[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
THE ANNUAL TESTIMONY OF THE SECRETARY
OF THE TREASURY ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM,
PARTS I AND II
=======================================================================
HEARINGS
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
APRIL 9 AND MAY 22, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-17
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
37-448 WASHINGTON : 2020
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
April 9, 2019................................................ 1
Hearing held on:
May 22, 2019................................................. 53
Appendix:
April 9 and May 22, 2019..................................... 99
WITNESSES
Tuesday, April 9, 2019
Mnuchin, Hon. Steven T., Secretary, U.S. Department of the
Treasury....................................................... 4
APPENDIX
Prepared statements:
Mnuchin, Hon. Steven T....................................... 100
Additional Material Submitted for the Record
Waters, Hon. Maxine:
``Congressional Committee's Request for the President's Tax
Returns Under 26 U.S.C. Sec. 6103(f)'', dated June 13,
2019....................................................... 102
Beatty, Hon. Joyce:
Letter to Inspector General Eric M. Thorson, U.S. Department
of the Treasury, dated February 14, 2018................... 135
McHenry, Hon. Patrick:
Letter to Director Kenneth Blanco, Financial Crimes
Enforcement Network, U.S. Department of the Treasury, dated
May 6, 2019................................................ 139
Letter to Treasury Secretary Steven Mnuchin, dated September
12, 2018................................................... 140
Mnuchin, Hon. Steven T.:
Written responses to questions for the record submitted by
Representative Budd........................................ 143
Written responses to questions for the record submitted by
Representative Cleaver..................................... 145
Written responses to questions for the record submitted by
Representative Chuy Garcia................................. 155
Written responses to questions for the record submitted by
Representative Anthony Gonzalez............................ 155
Written responses to questions for the record submitted by
Representative Green....................................... 158
Written responses to questions for the record submitted by
Representative Kustoff..................................... 161
Written responses to questions for the record submitted by
Representative Lucas....................................... 162
Written responses to questions for the record submitted by
Representative Posey....................................... 162
Written responses to questions for the record submitted by
Representative Stivers..................................... 166
Written responses to questions for the record submitted by
Representative Wagner...................................... 166
Written responses to questions for the record submitted by
Chairwoman Waters.......................................... 170
THE ANNUAL TESTIMONY OF
THE SECRETARY OF THE TREASURY
ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM
----------
Tuesday, April 9, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 2:04 p.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Sherman, Meeks, Clay, Scott, Green, Cleaver,
Perlmutter, Himes, Foster, Beatty, Heck, Vargas, Gottheimer,
Lawson, San Nicolas, Tlaib, Porter, Axne, Casten, Pressley,
McAdams, Ocasio-Cortez, Wexton, Lynch, Adams, Dean, Garcia of
Illinois, Garcia of Texas, Phillips; McHenry, Wagner, King,
Lucas, Posey, Luetkemeyer, Huizenga, Duffy, Stivers, Barr,
Tipton, Williams, Hill, Zeldin, Loudermilk, Mooney, Davidson,
Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil,
Gooden, and Riggleman.
Chairwoman Waters. The Financial Services Committee will
come to order. Without objection, the Chair is authorized to
declare a recess of the committee at any time.
At today's hearing, we are receiving the annual testimony
of the Secretary of the Treasury on the state of the
international financial system.
And I will now recognize myself for 4 minutes to give an
opening statement.
Today, this committee convenes for a hearing to receive the
annual testimony of the Secretary of the Treasury on the state
of the international financial system. I would like to start by
talking about the International Development Association, or
IDA, which is the arm of the World Bank that provides grants
and highly concessional loans to the world's poorest countries.
I am concerned that IDA, through its new private sector
window (PSW) today is transferring $2.5 billion to the World
Bank's private sector investment arm, the International Finance
Corporation (IFC), and is subsidizing private firms selected
without competition on the basis of unsolicited proposals.
The PSW is likely to prioritize financial returns over
positive development impacts which will be difficult to
monitor. The PSW also stands in conflict with the World Bank's
own principles that call for subsidies to be justified,
transparent, competitively based, focused on impact, and
guarded against rent-seeking opportunities.
So my message to Treasury and to the World Bank is that
unless these transfers stop, or at a minimum are competitively
based and fully transparent down to the amounts and purpose of
aid going to which firms and projects, the Administration's
request for Congress to authorize the IFC's general capital
increase will not be a committee priority.
Now, I would like to turn to Treasury's implementation of
U.S. sanctions. The Secretary also must provide this committee
with complete answers today regarding the Treasury Department's
actions to delist companies associated with Russian oligarch
Oleg Deripaska. Deripaska is a criminal, and Vladimir Putin's
confidant, who should not be let off the hook from sanctions
that were put in place to punish bad actors.
I am very concerned that the delisting agreement that
Treasury implemented sends exactly the wrong message to
Deripaska, other Russian oligarchs, and Putin himself, because
Deripaska will still wield a great deal of influence over his
previously sanctioned companies.
Trump has shown a deference to and a fondness for Vladimir
Putin, including at the Helsinki summit last summer when Trump
inexplicably sided with Putin over his own Justice Department,
when the FBI indicted 12 Russian intelligence officers for
conspiracy to interfere in the 2016 U.S. presidential
elections.
It's very troubling that it appears that this dynamic may
be affecting sanctions policy with the Trump Administration's
Treasury Department, enabling Russian bad actors like Deripaska
to evade sanctions.
Moreover, Congress mandated several sanctions to be placed
on Russia that Treasury has still not implemented, including
sanctions required by the Chemical and Biological Weapons Act
that the Administration had a statutory deadline to impose by
last November.
So, Secretary Mnuchin, you must explain these decisions in
your public testimony today and address several other important
issues. I expect you to be forthcoming with this committee.
I also understand that despite our efforts to accommodate
your schedule, you have now made another engagement this
evening. This is unacceptable. If you are unwilling to stay
today for the full duration of this hearing, the committee will
compel your return for multiple additional hearings in the
month of May.
The Chair now recognizes the ranking member of the
committee, the gentleman from North Carolina, Mr. McHenry, for
5 minutes for an opening statement.
Mr. McHenry. Well, welcome, Secretary Mnuchin. Welcome back
to the committee. You come before this committee at a really
precarious time for global markets. In fact, I wrote you in
January right after the vote in the U.K. Parliament regarding
Brexit.
In that letter, I raised questions about the uncertainty of
a prolonged Brexit and the effect it would have on financial
institutions, the derivatives market, cross-border trading, and
the financial services and insurance contracts.
And after three failed attempts, the Prime Minister of
Great Britain continues to work towards Friday's deadline on
Brexit. In Europe, the long and uncertain path towards Brexit
is coupled with a possible slowdown in Germany.
I am particularly concerned about the overexposure of
German banks and what this means for U.S. financial
institutions. This is a serious thing for systemic risk. For
example, last month, Forbes opined on the Deutsche Bank and
Commerzbank merger indicating that both banks were in such deep
trouble that even a merger couldn't help either one of them,
and that is problematic.
The global issues aren't just limited to the U.K. and
Europe. In China, the era of double-digit growth is seemingly
at an end, and thanks to the state-run allocation of capital, a
disregard for the rule of law, and a regime that favors the
theft of intellectual property over homegrown ideas, we see
that coming home to roost.
Moreover, should we be concerned--this is actually a pretty
interesting question that I think is worthy of discussion here
at Financial Services--that China has joined the Bloomberg
Barclays Global-Aggregate Index, opening up their $13 trillion
debt market to investors?
The move is expected to bring in more than $180 billion in
investor capital to China. What does this move mean for global
markets? What effect does it have? Notwithstanding these risks,
traditional threats to global stability remain, whether they
emerge from international terrorism, weapons proliferation, or
illicit finance flows.
Treasury plays a critical role by administering sanctions
and protecting the U.S. financial system, areas of
bipartisanship on Capitol Hill, and we view the Treasury as
important to this. That is why we give you this authority, and
we think it should be used responsibly but forcefully with
clear objectives of national interest.
Finally, I want to make a special note of the Committee on
Foreign Investment in the United State, or CFIUS, which is
quickly becoming a model for other countries looking to screen
investments for national security risks.
Treasury's responsibility under this law has a significant
impact on the global investment environment. Through bipartisan
work here on Capitol Hill, we made significant changes to CFIUS
in a way that targeted legitimate national security threats
while preserving and even championing the United States' open
investment climate.
In fact, just last week, CFIUS unwound two deals involving
Chinese investors. I look forward to working with the
chairwoman to ensure that that piece of legislation is
faithfully implemented and that regulations conform with
congressional intent.
And with that, I would like to yield the balance of my time
to the gentleman from Ohio, Mr. Stivers.
Mr. Stivers. I would like to thank the gentleman for
yielding. Mr. Secretary, thanks for being here.
I do want to take this opportunity to highlight the need to
reauthorize the Export-Import Bank that expires in October. The
Ex-Im Bank supports American exports and American jobs.
Competition for international markets is fierce and United
States companies already operate at a disadvantage.
China's support for their export credit finance agency
dwafs our Ex-Im. The Chinese Ex-Im equivalent was $36 billion
in 2017 compared to only $200 million for the Ex-Im bank in the
United States.
I look forward to working with you to make sure we
reauthorize this very important agency and institute reforms
that will strengthen its ability to help American workers
compete on the global playing field. I am also looking forward
to your testimony with regard to global uncertainty, sanctions,
international development, and the Bank Secrecy Act.
Thank you for being here.
I yield back the balance of my time to the ranking member.
Mr. McHenry. I yield back.
Chairwoman Waters. Thank you. The Chair now recognizes the
subcommittee chairman, Mr. Cleaver, for 1 minute.
Mr. Cleaver. Thank you, Madam Chairwoman. And thank you,
Mr. Secretary, for appearing before this committee. And also,
thank you for your service to our country.
When you took this job, you, like Members of Congress,
swore an oath to faithfully defend the Constitution against all
enemies, foreign and domestic. In these unusual times, that
oath is being tested.
It is my opinion that many of our critically important
institutions are actually being threatened. I think this
hearing is an opportunity for you to tell us about how you are
holding onto these institutions.
Hopefully, you will provide candid answers to questions on
your role and decisions impacting our citizens, and frankly the
entire world, decisions that include a dangerous and
wrongheaded trade and tariff policy that reduces America's
income at a rate of $1.4 billion each month according to the
Federal Reserve, the same policies that the U.S. Chamber of
Commerce says threaten 2.6 million American jobs.
We will also have, hopefully, a better understanding of how
this Administration decides to remove sanctions against Russia
and North Korea, these two countries that have been identified
in our unclassified worldwide threat assessment as primary
threats to our national security.
I look forward to raising questions with you later. Thank
you.
Chairwoman Waters. Thank you very much. At this time, I
want to welcome to the committee our witness, Mr. Steven T.
Mnuchin, Secretary of the Treasury. He has served in his
current position since 2017. Mr. Mnuchin has testified before
the committee on previous occasions and I believe he does not
need any further introduction.
Without objection, your written statement will be made a
part of the record, Secretary Mnuchin, and you are now
recognized for 5 minutes to present your oral testimony.
STATEMENT OF THE HONORABLE STEVEN T. MNUCHIN, SECRETARY, U.S.
DEPARTMENT OF THE TREASURY
Secretary Mnuchin. Thank you very much. It is a pleasure to
be with you.
Chairwoman Waters, Ranking Member McHenry, and members of
the committee, it is good to be here with you today to discuss
the state of the international financial system, the National
Advisory Council on International Monetary and Financial
Policies's report to Congress, and key priorities of the
Treasury Department.
I am proud to report that President Trump's program of tax
cuts, regulatory relief, and improved trade deals is resulting
in the strongest economic growth for the American economy since
2005, and the best job market in generations.
I would also just like to comment on opportunity zones,
which are an important key component of the Tax Cuts and Jobs
Act. They will help more Americans benefit from our strong
economy. Opportunity zones offer capital gains relief for
investments in businesses in distressed communities. We are
seeing a great deal of enthusiasm for this policy all across
the country because it will lead to revitalization and restore
the promise of prosperity to more workers and families.
The Administration is making trade with our international
partners a top priority. I urge all Members of Congress to
support the passage of the US-Mexico-Canada Agreement, USMCA.
It will create the highest standards ever negotiated to protect
intellectual property rights of entrepreneurs, provide strong
support for the small and mid-sized businesses, encourage
manufacturing, and opening markets for American agricultural
products.
We are also making progress negotiating with China to
rebalance our economic relationship, end unfair trade
practices, open their economy to American companies, and
protect our critical technology.
We remain focused on several economic issues related to
national security. We are implementing the Foreign Investment
Risk Review Modernization Act (FIRRMA). This legislation, which
passed with overwhelming bipartisan support, modernizes the
review process of the Committee on Foreign Investment in the
United States, known as CFIUS, and enhances CFIUS's ability to
analyze transactions for national security risks, preserving
our commitment to an open investment environment.
Treasury is combating the abuse of our financial system by
rogue regimes, terrorist organizations, cyber criminals, and
other illicit actors. The United States Government and our
international partners are putting unprecedented pressure on
the illegitimate Maduro regime in Venezuela. We will continue
to target this regime and support interim President Juan Guaido
as he seeks to restore security and prosperity in his country.
Treasury is also using its authority to combat human rights
abuses and corruption. We are pleased that many members of this
committee have supported our sanctions and other actions. I
assure you that the Administration will continue to
aggressively target malign actors all around the world.
Turning to policy developments impacting international
financial institutions, we are advancing reforms to more
efficiently alleviate poverty and foster stability and growth
in emerging markets. We are working constructively at the G7,
the G20, the World Bank, the IMF, and other partners to foster
debt transparency that will reduce the risks of crisis in
developing countries.
As you are aware, the IMF aims to conclude the 15th General
Review of Quotas this year. We believe the overall resources
are currently adequate for it to accomplish its goals. We are
beginning discussions with other shareholders on this issue.
Finally, of particular note, we are requesting
authorization for the funding of the World Bank's capital
increase. In connection with this, we successfully negotiated a
comprehensive reform package including lending measure limits
and future need to limit future capital increases and focus
resources on poorer countries.
We are also requesting authorization for the planned share
purchase in the North American Development Bank with the goal
of working more closely with Mexico to improve economic
conditions.
I look forward to your questions, and to discussing ways to
create more jobs and more opportunities for hard-working
American families. Thank you very much.
[The prepared statement of Secretary Mnuchin can be found
on page 100 of the appendix.]
Chairwoman Waters. Thank you very much.
Secretary Mnuchin, Chairman Neal requested the President's
tax returns last week. Section 6103 of the Internal Revenue
Code states that when the Committee on Ways and Means makes
such a request, ``the Secretary shall furnish a return or
return information specified in such request.''
You are being asked to comply with the law today, and I can
imagine you may feel your job as Secretary is on the line.
Yesterday, President Trump forcibly ousted Secretary Nielsen,
adding to a long list of cabinet level officials or staff that
he forced out, including Chief of Staff John Kelly, Secretary
of State Rex Tillerson, and Attorney General Jeff Sessions.
Secretary Mnuchin, will you comply with the law by the
deadline tomorrow and furnish the tax returns, even if it means
you may be fired by this President for doing so?
Secretary Mnuchin. First of all, thank you very much for
that question. I had the opportunity to answer similar
questions this morning when I testified earlier today. As I
previously said, I want to acknowledge that we have received
the request. As I said before, we will follow the law. We are
reviewing it with our internal legal department and I would
leave it at that.
Chairwoman Waters. Thank you. But I guess what you are
basically saying is, you will follow the law and you are not
afraid that you will be fired if in fact you release the
returns?
Secretary Mnuchin. Well, I am not afraid of being fired at
all.
Chairwoman Waters. Very good.
Secretary Mnuchin. Having said that, again, I want to be
clear, I have said we will follow the law and we are reviewing
that--
Chairwoman Waters. Okay. And I am very pleased that you are
not afraid of being fired.
Secretary Mnuchin, since President Trump took office,
numerous press reports have alleged that Trump associates and
campaign officials attempted to negotiate the lifting of U.S.
sanctions against Russia, and now I understand that when you
lifted sanctions against Rusal, a major aluminum company
largely owned by Russian oligarch Oleg Deripaska, you also
directly benefited one of your former business associates and
close friends, Leonid Blavatnik, with whom you owned RatPac-
Dune Entertainment, or RPDE.
It also seems that Mr. Blavatnik has a close relationship
with Mr. Deripaska. I have in my possession a series of letters
the Treasury exchanged with Congresswoman Jackie Speier that
pertain to this issue. Treasury's response to Ms. Speier denies
media reports that you sold your ownership in RPDE to Mr.
Blavatnik, stating that you sold your share to a third party
unconnected to Mr. Blavatnik.
However, the letter does not comment on Mr. Blavatnik's
company purchasing an interest in a related company, RatPac
Entertainment, at the exact same time. Who is the third party
that you sold your shares to?
Secretary Mnuchin. First of all, let me just say, as to the
relationship with Len Blavatnik, he is not a close associate of
mine. He is someone whom I have met--
Chairwoman Waters. Did you sell it to him as a third party?
Secretary Mnuchin. No, I did not sell it to him as a third
party--
Chairwoman Waters. RatPac Entertainment?
Secretary Mnuchin. Directly or indirectly.
Chairwoman Waters. RatPac Entertainment?
Secretary Mnuchin. I have no connection with RatPac
Entertainment whatsoever, nor can I comment on, nor am I aware
of the specifics of the ownership of RatPac Entertainment. It
is a completely separate entity.
Chairwoman Waters. So RatPac-Dune was and is in no way
related to RatPac Entertainment, is that correct?
Secretary Mnuchin. RatPac Entertainment was a passive
investor in RatPac-Dune.
Chairwoman Waters. So there is a connection between RatPac-
Dune and RatPac Entertainment?
Secretary Mnuchin. Again, RatPac was an investor in RatPac-
Dune. I was not an investor of or associated with RatPac.
Chairwoman Waters. But when we asked whether or not the
third party was involved with RatPac Entertainment at the same
time, one had nothing to do with the other, is that right?
Secretary Mnuchin. That is correct. The third party had
nothing to do with RatPac whatsoever.
Chairwoman Waters. Well, who is the third party that you
sold your shares to?
Secretary Mnuchin. That was a confidential transaction that
was sold to a third party.
Chairwoman Waters. Was it a Russian oligarch?
Secretary Mnuchin. No, I can assure you it was not any
Russian oligarch or any Russian person whatsoever.
Chairwoman Waters. Why is it you cannot share that
information with this committee?
Secretary Mnuchin. I don't think it is relevant.
Chairwoman Waters. I think it is relevant because of your
involvement with Russian oligarchs even before you became
Treasury Secretary, and you are in the position now where you
are dealing with sanctions that were placed on these oligarchs
and it appears that you are delisting or lifting sanctions, and
it may be a conflict of interest. Don't you think you need to
straighten that out?
Secretary Mnuchin. I don't believe I have ever met a
Russian oligarch, nor did I ever do business with a Russian
oligarch, and I would just comment that Blavatnik, I believe,
was from a different country. He wasn't a Russian oligarch.
Chairwoman Waters. So you never met or talked with or had
any conversations with Mr. Deripaska or with Mr. Viktor
Vekselberg or anybody about sanctions, is that correct?
Secretary Mnuchin. That is correct. I have never met either
of them--
Chairwoman Waters. No. No, not met, but had a conversation
with, period.
Secretary Mnuchin. I have never had any conversation with
either one of them.
Chairwoman Waters. And you have never been involved with
any oligarchs in terms of your previous business, is that
right?
Secretary Mnuchin. That is correct.
Chairwoman Waters. All right. And so I am going to have the
record record that the third party that you sold your shares
to, you refuse to reveal to this committee. Is that right?
Secretary Mnuchin. That is correct.
Chairwoman Waters. Okay. Let us continue.
The gentleman from North Carolina, Ranking Member McHenry,
is recognized for 5 minutes.
Mr. McHenry. Secretary Mnuchin, I don't have any questions
about your executive producer credentials, but I think you did
well with ``American Sniper,'' ``Sully,'' ``The Lego Movie,''
and most recently, ``Wonder Woman.'' Congratulations to you on
your box office success. Actually, I thought it was much
funnier, but the crowd apparently didn't.
