ECIP) data re Community Development Financial Institutions and Minority Depository Institutions: Alongside the efforts of the EOC to support underserved communities, Treasury has invested $1.6 billion in Latino-designated minority depository institutions through the ECIP. This investment is expected to significantly benefit Latino communities, with estimates that investments across the ECIP portfolio could increase lending by over $50 billion over the next decade. ECIP participants unlocked access to capital for the hardest-to-serve small businesses. Through the end of 2023, ECIP resulted in $4.5 billion of lending to small businesses with annual revenues of $1 million or less. Of this lending, $1.2 billion went to the smallest and hardest-to-serve businesses with annual revenues of $100,000 or less, including many start-ups. ECIP participants also reported $1.2 billion of lending to Latino-owned businesses, $10.3 billion in rural communities, and $17.5 billion in minority communities. In the same period, ECIP participants’ lending in some of the most distressed communities in the U.S. included $10.2 billion in persistent poverty counties; $850 million in Indian reservations and Native Hawaiian homelands; and $459 million in Puerto Rico and other U.S. territories. 
  • Supporting Latino workers and families: To reduce hardship among families with children, the American Rescue Plan expanded the Child Tax Credit for the 2021 tax year, increasing the amount of the credit for eligible households from $2,000 per child under age 17 to up to $3,000 for children ages six to 17 and up to $3,600 for children under age six. The supplemental Latino child poverty rate was cut nearly in half from around 20% in 2019 to 8% in 2021. However, it rose to about 19% in 2022 following the expiration of the Advanced Child Tax Credit.2 The Administration continues to advocate to make this expanded Child Tax Credit permanent. 
  • Keeping Latino families in their homes: The American Rescue Plan created two programs to keep families in their homes—the Emergency Rental Assistance (ERA) Program and the Homeowners Assistance Fund (HAF). Treasury’s $46 billion ERA program reached the most vulnerable renters, particularly Latinos, who have been historically hit harder during earlier economic downturns, at higher rates and therefore contributed to housing stability among Latino families. The ERA program has made over 12.3 million payments to families at risk of eviction. As of March 2024, 29% of ERA funding has gone to Latino families. Research from the U.S. General Services Administration found that ERA funds were more likely to reach those with the lowest incomes, including those who were most likely to otherwise be at risk of eviction. More than 450,000 homeowners at risk of losing their homes received assistance through the HAF program, including 86,409 homeowners that self-identified as Latinos. 
  • Allowing Latino taxpayers to file online for free and ensuring they receive the credits and deductions for which they are eligible: During the 2024 Filing Season, the Internal Revenue Service (IRS) piloted Direct File, a new tool that allows eligible taxpayers to file their tax returns online, for free, directly with the IRS. Direct File is one of the ways the IRS is helping taxpayers get their maximum refunds as quickly as possible and access the credits and deductions to which they are entitled. The pilot saw 140,000 taxpayers claim more than $90 million in refunds and save an estimated $5.6 million in filing costs. The number of states offering Direct File will double in Filing Season 2025 to 24, and 62% of Americans will live in states that will offer Direct File. Treasury and the IRS have also secured commitments from additional states to join Direct File in Filing Season 2026, as part of their work to progressively expand the tool’s reach. The new tool is available in English and Spanish for eligible tax filers, including those with Individual Tax Identification Numbers (ITINs). Customer service functions, including a live chat feature, are also available in English and Spanish. The IRS also introduced conversational voice technology, available in both English and Spanish, that can route calls based on what a taxpayer says during this year’s Filing Season. 
  • Historic investment in Puerto Rico: Puerto Rico governments received approximately $4 billion in American Rescue Plan State and Local Fiscal Recovery Funds to respond to the health and economic impacts of the pandemic. Treasury’s Capital Projects Fund made $158 million available to Puerto Rico to deliver high-speed internet access to households and businesses that currently lack internet access. In 2023, Treasury approved Puerto Rico for up to $109 million in SSBCI funds to provide credit to and investments in small businesses. The CDFI Fund provided Equitable Recovery Program (ERP) awards that include 70 grants totaling $226 million to CDFIs in Puerto Rico to help low- and moderate-income communities recover from the COVID-19 pandemic and invest in long-term prosperity. CDFIs in Puerto Rico received the largest amount of ERP funding of any single state or territory. 

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Remarks by Under Secretary for Domestic Finance Nellie Liang at the Chicago Payments Symposium, hosted by the Federal Reserve Bank of Chicago

I. Introduction

Good afternoon and thank you to the Federal Reserve Bank of Chicago for hosting this event and inviting me to speak.  Two years ago, Treasury published a report called The Future of Money and Payments in light of the changing landscape of money and payments.[i]  Since then, we have continued to evaluate the potential benefits and risks of new technologies, both fast payment systems and tokenization, and new use cases, including cross-border payments initiatives.[ii]  Today, I would like to focus on another aspect of the report – the recommendation to develop a federal regulatory framework for domestic payments.

In the past few years, we have seen rapid growth in digital payments and development of new payments infrastructure.  We have also seen growth in electronic money, or e-money, by nonbank payment service providers.  Relative to a payment app, e-money issuers may also hold customer balances outside of the traditional system of regulated banks and the central bank.  But an essential and necessary quality of money is trust in its value.  As I will explain, our current state-based regulatory framework has not kept pace with the growth in new kinds of money and payments, raising risks for the integrity of the payment systems and trust in money.  The state-level framework with varying requirements also raises barriers to entry, limiting competition and innovation.  

I will then propose the key foundational elements, including financial resources, risk management, and activities restrictions, that are needed in a modern regulatory framework for nonbank payment service providers, principally for issuers of e-money.  This framework builds on existing rules at the federal level for anti-money laundering and countering the financing of terrorism (or AML/CFT) and for consumer protection.  Of course, setting guidelines and regulations requires the consideration of many factors.  My hope today is to invite a broader discussion.  Through this discussion, we can work towards building a more comprehensive, consistent, and calibrated framework for regulating payments in the United States.

II. What’s changing?

Changes in payments are happening along several dimensions.

First, consumers are increasingly choosing to make payments electronically rather than with cash.[iii]  This trend predates the COVID-19 pandemic but accelerated during the pandemic as consumers looked for more contactless means of payment.  In the United States, the share of cash payments fell from 31 percent to 16 percent between 2017 and 2023, while the share of payments with credit and debit cards rose from 49 percent to 62 percent.[iv]  For payments made between individuals, the decline in the use of cash over this same period is more stark, falling from 75 percent to 42 percent, and the use of payment apps rose from 12 percent to 50 percent.[v]  Relatedly, we are also seeing changes in the types of companies that offer payment services.  For example, nonbank payment service providers that offer user-friendly peer-to-peer payment apps have grown quickly in recent years. 

Second, the infrastructure for payments is advancing and raising the potential for a faster and more efficient payments system.  Adoption of real-time payment systems like FedNow and RTP in the U.S. is increasing, though still relatively limited.  Globally, 119 jurisdictions now have real-time payment systems, and some have seen widespread adoption.[vi]  At the same time, tokenization based on distributed ledger technologies has emerged as a more ambitious and potentially more transformative alternative to legacy payment systems.  Broadly speaking, these projects aim to reduce frictions and delay in payment and settlement in legacy systems by storing information more centrally, such as on a shared ledger.  A wide range of tokenization projects are being pursued by both the public and private sector, including some joint efforts.[vii] 

Third, new kinds of private money or money-like instruments are growing.  By “money,” I mean instruments that are designed to have a stable value and can be used for exchange.  In the U.S., like in most countries, money can be either public, like a Federal Reserve note, or privately issued, like a commercial bank deposit.  Funds held at nonbank payment service providers and stablecoins also serve some of the functions of money.  Like deposits, these balances are claims on the nonbank payment service provider represented in dollars, though not backed by the promise of one-to-one conversion to public money.[viii]  I’ll refer to these nonbank payment service providers as “e-money issuers,” which, as I mentioned earlier, have been growing rapidly.[ix] 