So, thank you for your testimony. As I alluded to in my
opening statement, I wrote you this past January, in
particular, about Brexit. In that letter, I referenced the
Financial Stability Oversight Board's (FSOC's) annual report
and a number of outcomes related to Brexit that could trigger
distress. So would you describe what work you and other
regulators have been doing with U.S. financial institutions as
well as regulators abroad to prepare appropriately for a
disorderly Brexit?
Secretary Mnuchin. Sure. Well, let me just comment. First
of all, I think it is a surprise to many of us that we are
sitting here today still waiting to see how this plays out. But
over the last year and, specifically, over the last 2 months, I
have been working very closely with FSOC and with the
appropriate regulators to make sure that our financial
institutions are prepared for a hard Brexit.
Several weeks ago, I was in the U.K., and I met with both
the prime minister and the chancellor of the Exchequer, Philip
Hammond, and discussed it, as well as the head of the Bank of
England. So we are very carefully monitoring these
developments.
I think U.S. financial institutions are prepared, but I
think there could be some significant disruptions in the
markets and in trade, as a result of a hard Brexit.
Mr. McHenry. Are regulators prepared and is our government
prepared?
Secretary Mnuchin. I believe we are prepared, although I
would just say I think there will be many aspects of a hard
Brexit, and we have encouraged both parties to see if they can
have a resolution that works.
Mr. McHenry. How does this week's actions, yesterday's and
today's actions with the U.K. government in their conversations
with the E.U., how does that relate to your activities? Have
you heightened activities this week as a result?
Secretary Mnuchin. I haven't been privy to the
conversations that had been going on yesterday and the day
before. But as I said, I have been actively involved with this
over the last 6 months. And I think, at this point, we need to
be prepared for a hard Brexit as a very realistic outcome.
Mr. McHenry. Okay. And so, with that mindset, you are
prepared on Friday if there is a hard Brexit, as far as your
footprint in Treasury? You have worked to see that we have done
all that we can do in preparation?
Secretary Mnuchin. That is correct. And we have coordinated
with the Federal Reserve, the OCC, the FDIC, and the other
appropriate regulators.
Mr. McHenry. So tomorrow, this committee is holding a
hearing with the seven largest financial institutions here in
the United States. And from your perspective, how would you
describe the U.S. financial system currently? The current
state?
Secretary Mnuchin. I think the U.S. financial system,
broadly, is very well-capitalized, has de-risked significantly,
and is in very good shape.
Mr. McHenry. So the known knowns are well-provided for?
Secretary Mnuchin. They are. But the unknown unknowns are
what we always worry about.
Mr. McHenry. And that is the nature of the financial
institutions.
Secretary Mnuchin. That is correct.
Mr. McHenry. Some have described the banking environment as
size equals survival. And as it relates to the Dodd-Frank Act,
that has clearly been the case, where we have fewer small
financial institutions because of the regulatory burden. Can
you describe the cost to the system of that regulatory burden?
Secretary Mnuchin. I think it is quite significant. And I
think you know we worked with this committee and with the
Senate last year on reforms to Dodd-Frank to make sure that
community banks and regional banks can compete fairly. I think
it is important that we have a robust regional bank and
community bank system and that we don't end up with just a
small number of banks in the country.
Mr. McHenry. So greater competition--
Secretary Mnuchin. Absolutely.
Mr. McHenry. And less consolidation, basically as a result
of regulation. So what role do U.S. financial institutions play
in enforcement of sanctions?
Secretary Mnuchin. U.S. financial institutions are critical
in enforcing our sanctions.
Mr. McHenry. So there is enormous benefit to us being the
reserve currency and for us having financial institutions to do
international trade?
Secretary Mnuchin. Absolutely. The U.S., as the reserve
currency, is very, very important. There are many benefits that
we have from that, and that is one of the reasons why our
sanctions are such powerful national security tools.
Mr. McHenry. So if U.S. financial institutions do not play
that role in sanctions, how would sanctions enforcement occur?
Secretary Mnuchin. Well, it couldn't occur without both the
U.S. financial institutions and other financial institutions
that are connected to the U.S. system. That is critical.
Mr. McHenry. Final question: You described an embarrassing
situation, that is, the IRS technology footprint. We look
forward to working with you to ensure that there is proper
funding so that the IRS can update its technology footprint.
And thank you for making that publicly known.
And I yield back.
Chairwoman Waters. Thank you. The gentlewoman from New
York, Ms. Maloney, who is also the Chair of our Subcommittee on
Investor Protection, Entrepreneurship, and Capital Markets, is
recognized for 5 minutes.
Mrs. Maloney. Thank you. Secretary Mnuchin, when you
testified to this committee 2 years ago, I asked about
beneficial ownership. You said that you looked forward to
working with us on a solution to that issue.
And then when you testified last year, you said, ``We have
to figure out beneficial ownership in the next 6 months. I
don't want to be coming back here next year and we don't have
this solved, so we need to work with Congress on a bipartisan
basis on this.''
Well, Mr. Secretary, we have been working on a bipartisan
basis on this issue, and I think we are very close to an
agreement. The Treasury did provide us technical feedback on
our bill, and we have incorporated all of your recommendations.
And I want to thank you for that. You have seen the most recent
draft of the bill, and I know you are still going through it,
but I just want to ask you, do you think that we are headed in
the right direction?
Secretary Mnuchin. I do believe, generally, you are headed
in the right direction, and I appreciate your work on this. I
hope this is something that, on a bipartisan basis, we can get
accomplished, both here and in the Senate. As I have said in
the past, there are many things--I am proud of our
accomplishments to date. But this is not one of them. And I do
think we need to solve this, and I hope not to be back again
next time without this solved.
Mrs. Maloney. I hope that you are correct. Switching
topics, you said in testimony this morning that your team had
communicated with the White House Counsel's Office about
Congress' request for the President's tax returns. But there
isn't supposed to be any communication with the White House
about this. The process was designed to avoid interference with
the White House.
Now, I know that you said this morning that you personally
weren't involved in those discussions with the White House, but
obviously your team told you about those communications. So
what did your team tell you about these communications with the
White House?
Secretary Mnuchin. Well, first, let me just say, as I
commented on this morning, and I will repeat, I have had no
direct conversations with the President or anybody else in the
White House about this. As I volunteered this morning, I did
make clear our legal department has consulted with the White
House, as they would and as I believe would be normal.
That is not taking direction from the White House. I don't
view that as interference. I think, as you know, it was widely
publicized that we were going to receive the request and they
consulted with them before it. It was not specific to the
President's--anything related to the President's tax returns
other than the expectation of getting this request.
Mrs. Maloney. Well, did your team ask for the White House's
permission to release the President's tax returns? Did the
White House ask your team not to release the tax returns?
Secretary Mnuchin. We would not ever ask for the White
House's permission on this, nor did they give us the
permission. As I have said, we have consulted, which I believe
was appropriate of our legal department.
Mrs. Maloney. Well, I think the fact that there was any
communication with the White House about this is deeply
troubling and certainly violates the spirit of the law, if not
the letter of the law, and I think we need to get to the bottom
of this. I yield back.
Chairwoman Waters. The Chair advises Members that votes
have been called on the Floor. The committee will recess for
votes and resume immediately following. The committee stands in
recess.
[Whereupon, at 2:36 p.m., the committee recessed, to
reconvene at 3:22 p.m., the same day.]
Chairwoman Waters. The gentleman from Michigan, Mr.
Huizenga, is recognized for 5 minutes.
Mr. Huizenga. I appreciate the Chair's recognition. And
it's good to see you again, Mr. Secretary.
I want to touch base really quickly on a couple of
international issues, one being Venezuela, and the other one I
want to touch on is the Export-Import Bank, and we will see if
we can get to USMCA, as well.
But the United States, as you well know, as well as major
European countries has recognized Juan Guaido as the interim
president of Venezuela, but the IMF has yet to follow and do
the same, and I am curious about your thoughts on how could
Congress support additional resources for the IMF, let alone
rescue Venezuela potentially if the fund disagrees with the
largest shareholders on who the legitimate leader of Venezuela
currently is?
Secretary Mnuchin. Well, I don't think that the IMF
necessarily disagrees. And as a matter of fact, I was with
Christine Lagarde yesterday and we discussed this issue. The
real issue is that we are focused on what would it take to
unlock IMF resources to the interim government, and that is
something we are constructively working with the IMF on.
And I would say more importantly, we are very focused at
the appropriate time of the transition of using both IMF
resources and World Bank resources to rebuild the country, that
the people of Venezuela are in desperate need of an economic
recovery.
Mr. Huizenga. And I might add the people of Venezuela
deserve better. They--
Secretary Mnuchin. Agreed.
Mr. Huizenga. --deserve better than the current regime, and
I certainly am hoping that Mr. Guaido is able to be recognized
permanently. But any additional help you can give to make that
happen would be deeply appreciated.
Export-Import Bank, the Bank dates back to 1945 and we have
had a couple of iterations of reauthorizations, discussions,
reforms of some degree. In fact, in the last go-around one of
the provisions that was put in there was a requirement for the
President to pursue negotiations with foreign countries to
``substantially reduce with the possible goal of eliminating''
those countries' export subsidies. And I know that was
specifically talked about with Airbus and what could be
happening there.
Could you please give us an update on Treasury's role in
conducting these negotiations? And what specific progress, if
any, are you making on this issue?
Secretary Mnuchin. Yes, thank you. Well, first, let me just
comment that President Trump is very interested in the Export-
Import Bank and making sure that we have a quorum and that it
can lend properly.
As it relates to export subsidies, that is something the
Treasury is very involved in, and specifically in conversations
that Ambassador Lighthizer and myself are having with China,
that is a topic that is high on the list.
Mr. Huizenga. So could you give us a little more specifics
on the progress on that? Not all of us are big fans of the
Export-Import Bank. When you look at the original intent of it,
it was to get those smaller industries that were not able to be
banked into a foreign transaction to be able to have the
resources to be able to do that.
We have seen it go in some very different directions, and
specifically I am looking for what is the status of those
conversations?
Secretary Mnuchin. The conversations with foreign countries
on subsidies or the conversations on the use of the Export-
Import Bank?
Mr. Huizenga. Specifically dealing with the foreign
countries having similar structures. The directive was that
Treasury negotiate with these countries to try to reduce, if
not remove, the need for those.
Secretary Mnuchin. Yes, so at the G7 and the G20 we have
been having very significant conversations. David Malpass,
prior to leaving to become Head of the World Bank, oversaw
those, and I think we are making progress also at the OECD.
Mr. Huizenga. Okay, you have mentioned, very quickly, in
your opening about the USMCA, coming from Michigan, which some
statistics would point to the largest trading partnership being
the U.S. and Canada. The sixth largest trading partnership is
the State of Michigan and Canada. Give us an update on what is
happening there and your take on how we are going to be dealing
with the USMCA.
Secretary Mnuchin. Well, I think the trade between the
U.S., Canada, and Mexico is very important to our economy. I
think, as I mentioned in my opening statement, that this is an
agreement that brings forward trade very importantly and I hope
it is brought up within Congress quickly so that it will be
passed.
Chairwoman Waters. The gentlewoman from New York, Ms.
Velazquez, is recognized for 5 minutes.
Ms. Velazquez. Thank you, Chairwoman Waters. And thank you,
Mr. Secretary. I was here earlier listening to your exchange
with Chairwoman Waters and heard you say that you will comply
with the law and furnish President Trump's tax return.
But what I did not hear you say to the chairwoman was
whether you were going to comply with Chairman Neal's deadline
of tomorrow. So my question to you is, yes or no, will you
comply with Chairman Neal's deadline of tomorrow?
Secretary Mnuchin. I want to clarify my previous comments
so there is no misunderstanding. I said that I would comply
with the law. I did not--
Ms. Velazquez. And the law said--and the written request
from the chairman of the Committee on Ways and Means of the
House of Representatives, the chairman of the Committee on
Finance of the Senate, or the Chairman of the Joint Committee
on Taxation, the Secretary shall furnish. So that is the law.
Secretary Mnuchin. Again, I just want to be very clear so
there is no misunderstanding. I have said that I will comply
with the law. I have not made a comment in one way or another
about whether we would supply the tax returns. I want to be
very clear on that. We have said we will comply with the law.
Ms. Velazquez. What law then are you referring to? This is
the law, U.S. Code Sec. 6103. So can you tell me what other law
talks about tax returns?
Secretary Mnuchin. That is the law, and as I have said we
are consulting with our lawyers.
Ms. Velazquez. Well, you said you will comply with the law.
Secretary Mnuchin. That is correct.
Ms. Velazquez. Well, we will see about tomorrow. Secretary
Mnuchin, in early March, the U.S. officially hit the national
debt ceiling, capping the debt at just over $22 trillion.
According to the CBO report produced in February, the Treasury
Department will exhaust its use of extraordinary measures
sometime in late September or early October.
Do you agree with the CBO's projection that the Treasury
Department will exhaust its use of extraordinary measures
sometime in the fall?
Secretary Mnuchin. I am not going to give an exact date.
There are a lot of assumptions. I think the more important
issue is that I have written to Congress and I would urge
Congress on a bipartisan basis to pass the debt ceiling.
This is something that is very important to our national
debt and our national credit, and I would hope that this is not
something that would be sitting here in late September--
Ms. Velazquez. Okay. I hear you. Thank you. What would be
the consequences both domestically as well as internationally
of the U.S. defaulting on even some of its debt?
Secretary Mnuchin. I can't possibly imagine that anybody in
Congress would ever want us to default on our debt. It would be
quite disastrous.
Ms. Velazquez. So do you think the debt ceiling should be
held hostage by any desire President Trump might have to fund
his vanity wall?
Secretary Mnuchin. The President has no interest in holding
this hostage to any issue. The President has encouraged me and
I have reached out to both the Democrats and Republicans in
discussions. The President would like to have this passed as
soon as we can.
Ms. Velazquez. Okay. Thank you. In the Treasury
Department's budget request for Fiscal Year 2020, you and
President Trump chose to eliminate funding for the CDFI Fund's
discretionary grant and direct loan programs. Can you explain
this decision and tell us how you think the communities served
by these institutions will be impacted?
Secretary Mnuchin. Thank you. I had the opportunity to talk
about this issue this morning at the Appropriations
Subcommittee, so let me repeat this. First of all, I want to
acknowledge that I do think this program serves many
communities in a significant way, that this was just a
difficult decision looking at funding across multiple programs,
how we have prioritized it.
And if this committee and other--if we have appropriations
for that and that is Congress' desire, we shall properly
administer the programs as they have been done in the past.
Ms. Velazquez. You bet that that money will be appropriated
for the CDFI. Thank you. I yield back.
Chairwoman Waters. The gentleman from Missouri, Mr.
Luetkemeyer, is recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Madam Chairwoman.
Welcome this afternoon, Secretary Mnuchin. I know a while
ago Ms. Maloney talked about beneficial ownership. I just
wanted to reiterate that I am working with her on the bill. I
am looking forward to working with you to make sure that we get
what we need on that.
I am not really happy about codifying a rule. I wish the
Treasury would--if we could take our bill and hand it to you
and you would make those changes, it would serve me better than
us trying to codify it.
But today we haven't been able to get that done, and so
maybe this is the best way to handle it, and I don't know if
you have a comment on it? I would appreciate a comment.
Secretary Mnuchin. Well, I appreciate the bipartisan views
on this. And again, there are specifics we need to work out and
we look forward to sitting down with you and others on the
committee to try to get this done soon. I think it is an
important--
Mr. Luetkemeyer. If we could reach a bipartisan agreement,
would you be willing to make those changes through the rule
process or do we have to go legislatively?
Secretary Mnuchin. I think that is something we need to sit
down and discuss with the committee.
Mr. Luetkemeyer. Okay. Thank you. As Secretary of the
Treasury, you also serve as Chair of FSOC. FSOC is tasked with
identifying risks and responding to emerging threats to
financial stability.
In the past, FSOC has discussed the issue of CECL and many
of the concerns around the standard. In my opinion, CECL
affects numerous aspects of the economy and could have drastic
procyclical issues like mark-to-market.
In my discussions with the FASB, they indicated they did
not do any prior testing, any new surveying, did not do any
studying, and as a result we are in the same situation with a
rule I think could have a dramatic impact as what mark-to-
market did whenever they didn't do the due diligence on that
one, either, and had to pull it after the disaster of 2008.
So I am very concerned about the effect it could have
especially on the GSEs and on the credit unions, who if you
look at them having to build up reserves, the only way for them
to find the income to build up those reserves and keep them
there is through raising the fees on loans.
We had in this committee back in December the Home
Builder's Association, which said for every $1,000 increase on
a home loan, 100,000 people no longer have access to credit or
to be able to buy or build a home. That is dramatic. That is
going to have a tremendous effect on the economy if it would
have that level of cost.
They are both doing studies right now to find that out and
we are hopeful that FASB will put a pause on this until we can
study this, because they didn't, and we need to have these
industries studied to make sure we get that done. Would you
support something like that?
Secretary Mnuchin. This is an issue we are closely
studying. We look forward to speaking to you and following up
on this and it is something we are discussing very closely at
FSOC. And since you have mentioned GSEs, I do hope that is an
area that we can work on, on a bipartisan basis for GSE
reforms.
Mr. Luetkemeyer. Well, my concern is that the GSEs are
going to have to come up with billions of dollars to put in the
reserves. When you have a $5 trillion portfolio, with just a
back-of-the-envelope analysis of a 2 percent reserve, you are
at $100 billion. And they are nowhere near that.
So I don't how they are going to raise the money, quite
frankly, unless they raise fees, which is going to have a
dramatic effect on the economy--and the same thing with credit
unions. So my concern is I hope that the regulators, and a lot
of folks who are involved in economic policy, take into
consideration what is going on with CECL.
We will work to try and find a way to get FASB to pause on
this so we can see it to make sure we know what the effects of
this are going to be before we implement this rule and don't
have the same disastrous results that we did with mark-to-
market. So I appreciate your concern and working on that with
us.
One of the things that I saw, about last week or week
before last, in the Wall Street Journal, there was a chart on
the front page that talked about the value of European banks
versus the value of American banks. And it was kind of
interesting because European banks were 70 percent of their
book value. And American banks were 1.09, or roughly 10
percent, above book value, which tells me that our banks are in
good shape. I think that is great. We have a good, strong
economy.
But it also tells you that European banks are in trouble.
When they are valued at 70 percent of what their book value is,
it tells you the bank is in trouble, their economy is in
trouble, or both, and that is not good.
So I think you mentioned a while ago, and I think the
ranking member talked about Brexit. With that in mind, with
these--with the weakness of the--in my mind and just splashed
on the front page of the Journal there, how do you see this
playing out? Do you see this as a concern? Do you see this
Brexit going to be able to work this thing out and the banks
are going to recover? Is that rating a result of Brexit, or is
that just a rating of some other weaknesses in the economy and
the banking system?
Secretary Mnuchin. Well, as you pointed out, there is no
question that U.S. banks are much better capitalized than
European banks. There is no question that, as you have pointed
out, the U.S. economy is much stronger than what is going on in
Europe. And as it relates to making predictions on Brexit, that
is a complicated thing to predict.
Mr. Luetkemeyer. Okay. Thank you, Mr. Secretary.
Chairwoman Waters. The gentleman from Missouri, Mr. Clay,
who is also the Chair of our Subcommittee on Housing, Community
Development, and Insurance, is recognized for 5 minutes.
Mr. Clay. Thank you, Madam Chairwoman. And thank you, Mr.
Secretary, for being here. I have some concerns about the
compliance history of Deutsche Bank and the potential national
security and criminal risk posed by its operations in the
United States.
Recently, the New York Department of Financial Services and
the U.K. Financial Conduct Authority have brought actions
against Deutsche Bank for its role in facilitating suspicious
activity in the United States. Can you comment on any and all
enforcement activities involving Deutsche Bank and provide this
committee some background for the record?
Secretary Mnuchin. I don't think it would be appropriate
for me to comment on the regulator's ongoing activity as it
relates to Deutsche Bank. The primary responsibility of this is
with the primary regulators. Obviously, from Treasury's
standpoint, that is the OCC and FinCEN. And again, I can assure
you the regulators are very focused on Deutsche Bank, as they
are on other banks, but I can't comment on ongoing enforcement
matters.
Mr. Clay. And does it give you pause or a concern about the
activities of a bank operating in this country with some
serious questions behind it? Does that give you concern?
Secretary Mnuchin. I want to be careful, as Secretary, of
what I say. But I have a lot of conferences with our regulators
and them being on top of these issues. And I would say, as a
general matter, not specific to Deutsche Bank, the issues that
you talk about we take very seriously, and I discuss with the
financial regulators regularly.
Mr. Clay. Thank you for that response. When you testified
before our committee last July, you stated that, ``At this
time, the United States finds the IMF's resources are adequate,
following the 2016 implementation of the 2010 quota and
governance reform package.''
Most recently, in December, when Treasury Under Secretary
David Malpass testified before our committee, he explicitly
stated that the Administration will not support an IMF quota
increase, essentially bringing to a halt a decade of slow
progress in reforming the Fund's governance structure to make
it more representative, legitimate, and therefore more
effective.
Now, this will seem shortsighted to some, as it allows
Japan and Europe to maintain its overweight voting power. And
of course, none of this will be lost on China or other under-
represented emerging markets.
Are you concerned that the Administration's rejection of
any possible reform of voting shares at the Fund could alienate
China and other emerging markets, which in turn might cause
them to drift away from the multilateral institutions and
increasingly towards regionalism?
Secretary Mnuchin. Well, let me just clarify. I am the lead
as it relates to the IMF issues. We are--actually, I am looking
forward to IMF meetings this week. People are coming in from
all over the world. Just to clarify a few things. We have said,
one, we are comfortable with the resources they have today, but
I think, as you know, the NAB will roll off.
Two, we have said we don't support an increase in quotas,
but we are in ongoing discussions with the IMF and the other
shareholders about what we do to support the balance sheet. And
I think the United States leadership at the IMF as the largest
shareholder is very important to us.
Mr. Clay. Well, what about the governance structure and--
Secretary Mnuchin. The governance is also very important.
And as part of any ongoing issue, governance and reforms are
high on the priority list, just as they have been with the
World Bank.
Mr. Clay. I see. And a couple of years ago, the Chinese
yuan had joined the U.S. dollar, the euro, the yen, and the
British pound in the IMF's Special Drawing Rights basket, which
determines currencies that countries can receive as part of IMF
loans.
By joining this elite grouping, China certainly doesn't
appear to be a developing nation. If an American from St. Louis
wanted to invest in China, could they have full confidence in
the Chinese banking system?
Secretary Mnuchin. The question was, should an American
have full confidence in the Chinese banking system?
Mr. Clay. Yes.
Secretary Mnuchin. It is a general comment. I am sure there
are banks there that are well-capitalized and banks there that
have significant problems. Their system is highly leveraged.
Mr. Clay. Thank you. My time is up.
Chairwoman Waters. The gentleman from Wisconsin, Mr. Duffy,
is recognized for 5 minutes.
Mr. Duffy. Thank you, Madam Chairwoman.
Welcome, Secretary Mnuchin. I have concerns about the
status of the ongoing negotiations at the International
Association of Insurance Supervisors (IAIS). They are
developing an international capital standard (ICS).
I would note that Randy Quarles gave a speech in January
and stated that the ICS ``may not be optimal for the United
States insurance markets,'' obviously expressing some concern
about this negotiation. I guess my question to you is, looking
at this tried-and-true U.S. system of insurance regulation, in
your role in the FSB, are you going to lean in and protect our
system, advocate, fight, negotiate for our system, and our
capital standards?
Secretary Mnuchin. Of course.
Mr. Duffy. Are you doing that?
Secretary Mnuchin. Yes.
Mr. Duffy. Are you respected? I imagine you are pretty well
respected.
Secretary Mnuchin. Yes.
Mr. Duffy. So if you and Mr. Quarles lean into this, we
should get a better result than what we are hearing from the
speech from Mr. Quarles, right?
Secretary Mnuchin. I would hope so.
Mr. Duffy. So would I. Okay, great, thank you. Let's talk
Fedwire. Obviously, it moves over $600 billion a day in
payments, and last week Fedwire went down and was completely
nonoperational for more than 3 hours. Were you briefed by the
Federal Reserve about--
Secretary Mnuchin. I was.
Mr. Duffy. And can you tell us what happened? I mean, 3
hours is concerning.
Secretary Mnuchin. First of all, I would just say I was
completely abreast of it real-time. The Chair and I were
speaking real-time on this issue. The Fed had backup plans that
I was comfortable with, I think it would be inappropriate in a
public forum like this for me to comment on the specifics, but
I am happy to follow up--
Mr. Duffy. Did the backup not work?
Secretary Mnuchin. Excuse me?
Mr. Duffy. Did the backup not work, because it was down
about 3 hours.
Secretary Mnuchin. Again, I want to be careful. I am more
than happy to come and talk to you in a different setting. I
will say, I have complete confidence in the Fedwire system. I
was fully aware of the specifics of what was going on. We were
completely on top of it.
Mr. Duffy. Okay. I would appreciate a further conversation
in a different setting. Are you a lawyer?
Secretary Mnuchin. I am not, but I deal with a lot of
lawyers.
Mr. Duffy. Sorry about that. So I don't know if you have an
opinion as to--maybe you know this. Is a Presidential candidate
or a President required to release their tax returns?
Secretary Mnuchin. I do not believe they are.
Mr. Duffy. And it has been common practice oftentimes that
they will release their tax returns, but they are not required,
is that your understanding?
Secretary Mnuchin. I believe that is the case.
Mr. Duffy. I actually agree with that practice. I have said
publicly that I think that President Trump should release his
tax returns, it could be a good thing, but the President has
chosen not to release his tax returns. I think you are going to
get a lot more questions today about taxes.
And I would just note that to walk down a political road
where we are going to use the Chairman of Ways and Means and
the power given to the Chair for political purposes to gain the
tax returns of our political opponents, we know that when one
action is taken, it oftentimes doesn't stop.
I don't know if anyone in this room wants to have their
taxes released. I don't know if Hillary and Bill want theirs
released, and Obama wants his released. We could play this game
out. And I guess this is for no investigative purpose. We heard
for 2 years that Bob Mueller has to be protected, Bob Mueller
is the gold standard. Don't cut his money, you make sure that
you protect him and let him do his work.
And he did his work. We got a synopsis. And it is not over.
We continue to have debate about, well, there might be
something in the report. Maybe we can get the actual report out
regardless of what is confidential, what is from
investigations. And now we have gone on to tax returns, and I
guess I want you to follow the law. It is important.
But I would just note that in this room, we should be
awfully concerned that what is good for the goose, is good for
the gander. What happens here will probably come around. I
invite you, as well. And so the President is not required to
release his taxes. He hasn't released them. I think he should.
He hasn't, and I think we should let it go at that.
Secretary Mnuchin. Well, as I have said, we do intend to do
follow the law. I would just say, I think that if Kevin Brady,
when he had been Chair of the committee, had requested high-
profile Democrat tax returns, there would have been significant
concerns.
Mr. Duffy. There would have been concerns.
Secretary Mnuchin. We will follow the law.
Mr. Duffy. I am shocked to hear that, Mr. Secretary. Of
course, there would have been concerns.
Chairwoman Waters. Mr. Duffy, your time has expired. The
gentleman from New York, Mr. Meeks, who is also the Chair of
our Subcommittee on Consumer Protection and Financial
Institutions, is recognized for 5 minutes.
Mr. Meeks. Mr. Duffy, you went there. Barack Obama did
disclose his tax returns. In fact, every President of United
States since Nixon opened their tax return, and in fact, when
someone gives their word, shouldn't one be, their word is their
bond and they should live by what their word is? Is that not
correct, Mr. Secretary? If you say something to the American
people, you should tell them the truth, is that not correct?
Secretary Mnuchin. I do tell the truth.
Mr. Meeks. Okay, but since Mr. Duffy brought it up, the
President of the United States told the American people that he
would release his tax returns. And he has said it at least 16
times, that he would release his tax returns. He made a promise
to the American people. Now, shouldn't the President of the
United States be a man or a woman of their word?
Secretary Mnuchin. Well, let me just comment that--
Mr. Meeks. Yes or no, Mr. Mnuchin?
Secretary Mnuchin. I would like to answer--
Mr. Meeks. Just answer yes or no. It is a yes-or-no
question.
Secretary Mnuchin. Again, what I have read in the press is,
he said he would release his returns when he wasn't under
audit, but I am not privy to the specifics of that.
Mr. Meeks. He has said several times, he said before he was
elected President and after he was elected President, that he
would release his tax returns, and then we hear from his Chief
of Staff that he is never going to, under any circumstances. So
that means that he has lied to the American people.
I hope, Mr. Secretary, you are not a liar, and other
individuals in the Administration are not liars, and that when
you testify, you testify to the truth and not deceiving
individuals. I hope as this President--
Mr. Duffy. Madam Chairwoman, I am going to raise a point of
order.
Mr. Meeks. You opened the door, sir.
Mr. Duffy. If the gentleman is calling the President a
liar--
Mr. Meeks. You opened the door.
Mr. Duffy. An order?
Mr. Meeks. I didn't call anybody--I am saying that you can
go to the videotape and see what the President said and what he
hasn't done. And so, yes--
Mr. Duffy. If the gentleman--
Mr. Meeks. If that is that I am calling--
Chairwoman Waters. The time belongs to the gentleman from
New York.
Mr. Meeks. --the President of the United States a liar--
Chairwoman Waters. Please do not interrupt him.
Mr. Duffy. I have a point of order, though.
Chairwoman Waters. There is no point of order. What is your
point of order?
Mr. Duffy. It is my point of order. Is the President a
covered personality?
Chairwoman Waters. Members are reminded to avoid
personality in their remarks. What is your point of order?
Mr. Duffy. That the President is a covered personality and
I believe the gentleman was calling the President a liar.
Chairwoman Waters. The Chair does not recognize that as a
point of order. Will the gentleman proceed with--
Mr. Meeks. Yes. I just want a few more times like to point
of order--
Mr. Duffy. I would move to take the gentleman's words down.
Mr. Meeks. So, what I am saying, Mr. Secretary, is that the
American people listen to what someone, when they make a
statement, they make a commitment to the American people of
whether they live up to it or not. And I am also stating that I
am hoping that individuals of the Administration do the same,
because there have been reports already that the President
yesterday was telling individuals to disobey the law in regards
to the security--the border line, and telling officers, ``Don't
listen to the judges.''
Now, I came here with a whole other series of questions
that I wanted to ask. But Mr. Duffy went there because I wanted
to know some other things that are important to the American
people. And now I am--he has raised my concerns because
generally what happens at the top goes all the way down. And
with all of the individuals who were fired yesterday, some
because they are trying to tell the President to follow the
law, and then the President would not follow the law, then it
gives me concerns.
And I think that is why the chairwoman asked you, ``Are you
concerned about your job?'' Because it seems as though
individuals within the Administration who follow the law and
may tell the truth and not try to deceive individuals in some
kind of way, the Administration of the President seems to want
to fire them. And that was the nature of her initial questions
that she had with you.
And I have almost lost all of my time, so I will just ask
one question. I wanted to ask about--talk about leveraged
lending and things of that nature, which is important. But I
don't have that kind of time.
So let me ask you this. Slapping tariffs on our allies has
made for tough negotiations. Do you believe those tariffs have
been overly disruptive? And how do they serve our purpose when
it comes to negotiating with Mexico and Canada? Because it
seems to me that they don't.
Secretary Mnuchin. Well, I am very pleased with the
agreement we have with Mexico and Canada. And I will tell you
as it relates to China, the tariffs have been effective in
getting China to the negotiating table.
And I know you ran out of time, but let me just comment on
leveraged lending, since you brought that up.
Chair, would you like me to comment on--I won't.
Chairwoman Waters. The gentleman from Ohio, Mr. Stivers, is
recognized for 5 minutes.
Mr. Stivers. Thank you, Madam Chairwoman.
I am over here, Mr. Secretary. Thanks for being here today.
So Ambassador Lighthizer testified in front of the Ways and
Means Committee recently and said that it is really important
to reauthorize the Export-Import Bank because it supports
American jobs and American exports. Do you agree with
Ambassador Lighthizer's assessment?
Secretary Mnuchin. I do.
Mr. Stivers. Great. And we look forward to working with you
on a bipartisan basis to reauthorize the Export-Import Bank and
make important reforms to make sure that it has all the
safeguards that need to be in place for the taxpayers and to
make sure that it is running effectively. But I really
appreciate your thoughts and opinions on that.
I said I wanted to talk to you a little bit about
suspicious activity reports. You are in charge of the Financial
Crimes Enforcement Network, FinCEN, that collects suspicious
activity reports, SARs. And almost a million of those were
filed last year by financial institutions.
Many times, that happens without a feedback loop to the
financial institutions to help them be better at preparing and
knowing what was good information, and what was bad
information.
And it seems to me that there might be a better way to
conduct SARs, even if we don't change the reporting threshold,
just getting the information and making it more useful in a
central database or some type of way where it is query-able by
the folks who need it. Are you working on anything to make
those more effective?
Secretary Mnuchin. Yes, we are. First, let me just comment,
the SARs are very important for all of our law enforcement and
our activities around sanctions. So when I was a banker, I was
concerned these things just went into a black hole. We do use
them, but we are actively looking at the policy around SARs and
we are working with FinCEN and TFI on looking at whether we
should make certain changes. So thank you for bringing that up.
Mr. Stivers. And if you could--and I understand that you
can't report back on everything. But there may be a way to
create a feedback loop to make the production more effective.
Some of these folks are, again and again, doing the same
things and maybe making the same mistakes on these suspicious
activity reports, or making them less effective for law
enforcement than they could or should be. So some type of
feedback would be very helpful for a lot of folks who want to
help, as you are trying to help catch the bad guys.
Secretary Mnuchin. Thank you.
Mr. Stivers. Thank you. Finally, I wanted to touch on
something that I know some other people have talked about.
Tomorrow there is going to be a hearing with seven of the large
financial banks in America. And we talked a little bit about
what would happen with sanctions if we didn't have large
American banks.
If the U.S. didn't have global banking institutions, and
instead we had to rely on European entities, Chinese entities,
and other foreign entities to help try to make our sanctions
effective, would they be able to be implemented? And would they
be as effective at shutting down rogue regimes?
Secretary Mnuchin. No, they wouldn't. The U.S. financial
system and the strength of it and the importance of the dollar
and the large financial institutions are all critical to our
sanctions enforcement.
Mr. Stivers. Thank you.
I yield back the balance of my time.
Chairwoman Waters. The gentleman from Georgia, Mr. Scott,
is recognized for 5 minutes.
Mr. Scott. Thank you, Madam Chairwoman.
Treasury Secretary Mnuchin, are you under oath to tell us
the truth today?
Secretary Mnuchin. I don't know technically if I am under
oath or not, but I am here to tell you the truth. Yes.
Mr. Scott. You are here to tell us the truth? Have you ever
had any business dealings with Russians?
Secretary Mnuchin. Have I had any business dealings with
Russians?
Mr. Scott. Yes, sir.
Secretary Mnuchin. Not that I am aware of. But I just want
to be clear, my great-grandparents emigrated here from Russia.
So I may be a minuscule part Russian myself.
Mr. Scott. Let me ask you this: Have you ever had any
business dealings with Russian oligarchs?
Secretary Mnuchin. No. As I commented earlier, I don't even
believe I know any Russian oligarchs.
Mr. Scott. Do you have any knowledge of anyone in the Trump
Administration who has done business with Russians?
Secretary Mnuchin. The Trump Administration is very large.
I cannot comment on the entire Trump Administration--
Mr. Scott. Do you know, if we get specific, then, of any
business dealings that President Donald Trump has had with
Russians as a businessman?
Secretary Mnuchin. I have no access to the President's
finances--
Mr. Scott. No. I am not asking--
Secretary Mnuchin. --other than what I read in the press.
Mr. Scott. I am not asking access. You see, Mr. Mnuchin,
you are the Treasury Secretary. You are our chief steward of
all economic matters, as far as we are concerned, in the world,
trade matters, financial matters. It is within your purview and
covers the waterfront, just as our very first Treasury
Secretary Alexander Hamilton did. Treaties, you name it.
My whole point is this. Now, the reason these questions are
coming up to you is, there is such a great hunger among the
American people to try to find out what is it about Russia and
the relationship with this Administration that causes this
unease? Nowhere was that more paramount than in sitting on the
world stage, President Trump took the word, the advice of Putin
over his own Treasury Secretary, his own intelligence.
So it sets many in America--and I would say the large
majority--and that is why we are trying to get to these
questions.
But before I go, I want to get back to the trade issue--
something that you are dealing with. I represent the great
State of Georgia and we are number one in peanuts, pecans, and
poultry, and number two in cotton, and right now, all of these
industries are suffering.
And I want to just get your opinion here. The latest data
says that nearly 100 percent of cotton produced in the United
States is exported. U.S. cotton and cotton yarns are subject to
an additional 25 percent tariff in China due to the trade
dispute.
Georgia makes one-third of all the pecans produced in the
nation. Half of those go to China, 25 percent. Where is this
coming to? And you just made a statement that China is
resolved. How so? When my people in Georgia, my farmers and
producers are just hanging on by their fingernails because of
this trade situation? What can you tell me to tell my farmers
in Georgia? Cotton and--
Secretary Mnuchin. I want to make just two quick
statements. First of all, I don't believe that the President
listened to Putin over me, okay, or am I aware of his
intelligence.
On the farmers, I can assure you that I am working very
hard on the China deal, and agriculture is a very important
part of that, so I appreciate that.
Chairwoman Waters. The gentleman from Texas, Mr. Williams,
is recognized for 5 minutes.
Mr. Williams. Thank you, Madam Chairwoman. Mr. Secretary,
thank you for being here today. There is currently a debate
going on in our country about the economic systems of
capitalism versus socialism. As you know, I am a small-business
owner. I am a car dealer who is a strong believer in markets,
the concept of risk and reward, and individual freedom.
The U.S. economy is growing at the fastest pace in over a
decade while most of the developed world is experiencing an
economic slowdown. And yet some people, some on the other side
of the aisle are unwilling to accept the reality that our
success for the past 2 years is a result of reducing the
government's footprint in the free market.
So, Mr. Secretary, are you a capitalist or a socialist?
Secretary Mnuchin. I am a capitalist.
Mr. Williams. That is great. And what effect would it have
on GDP and the U.S. economy if we began to turn away from free
market principles and take a more socialist approach?
Secretary Mnuchin. I think it would be disastrous for the
economy, and every single country that has pursued those
economic goals has deteriorated significantly.
Mr. Williams. Venezuela, Cuba, just to name a few.
Secretary Mnuchin. And many more.
Mr. Williams. Yes. The economy is booming because the tax
cuts that were enacted last year are simply working. Unleashing
the power of the private sector has led to increased capital
investments, more job opportunities, and higher wages for
workers. These are all very positive outcomes in the short
term, and these capital investments will continue to pay
dividends into the future.
With that being said, we should not get complacent. What do
you see as the biggest obstacle holding back the economy from
even higher growth?
Secretary Mnuchin. I think the good news is the economy is
in very good shape. I think that clearly the world economy has
slowed down. That is having some impact. I think getting our
trade agreements renegotiated is probably the single most
important issue for the economy, and that is why it is such a
big priority of this Administration at the moment.
Mr. Williams. Last week, the Texas Bankers visited my
office and talked about the Bank Secrecy Act. We discussed the
current thresholds for currency transactions, suspicious
activity reports being so low that it creates a heavy
compliance burden for small banks.
When the CTR threshold of $10,000 was initially implemented
in 1970, that was enough to buy two brand new automobiles. This
is no longer the case because of inflation. So how would you
recommend adjusting the current CTR and SAR regime to make
compliance easier for smaller institutions?
Secretary Mnuchin. Well, we are looking at this carefully,
and I am sympathetic to the issue for community banks and small
regional banks. Having said that, with the advance of
technology and people can break transactions up into many,
many, many smaller transactions, we are not yet convinced that
raising the limit is the appropriate issue, but we are
continuing to study it.
Mr. Williams. Okay. While our country is moving in the
right direction economically, I and a lot of people, and I am
sure including yourself, are worried that we are not paying
enough attention to the national debt which recently surpassed
$22 trillion, as we know. So as I said, I am concerned that our
national debt will ultimately hinder economic growth in the
country.
The net interest debt in 2018 was $371 billion. That
affects a lot of things. Fort Hood is in my district, and it
affects the military. They are concerned about it. So that is a
huge number. So how concerned should we be about our soaring
national debt?
Secretary Mnuchin. I am glad you brought it up. I think the
debt is something that has doubled in the previous
Administration. I think it is something that we have to be
careful and watch government spending. That is why the
President is trying to look at decreasing government spending.