Relatedly, we have also seen growth in payment apps offered by nonbank firms.  Some may rely on bank partners or are linked to credit cards, but others may offer the ability to hold e-money balances.  Adoption of payment apps – including Venmo, Apple Pay, Google Pay, or CashApp – now rivals adoption of credit cards.  Today, more than three-quarters of U.S. adults have used a payment app.[x]  While we know that customers are holding balances in e-money, we have relatively little insight into how much e-money is issued in aggregate or how long customers hold balances.[xi]  We do know that consumers, particularly younger consumers, are increasingly turning to nonbank payment apps and fintechs as their primary banking service.[xii]

Stablecoins are another new money-like instrument.  Like other forms of private money, a stablecoin typically claims it can be redeemed 1 for 1 in U.S. dollars.[xiii]  Today, stablecoins are used mostly for payments and trading within the crypto ecosystem, but some proponents believe that stablecoins could become used more widely to pay for real goods and services, such as in situations where people may lack access to other stable assets.  There is some evidence that this is already happening.[xiv]  Stablecoins have also grown rapidly in the last five years, and now have a market capitalization of $172 billion.[xv]  And because stablecoins serve as a money substitute in some markets, including increasingly by illicit actors, this market capitalization supports a much larger transaction volume.  Some estimate that Tether supports $190 billion of transaction volume daily.[xvi]

These changes to how we make payments may offer significant efficiency gains, advance financial equity, and even facilitate new kinds of transactions.[xvii]  However, they may also present some risks if not appropriately managed, including risks to consumers and financial stability.  

I will turn next to the existing regulatory framework for certain intermediaries in payments – specifically, issuers of e-money – to make the case for a modernized federal framework.  

 

III. The Case for a Federal Payments Regulatory Framework

In the United States, banks are the dominant intermediaries that both issue money and make payments.  They are subject to a comprehensive prudential regulatory framework at the federal level, which reflects that banks also hold longer-term loans and securities, and have direct access to the Fed’s payment rails and federal backstops.[xviii]

Other intermediaries, like e-money issuers, are overseen primarily at the state level as money transmitters.  The regulatory framework for money transmitters was developed for retail customers to send physical cash, often to family in a different state or country.  Money transmitters with this business model hold customer funds only for the short time period required to send them.  This meant that the customer’s exposure to the money transmitter was limited.  It also meant that money transmitters were prevented from engaging in significant maturity transformation. 

The current regulatory framework for e-money issuers reflects this limited business model.  First, money transmitters are subject to minimum net worth or surety bond requirements, but these financial requirements are generally not tied to the riskiness of their assets.  This means that an e-money issuer that processed 25 billion transactions in 2023 could meet minimum financial requirements with retained earnings of six one thousandths of one percent of its total assets.[xix]  Money transmitters also may be subject to limits on what they can invest customer funds in.  These investment limits are what maintains 1 for 1 value with the dollar.  But even the most stringent of these requirements permit a relatively wide range of assets.[xx] 

Second, the requirements vary widely between states.  Some states do not require any minimum financial resources.  Some place a cap on financial resources.[xxi]  Some states limit investments to only certain kinds of assets.  Others place no restrictions on permissible investments.

Third, and partly as a result of the current state-based regulatory and supervisory framework, e-money issuers do not have direct access to federal payment rails like FedACH or FedNow.[xxii]

The result is a growing segment of payments that has duplicative and overlapping regulations, but that doesn’t address important risks.  E-money issuers must navigate dozens of state-level licenses with varying requirements, increasing compliance costs and raising barriers to entry.  But there are some types of risks that are difficult for a state regulator to address because they originate outside that state’s borders, create stress in other parts of the financial system, or require coordinated intervention in crisis.  Our conversations with stakeholders highlight both kinds of concerns.  The existing regulatory patchwork is burdensome and inefficient, and at the same time does not adequately address risks to consumers and the financial system or promote competition and innovation by facilitating access to real-time payment systems.