The most important issue is growth. I am comfortable that
we can support the national debt as a percentage of GDP as it
is now, but we need to be on a pathway to make sure that the
deficits don't continue to balloon and the government spending
is not out of control.
Mr. Williams. We are of the age that we remember 20 percent
interest in our lifetime, and 6 or 7 percent was a good rate,
but right now with the debt, 6 or 7 percent could be harmful,
so I think that we are doing the right thing in being worried
about it.
And then on a side note I would like to--you and I have had
conversations in the past on interest rates, and we have agreed
on a lot of where the interest rates ought to go, and Chairman
Powell was here the other day and said that interest rates
would remain flat. So I want to thank him for that, and thank
you for hearing me out when I talk about it.
I yield my time back, Madam Chairwoman.
Chairwoman Waters. Thank you very much. The gentleman from
Missouri, Mr. Cleaver, who is also the Chair of our
Subcommittee on National Security, International Development,
and Monetary Policy, is recognized for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman.
Mr. Secretary, the President, I believe, has expressed
publicly his support for reauthorization of the Export-Import
Bank, and I am--because he has and people on both sides of the
aisle are also interested. Has Treasury submitted the
reauthorization request?
Secretary Mnuchin. I am glad to hear that there is
bipartisan support because this is important to the President,
and my understanding is that we are working on that. We would
like to see this--
Mr. Cleaver. Don't you--yes, sir. We only have until
September. And so it would be good if we had a reauthorization
request submitted now. And that is one step before we are going
to be able to get something done that can be done relatively
easily.
Secretary Mnuchin. My understanding is this is going
through the interagency process at the moment. We are not the
lead, but we are actively supporting this, and I appreciate
your focus on this. Let me be clear, we want to reauthorize the
Export-Import Bank.
Mr. Cleaver. So it will be done shortly?
Secretary Mnuchin. I am going to go back and find out the
exact status from the people who are working on it, yes--
Mr. Cleaver. Madam Chairwoman, is it appropriate for me to
ask if I could receive, or if the committee could receive--
Secretary Mnuchin. We will follow up with your staff.
Mr. Cleaver. Okay, thank you. Let me go back and visit some
places where you have been earlier. My first concern is the
American public--as it is I am sure yours--but the American
public is losing on the tariffs, and it is not just coming from
me or a Democrat. It is coming from all over. The U.S. Chamber
of Commerce has already said that we going to lose $1.6 billion
in export trade that is threatened.
And in my district, we are being decimated. I can
understand why Senator Grassley came out and said we need to
focus on creating opportunities instead of erecting barriers. I
would like to see a resolution with Canada and Mexico, et
cetera, is killing--that is my next door neighbor, Nebraska.
My farmers are being bludgeoned. I drove by some soybean
fields 2 weeks ago to look at flood damage, and people are
leaving the soybeans in the field, from $10 down to $8 now and
dropping. I mean, people are hurting.
If you had a chance to look at the State of Missouri, $432
million we export to Canada, $72 million to Mexico, $80 million
to China, and $239 million to Europe. You know, I spoke to a
farmer on Friday, and he said, ``Our patience is running out.''
When I go back home on Friday, and I go out into the rural
parts of my district, which is significant, what do I say?
I mean, they voted for the President. Is it too much for
them to expect not to continue to be hurt?
Secretary Mnuchin. No, they will be heard. And I have been
accused that all I want to do is sell soybeans, but I can tell
you I want structural reforms. But the vice premier, when he
was here last time, committed to a very big order of soybeans,
and I can assure you that agriculture is very important to the
President and that is on the top of the list of issues to be
resolved. I understand your concerns.
Mr. Cleaver. Yes. My farmers don't know anything about
that. We are talking about U.S. tariffs costing American
consumers about $6.9 billion last year, and it may go up this
year. And so I appreciate your concern for my appreciation,
but, you know, I have to go home Friday. I have to talk to
folks, and I would like to say, ``I spoke to the Secretary of
the Treasury and he said next Thursday at 3:00, the pain will
begin to be diminished.'' Or should I say Friday, what day?
Secretary Mnuchin. Well, I can tell you, the Chinese have
committed to a very, very large order. While we are
negotiating, they have committed significant orders in the
soybean--
Mr. Cleaver. Already?
Secretary Mnuchin. Yes, already. And they are in the
markets executing those orders.
Mr. Cleaver. Thank you, Madam Chairwoman.
Chairwoman Waters. The gentleman from Ohio, Mr. Davidson,
is recognized for 5 minutes.
Mr. Davidson. Thank you, Madam Chairwoman. Secretary
Mnuchin, thank you so much for your testimony and really the
great work you and your Department are doing on behalf of the
American people. Thank you.
I think you would agree that America is broadly seen as the
world's land of opportunity. People from all over the world,
capital from all over the world comes here. And it is still
attracted to the United States of America. In fact, our GDP
growth, our wage growth, and our favorable markets are the envy
of the world.
We are an outlier in many respects to the rate of
performance over the past 2 years. And one of the areas that I
get concerned about is, in the midst of all that, why are some
things not quite working?
America is still the most innovative country in the world,
but when I see American innovators taking their innovation and
raising the capital for that innovation outside the United
States, something seems to be broken. What is wrong with our
markets that this would happen?
And so as I look at blockchain, right now, for example, I
see this reality where the innovation is happening in the
United States and elsewhere, but it is rapidly happening
elsewhere because even American companies are raising the
capital outside of the United States, because they don't have
the regulatory certainty they need for capital formation. And
without the capital formation, we see so often that the
development just doesn't take place.
So that is why today a bipartisan group from this
committee, and outside the committee introduced the Token
Taxonomy Act that would provide regulatory certainty for the
crypto market to define what is a security and what is not a
security.
But are you following the developments in blockchain? And
just the dynamic impact that could have--not just for capital
formation but for security, for the frameworks that we have for
data security? Premier Xi Jinping maybe with hyperbole said
that he believes that the blockchain will be 10 times more
significant than the internet. So are you tracking blockchain
significantly in the Department of the Treasury?
Secretary Mnuchin. I am. There are not many things I would
say I will take the other side of that, but I don't think
blockchain will be 10 times more significant than the internet.
We are working with all the regulators on blockchain, and
more importantly on crypto assets. We want to make sure that
these can't be used for illicit purposes. And I am not familiar
with your bill but I am happy to follow-up with your staff and
understand your ideas.
Mr. Davidson. Thank you, Mr. Secretary. And your staff has
been very helpful, as have people across the industry, people
in the SEC, and there is good support for a non-partisan topic
as to where should this be regulated. But more broadly, when we
look at this gap, you see when there is a gap between our
regulatory frameworks and the demands, supply and demand get an
imbalance, there is a black market. The United States--or the
market simply moves. There is no black market.
And if you look in the past 12 months, finance moved to 50
percent market share for crypto assets. Part of the regulatory
framework, as you highlighted earlier, that our banks have is
because so much moves through the U.S. financial system, so
much moves through the protocols that the United States has
helped establish and that would include trade and including
financial trade.
So I really think it would be advantageous for the United
States to stay at the forefront of this. We are rapidly losing
ground. We need to quit studying the issue and get regulatory
certainty for our market in this space.
I would say that towards that end, one of the encouraging
things to me, as you highlighted in the USMCA, is trade. And in
particular, I wonder if you could highlight some of the
financial services wins because we hear so much more about
manufacturing or agriculture. We see the expansion of financial
services coverage in USMCA and including the framework that we
are working on with China.
Secretary Mnuchin. Thank you for pointing that out. We
think the financial services improvements in USMCA are quite
significant and quite frankly are a model to use in other trade
agreements, and financial services in our discussions with
China are very high on the list and we have made a lot of
progress.
Mr. Davidson. Thank you for that. And when you look at the
framework and the protocols, FinCEN, whether you are talking
OFAC with our sanctions, one of the underpinnings of that is
the Bank Secrecy Act.
My colleague, Ms. Maloney, highlighted the work that she
has done on beneficial ownership. I would just caution that as
we look as this framework, you mentioned earlier that you
conducted a private transaction that you would like to remain
private.
There are legitimate business purposes why that should
still be the case and should be subject only to discovery, not
total criminal penalties for people who don't file forms that
they don't even know exist. I yield back.
Mr. Green [presiding]. The gentleman yields back.
Mr. Sherman is recognized for 5 minutes.
Mr. Sherman. Thank you. I am actually going to agree with
you on a couple of things. We should re-authorize the Ex-Im
Bank, as the gentleman from Ohio pointed out, but it is
meaningless unless you fill the seats on the board.
Can you tell us now that the President will fill the seats
on the Ex-Im board and push the Senate to confirm so that we
can get a functioning Ex-Im Bank? By way of background, if you
authorize it, but you don't put board members on it, they can't
do anything.
Secretary Mnuchin. I am going to agree with you, as well,
that not only do we have to re-authorize it, but we need the
board quorum, and I can assure you the President is very
interested in having the board filled.
Mr. Sherman. But he has not appointed anyone? I hope that
you will get him more interested in actually appointing rather
than thinking about appointing.
Second, as to tariffs, no economist wants tariffs, but
tariffs are often the only way to push other countries to drop
their tariffs and other barriers to entry.
The Chinese have calculated that we are in a stronger
position to impose pain on them in order to get them to change,
but that their political system is better able than ours to
endure pain, and therefore they will beat us in these
negotiations, make only token changes, and that we will
continue to have the largest trade deficit in the history of
bilateral trade in the history of the world.
My hope is--and I know that tariffs can be painful on both
sides--that you will do what is necessary to get us a trade
relationship with China that is not the most pernicious,
cancerous, malignant, and lopsided trade relationship in
history.
As to marijuana, I don't know if Ed Perlmutter has spoken
yet or not, I know they have to have some pride in the fact
that those hundred dollar bills bear your signature, but
carrying around big sacks of hundred dollar bills through our
neighborhoods in California is not good public safety.
Will the Administration come out in favor of allowing those
marijuana institutions that are legal under State law to be
able to have access to the banking system?
Secretary Mnuchin. Well, let me comment on that. I think
this is a significant issue, particularly in my many roles,
including the IRS, where we have had to build cash rooms to
take in the cash. I am not going to make a comment on what the
policy should be.
There is a problem that there is a conflict between the
Federal law and State law, and until that is resolved, we
cannot deal with it, without legislation or some other--
Mr. Sherman. Will you endorse--I mean, it is within the
jurisdiction of the committee and relevant to your functions--
Mr. Perlmutter's legislation which we passed on a bipartisan
basis through this committee very recently?
Secretary Mnuchin. I need to review it. I am not familiar
with--
Mr. Sherman. Can you get back to us within 2 weeks on this?
Secretary Mnuchin. I would be happy to review it and my
staff will follow up.
Mr. Sherman. And then on the Ex-Im Bank, the pressure has
to be not so much to appoint, but to get McConnell to confirm.
I believe you finally sent up enough people to make a quorum.
Korea, on an uninterrupted basis for many years, has
continued to create more fissile material. If you want a better
deal, you are going to have to have stronger sanctions. I Chair
and Mr. Yoho is the ranking member, we had reversed roles in
prior years. We have sent you two letters urging you to
sanction those major Chinese banks that violated the U.S.
sanctions.
So far we have only sanctioned minor Chinese companies. But
in particular, on May 21st, there was the announcement by your
Department of sanctioning two relatively small shipping firms
from China. Then the President tweeted the next day that he is
withdrawing. Then it was announced that we wasn't withdrawing
what you had done but was stopping you from doing something
else.
Is there something more important than what you did on May
21st that you are considering that the President has told you
not to do?
Secretary Mnuchin. First of all, I would say, the sanctions
are very important on North Korea. It is the only reason why
they are negotiating--
Mr. Sherman. Well, pretending to negotiate is what they do
when we have inadequate sanctions. Making real concessions is
what they do when we have good sanctions. Go ahead.
Secretary Mnuchin. I don't think we have inadequate
sanctions. I think we have the strongest sanctions that ever
existed. I know there was some confusion about the tweets. As I
have clarified, the President never told me to take off those
sanctions, and we didn't.
I can't comment on future sanctions, what we will do one
way or another, but sanctions enforcement--
Mr. Sherman. Are you looking at major Chinese banks,
without naming names?
Mr. Green. Mr. Sherman, your time has expired.
Secretary Mnuchin. Again, I think it would be inappropriate
to make any specific comment on people whom we are going to
sanction in the future, whether it is there or anywhere else,
but--
Mr. Green. The gentleman's time has expired. The Chair now
recognizes the gentleman from North Carolina, Mr. Budd.
Mr. Budd. I thank the Chair for yielding.
Mr. Secretary, thank you for being here. I am going to
follow up on my colleague from Wisconsin, Mr. Duffy, what he
mentioned on the topic of international insurance regulations.
So, if the IAIS, or the International Association of Insurance
Supervisors, refuses to do what my colleague from Wisconsin
asked and provide the U.S. system formal recognition of this
upcoming Abu Dhabi meeting, will you be willing--you, Mr.
Secretary, would you be willing to force the IAIS to delay the
adoption of the international capital standards to a later date
where they will recognize the U.S. system and our aggregated
capital approaches being developed by both the State insurance
commissioners, all 50 States, and the Federal Reserve?
And here is why I am asking this question, background. It
is critical that the U.S. insurance companies are provided some
regulatory certainty and that they don't have to spend the next
5 years, which, by the way, is the time of the ICS monitoring
and testing period--they don't have to spend the next 5 years
wanting to know if the regulatory system will be sufficient for
the IAIS.
So, will you agree to either make the IAIS publicly and
formally recognize the U.S. system at that Abu Dhabi meeting,
or delay the adoption to a later date?
Secretary Mnuchin. I want to be careful making a public
commitment on this but I am happy to speak to your office and
we will follow up. I can assure you that we are focused on, and
in favor of, the U.S. system, which is critical to our
insurance companies.
Mr. Budd. That is very helpful. It sounded like you were
willing to and I don't want to put you in a corner on this. I
understand the sensitivity here. But it sounded like, when you
were talking with my colleague, that you would like to make
that sort of commitment. And how certain are you that we can
give some certainty to our State-based insurance companies? How
certain are you that you can give them some future certainty?
Secretary Mnuchin. Well, we always want to have regulatory
certainty. That is critical. And this is an issue we are
focused on so I look forward to following up with your office
on this as we make progress quickly.
Mr. Budd. Thank you for that. So, another concern I have
with these international negotiations involves the Federal
Insurance Office (FIO). Under the Trump Administration, we have
seen the office stay really within its bounds and it has not
acted like an insurance regulator, which is good.
But I have serious concerns about the Office being involved
in overseas negotiations and even more concerned about what the
Office could look like under a future Administration. For
example, under the previous Administration, the Office went
down the road of performing activities like issuing arbitrary
and inaccurate reports, commenting negatively on the domestic
insurance industry, initiating duplicative and unnecessary data
calls, and acting like a quasi-regulator via the use of its
very powerful subpoena authority.
So, Mr. Secretary, how does the current Administration view
the role for the Office? And would you agree with me that it is
important to put regulatory bounds on the FIO going forward to
prevent what happened during the previous Administration or
even worse?
Secretary Mnuchin. Well, I can comment on what we are
doing. I am not an expert on what was done in the previous
Administration--
Mr. Budd. That is fair. Go ahead.
Secretary Mnuchin. I look forward to getting updated on
that. It is not a regulator, it is not meant to be a regulator,
and we would never support it being a primary regulator.
Mr. Budd. And in the Administration that you work in, can
you put some constraints on it that would protect against
abuses in future Administrations?
Secretary Mnuchin. We will take suggestions from you on
this in your office and work with you on it.
Mr. Budd. I look forward to the dialogue there. So, in the
time I have left, I want to switch over and I want to discuss
Hezbollah, who has a very sophisticated network of criminal
activities to fund its terror operations in Lebanon and
throughout the world, and that pretty much uses a lot of
funding from Iran. The U.S. Treasury Department plays a vital
role in helping to identify and stop the flow of illicit funds
to the terror groups.
So, Mr. Secretary, what steps is the Treasury currently
taking to stop the flow of resources to Hezbollah? And in
particular, what are we doing to stop Iranian resources from
going to Hezbollah?
Secretary Mnuchin. I think you know we have the toughest
sanctions on Iran and we are very focused on issues at
Hezbollah. We are also focused with working with people in the
region. One of the reasons why I need to leave this evening is
because I have a bilat, an important bilat that is focused on
combating terrorist financing. This is one of both my most
important priorities and the Department's most important
priorities.
Mr. Budd. So, last year, Congress passed the Hezbollah
International Financing Prevention Amendments Act of 2018 to
increase our ability to target Hezbollah's global financing and
reach. What steps has the Treasury taken to implement
specifically this new legislation?
Secretary Mnuchin. Well, first of all, we very much
appreciate the additional funding we have had for TFI to build
up these resources. And, again, since we are running out of
time, we will follow up with you on the specific steps.
Mr. Budd. I look forward to that, thank you.
Mr. Green. The gentleman's time has expired. I now
recognize myself for 5 minutes.
Mr. Secretary, you recently had an encounter with ethics,
and this had to do with an entity that you sold to your then-
fiancee, now wife. And by the way, this is in no way intended
to demean her in any way, nor is it intended to demean you.
But you sold Stormchaser productions, and you sold it to
her. And ethics, after having reviewed it, concluded that given
that you gave an indication, let's call it a promise, to recuse
yourself if there are any future dealings with the Government
and Stormchaser, there would be no penalties imposed. Is this
true?
Secretary Mnuchin. Well, I appreciate you raising this,
because I want to be very--
Mr. Green. Excuse me, I need to know if this is true
because I really don't want to dwell on it. I am going on to
something else. Is this true?
Secretary Mnuchin. That I have committed to recuse?
Mr. Green. Yes, sir.
Secretary Mnuchin. Yes, I have signed a new ethics
agreement that has clarified. But just to be clear, had there
been conflicts before then, I would have recused myself. So I
have been in touch with ethics officials for the last 2 years--
Treasury ethics officials.
Mr. Green. Thank you. As I said, I don't intend to dwell on
that issue. But I do plan to go to another issue now that
involves an entity known as RatPac-Dune. Are you familiar with
RatPac-Dune?
Secretary Mnuchin. I am very familiar with it.
Mr. Green. And is it true that you have sold your interests
in RatPac-Dune?
Secretary Mnuchin. Yes, I sold it a long time ago.
Mr. Green. And is it true that you have indicated that you
need not expose the third party that you sold it to?
Secretary Mnuchin. I'm sorry, could you repeat the
question?
Mr. Green. Is it true that you have indicated that you need
not, and will not, expose the third party that you sold it to?
Secretary Mnuchin. It was a confidential transaction.
Mr. Green. A confidential transaction. Which means that we
will have no idea--we, meaning the Oversight Subcommittee--as
to what the terms or the conditions were? Not that I am overly
interested in your personal business, but we don't know what
the provisions are and we don't know what the entity is that
purchased it. Is that a fair statement?
Secretary Mnuchin. The transaction was fully approved by
the ethics people at Treasury. So I don't anticipate there are
any issues.
Mr. Green. But it is true that we are charged with the
responsibility of oversight, correct? You agree, sure you do.
Secretary Mnuchin. I am not an expert on your oversight
responsibilities, so I will--
Mr. Green. Let me just assure that we are. We are charged
with oversight. So the question becomes, how do we perform
oversight of that which we cannot see? It is very difficult at
best, probably impossible to accomplish.
I mention the two of you because we live in a world, Mr.
Secretary, where it is not enough for things to be right; they
must also look right. This may look right to some, but the
truth be told, the American public is concerned.
In the case that you had with your wife, you signed an
agreement to recuse, and if there is a conflict we will be
aware of the conflict and understand that you must recuse. With
RatPac, we will not have the ability to monitor the
relationship because we have no idea as to what it is.
Therefore, we cannot ascertain based on empirical evidence
whether you should recuse. My point is this: It would seem to
me that in the interest of the public having a belief that our
system functions fairly and properly with transparency, that
you would reveal to whom you sold the interest.
You don't have to tell us how much. There are numbers
floating around, $25 million, but it would seem that you would
reveal this. You have said you won't, so I won't ask you to do
it. But it just seems to me that that would be an appropriate
thing for a person who has the lofty position of being the
Treasury Secretary of the United States of America--it seems
that that would be appropriate. I won't ask you to respond.
Secretary Mnuchin. Well, I do want to have the opportunity
to respond. I just want to make one thing and clarify, and this
is all in the public domain, the entity of RatPac-Dune had a
transaction with Warner Brothers. Warner Brothers bought it out
and that entity is fully liquidated.
So not only do I not have any interest in that entity at
this point, but nobody has any interest in that. That entity
has been fully--so there couldn't possibly be any ongoing
conflict whatsoever.
Mr. Green. And I will take your word for it.
Secretary Mnuchin. Thank you.
Mr. Green. Unfortunately, I have to. I yield back my time,
and I recognize the gentleman from Ohio, Mr. Gonzalez.
Mr. Gonzalez of Ohio. Thank you, Mr. Chairman. And thank
you, Mr. Secretary, for being here. I think there are a lot of
reasons for us to be very excited about the state of the United
States economy, certainly when you compare it to what is going
on in Europe and through really the entire world.
We can look at GDP, unemployment, wage growth, there are
tons of reasons to be excited. And I agree, I think a lot of it
primarily has to do with the deregulation and the tax cuts. I
think it is fairly obvious.
When I think about the next stage of growth and how we can
keep this moving, I go directly to trade, specifically U.S.-
China. And I want to thank you and the Administration for
finally stepping up and pushing back against China.
I think now kind of the curtain has been pulled back and I
think the entire country has a good sense of just how
disruptive they have been. But I want to ask sort of a tactical
question to push back a bit.
My only real concern is we have been going in alone on that
one. We are pursuing at the moment what seems like primarily a
bilateral agreement. And I guess I would like to hear your
perspective on why we have chosen bilateral versus partnering
with some of our other allies, and if there is a plan to do
that, because it strikes me that that would be a more forceful
and potentially durable front.
Secretary Mnuchin. Well, we do talk about these issues of
China trade at the G7. It is something important. Having said
that, we have been unsuccessful for a long time doing this on a
multilateral basis.
I think we are making a lot of progress. Ambassador
Lighthizer is doing a terrific job with everybody at USTR. I
have a call with him tonight and with the vice premier. And as
we have said, we are making progress.
If we are able to conclude this, these will be the most
significant structural changes that have ever occurred. If we
are able to conclude this, there will be an enforcement that is
very important to this. There will be an enforcement department
built under the vice premier.
So we still have significant issues, but this will be one
of the biggest accomplishments for U.S. trade, U.S. companies,
and U.S. workers if we are able to open up their markets on a
fair and level playing field and get structural changes.
Mr. Gonzalez of Ohio. I completely agree, and like I said,
I applaud the effort, and hopefully you don't mistake my
comments for suggesting otherwise. You touched on the
enforcement piece, and again, I saw last week China decided or
said that they would shut down entanyl factories.
I am from northeast Ohio, and Fentanyl opioids have been a
huge challenge for our community. That is an incredible
promise. The next question is on the enforcement. So specific
to that on the fentanyl, what levels of enforcement do we have
in place or how can we ensure that they are actually doing
this?
Secretary Mnuchin. Well, I can tell you the only reason why
they did the fentanyl is because it was a personal request from
President Trump to President Xi. President Xi made a point of
saying how difficult this would be for them, but they were
going to do this.
They have put through the laws. And I am very confident
they are going to follow through on this, independent of any of
our current trade negotiations. And it is a very important
issue. It is killing, as you know, tens of thousands of people.
Mr. Gonzalez of Ohio. Just to clarify, so if we can't get
the broader trade agreement, your suspicion is that the
fentanyl ban will still be in place and we will be able to
enforce it?
Secretary Mnuchin. I have every expectation that that was
not a conditional agreement.
Mr. Gonzalez of Ohio. Great. And now kind of shifting to
the Belt and Road Initiative a little bit, I just saw that
China recently expanded into Italy with this. I think it is
hard to figure out exactly what they are doing, candidly. I
think the details kind of stay out of the public eye.
But last Congress, we passed--I was not here, I am a
freshman--but we passed the Better Utilization of Investments
Leading to Development, the BUILD Act. It was signed into law
to help counteract China's emergence in new markets.
What in addition can we do to push back on China's growing
presence in the international development sphere?
Secretary Mnuchin. Well, I think the single best thing is
we now have David Malpass, who was my Under Secretary, as head
of the World Bank. And I think both at the IMF and at the World
Bank, debt and transparency are very important issues.
And I think the World Bank combined with our BUILD Act and
other things can be a serious competitor to their Belt and
Road.
Mr. Gonzalez of Ohio. Okay. Thank you, and with that I
yield back the balance of my time.
Mrs. Beatty [presiding]. I yield myself 5 minutes.
Thank you, Secretary Mnuchin, for being here. As I was
reviewing your statement, in paragraph four of your statement,
you note that opportunity zones are a key component of the Tax
Cut and Jobs Act.
You also say that opportunity zones will offer capital
gains tax relief for investments in businesses in distressed
communities. So I would like to know, when is that going to
happen? How many dollars will be put into distressed
communities? And how will you protect and assure us that we
won't have gentrification in these communities?
Secretary Mnuchin. So, when it is going to happen, it has
already started. People have already started creating
opportunity zone funds. We have put out some regulations. We
are putting out more regulations. We hope to get those out
within the next few weeks. They are critical to create
certainty.
Mrs. Beatty. Where are some of those that are already in
existence? Where are the dollars? What communities? What
States?
Secretary Mnuchin. No. What our--I was--
Mrs. Beatty. Do you have any in Columbus, Ohio?
Secretary Mnuchin. I was saying the funds--the funds have
started, so the capital formation has started. Many of the
investments are waiting for the regulations, which I said we
hope to have out in the next few weeks.
In regards to how much, from commitments that I have heard
people make, I could extrapolate, I think this is going to be
over $100 billion, and the issue of gentrification is something
we are going to have to monitor very carefully and it will be
part of the reporting process.
Mrs. Beatty. So you will be able to put in writing to me
how we would make sure that we don't take these minority or
urban communities and then all of the dollars and change them
to where those individuals no longer have a place to live?
Secretary Mnuchin. Absolutely, and we look forward to
working with you and your office on these issues. Our objective
is to create more jobs and more opportunities in those
communities, not to change them.
Mrs. Beatty. Okay. Let me switch to another area that is of
interest to me, and also in your testimony earlier you used
language to eliminate poverty and to talk about growth. As you
will recall, when you were here last year, I asked you about
the Office of Minority and Women Inclusion (OMWI)--and you
didn't do so well, if I was grading you with a test score.
You didn't know who your OMWI Director was. You didn't have
a lot of information to offer me about OMWI. So now can you
tell me who your OMWI Director is?
Secretary Mnuchin. I can, and I want to thank you, because
you did point this out to me. It's Lorraine Cole, and I meet
with her on a monthly basis. I go through the reports. I
appreciate the importance of this and thank you for bringing
this to my attention last year.
Mrs. Beatty. Well, let me also say--and I would like to
enter into the record that we requested the IG to take a look
into your Department's compliance with Section 342 of the Dodd-
Frank Act. It didn't come up so well.
When I read the report, the Inspector General found that
the OMWI at your Department will not likely be able to fulfill
its responsibility at the same level as the other OMWIs in the
other regulatory offices because of insufficient staffing.
I asked the same question to the new Director of the CFPB
last week and it is a yes-or-no question, will you put enough
money in there to maintain Dr. Cole and to give her the
appropriate staff as Section 342 states? It is a yes or a no,
because right now we know it is saying you only have two
people. We know that is not enough.
So are you going to put it up to a standard that I am going
to let you determine, but a standard that won't be embarrassing
to you or cause an issue when you come before my Diversity and
Inclusion Subcommittee or back here?
Secretary Mnuchin. I will commit to you to make sure that
she thinks that she has enough staff.
Mrs. Beatty. Okay. So the last question that I have is, are
you aware of what the Inspector General's report stated? And do
you have any idea of the diversity--if we are going to talk
about growth and eliminating poverty and we are going to go
into distressed communities, do you have any idea of what your
Department looks like with women and minorities? And if not,
you can send it to me in writing.
I only have a few seconds, so I am going to reclaim my
time, because I would like to take my last few seconds to
recognize the Honorable Jesse Jackson being in our hearing
room, and quite appropriately today when we are talking about
national issues. So thank you, Reverend Jackson, my friend, for
being here.
My time is up.
I now recognize the gentleman from Indiana, Mr.
Hollingsworth, for 5 minutes.
Mr. Hollingsworth. Good afternoon, Mr. Secretary. It is
great to see you again. I appreciate the time that you have
invested with us thus far.
Really, I know one of the things that we have worked on in
last Congress and we continue to work on in this Congress on
both sides of the aisle, but especially on this side of the
aisle, is developing an ecosystem in terms of financial
regulation, financial oversight, where every bank of all
different sizes can participate and hopefully grow
successfully, because ultimately them being able to grow
successfully helps their communities grow successfully.
And I certainly believe in an ecosystem where everyone
competes on a level playing field and everyone has the
opportunity to compete for good business. But I hope that you
might be able to speak, especially in advance of tomorrow,
about how it serves American interests, and not only American
corporate interests but sometimes American Government
interests, in having super large banks headquartered here in
the United States, having a financial system around the world
that depends on the U.S. financial system, as well, and how
that empowers Treasury and how it empowers the American
consumer and how it empowers American companies to have very
large institutions that can serve the needs of very large
American companies and serve the needs of American interests?
And I wondered if you might be able to talk a little bit about
that.
Secretary Mnuchin. Well, I think it is important. I don't
know about the words, ``super large.'' I would say large, well-
capitalized U.S. financial institutions are critical to the
U.S. economy that have sufficient capital to be able to supply
businesses both large and small and do global business. It is
very important to the U.S. economy.
Mr. Hollingsworth. Right, and as you talked about earlier
with regard to trade, Indiana has a very high percentage of its
State's GDP is dependent on trade, and ever more important U.S.
companies are competing, selling, importing, exporting abroad
and it is really important that we have institutions that can
do that kind of cross-border work.
And frankly, in their absence, other institutions would
step in and do that work and perhaps they might be not
headquartered in the United States. And so, it continues to be
really important to me to ensure that we have an ecosystem
where our large institutions can compete, as well.
And I wondered if you might also talk a little bit about
the importance of even foreign-owned banks that operate and
invest right here in the United States and how they have a role
to play in that financial services ecosystem, as well.
Secretary Mnuchin. Yes, we encourage a system where foreign
banks can invest in the United States. We want to make sure
that they are properly regulated, and they are properly
capitalized.
Mr. Hollingsworth. Right.
Secretary Mnuchin. But like any other type of investment,
we encourage foreign companies or foreign individuals to invest
in the United States.
Mr. Hollingsworth. All right, and as you say properly
regulated and properly capitalized, I know that one of the
concerning issues that we have had a few times that has come up
here is just making sure that there is some parity between the
two, right?
We don't want our foreign institutions to be advantaged in
some way or disadvantaged in some way. We want them to be
thoughtfully regulated, thoughtfully capitalized such that they
can compete on that level playing field with U.S. firms so that
hopefully the American consumer and American companies that are
seeking to use them will face a competitive environment where
they can get the best possible deal, right?
Secretary Mnuchin. That is correct, a level playing field.
Mr. Hollingsworth. Great. Well, I am glad to hear that. So
coming back to--I just want to touch on one other topic. It is
important, as a part of Treasury's work, the sanctions, right?
The financial restrictions the Treasury does is an important
aspect of that.
And much of the strength of that comes from being a reserve
currency, and the U.S. financial system being such a large part
of the global financial system. And I wondered if you might
talk about what threats there might be to that system and the
architecture of that system coming from some of our large
counterpart countries?
Secretary Mnuchin. Well, it is a tremendous benefit for us
to be the reserve currency of the world, and it is a tremendous
responsibility. And that is why when we look at sanctions, we
have to take lots of different issues and into consideration,
but there is no question that sanctions are effective because
we are the reserve currency of the world. And for the U.S.
financial system, it is of utmost importance for us to maintain
that status.
Mr. Hollingsworth. Right, and those things, those policy
threats that might imperil us being the reserve currency,
imperil our financial system, restrict the ability of our
financial system to reach and compete globally, those might
adversely impact in the long run the efficacy of these
sanctions and the United States being a leader and being able
to conduct those operations around the world, right?
Secretary Mnuchin. It would, and our ability to raise
capital all over the world.
Mr. Hollingsworth. Right. Certainly, there are many
challenges, but that is an important one that I think is
frequently lost, that the efficacy of these sanctions programs
depends on us continuing to be a capital market, continuing to
be a financial services industry that competes around the world
and has an ever larger presence around the world, so--
Secretary Mnuchin. They are intricately linked, and I am
glad you have pointed that out.
Mr. Hollingsworth. Thank you for the time today. I yield
back.
Mrs. Beatty. The gentleman from Washington, Mr. Heck, is
recognized for 5 minutes.
Mr. Heck. Thank you, Madam Chairwoman. I would like to
quickly follow up on some of the line of questioning of my
friends, Mr. Stivers and Mr. Huizenga, regarding the Export-
Import Bank.
First, to correct the record, the Bank was not, as
indicated, established in 1945. It was established in 1934. It
is celebrating its 85th year, but I quibble. The larger point,
however, I would like to correct is the representation that it
exists only to assist small businesses.
In fact, a simple reading of the history of the bank over
85 years is that it assists with export credit in three areas
where the market is imperfect. The market is, indeed, imperfect
in helping small businesses stand up sales to foreign
countries. It is also imperfect in its sales to countries that
are developing because banks don't have the international
ability necessarily to collect within certain developing
countries.
And, thirdly, banks are disinclined to engage in long-term
financing for long-lived large-dollar items. So think massive
earth-moving equipment by Caterpillar sold to some nation that
is building highways. And it is in this regard that I think it
is really important to clarify that even though Caterpillar, as
an example, might be a very large business, Caterpillar's
supply chain is made up of thousands and thousands of small
businesses who are hurt by the fact that the bank does not have
a quorum and, therefore, cannot approve deals above $10
million.
So simply put, would you acknowledge that small businesses
are being hurt by the absence of a quorum on the Export-Import
Bank?
Secretary Mnuchin. I would, and the $10 million threshold
is an awfully low threshold. So, I think we would agree that
there are lots of small businesses, medium-sized businesses,
and as you have pointed out, big businesses that do employ
people with small business. And the purpose was not to displace
private capital but, as you have pointed out, to assist where
there is not private lending to facilitate trade.
Mr. Heck. Mr. Secretary, do you have any idea how much
China's various export credit authorities have issued in loan
guarantees or loans in the last 2 years?
Secretary Mnuchin. It is enormous and multiples, multiples
of anything we would do no matter what we ended up doing with
the Export-Import Bank.
Mr. Heck. Would it surprise you to learn that they have
issued more credit in the last 2 years than our Export-Import
Bank has in its entire 85-year history?
Secretary Mnuchin. That would not surprise me.
Mr. Heck. So would you acknowledge that in this era where
China is emerging as clearly a highly competitive, long-term,
strategic competitor that utilizes whole-of-government means to
achieve their purposes, that we would be well-served by having
a fully functioning Export-Import Bank as one of the arrows in
our quiver in which to compete with them?
Secretary Mnuchin. I can tell you that the President and I
and others in the Administration think this is very important,
and I would hope whatever issues there are, we can figure this
out on a bipartisan business and whatever reforms. It is
important from an economic standpoint to get the Ex-Im Bank
back open, and that means loans above $10 million.
Mr. Heck. Do you have any idea why we call it the Export-
Import Bank when it doesn't do any import business whatsoever?
Secretary Mnuchin. I'm sorry? What was that?
Mr. Heck. Do you have any idea why we call it the Export-
Import Bank when it doesn't do any import business whatsoever?
Secretary Mnuchin. I don't know the history of that.
Mr. Heck. So I want to shift to the proposal by the
Administration to reform the Government-Sponsored Enterprises.
The President has obviously directed you and Secretary Carson
to come forth with a plan to reform Fannie Mae and Freddie Mac
and also lay down some benchmarks by which that proposal would
be measured.
I would like to respectfully suggest the addition of two
more benchmarks. The first is predicated on the clear evidence
that we have a shortage of homes in this country. As I
indicated in an earlier subcommittee meeting, in the 1970s, we
built 12,000 units for every million people in America, and now
we are building 4,000 for every million.
Clearly, we have a shortage. That has been documented to be
at least 1.5 million. And part of the solution to that, because
we assess that construction financing sometimes gets pinched,
not necessarily but sometimes consumer access to credit, the
construction financing gets pinched, would you support at least
the current level of support by the GSEs of construction
financing?
And secondly, as we or if we stand up a new GSE, would you
commit to ensuring that smaller banks and credit unions have a
means of laying off their mortgages so that they can compete
effectively with larger banks who can create their own
securitization market? Would you support those two benchmarks?
Secretary Mnuchin. Well, I can assure you on the second
benchmark, I completely support that and want to make sure
there is a fair and level playing field. On the first
benchmark, I am not expert enough on this, but we will reach
out to your office. And as we put together a proposal, we will
absolutely take into account your ideas.
Mr. Heck. Thank you, Mr. Secretary. I yield back.
Mrs. Beatty. The gentleman's time has expired.
The gentleman from Wisconsin, Mr. Steil, is recognized for
5 minutes.
Mr. Steil. Thank you. Thank you, Secretary Mnuchin, for
being here. First question, kind of the role of large banks in
our economy, the U.S. has a large and dynamic economy producing
many globally successful companies. Businesses are world
leaders in manufacturing, services, technology, and consumer
goods. They create opportunities for workers, families, and
downstream suppliers.
I experienced firsthand the impact that this can have on
manufacturing in southeast Wisconsin on successful American
business generating jobs, sustaining communities, and investing
in innovation.
As you know, the U.S. is home to several large financial
institutions that, among other things, provide the critical
services to American companies engaged in global commerce that
fulfill an important role in our financial system.
As I look at it--as the world's top 10 largest banks, four
are Chinese, several others are European. And by my count, only
a couple are U.S.-based. Does this matter? And what would
happen to our economy if large, globally competitive banks are
placed at a competitive disadvantage to our foreign banks?
Secretary Mnuchin. I think it would be a very significant
problem for the U.S. economy.
Mr. Steil. In particular, as it relates to exports in the
United States?
Secretary Mnuchin. As it relates to everything, being
competitive, having strong, well-capitalized, leading banks is
very important to the structure of our overall economy and to
us being competitive throughout the world.
Mr. Steil. Thank you. I am going to shift tactics to
illicit finance and human trafficking, which is something that
is important to me. According to the latest estimates, more
than 40 million people around the world are subjected to human
trafficking. Many are trapped in forced labor, or are sexually
exploited. Research estimates that 25 percent of these people
are children, and 75 percent are women and girls. It is a
terrible crime. And regardless of party geography, we have to
be committed to stopping this.
But unfortunately, it is also big business, and that means
we need to target the financial crimes associated with this,
and the ill-gotten profits from human trafficking, which is why
I introduced a bill earlier today that would require our
government to hold countries accountable that turn a blind eye
to illicit financial activity with regards to human
trafficking. What can the Treasury Department do to prevent
human trafficking and their associates from abusing the U.S.
financial system to facilitate their crimes?
Secretary Mnuchin. Well, we have the proper intelligence in
working with the State Department. We have many sanctions
authorities that we can utilize and we go after for these
issues. And I am not familiar with your bill, but we look
forward to learning about it.
Mr. Steil. I appreciate you taking the time today. I yield
back.
Mrs. Beatty. The gentleman yields back. The gentleman from
Guam, Mr. San Nicolas, is recognized for 5 minutes.
Mr. San Nicolas. Thank you, Madam Chairwoman. And thank
you, Mr. Secretary, for being with us this afternoon. I wanted
to have a conversation about the earned income tax credit and
how it creates a unique liability for the Treasury. The earned
income tax credit, for an EITC taxpayer, the difference between
their income tax refund and their income tax withholdings is a
Treasury liability. Is that correct?
Secretary Mnuchin. I believe that is the case, but now we
are into an accounting issue--
Mr. San Nicolas. Right, right. Basically, they earn X
amount, X amount is withheld, if the refund exceeds what is
withheld, that is actually a Treasury liability that the
Treasury has to pay out. Is that correct?
Secretary Mnuchin. I want to make sure I am following your
technical issue. There are withholding taxes. There is the
EITC. Okay. I think what you are saying is, definitionally--I
don't--I am not sure. I can check. I don't believe we record
that as a liability on our books and records, but I will check
that and get back to you.