Recognizing these concerns, state regulators have taken steps to improve coordination in supervision and consistency in regulatory requirements.  In 2021, the Conference of State Bank Supervisors released a revised model law after a two-year consultation process.[xxiii]  Today, about half of states have adopted at least some part of the model law.  States also have recently begun coordinated multi-state exams.  But there are practical challenges to establishing the same standards in every state and limits as to how well those standards can address risks of business models that extend well beyond state borders.  

Goals and Key Elements

A federal framework for nonbank payment service providers may be better able to address these concerns.  Specifically, a federal framework can:

1.  Address risks which are essential to confidence in the money and payments system, like customer runs, payments disruptions, and financial stability risks.  It should better support a degree of confidence in nonbank money instruments.  This would include consistent reserve requirements and being able to intervene immediately in a crisis to ensure trust and continuity of services.  Coordinating an intervention for a nation-wide or global company across dozens of state regulators would not be possible in time.

2.  Promote innovation and fair competition that benefits consumers through a consistent and comprehensive, though calibrated, regulatory framework for bank and nonbank payments providers.  It is not the case today that the same activities and the same risks have the same regulatory requirements.  The introduction of a federal prudential regulatory framework for payments also raises the possibility that e-money issuers could get direct access to some public payment rails, like FedNow.[xxiv]  Direct access would promote competition and innovation for payment services. 

3.  Support leadership of U.S. financial firms globally.  A clear, robust framework for domestic payments promotes a level playing field internationally.

With these important benefits in mind – trust in money and payments, innovation and competition, and global financial leadership – I will turn next to the key foundational elements of a federal framework and raise some topics for further discussion.  These elements also are consistent with our broader objectives for payment systems operations, including adherence to the standards established by PFMI and FATF, strong governance, and with the approach we’ve suggested for stablecoin issuers.[xxv]  These elements complement other standards that already exist at the Federal level, like AML/CFT and consumer protection requirements, so I won’t discuss those.[xxvi] 

I will discuss standards in four categories: (i) financial resources, (ii) risk management, (iii) supervision and enforcement and (iv) affiliation and activities restrictions.

  1. Financial Resources.  To function as money, an e-money claim needs to be backed by high-quality and liquid assets so that a claim representing a $1 is worth $1 when redeemed.  E-money issuers also should have some minimum resources to protect against other kinds of loss and reduce the risk of insolvency.  Financial resource requirements thus serve several purposes.  First, they support trust in the value of money.  Second, financial resource requirements ensure that customers are protected if an e-money issuer becomes insolvent.  Finally, financial resource requirements mitigate risk to financial stability from customer runs, which we know can be contagious and destabilizing to the broader financial system.

    Calibrating these requirements raises important questions.  First, these requirements should reflect the products that e-money issuers do and don’t offer.  E-money issuers are not banks.  Instead, they generally offer a more limited range of payment-related services.[xxvii]  The calibration of financial resource requirements should reflect this more limited product offering while credibly backing customer claims 1 for 1  with high-quality and liquid assets.  The calibration and composition of financial resource requirements may also have broader consequences.  To the extent that deposits flow to e-money issuers from banks, it could reduce credit provision or raise its costs.
      

  2. Risk Management.  Risk management standards address a range of concerns.  I will highlight two.

    First, operational risks.  Payment systems need to be resilient and payments need to go to the right place and in the right amount.  Consistent and well-calibrated risk-management standards would help ensure that the system for making payments is accurate, operates under both high and low volumes of payments, at all times during defined operating hours, and is resilient to external threats like cyber-attacks.  This is critical for both users of the system and, potentially, for financial stability.  Failures or delays in some payments could spill over to other parts of the economy and the financial system.

    Second, third-party risk.  Making a payment involves many different intermediaries – from wallets, to banks, to processors, to tech providers and others. 