Mr. San Nicolas. Well, what I mean by liability is that the
Treasury is responsible for paying out the earned income tax
credit, if there is no withholding sufficient to pay it--to
fund it.
Secretary Mnuchin. The Treasury is responsible for paying
out the EITC. That is correct.
Mr. San Nicolas. Does the Treasury fund this liability by
diverting funds from education, health, or public safety?
Secretary Mnuchin. The Treasury funds everything, okay, on
a general basis. There are no specific allocations from one
program to any other program.
Mr. San Nicolas. And so, again, just to reiterate, the
Treasury is responsible for funding the earned income tax
credit?
Secretary Mnuchin. The Treasury is responsible for
disbursing the earned income tax credit. The U.S. Government is
responsible for funding it.
Mr. San Nicolas. Well, I am glad we have this on the
record, Mr. Secretary, because I am a delegate from Guam. And
since 2008, Guam has been absorbing 100 percent of the earned
income tax credit payouts that have been filed from our
taxpayers in the Territory. And this sum has actually ballooned
to account for over 50 percent of the annual set-aside that we
have for tax refunds altogether.
And so, what I am really hoping, especially with tax season
in full gear, is that we can have the Treasury work with the
Guam Department of Revenue and Taxation to figure out what
earned income tax credit amounts the Treasury should be paying
for the taxpayers on Guam who are claiming this credit.
And I want to just put on the record, also, Mr. Secretary,
that this is not something new. The Treasury has, for years,
already been paying out the additional child tax credit on
Guam. And so, in order for us to be consistent with the
Treasury funding the ACTC, I humbly ask that Treasury also do
its part to fund the EITC on Guam.
And this is very critical, Mr. Secretary, for a variety of
reasons. One of them is the fact that, with poverty rates so
high on Guam, the diversion of general fund coffers in the
Territory of Guam, to fund the EITC payouts, impacts education
and it impacts health and it impacts public safety. And those
diversions also result in deficits to the territory, because we
are having to pull other tax resources that would have
otherwise been used to meet our appropriations projections.
And so I think that the time has come for us to have the
conversation of not only having the Treasury fund the EITC on
Guam going forward, but I would deeply appreciate if the
Treasury can also work with the Government of Guam to reconcile
all of the earned income tax credits that have been paid out
since 2008 so we can recover those funds, because it has
resulted in deficits, it has resulted in debt, and it has
resulted in deferred maintenance.
We don't even have textbooks in our public schools that are
within the reasonable 7-year age of the textbooks. There are so
many fund diversions going on in the territory, and this ETIC
liability of $56 million a year accounts for a significant
chunk of that. So I appreciate your forthrightness in answering
my questions with respect to who is responsible for paying
that. And I look forward to the Treasury working with the
Territory of Guam in making the territory whole.
Secretary Mnuchin. And let me just comment, I am aware that
Guam has some highly technical tax issues. I actually met with
the Governor the last time he was here, with the Office of Tax
Policy. We would be happy for you to come in, also, on this. So
please follow up with my office on these specific issues. I
know there is this and a bunch of other technical issues we
have been trying to help on.
Mr. San Nicolas. I just want to zero in on this. Thank you,
Mr. Secretary. I yield back.
Mrs. Beatty. The gentleman from Kentucky, Mr. Barr, is
recognized for 5 minutes.
Mr. Barr. Thank you, Madam Chairwoman.
Mr. Secretary, in the last Congress, I was pleased to Chair
the subcommittee that oversaw the development of the Foreign
Investment Risk Review Modernization Act, or FIRRMA. I
appreciate your support of that effort. I later served on the
conference committee that negotiated the FIRRMA provisions that
the President signed into law.
This committee's leadership has been united in its
prioritization of FIRRMA rulemaking. And I would ask for
unanimous consent to enter into the record a letter that I co-
signed with Chairwoman Waters, former Chairman Hensarling, and
the former subcommittee ranking member, Gwen Moore, detailing
congressional intent behind some of FIRRMA's provisions.
Mrs. Beatty. Without objection, it is so ordered.
Mr. Barr. Thank you. And Mr. Secretary, I have a few
questions for you on the status of the current rulemaking
processes. FIRRMA requires CFIUS to narrow its scope for
certain transactions to particular countries. While CFIUS has
some discretion on which countries it targets, clearly,
Congress wanted to see China taken seriously. How will you go
about ensuring that China and other bad actors are the focus of
the rulemaking and not U.S. allies such as Canada, Japan,
Israel, and our partners in Europe?
Secretary Mnuchin. Well, first of all, we are very much
supportive of the legislation, thank you. This is a priority of
ours, executing it. I can assure you we are not just focused on
China, we are focused on other countries as well, and we look
forward to working with you. I think the regulations will be
clear as we roll this out, the pilot in the full-time, that we
want to encourage investment, we don't want to discourage
investment, but this is about protecting national security
interests.
Mr. Barr. Great, and thank you for balancing those
interests, including maintaining an open investment climate. I
was pleased to see that the President's budget contained
significantly more resources for CFIUS operations. CFIUS is a
national security function, and Congress should fund it
appropriately.
Does the President's expanded request to Congress mean that
you currently don't see a need to impose filing fees?
Secretary Mnuchin. No. We anticipate there will be filing
fees, as well.
Mr. Barr. But nothing more than what is contemplated in
FIRMA?
Secretary Mnuchin. Nothing that is--I believe it is in our
budget, it takes into account the new filing fees, but we will
follow up with your office on it.
Mr. Barr. Thank you.
Secretary Mnuchin. I think you will find that the filing
fees will be reasonable.
Mr. Barr. Thank you. And Mr. Secretary, I was encouraged to
see the Administration announce its designation of the Islamic
Revolutionary Guard Corps (IRGC) as a foreign terrorist
organization.
The IRGC and the Quds Force have been responsible for the
deaths of numerous Americans abroad and were even behind the
planning of an attempted bombing attack right here in our
nation's capital. In what ways will this designation restrict
IRGC financial activity that previous Executive Orders and the
Countering America's Adversaries Through Sanctions Act did not?
And what role will Treasury have in these restrictions?
Secretary Mnuchin. Well, Treasury has been very involved
with the State Department on this on an interagency basis. It
is something that we think is very important. From a financial
standpoint, we have already had financial sanctions in place.
This puts in other restrictions to restrict people both in
entering the country and doing business and other things. So
this is even stronger sanctions that would be in place.
Mr. Barr. Well, I applaud the Administration's designation,
and I know Treasury is going to have an important role to play
in implementation. Finally, you had mentioned your interest in
commenting on the leverage loan issue. Obviously, leverage
lending is increasing, 75 percent, I think is estimated through
non-bank firms.
But as I understand it, nearly 70 percent of U.S. companies
are not investment grade, and aren't leverage loans simply
loans to well-known, non-investment grade companies like Dell,
American Airlines, Burger King, CableVision, Sprint, and Hilton
Hotels, that permit these companies to grow, thrive, and hire
American workers? And if these loans were shut off, wouldn't it
be very bad for the companies and their employees along with
the broader U.S. economy?
Secretary Mnuchin. That is true, leverage lending is a very
important part of the economy. We are working at FSOC and
studying the leveraged lending issue. Just because people have
raised this to make sure there are no problems, but it is
something we are on top of.
Mr. Barr. And I know you recognize that if the economy does
have a downturn, prices will drop, and certain types of high-
yield debt will be difficult to refinance, but in a November
2018 speech referring to elevated business bankruptcies and
outsized losses, Fed Chairman Powell said, ``Such loses are
unlikely to pose a threat to the safety and soundness of
institutions at the core of the system, and are likely to fall
on investment vehicles like CLOs with stable funding that
present little threat of damaging fire sales.''
Given that CLOs provide long-term capital, and are not
subject to the short-term redemptions or outflows we have seen
in retail and institutional credit products, do you believe,
unlike some of the current rhetoric in Washington today, that
CLOs can represent a vital source of liquidity to the below
investment-grade companies?
Secretary Mnuchin. I do, indeed, and that is one of the
reasons we are comfortable. A lot of the capital has moved out
of the regulated banking sector into CLOs which are permanent
capital vehicles.
Mr. Barr. Right, and they have performed very well over
their 30-year history, including during the financial crisis.
Mrs. Beatty. The gentleman's time has expired.
Mr. Barr. I yield back.
Mrs. Beatty. The gentleman from Illinois, Mr. Casten, is
recognized for 5 minutes.
Secretary Mnuchin. Madam Chairwoman, excuse me for one
second, I don't mean to be disrespectful, but we had an
agreement that I was going to leave here at 5 o'clock. I have a
very significant bilat. It would be embarrassing to be late.
Now, I will tell you, in the last 6 years, there has never
been a Secretary of the Treasury who sat for more than 3 hours
and 15 minutes, so as a courtesy, I am happy to stay until
5:15, but it would be very embarrassing to a foreign government
if this committee expected me to not show up for that meeting.
Mrs. Beatty. Mr. Secretary, I thank you for that, but if we
still have Members here with questions, and we have Members on
both sides who too have prepared for these questions, would you
be willing to come back to the committee in May?
Secretary Mnuchin. I am always be willing to come back to
the committee. I look forward to working with Chairwoman Waters
on an appropriate time to make--
Mrs. Beatty. So you would commit to coming back in May?
Secretary Mnuchin. Absolutely, I want to make sure the
committee always has time to get answers to all of their
questions.
Mrs. Beatty. Okay, thank you.
Secretary Mnuchin. If I am going to come back, though, I
would propose that we could break, so I am not late for this
meeting.
Mrs. Beatty. And if we continue and stop at your deadline,
and we need more than one additional hearing, would you commit
to coming back at least twice?
Secretary Mnuchin. I would do what previous Secretaries
have done. I can't see why it is not sufficient to come back.
But again, as opposed to trying to negotiate this in this
format, I have every aspect--I would like to have a good
working relationship with the committee, and I look forward to
answering all of your questions.
Mrs. Beatty. Thank you. The gentleman from Illinois, Mr.
Casten, is recognized for 5 minutes.
Mr. McHenry. Madam Chairwoman--
Mr. Casten. Thank you--
Mr. McHenry. Madam Chairwoman, inquiry of the Chair. At
this point, there are equal numbers of questions asked by
Republicans and Democrats, so if we are going to adjourn in 5
minutes, we need to divide this remaining time between
Republicans and Democrats, just to be fair, under our committee
rules.
Mrs. Beatty. I have no problem with that. We have been
doing that the entire time, going from Democrats--
Mr. McHenry. It is 5:10, and so 5 more minutes is taken,
and then the Secretary has to leave in 5 minutes--
Mrs. Beatty. So then, a question will go to the Secretary
to stay for one Democrat and one Republican. The gentleman from
Illinois, Mr. Casten, is recognized for 5 minutes.
Mr. Casten. Thank you, Madam Chairwoman, and thank you, Mr.
Mnuchin. I will try to be quick to respect your time. Would you
support a United States return to the gold standard?
Secretary Mnuchin. I would not.
Mr. Casten. Good. Do you agree with the President's recent
call for a renewal of quantitative easing?
Secretary Mnuchin. I'm sorry, I didn't hear your question.
Mr. Casten. Do you agree with the President's recent
suggestions that we should renew quantitative easing?
Secretary Mnuchin. In my role as Treasury Secretary, it
would be inappropriate for me to make specific comments on what
the Federal Reserve should or shouldn't do.
Mr. Casten. Okay. From significantly expanded deficit
spending, to significantly expanded borrowing, we are pursuing
a very expansionary policy since the 2015 tax cuts, in spite of
rising GDP and falling unemployment. As a general matter, do
you support the pro- rather than countercyclical fiscal policy
we have been pursing relative to the larger economy?
Secretary Mnuchin. I don't think you can put all fiscal
policy the same. I support the tax cuts, and I stand by--I
think this will create growth that will pay for it. But we also
had significant government spending on top of that, and we have
to be careful, because we can't spend the money twice.
Mr. Casten. Okay. The reason for my question is that, I
think this morning, the IMF cut the global growth outlook to
the lowest level since the crisis. Domestically, we are seeing
an inversion from the 3 month of the 10-year Treasury bonds, we
are looking at an inverted yield curve. How concerned should we
be that we are approaching the next downturn?
Secretary Mnuchin. First of all, there is no question that
growth outside of the United States, whether it be in Europe or
China, has slowed significantly. As it relates to the inverted
yield curve, I am not particularly concerned about the inverted
yield curve at all, and from everything we see, we see for the
next 2 years, still very strong, robust U.S. growth.
Mr. Casten. Well, I certainly hope you are right. I think I
have yet to see a downturn that people predicted at the right
moment. If we could, we would all be wealthy by now. If it
comes, here is my concern. In the last downturn, we had the
tremendous good fortune to have exceptionally competent policy-
driven technocrats at the helm, from Mr. Bernanke, to Mr.
Paulson, to Mr. Geithner. These men were uniquely suited to the
moment, and I think we can second-guess them, but they did
pretty well under the circumstances.
President Trump has, to put it mildly, not proven himself
capable of attracting or retaining people of that caliber. And
I want to be clear, I do not put you in that category. You are
an extremely smart guy, and your resume qualifies you for this.
But I do have real concerns, given some of his recent
suggested nominees to various Federal Reserve posts, who might
have answered some of these questions differently than you
have, that when the next downturn comes, we are not going to
have people with the skills necessary to handle it, and
certainly without the trust of the markets that prior
generation had.
Now, I am not going to ask you whether you agree with that,
it would be an awkward question for you, I suspect, given your
background. You may hear some of those concerns at night. My
question for you as the Congress, given that potential and
given your experience and wisdom, how would you advise we hedge
against that future risk?
Secretary Mnuchin. Well, I don't agree with you at all. I
have a lot of confidence in the economic team that we have,
whether it is with the regulators or whether it is in the
Commerce Department, in the Trade Department, Larry Kudlow in
the White House. I think we have as robust an economic team as
we have had in previous eras, and I am glad you liked these
previous people. I worked for Secretary Paulson for a long
period of time, and I understand that.
Mr. Casten. Well, I guess my concern is, as much--I mean,
the President keeps sycophants and family members around him.
There is a lot of turnover in the rest. And I am as concerned
about the trust that financial markets will have for those
individuals putting policy first as their basic skills. And
that is the concern that I feel we have to hedge against.
Secretary Mnuchin. Is there a question I am supposed to
answer on that?
Mr. Casten. I think with respect to your tight time, I will
yield back the balance of my time.
Chairwoman Waters. The gentleman from Georgia, Mr.
Loudermilk, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Madam Chairwoman. Mr. Secretary,
thank you, I will be very conscious of your time. Even though I
am a Member of Congress, I am also an American citizen, and I
think it is very important that we put the best light of our
nation with the rest of the world, especially with foreign
leaders.
So I have a whole suite of questions, but I am just going
to narrow it down to one. Four years ago, the National
Association of Registered Agents and Brokers (NARB) Act was
signed into law, and it is going to be stood up at the Treasury
Department.
But what is holding it back is that we haven't nominated a
board of directors yet to be confirmed by the Senate. They
haven't been appointed. I am leading a bipartisan, bicameral
letter to the President. Several have signed onto it,
expressing the urgency to go ahead and move forward. I know
that you have submitted some names. My question is, can you
please pass along to the President the urgency of getting this
moved forward?
Secretary Mnuchin. I will.
Mr. Loudermilk. Thank you, Mr. Secretary. I yield back the
balance of my time.
Chairwoman Waters. Mr. Secretary, if I may, you had
indicated that you would like to have a press conference in
this room following--
Secretary Mnuchin. I am going to cancel that. I don't have
time for that, so I am going--
Chairwoman Waters. Well, that is what I was going to ask
you, if you would, instead of having the press conference,
continue with those Members who have been waiting here for so
long. And I think what I thought I originally heard was 5:30,
rather than 5:15. So is it possible you can give us another 15
minutes to get to these Members--
Secretary Mnuchin. No, I have a foreign leader waiting in
my office at 5:30, okay? I agreed to stay longer--it will be
embarrassing if I keep this person waiting for a long period of
time. I wasn't going to have a press conference; I was going to
have a short press gaggle. I am not going to do that now.
And I have assured you that I am happy to come back here
and answer more of your questions. I respect the committee and
we want to have a good working relationship with you. So I hope
you will understand that I am already going to be late for my
5:30--
Chairwoman Waters. I do understand. We are late all the
time, unfortunately. We are all pressed for time, and I do get
it. However, I think I indicated early on that we would request
or require that you come back at least 2 more times in the
month of May. Is that something you are agreeing to?
Secretary Mnuchin. No, Madam Chairwoman, I find this to
be--you know, every single time Jack Lew and other Secretaries
came here, there has never been anybody who has been here more
than 3 hours and 15 minutes. I have sat here for over 3 hours
and 15 minutes, I have told you I will come back. I just don't
believe we are sitting here negotiating when I will come back.
We will follow up with your office. How long would you like me
to come back for next time? I have told you I will accommodate
you.
Chairwoman Waters. I appreciate that, and I appreciate your
reminding us of the length of time other Secretaries have been
here. This is a new way and it is a new day and it is a new
Chair, and I have the gavel at this point. If you wish to
leave, you may.
Secretary Mnuchin. Can you clarify that for me?
Chairwoman Waters. If you wish to leave, you may.
Secretary Mnuchin. Okay. So, we are dismissed. Is that
correct?
Chairwoman Waters. If you wish to leave, you may leave.
Secretary Mnuchin. I don't understand what you are saying.
Chairwoman Waters. You are wasting your time. Remember, you
have a foreign dignitary in your office.
Secretary Mnuchin. I would just say that the previous
Administration--when the Republicans--they did not treat the
Secretary of the Treasury this way. So if this is the way you
want to treat me, then I will re-think whether I voluntarily
come back here to testify, which I have offered to do.
Chairwoman Waters. Mr. Secretary, I want you to know that
no other Secretary has ever told us the day before that they
were going to limit their time in the way that you are doing.
So if you want to use them as examples, you have acted
differently than they have acted. And as I have said, if you
wish to leave, you may.
Secretary Mnuchin. If you wish to keep me here so that I
don't have my important meeting and continue to grill me, then
we can do that. I will cancel my meeting and I will not be back
here. I will be very clear, if that is the way you would like
to have this relationship.
Chairwoman Waters. Thank you.
The gentleman, the Secretary has agreed to stay to hear all
of the rest of the Members. Please cancel your meeting and
respect our time.
Secretary Mnuchin. Okay. So ,just let's be clear to the
press. I am canceling--
Chairwoman Waters. Who is next on the list?
Secretary Mnuchin. I am canceling my foreign meeting. You
are instructing me to stay here and I should cancel my foreign
meeting.
Chairwoman Waters. No. You just made me an offer.
Secretary Mnuchin. No, I didn't make you an offer.
Chairwoman Waters. You made me an offer that I accepted.
Secretary Mnuchin. I did not make you an offer. Let's be
clear. You are instructing me--you are ordering me to stay
here.
Chairwoman Waters. No, I am not ordering you. I am
responding. I said you may leave any time you want. And you
said, okay. If that is what you want to do, I will cancel my
appointment, and I will stay here, so I am responding to your
request.
If that is what you want to do--
Secretary Mnuchin. That is not what I want to do. I told
you--
Chairwoman Waters. What would you like to do?
Secretary Mnuchin. What I have told you is I thought it was
respectful that you would let me leave at 5:15--
Chairwoman Waters. You are free to leave any time you want.
Secretary Mnuchin. Which is the current period of time.
Chairwoman Waters. You may go anytime you want.
Secretary Mnuchin. Okay. Well, then, please dismiss
everybody. I believe you are supposed to take the gavel and
bang it. That is the appropriate--
Chairwoman Waters. Please do not instruct me as to how I am
to conduct this committee. The time belongs to the Chair. Who
is next?
The gentlewoman from Pennsylvania, Ms. Dean, is recognized
for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman, and thank you, Mr.
Secretary. I am not sure the Secretary has the attention right
now. Mr. Secretary?
Secretary Mnuchin. Okay. So I have just been advised that I
am under no obligation to stay; I am here voluntarily. I will
leave at 5:30, which is going to make me already 20 minutes
late, so I am happy to listen for another 10 minutes, and then
I will--
Chairwoman Waters. Thank you. Ms. Dean, would you proceed?