    I’ll use an example to help illustrate.  Let’s say that you want to buy a cup of coffee here in Chicago with e-money.  If you have funds stored with an e-money issuer and the coffee shop is set up with the same e-money issuer, your digital payment may settle “on the books” of the e-money issuer.  As I’ve just discussed, it is critical that this “on the books” settlement is reliable and resilient.  And, even in this simple case, the transaction may be enabled by technology provided by a third-party, like tap to pay.  Now let’s say instead that you don’t have funds stored with an e-money issuer.  In this case, your digital payment would be funded through a linked credit card or bank account, involving one or more banks, a credit card network, and potentially a mobile wallet.  It might even involve a wholesale settlement system between financial institutions. These interlinkages are usually – and should be! – seamless to the customer.  But for a payment to function smoothly, each of these nodes needs to operate as expected.

    This means that e-money issuers, like banks, must manage the risks associated with these third-party relationships.  The bankruptcy of Synapse – though not a bank or e-money issuer – illustrates the importance of managing risk in relationships among payments service providers.  And by applying a prudential regulatory framework to e-money issuers, we might also hope to facilitate bank partnerships with e-money issuers.  We may also consider whether other service providers – like some critical technology or network providers – should be subject to more supervision more directly.  This does not mean that these firms should be subject to the same kinds of standards as e-money issuers or banks.  Issuing money, as I’ve just discussed, presents special kinds of public policy considerations.  At the same time, the operational resilience of related intermediaries is critical to many payment arrangements.  
     

  3. Supervision and Enforcement.  A regulatory framework is only as effective as its oversight and enforcement.  A federal framework should have a federal supervisor with the authority and resources necessary to examine e-money issuers and be able to act if standards are not being met.
     
  4. Activities and Affiliation.
    Payment activities. To ensure a level competitive playing field, and to better calibrate requirements for e-money issuers, the regulatory framework needs to restrict e-money issuers to payments-related activities.  To the extent they instead extend credit and engage in significant maturity transformation, they would resemble banks and should be subject to bank-like rules. 
    Affiliation and separation of banking and commerce.  In addition, we may consider whether an e-money issuer’s affiliates should be subject to limitations on their activities.  In the United States, there generally are restrictions to support the separation of banking and commerce, based on competitive concerns and the potential for risks from one part of the business to spill into another.  The combination of a commercial or technology platform and payments presents some of these same themes of banking and commerce but is also distinguishable in some ways.  Some old solutions, like antitrust law or limiting the ability of a non-financial company to own or control payments provider can mitigate anti-competitive behavior.[xxviii]  And some of these requirements already apply.  Some new solutions, like interoperability standards and restrictions on use of customer data, could also be needed.

V. Conclusion

A federal payments framework that includes the key foundational standards discussed above can both simplify our domestic regulatory patchwork and make the regulatory framework more robust.  We can promote innovation and competition, while better protecting consumers, the payment system, and the financial system.  We can create a more level playing field domestically and also support U.S. global financial leadership. 

These goals and solutions I have offered for e-money issuers are similar to points that the Secretary, the President’s Working Group on Financial Markets, the Financial Stability Oversight Council, and I have made regarding a federal regulatory framework for stablecoins.[xxix]  We have long identified stablecoins as presenting payments and run risks like those presented today by e-money issuers.  At the same time, stablecoins present some unique risks because they rely on distributed ledger technology and thus may involve a different set of intermediaries and can be transferred peer-to-peer.  We continue to support efforts in Congress to establish such a framework.  

My remarks today were informed by our conversations with many stakeholders – consumer groups, payment providers, fintechs, banks, academics, and others — with a wide range of interests.  They have been invaluable in identifying key questions to consider.  I would like to conclude with an invitation to stakeholders to continue this conversation.  

Thank you.

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[i] U.S. Department of the Treasury, “The Future of Money and Payments: Report Pursuant to Section 4(b) of Executive Order 14067,” September 2022.