Secretary Mnuchin. And I have withdrawn my offer to
voluntarily come back. We can follow up if that is appropriate
or not.
Chairwoman Waters. You may choose to do whatever you want.
Ms. Dean, it is your time now, please proceed.
Ms. Dean. Thank you for restoring the clock, also. Mr.
Secretary, how do you do? Good. And I am disappointed to hear
you threaten not to come back. That isn't really what we hope
of our cabinet officials in this Administration or any other
Administration, so thank you for staying on.
Who is the foreign dignitary that you are meeting with?
Secretary Mnuchin. I am meeting with a very senior person
from Bahrain who is here to talk about national security issues
and sanctions.
Ms. Dean. Thank you.
Maybe you heard this, but last week NATO General Secretary
was before a joint session of Congress and he gave a beautiful,
stirring speech. His concerns regarding Russia were the
following.
In 2014, Russia illegally annexed Crimea, the first time in
Europe that one country has taken part of another by force
since World War II. He said that we see this as ``a pattern of
Russian behavior including a massive military build up from the
Arctic to the Mediterranean, from the Black Sea to the Baltic.
The use of the military grade nerve agent in the United
Kingdom, support for Assad's murderous regime in Syria,
consistent cyber attacks on NATO allies and partners targeting
everything from power grids, sophisticated disinformation
campaigns, and attempts to interfere in democracy itself.''
Did you have a chance to hear his speech?
Secretary Mnuchin. I didn't, but at your recommendation, I
will get a copy of it and read it.
Ms. Dean. It is beautiful, and he prefaced it and ended it
with, ``It is good to have friends.'' And he was really
recalling the history of NATO and the partnership of 70 years
among nations there and he ended it with, ``It is good to have
friends.'' In the middle he implied, or at least I inferred,
that it is also good to know who your friends are not in this
world.
And with that history of what has been going on with
Russian aggression, I am puzzled how it was that you decided to
de-list three sanctioned Russian companies with, I guess,
majority ownership by Deripaska. What was your decision for de-
listing them from sanctions?
Secretary Mnuchin. Sure. Well, thank you for raising that,
because it is a very important issue. First of all, the
important issue is we decided to sanction the companies, and I
think in particular you are talking about Rusal and the related
entities. They were all a group of entities. And we did that
under the various different authorities that we had.
Ms. Dean. Why did you de-list them? I just--I don't want to
go the whole history. Why did you de-list them?
Secretary Mnuchin. We de-listed them because the company
approached us, not the oligarch, the company approached us. A
large group of people, including our current people, negotiated
an agreement--
Ms. Dean. Was the company majority controlled by the
oligarch?
Secretary Mnuchin. And it is no longer majority controlled
by him.
Ms. Dean. He now has what percentage ownership?
Secretary Mnuchin. He and related entities have a 45
percent ownership and a 35 percent vote.
Ms. Dean. And he shed some ownership to whom?
Secretary Mnuchin. Various different entities.
Ms. Dean. Who?
Secretary Mnuchin. Again, I am happy to--
Ms. Dean. Any family members? Any related members?
Secretary Mnuchin. Again, if you are referring to--there
were shares transferred to his children pursuant to a divorce
decree that he was legally bound to do.
Ms. Dean. So he retains 45 percent ownership, his children
got other shares, so likely among the family they have more
than a majority of ownership?
Secretary Mnuchin. No. They don't have more than a majority
in the family.
Ms. Dean. But we don't know that for sure. Are you able to
provide us that full detailing?
Secretary Mnuchin. I believe on a confidential basis we
would be more than happy to give you all those details.
Ms. Dean. Okay. Speaking of conflicts of interest, when did
you take the position of Secretary?
Secretary Mnuchin. I believe it was February 13th.
Ms. Dean. Of 2017?
Secretary Mnuchin. That is correct.
Ms. Dean. And you sold a company that you owned to your
then-fiancee, now wife, is that correct?
Secretary Mnuchin. That is correct. And that was fully
approved by the Ethics Department of the Treasury.
Ms. Dean. And that took place when?
Secretary Mnuchin. I don't have the exact date, but I can--
Ms. Dean. After you assumed the secretaryship?
Secretary Mnuchin. Yes. But that was in my ethics
agreement, I was given a certain amount of time to sell assets.
That was appropriate, which I did.
Ms. Dean. But you thought it appropriate to sell to your
fiancee, now wife? That would clear you of any conflict of
interest?
Secretary Mnuchin. Again, just to be clear, okay, that
transaction was fully vetted and fully approved and consistent
with the ethics department.
Ms. Dean. What questions did you ask of ethics counsel
surrounding that transaction?
Secretary Mnuchin. I asked extensive questions both
internally to our designated ethics adviser as well as outside
counsel I had. I wanted to make sure I was fully in compliance.
Ms. Dean. Because you were concerned about a conflict of
interest or the appearance of a conflict of interest?
Secretary Mnuchin. No. Not because I was concerned with--I
was never concerned about a conflict of interest. Quite
frankly, I don't think I should have had to sell it, but I
agreed to comply with what was the decision of the OGE.
Ms. Dean. Why did they tell you that you needed to sell it?
Secretary Mnuchin. I don't know, again--
Ms. Dean. You took on that transaction, divested yourself
of the ownership, although your wife owns it, and you don't
know why they recommended that that was what you needed to do?
Secretary Mnuchin. Again, I want to just be clear. I
divested virtually every single asset that I owned. And again,
as part of the agreement I entered into, I agreed to sell the
asset. I was fully compliant when I sold it to my fiancee.
Ms. Dean. I just see a strange parallel here.
Chairwoman Waters. The gentleman from Tennessee, Mr. Rose,
is recognized for the rest of the time between now and 5:30
when the Secretary will be leaving.
Mr. Rose. Thank you, Secretary Mnuchin, for being with us
today and for being so generous with your time. I would like to
yield 30 seconds of my time to Mr. King.
Mr. King. Thank you. Thank you for that. Mr. Secretary, in
respect to your time, I will just take 5 seconds to say I will
submit every question to you if okay with you regarding CFIUS
and China. And with that, I yield back to the gentleman.
Mr. Rose. Thank you, Mr. King. The FSOC annual report has
previously stated that the Council reaffirms its view that
housing finance reform legislation is needed to create a more
sustainable system.
The White House recently issued a memo, as you know, on
housing finance reform on March 29th outlining a number of
initiatives. Mr. Secretary, I understand you cannot go into the
weeds too much and tell me more about Treasury's views at a
high level of what housing reform should look like. But could
you give me some guidance as to what you believe and Treasury
believes housing reforms should look like?
Secretary Mnuchin. Absolutely. And this is an area I have
been involved with for over 30 years. It is something I have
talked about and I believe that it should be twofold. So, one,
as it relates to the GSEs, we should have a system where
taxpayers are not at risk.
We want a robust system where people can access mortgage
capital, 30-year mortgages, but not put taxpayers at risk. And
the reason why we are focused on housing reform and not just
GSE reform is we want to make sure that we don't take the risk
out of Fannie Mae and Freddie Mac and put it all at FHA and
transfer it to taxpayers in another bucket.
So this is something I really hope we can work on a
bipartisan basis. I have said my first choice is to do
legislation with Congress, and I hope we can do something
quickly this year.
Mr. Rose. Thank you. I appreciate your interest in making
housing finance reform a priority. While the last
Administration did express some interest in the issue, they did
not provide the leadership necessary to get reform over the
finish line. And your leadership makes me optimistic that this
will get done.
In the interest of time, Madam Chairwoman, I ask unanimous
consent to submit to the record a list of previous appearances
by Treasury Secretaries along with the time that they gave--
Chairwoman Waters. Without objection, it is so ordered.
Thank you very much.
Mr. Rose. I yield back.
Chairwoman Waters. Mr. Secretary, thank you for staying
until 5:30. Without objection, all Members will have 5
legislative days within which to submit additional written
questions to the Chair, which will be forwarded to the
Secretary for his response.
And I ask the Secretary to please respond as promptly as
you are able. And I expect the Secretary to honor our
invitation to return, so that the rest of these Members will
have an opportunity to pursue their questions.
So without objection, all members will have 5 legislative
days within which to submit extraneous material to the Chair
for inclusion in this record.
Secretary Mnuchin. Thank you, and I look forward to being
back in May. We will work on a date.
Chairwoman Waters. Thank you very much.
Secretary Mnuchin. Thank you very much. I appreciate it.
Chairwoman Waters. The hearing is adjourned.
[Whereupon, at 5:31 p.m., the hearing was adjourned.]
THE ANNUAL TESTIMONY OF THE
SECRETARY OF THE TREASURY
ON THE STATE OF THE
INTERNATIONAL FINANCIAL
SYSTEM--PART II
----------
Wednesday, May 22, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 8:34 a.m., in
room 2128, Rayburn House Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney, Green,
Cleaver, Perlmutter, Himes, Foster, Beatty, Vargas, Gottheimer,
Gonzalez of Texas, San Nicolas, Tlaib, Porter, Axne, Pressley,
McAdams, Wexton, Lynch, Adams, Dean, Garcia of Illinois, Garcia
of Texas, Phillips; McHenry, Wagner, Lucas, Tipton, Hill,
Emmer, Zeldin, Loudermilk, Budd, Kustoff, Rose, Gooden, and
Riggleman.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
This is part two of the committee's hearing on the annual
testimony of the Secretary of the Treasury on the state of the
international financial system, part one of which convened on
April 9, 2019. As agreed with the ranking member, without
objection, this hearing is deemed a continuation of that
hearing, and we will go to Members who did not have the
opportunity to question the witness on April 9th.
We have the Secretary until 10:45 this morning, which
accounts for our early start today.
The gentleman from New Jersey, Mr. Gottheimer, is
recognized for 5 minutes.
Mr. Gottheimer. Thank you, Mr. Secretary, for being here
this morning.
The recent tax hike bill had a devastating impact on my
district, the Fifth District of New Jersey, gutting the State
and local tax deduction, better known as SALT, sharply limiting
New Jersey's property tax deductions, and imposing a massive
tax hike on New Jersey's families and businesses.
Last year, I worked with New Jersey officials on
legislation to provide real tax relief for my constituents via
tax credits for charitable contributions to our towns.
After New Jersey passed the law, the IRS, without any
legislative basis, against legal precedent and decades of
previous IRS approvals, issued provisional rules that would
severely limit New Jersey's ability to offer tax relief through
the charitable deduction, undermining New Jersey's new law
allowing our towns to use it. And it also hurt, as you probably
know, 33 other States like Alabama, Georgia, and South Carolina
that have been using the charitable provision for decades now.
It is not a red State or blue State issue, Mr. Secretary.
But I really believe that Congress didn't give you or the IRS
permission to interpret the new tax law as they see fit. These
rules are still provisional. I am just asking if you have a
status update for us on the limits on the charitable tax
deduction for these purposes?
Secretary Mnuchin. Well, first of all, let me just say, I
do appreciate it, as the SALT deduction is having an impact on
some of the economies, and we are monitoring that carefully. We
did allow for a deduction that did cover a very significant
amount of the people.
As it relates to the charitable deduction, this
Administration very much supports charitable deductions, as
does the Department. I think the issue that you are referring
to is that there are no limits on charitable deductions where
there is not a quid pro quo attached. The question I think you
are referring to is where certain States tried to get around
the Federal law by passing certain laws, and I understand that
is still under further review by the IRS and our legal
department.
Mr. Gottheimer. What about the 33 States that have been
using this for decades now? Should they have to stop
immediately?
Secretary Mnuchin. Well, again, we have spent a lot of time
on this guidance. We are trying to make sure that the
legitimate use of tax credits is still allowed. I believe the
guidance is still under review, and we are happy to follow up
with your office.
Mr. Gottheimer. Do you have a sense of timing on when those
rules will go final?
Secretary Mnuchin. I think it is going to be out shortly.
It is a priority of ours. Again, we want to make sure that
legitimate use of charitable contributions is supported.
Mr. Gottheimer. I know you were very involved personally,
which is a little unusual, in the approval process of these
guidelines. Why did you feel a need to get personally involved
in these particular ones? I know most you don't, right?
Secretary Mnuchin. No, actually, that is not the case. We
meet almost daily with a team at Treasury, Office of Tax
Policy, General Counsel, all of our areas, and we review,
actually, every single regulation. I think it is my obligation,
given the complexity of these issues, to make sure that I am
briefed on them.
Mr. Gottheimer. Okay.
Secretary Mnuchin. So this issue is no different than
others.
Mr. Gottheimer. Thank you.
On SALT for a second, you advocated for SALT cuts by saying
they ``predominantly benefited high-income earners to help pay
for major tax cuts for American families'' and estimated that,
``approximately 5 percent of taxpayers will itemize and have
State and local income tax deductions above the SALT cap.''
In my State, in New Jersey, 42.75 percent, not 5 percent,
of taxpayers in the Fifth District, or approximately 359,000
people in the 4 counties I represent, actually claimed a SALT
deduction. That is far from 5 percent. In fact, the average in
Bergen County, one of my counties, is $24,783.
After hearing the impact and reviewing this tax season, do
you have a different view at all on these claims of what you
originally said, sir?
Secretary Mnuchin. Well, we are monitoring it carefully. I
would comment that there are a lot of people with SALT
deductions who do have AMT relief. I do think it does hit the
high end of taxpayers significantly. But we are monitoring the
impact on these economies and watching it carefully.
Mr. Gottheimer. Thank you, sir.
In the remaining time, if I can quickly ask you an Iran
question, last November, the full set of sanctions waived under
the 2015 nuclear deal with Iran came back into effect. What
impact do you see these newly imposed sanctions having, and
where do you see issues with compliance?
Secretary Mnuchin. I see these new sanctions being very
impactful. They are having the impact that we want, which is
absolutely limiting the amount of money that is going to Iran
that is used for terrorist activities, that is used for
military purposes. And we are very pleased with the progress
and the enforcement of these sanctions. So it is something we
are monitoring very carefully.
Mr. Gottheimer. Thank you very much for your time, sir.
Thank you. I yield back.
Chairwoman Waters. The gentleman from Tennessee, Mr.
Kustoff, is recognized for 5 minutes.
Mr. Kustoff. Thank you, Madam Chairwoman, for convening
this morning's hearing.
And, Mr. Secretary, thank you for coming back this morning.
Back in November, ahead of the G20 summit, you released a
statement regarding the U.S.-Mexico-Canada trade agreement, and
I appreciate you doing that.
Two questions. As you know, Congress is faced with passing
or not passing the U.S.-Mexico-Canada trade agreement. First
question: Can you address what happens to the economy if in
fact we do pass the USMCA? Second question: Can you address the
effects on the economy if we don't pass the USMCA?
Secretary Mnuchin. Sure.
Well, I am hopeful that Congress takes this up soon. I know
Ambassador Lighthizer has had productive discussions with the
Speaker on this. Because I think it has a very important
economic impact, I think it has been estimated, anywhere
between 30 and 100 basis points in terms of GDP, which is a
very big number.
These are two of our largest trading partners. This has a
lot of support from the Governors, has a lot of bipartisan
support from businesses. So the impact is quite significant.
And I am pleased that we have reached an agreement with Canada
and Mexico on steel and aluminum tariffs, which, again, is
another reason to move forward with the agreement quickly.
Mr. Kustoff. And what would be the effect on the economy if
we don't pass the U.S.-Mexico-Canada Agreement?
Secretary Mnuchin. It could be quite significant in the
other direction, depending what happens, whether we stick with
the existing NAFTA deal or whether we terminate the NAFTA deal.
So, you know, very positive economic to move forward on it. So
I am encouraged, and hopefully the House will take it up soon.
Mr. Kustoff. Thank you.
As it relates to the Current Expected Credit Losses (CECL),
I have talked to a number of--I am concerned with community
banks especially. In my area, which is west Tennessee, we have
some really good, strong community banks who are concerned
about the effects that the CECL implementation would have on
them and their ability to lend money.
Have you or anybody in Treasury or any regulators conducted
a study to assess the potential impacts to banks, and
especially to community banks, if CECL is in fact implemented
or those standards are implemented in the next year or so?
Secretary Mnuchin. I share some of your concerns. We have
had discussions at the FSOC over this. We have had the
discussions with the Fed and other regulators about delaying
the impact on it, on stress-testing and other things.
So I think the regulators understand this issue. They are
trying to look at it carefully. It is an accounting provision.
So it is something we are focused on. And we hope that the
transition will alleviate some of the concerns that you have
addressed, but this is an issue we continue to study.
Mr. Kustoff. Okay. I appreciate that.
My district, which is part of Memphis and then west
Tennessee, has a large agricultural component. In fact, it is
the largest agricultural district in the State of Tennessee. I
hear from a lot of my farmers about tariffs and the impacts of
tariffs. And I am characterizing, but, generally, the farmers
are supportive of the President. They are willing to endure
short-term pain for longer-term gain. That is generally. That
is not everybody, but generally.
If you were a Member of Congress representing an
agricultural district, what would you tell farmers about
tariffs and the potential impacts and, hopefully, the potential
positive effects that they may have?
Secretary Mnuchin. Well, I can assure you the President is
very focused on the agriculture community and the farmers
specifically. We talk about it almost weekly. Sonny Perdue
participates in our trade meetings and represents the farmers
in those meetings.
I think the good news is, as it relates to lifting some of
these tariffs with Mexico, that will help the farmers
substantially in terms of trade with Mexico and reciprocal
issues. And it relates to China. If we can get a good deal, it
will also be very good for the farmers.
I think, unfortunately, we were on track for that, and we
have gone backwards. The President and Secretary Perdue are
looking at various different programs to make sure, as we take
in tariffs, we can use some of that money to support the
farmers. So I can assure you the President is very focused on
this.
Mr. Kustoff. Thank you, Mr. Secretary.
And I yield back my remaining time.
Chairwoman Waters. Thank you.
The gentleman from Utah, Mr. McAdams, is recognized for 5
minutes.
Mr. McAdams. Thank you, Madam Chairwoman.
And, Mr. Secretary, thank you for coming back to the
committee this morning.
As you may know, Utah leads the nation with the highest
number of children per family on average. And I, myself, have
four kids. So the cost of household goods and children's items
specifically is a big concern in my district, a big concern for
my constituents as they map out their household budgets every
month.
So I wanted to read to you a list of items this
Administration is proposing to tax in its trade dispute with
China. And I know you refer to these as tariffs, but in
reality, Utahans and Utah business leaders and Americans are
the ones paying these costs. So I will call them what they are,
a tax.
I am going to read a few of these items from the USTR's
Federal Register notice on proposed list for tariffs, all of
which will potentially be taxed up to 25 percent: baby diapers,
infant formula, children's footwear, infant nursery monitor
systems, strollers, highchairs and bouncers, baby carriages,
and child safety seats.
And these are just some of the items that are related to
babies and infants. It is by no means an exhaustive list,
because the list also includes all forms of clothing and items
that are also used by adults.
In fact, you have 76 pages of items that you want to tax at
a rate of 25 percent. That is these items right here in the
Federal Register. Seventy-six pages of items that would receive
a 25-percent tax.
So, Mr. Secretary, I understand that you and this
Administration want to address China's unfair trade practices,
and I support that, but I don't think the strategy and
rationale behind this process has been properly explained, and
I don't think you have properly consulted Congress throughout
the process.
So I guess my question is, what do I tell mothers and
fathers in my district when the price of their baby formula and
diapers goes up? What if they can't afford those price
increases? Should they just go without buying diapers or not
buy a car seat for their kid? What do I tell them?
I will let you respond.
Secretary Mnuchin. Well, first, let me comment, I would be
more than happy to come up and meet with you and a bunch of
your colleagues and explain in a smaller setting our thoughts
on this.
You have a very valid point on these issues, so let me make
a couple of points.
First of all, these are proposed tariffs. They are not in
place.
Second, there will be an exception process as part of this
301. We have already had many productive meetings with Commerce
and USTR and others.
And, third, I can tell you I am monitoring the situation
very carefully. I was on the phone with the CFO of Walmart,
which is obviously one of the biggest sellers of the that you
have described specifically, and I understand from Walmart what
things they can source from other areas and what items they
can't.
I would say we haven't made any decisions yet, but we will
be especially sensitive to the consumer items and within the
consumer items, I assure you, items that particularly affect
people on fixed salaries and have four kids and others.
So there has been no decision made on any of these items,
and I assure you we will monitor it very carefully before we
raise all these items--
Mr. McAdams. Well, I would just say, I think people are
alarmed. People are seeing their costs go up already in
anticipation of these tariffs.