[ii]See e.g., Remarks by Under Secretary for Domestic Finance Nellie Liang “Modernizing U.S. Money and Payments: Technological and Regulatory Considerations” at the Peterson Institute for International Economics | U.S. Department of the Treasury, April 17, 2024; Remarks by Under Secretary for International Affairs Jay Shambaugh on New Technologies and Cross-border Payments, October 17, 2023.

[iii]Individual consumers have different preferences for and access to payment methods.  See e.g., Berhan Bayeh, Emily Cubides, and Shaun O’Brien 2024 Findings from the Diary of Consumer Payment Choice.

[iv] Bayeh, Cubides, and O’Brien, 2024.  Measured as total share of payments.

[v] Id.

[vi]Frost, Jon, Priscilla Koo Wilkens, Anneke Kosse, Vatsala Shreeti and Carolina Velásquez, 2024.  “Fast Payment Systems: Design and Adoption,” BIS Quarterly Review, Bank for International Settlements, March 4, 2024.

[vii]A notable effort is Project Agora with joint participation from seven central banks and a consortium of private financial firms to develop and test a cross-border platform for cross-border payments.  See https://www.bis.org/about/bisih/topics/fmis/agora.htm

[viii]While these new forms of money share a key similarity with deposits and other forms of money, they are not subject to the same regulatory framework or protected by deposit insurance. 

[ix]See Bayeh, Cubides, and O’Brien, 2024; Consumer Reports, “Peer-to-Peer Payment Services,” January 10, 2023.

[x] Consumer Reports, “Peer-to-Peer Payment Services,” January 10, 2023.  Similarly, the Federal Reserve Bank of Atlanta’s 2023 Survey and Diary of Consumer Payment Choice found that 72% of customers adopted online or mobile payment accounts like PayPal, Zelle, Venmo and Cash App in 2023, a statistically significant increase from 2022.

[xi] One recent survey suggested that, on average, customers held about $300 in balances.  See, Erin El Issa, “Most Americans Go Mobile With Payment Apps — Here’s How They Roll – NerdWallet,” February 26, 2020. A 2022 Consumer Report Survey indicates that one in ten consumers hold balances in their payment account.  CFPB estimates customer balances in the “billions” but notes that precise figures are not known.  Consumer Financial Protection Bureau, “Issue Spotlight: Analysis of Deposit Insurance Coverage on Funds Stored Through Payment Apps | Consumer Financial Protection Bureau (consumerfinance.gov),” June 1, 2023.

[xii]See e.g., Ron Shevlin, The Checking Account War is Over and the Fintechs Have Won, FORBES (July 5, 2023).

[xiii] This type of stablecoins is distinct from a smaller subset of stablecoin arrangements that use other means to attempt to stabilize the price of the instrument (sometimes referred to as “synthetic” or “algorithmic” stablecoins) or are convertible for other assets.  Because of their more widespread adoption, this discussion focuses on stablecoins that represent a claim on the issuer and can be redeemed for dollars.

[xiv] Angus Berwick, September 10, 2024, The Shadow Dollar That’s Fueling the Financial Underworld, Wall Street Journal.

[xv] CoinMarketCap as of October 10, 2024.

[xvi] Angus Berwick, September 10, 2024.

[xvii]Nellie Liang, April 17, 2023.

[xviii] See e.g., E. Gerald Gorrigan, Are Banks Special? Annual Report of the Federal Reserve Bank of Minneapolis, December 31, 1982.

[xix] See PayPal, Global Payment Processing | PayPal US; Dan Awrey, “Bad Money,” Cornell Law Review, February 5, 2020. Estimating that PayPal’s capital was .0006%.

[xx] In addition, even high-quality assets can fluctuate in value and may be difficult to monetize in stress.

[xxi] Dan Awrey, 2020.

[xxii] 87 Fed. Reg. 51099 (August 19, 2022). A prudential regulatory framework is one consideration used by Reserve Banks in evaluating requests for accounts and services. 

[xxiii] Conference of State Banking Supervisors, “CSBS Money Transmission Modernization Act,” April 22, 2024, available at https://www.csbs.org/csbs-money-transmission-modernization-act-mtma   

[xxiv]87 Fed. Reg. 51099 (August 19, 2022). A prudential regulatory framework is one consideration used by Reserve Banks in evaluating requests for accounts and services. 

[xxv] President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the

Office of the Comptroller of the Currency, Report on Stablecoins (Nov. 2021).

 

[xxvii]Restrictions on the activities of the issuer – for example, to prohibit lending activities – would ensure that this remains true.  See Activities and Affiliation discussion.

[xxviii] For example, banks are subject to anti-tying laws and activities limitations.  See 12 U.S.C. 1972(1); 12 U.S.C. 1464(q); 12 U.S.C. 24(seventh).  Parent companies are also subject to restrictions on their activities.  See 12 U.S.C. 1841 et seq.;12 U.S.C. 1467a.

[xxix]PWG Report on Stablecoins; Financial Stability Oversight Council, Report on Digital Asset Financial Stability Risks and Regulation, 2022.

Remarks by Deputy Secretary of the Treasury Wally Adeyemo at Press Conference at the Department of Justice

As Prepared for Delivery 

Thank you. I am glad to join Attorney General Garland, Deputy Attorney General Monaco, and the rest of you here today. I applaud DOJ’s efforts. I won’t speak to its case, but to the separate investigation that Treasury’s Financial Crimes Enforcement Network undertook and the action we’ve taken.

The Department of the Treasury utilizes sanctions and the enforcement of our country’s anti-money laundering (AML) laws to protect our national security from illicit actors. From drug trafficking to combatting Russian aggression, the Treasury Department is committed to using all of the tools available to us to protect the American people.

We are proud of the public-private partnership we have formed with the financial sector to protect our national security. The vast majority of financial institutions work hand-in-hand with Treasury to keep our country and our communities safe.

TD Bank has done the exact opposite. For more than a decade, through deliberate actions—and inaction—TD Bank failed to meet its responsibilities.

TD Bank failed to implement or maintain a sufficient AML compliance program.

TD Bank failed to monitor trillions of dollars in transactions each year, including those the Bank knew posed a high-risk for abuse.

TD Bank failed to conduct adequate due diligence on high-risk customers, ignoring glaring red flags.

TD Bank failed to live up to its responsibilities to the American people.

I want to be clear, these systemic failures did not just create hypothetical vulnerabilities, but they resulted in actual, material harm to American citizens and communities. Time and again, unlike its peers, TD Bank prioritized growth and profit over complying with the law.

The bank enabled drug trafficking. In one example from FinCEN’s investigation, TD Bank facilitated over $400 million in transactions to launder money on behalf of criminals that were selling fentanyl and other deadly drugs that are poisoning our neighborhoods. In exchange for filing false or misleading reports on these transactions, TD Bank tellers accepted gift cards as bribes. In another example, TD Bank failed to detect the suspicious activities of one of its own employees who was accepting bribes in exchange for opening accounts in the name of shell companies.

That’s why today we are announcing the Financial Crimes Enforcement Network’s (FinCEN) $1.3 billion penalty on TD Bank, the largest civil monetary penalty against a bank in Treasury’s history.
In addition to a historic penalty, TD Bank has agreed to a four-year monitor to oversee its extensive remedial measures, including end-to-end review of its AML program. The bank will also be required to provide missing suspicious activity reports and, for the first time, FinCEN will require additional accountability and data governance reviews to provide recommendations for changing TD Bank’s culture of noncompliance.

Together, these requirements hold TD Bank accountable for its egregious and willful disregard of the law and the real harm it caused. This action demonstrates that we are committed to holding individuals and institutions accountable.

Let me end by thanking FinCEN, the IRS Criminal Investigation team, the Office of the Comptroller of the Currency, the Federal Reserve, and the Department of Justice for their collaboration. We look forward to continuing to work together to enforce our nation’s laws and protect our national security.

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