Has the Administration set up the exclusion process you
referred to for round three on the China tariffs?
Secretary Mnuchin. We are working on setting up the
exclusion process.
Now, I haven't seen the prices go up. I have been
monitoring this very carefully, and I would--
Mr. McAdams. Is there a plan for an exclusions process for
round four?
Secretary Mnuchin. Yes, there is.
And I would also just comment, given the depreciation of
the Chinese currency, a big component of this is being paid for
by China, because as the currency depreciates, our companies
are being able to buy things at lower prices.
But we are very carefully monitoring the consumer prices,
and that is something that I can assure you the President will
be very focused on before we make any decisions.
Mr. McAdams. Well, I just want to make sure--I want my
constituents to not be taxed, to not feel this pain in their
monthly budgets as they are trying to balance budgets, put food
on the table, and provide for their kids and their children's
safety.
When can we expect any future announcement on the exclusion
process?
Secretary Mnuchin. Well, I think you know the process of
round four. There won't be any decision probably for another 30
or 45 days. And we will have an exclusion process built and
ready if the President decides to go forward with that.
Mr. McAdams. Thank you.
I know that Representative Ron Kind has introduced
legislation here in the House that would require such a process
as well, and I am a cosponsor of that legislation. And for the
sake of the peace and assurances of the American people, I hope
we will get this process moving as soon as possible.
Thank you, and I yield back.
Chairwoman Waters. The gentleman from Virginia, Mr.
Riggleman, is recognized for 5 minutes.
Mr. Riggleman. Thank you, Madam Chairwoman.
And thank you, Mr. Secretary--I am over here on the end.
And thank you, Mr. Secretary, for coming back to the committee
this morning.
I know the title of this hearing is, ``The State of the
International Financial System,'' but before we get into that,
I wanted to quickly discuss a tax issue.
The IRS recently announced that corporate alternative
minimum tax refunds received under the Tax Cuts and Jobs Act
will no longer be subject to sequestration, but AMT refunds
received by taxpayers in lieu of claiming bonus depreciation
under Section 168 will remain subject to sequestration.
Taxpayers earn no interest on AMT prepayments and are
counted dollar for dollar against future liabilities. These
prepayments operate as interest-free loans to the government
that remain until the taxpayer incurs a liability, to which the
AMT credit is applied. In many cases, these prepayments extend
for decades.
The only way to receive an AMT credit is to pay the tax. So
these are not loopholes exploited by American businesses but
serve as a way to reduce our tax liabilities should they owe
money to our favorite uncle, Uncle Sam.
I don't support a policy that treats these taxpayers
differently, particularly in the case where the AMT credits
represent prepayments or overpayments of tax and should not be
subject to sequester.
And, sir, can I get your commitment today that you will
look into the actions that the IRS can and should take on
behalf of these companies on the AMT credit specifically to
remedy this situation?
Secretary Mnuchin. Yes. I can tell you I am familiar with
it. It is a technical issue. We are working with OMB on trying
to resolve it, so--
Mr. Riggleman. Thank you.
Secretary Mnuchin. --thank you for raising it.
Mr. Riggleman. Thank you. And I knew that was probably a
pretty quick answer, so thank you for that.
And following up on tax issues, on March 5th of this year,
the Department of the Treasury released a policy statement on
the tax regulatory process. This policy statement established
the IRS's commitment to notice-and-comment rulemaking, the
limited use of temporary regulations, and the proper role of
guidance documents.
One key assertion of this policy statement says,
``Subregulatory guidance is not intended to affect taxpayer
rights or obligations independent from underlying statutes or
regulations. Unlike statutes and regulations, subregulatory
guidance does not have the force and effect of law.'' I
wholeheartedly agree with this statement. And what I love about
our bureaucracy is we actually have guidelines about
guidelines. I think that is incredible.
But would you be willing to officially adopt this position
as the Chair of FSOC?
Secretary Mnuchin. I will review that with FSOC and take it
up with them. It sounds like a good idea.
Mr. Riggleman. Thank you very much.
I think the entire Administration needs to have the same
view of guidance. I would argue that if this document is good
enough for the IRS, it should be equally appropriate for the
FSOC or any Federal regulatory body in the United States. And,
again, that is just based on my business background with
regulations, about regulations, about guidance.
I see my time is running a little bit short, but one final
topic I want discuss is cybersecurity.
In June of 2017, Treasury issued a report entitled,
``Nonbank Financials, Fintech, and Innovation.'' In this
report, Treasury states, ``Regulatory fragmentation, overlap,
and duplication, however, can lead to ineffective regulatory
oversight and inefficiencies that are costly to the taxpayers,
consumers, and businesses.''
By the way, Mr. Secretary, I think you can see a theme in
my questioning today.
The report also says that, ``Cybersecurity is addressed
among a broad group of Federal and State regulators through the
Financial and Banking Information Infrastructure Committee
(FBIIC).''
When the prudential regulators were here last week, this
was something I talked about. I also know that the Financial
and Banking Information Infrastructure Committee (FBIIC), is
chaired by Treasury and comprised of over 15 members from
additional regulators.
Can you quickly discuss how Treasury is working with the
numerous regulatory bodies to harmonize cybersecurity
regulations to protect consumers without creating too
cumbersome a framework?
Secretary Mnuchin. Yes. Thank you. It is a major priority
of mine. We have added additional resources to the Department.
We have met with public and private partnerships on this.
And we really have two tasks. One is harmonization across
the regulators. We have recently had a productive meeting with
the bank CEOs and the regulators on that. And the second is
making sure we have better coordination between our intel, our
technical people, and the private sector to make sure that we
are fully prepared.
Mr. Riggleman. Thank you very much.
I think just in closing I would ask, as we go forward, I
would just hope that we don't have any guidance come out about
subregulatory guidance, which is about the guidance, not
actually regulations.
Thank you, and I yield back.
Chairwoman Waters. Thank you.
The gentlewoman from Virginia, Ms. Wexton, is recognized
for 5 minutes.
Ms. Wexton. Thank you, Madam Chairwoman.
And thank you, Mr. Secretary, for joining us here today.
I would like to talk a little bit about your refusal to
comply with a lawful subpoena from the Ways and Means
Committee.
As you know, Section 6103(f)(1) says that the Secretary
shall furnish the Ways and Means Committee with any return or
return information specified in requests. You are aware of
that, right?
Secretary Mnuchin. Yes.
Ms. Wexton. Okay.
And you are also aware that nowhere in that section is the
chairman of Ways and Means required to include a reason, a
legislative reason, for the request. You are aware of that as
well?
Secretary Mnuchin. I have read the language.
Ms. Wexton. Okay.
But in your letter dated May 17th to Chairman Neal, you
rely on advice from the DOJ in determining that the request
lacks a legitimate legislative purpose. Is that correct?
Secretary Mnuchin. That is correct.
Ms. Wexton. Okay.
Now, you understand that we are the Legislative Branch so
we make decisions about legislating, right?
Secretary Mnuchin. I understand that there are three
branches of government and they perform different functions.
Ms. Wexton. And you are the Executive Branch, right?
Secretary Mnuchin. That is correct.
Ms. Wexton. Which executes the laws. You don't make the
laws.
Secretary Mnuchin. Correct.
Ms. Wexton. Right. We make the laws.
Now, we learned last night of a second opinion which was
written by the IRS Chief Counsel's Office. Are you aware of
that memo?
Secretary Mnuchin. I became aware of that memo when it
was--we got an inquiry from The Washington Post, and it was
just recently published. I am not sure who the author of that
was, but I have seen it in The Washington Post
Ms. Wexton. Okay. So when did The Washington Post inquire
of you about your knowledge--
Secretary Mnuchin. I believe the day before yesterday, they
called us up, and we confirmed that I and the Commissioner were
not aware of that letter and had not seen it.
Ms. Wexton. But you have since that time reviewed that
memo.
Secretary Mnuchin. Actually, I haven't reviewed it. I
looked at it literally on the way up here. Someone handed me
the printed copy of it. So I would not describe that as I have
reviewed it.
Ms. Wexton. Did somebody make you aware that the memo
states that the law does not require that the Ways and Means
Committee Finance Chair or JCT Chief of Staff include a reason
or purpose for the request?
Secretary Mnuchin. Again, I haven't--again, let me just
say, the legal advice that we have relied upon--and, again, I
understand there are three branches of government, and when it
comes to constitutional issues, there could be different
interpretations. And that is why there is a third branch of
government, to interpret--
Ms. Wexton. But--I'm sorry, reclaiming my time, you are at
least aware that the conclusion of that memo directly
contradicts the conclusion that you are relying upon?
Secretary Mnuchin. No, I actually don't believe that is the
case. That memo, I understand, is addressing a different issue
and is not addressing the issue that we and the Department of
Justice looked at.
But, again, let me just say, this is not a letter that came
to our attention earlier--
Ms. Wexton. Madam Chairwoman, reclaiming my time, who at
the IRS would have made the decision not to run this memo up
the chain?
Secretary Mnuchin. I have no idea.
Ms. Wexton. Do you plan to find out?
Secretary Mnuchin. We are trying to find out who wrote the
memo, where it came from, when it was, and why it wasn't
distributed, yes.
Ms. Wexton. Have you had any conversations with the
President at any time prior to your confirmation or to today
about your desire or willingness to provide the President's tax
returns to Congress?
Secretary Mnuchin. I have had no conversations ever with
the President or anyone in the White House about delivering the
President's tax returns to Congress.
Ms. Wexton. I want to switch gears and talk for a minute
about Jamal Khashoggi, the Washington Post columnist and
Virginia resident who was brutally killed at the Saudi Arabian
consulate in Istanbul. The Saudi government has already
acknowledged its role in the killing of Mr. Khashoggi. The CIA
has reportedly established with high confidence that it was an
assassination that was ordered by Crown Prince Mohammad bin
Salman.
Do you accept the intelligence community's assessment of
what happened?
Secretary Mnuchin. Let me just first comment that it is
obviously a horrible situation that he was killed.
I can't comment--I obviously have access--
Ms. Wexton. Do you accept the intelligence community's
assessment?
Secretary Mnuchin. Again, what I would just like to say is,
I have access to all of the classified information. It would be
inappropriate for me to make comments on the CIA intelligence
that--
Ms. Wexton. Reclaiming my time, Madam Chairwoman.
Secretary Mnuchin. --has not been released.
Ms. Wexton. Okay. Let me back up a little bit. So you met
with Crown Prince Mohammad bin Salman less than 3 weeks after
the disappearance of Mr. Khashoggi, right?
Secretary Mnuchin. I did. I was scheduled to speak there,
which I canceled, but I did meet with him and talk to him about
terrorist financing. And I obviously have private
conversations--
Ms. Wexton. And there is a picture that was tweeted out by
the Kingdom on October 22nd. Is that you in that picture with--
Secretary Mnuchin. That is. And we also had private
conversations about the Khashoggi investigation at that time.
Ms. Wexton. Okay. So you were fine with appearing publicly
with Mohammad bin Salman?
Secretary Mnuchin. I canceled my public speech. I was in a
meeting privately, and there were photographers. And I thought
it was the appropriate thing to deliver a message to him from
the President--
Chairwoman Waters. Time has expired.
Ms. Wexton. Thank you, Madam Chairwoman. I yield back.
Chairwoman Waters. The gentlewoman from Missouri, Mrs.
Wagner, is recognized for 5 minutes.
Mrs. Wagner. I thank the chairwoman.
And, Secretary Mnuchin, thank you for the courtesy of
coming back today. I am especially pleased, as the vice ranking
member of Financial Services and also the vice ranking member
of Foreign Affairs, that we are focusing on the state of the
international financial system here today.
Mr. Secretary, I was pleased to see that the U.S. seized a
North Korean cargo ship earlier this month carrying coal. North
Korea has also conducted missile tests this month for the first
time in almost a year-and-a-half with missiles that appeared to
resemble Russian technology.
As talks with the North Koreans stall and North Korea
demonstrates its increasing aggression, what specific measures
can we expect to come from Treasury, sir?
Secretary Mnuchin. Well, the President is determined that
we continue our efforts to enforce both the U.N. sanctions and
the U.S. sanctions against North Korea. And they have had a
very important effect on bringing the Chairman to the
negotiating table, and we will continue to enforce those
sanctions.
Mrs. Wagner. Especially in the banking arena?
Secretary Mnuchin. Across multiple arenas, yes. They have
all been very effective.
Mrs. Wagner. Mr. Secretary, the Obama Administration
mistakenly believed that Burma was on the path to reform, and
it lifted sanctions and embraced IFI investment.
Given that Burma has continued to commit atrocities against
ethnic groups across the country, do you think IFIs should
continue engaging with Burma? And if so, how can they help
prompt a more rights-respecting environment?
Secretary Mnuchin. I am concerned about the situation
there. We will continue to have discussions with the IFIs and
others and monitor this situation so that there is the
appropriate outcome.
Mrs. Wagner. And, again, I just hope that we will impose
additional sanctions that were lifted by the Obama
Administration, given the path that has been taken vis-a-vis
the atrocities that are happening against so many different
ethnic groups.
Burmese civil society organizations have expressed concerns
with the IFC's lending proposals in luxury development
projects, infrastructure, and agribusiness given the country's
corrupt business environment and lack of property rights.
How has the IFC used its position to promote transparency
and inclusive economic development in Burma?
Secretary Mnuchin. Well, let me just say, I share your
concerns. I know our international department has been having
conversations. And I expect to see David Malpass very soon, and
I will raise this specifically to his attention. There is no
reason, in my mind, that the IFC and others should be doing
this without the appropriate conditions attached.
Mrs. Wagner. And I would be very pleased to send some
information along, some questions, if you will be having those
discussions.
Secretary Mnuchin. Please do.
Mrs. Wagner. Thank you.
After issuing its first U.S.-dollar-denominated bond issue
this month, the China-backed Asian Infrastructure Investment
Bank (AIIB) raised $2.5 billion and attracted orders of more
than $4.4 billion. The AIIB has said that the funds will be
used to invest in infrastructure projects across Asia, where
the AIIB is a major financier of Belt and Road projects.
What are the World Bank, IMF, and the Asian Development
Bank doing to support the Belt and Road Initiative?
Secretary Mnuchin. Well, I can speak for the IMF and the
World Bank, and they are both very focused on debt transparency
and making sure that China follows rules of debt transparency
that are consistent with the Paris Club and others and making
sure that, if debt is taken on by these countries, that it is
sustainable and that they can afford it.
And if there is proper financing for infrastructure, that
is one thing, but if there is money that is designed to loan-
to-own, that is inappropriate.
Mrs. Wagner. And how is the U.S. ensuring that countries
aren't becoming overly indebted to China or entering predatory
contracts?
Secretary Mnuchin. Well, those are conversations we have at
the G20 consistently, and I think there is a lot of support
from all of our allies on this issue.
Mrs. Wagner. Thank you.
I am about to run out of time, but I would like to forward
some information about Burma to you for your further
discussions. Thank you.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you.
The gentleman from Connecticut, Mr. Himes, is recognized
for 5 minutes.
Mr. Himes. Thank you, Madam Chairwoman.
And thank you, Mr. Secretary, for being here.
I want to revisit Treasury's decision to delist Rusal, En+,
and associated entities owned and controlled at the time by
Russian oligarch Oleg Deripaska.
Just to remind you of the fact pattern here, Congress is
informed on December 19th, literally the day we are breaking
for the holiday break, that it is Treasury's intention to
delist these entities. Nonetheless, Congress acts on January
17th with a strong veto-proof majority in the House to
disapprove of the delisting. The Senate acts, as well, but not
with veto-proof majorities. And despite this disapproval on the
part of the United States Congress, on January 27th the
Treasury, in fact, delists Rusal and En+ as a result of the
deal that was struck.
Since then, Mr. Deripaska's net worth, inasmuch as I can
calculate it, has risen by $2 billion, largely as a result of
the doubling of the share price of En+ and his remaining stake.
That is what we can see visibly. Lord Barker of Battle, who
engineered this deal, the executive chairman of En+, received a
$5 million bonus for his success in engineering this deal. Lord
Barker of Battle, of course, denied access to classified
information by the British Parliament because of his ties to
Russia.
And what I worry about most is what the leader of Russia,
Vladimir Putin, sees. Deripaska says, ``I don't separate myself
from the Russian state. I have no other interest.'' So Vladimir
Putin sees the Treasury act in contravention of the will of
Congress to deliver this remarkable gift to Mr. Deripaska, a
guy who associates himself with Russian interests, at a time
that we are really coming to understand the full effect of the
Russian interference in our election, we know what they are
doing in Syria, and we know what they are doing around the
world.
So, Mr. Secretary, my question is--and I got into the weeds
with you on this, I know, in the classified session, and I had
the opportunity to talk to OFAC. I understand the process and
the mechanics. But I wonder if you can tell me, what American
interest was served, what strategic interest was served by the
decision to delist En+ and to massively increase Mr.
Deripaska's net worth?
Secretary Mnuchin. Well, let me give you a brief answer
now, and I would be happy to follow up with you.
First of all, let me just say, many people in Treasury,
including myself and a large group of career staff, spent a
long time on this transaction, negotiating this transaction.
First of all, it was our decision to put him on the sanctions
list despite what we knew this would do to the aluminum
markets.
We were pleased with the negotiations. We think that this
shows that sanctions work, that not only has this
Administration done more sanctions on Russia than anybody
previously but--
Mr. Himes. Mr. Secretary, I don't mean to be rude, but when
you say--I have heard you say that before, that sanctions work.
And I have heard you say on multiple occasions that the point
of sanctions is to change behavior.
So please elaborate on what you just said. How, in this
case, did sanctions work? How did Mr. Deripaska change his
behavior, Russia change its behavior? How did they work, in
this case?
Secretary Mnuchin. Well, what we have done is we have
effectively separated him from the company. We have put in a
compliance system with U.S. and European people on the board,
which is unprecedented.
And as it relates to strategic issues, I would just also
comment, there were many workers throughout Europe--this isn't
just workers in Russia. And we think this is a perfect example
of where sanctions work. There was a change in behavior by the
company. The company was delisted.
But I would be more than happy to--
Mr. Himes. I'm sorry. Tell me what the change in behavior
on the part of the company was.
Secretary Mnuchin. The change in behavior is the company
has separated themselves from Deripaska and has agreed to an
unprecedented compliance program with the board--a Russian
company now controlled by a board of non-Russians. It is
somewhat unheard of.
Mr. Himes. Well, first of all, they haven't separated
themselves when Deripaska continues to own a 45-percent stake
in the company, and there are questions about whether he
continues to control it.
And I understand you may feel some obligation to European
workers, but my question really was, what American interest,
what American strategic interest was served by this deal, which
had the effect, undeniably, of massively enriching Mr.
Deripaska?
Secretary Mnuchin. Again, this was never about kind of
trying to make Deripaska's net worth go up or down. This was
about separating Deripaska from the company. His voting
interest went down to 35 percent. He has no management
responsibility. We have unprecedented visibility into one of
the largest Russian companies and the second-largest aluminum
company in the world. This is why--
Mr. Himes. I understand the mechanics, sir. I am having a
hard time understanding--and Ms. Gacki came and spent a lot of
time with me. I got the mechanics; I understand them. I still
do not see what American interest was served here, and that is
my question to you.
Secretary Mnuchin. Well, I believe the American interests
were served in separating the company. But I would be more than
happy to talk to you more about it.
Mr. Himes. Thank you, Mr. Secretary.
And I yield back.
Chairwoman Waters. The gentleman from Oklahoma, Mr. Lucas,
is recognized for 5 minutes.
Mr. Lucas. Thank you, Madam Chairwoman.
Mr. Secretary, I really only have one question, and I think
it is a relatively simple question.
I would open with an observation that you are obviously a
man of patience or you wouldn't be here again today. I consider
myself also to be a person of patience. That might be a better
way to describe that.
And before I ask my question, just to observe that I have
been, like the chairwoman and a handful of other members, a
member of this committee for a very, very long time. And I view
us, in many ways, like a corporate board: responsible to the
entities that own the enterprise; responsible to customers; and
responsible for the success of the process. So I come at that
from--with my question.
In 2017, the Treasury Department's ``Capital Markets'' made
recommendations related to the lack of harmonization between
CFTC and banking regulators regarding initial inter-affiliate
margin.
As you are aware, the regulators have not yet decided to
implement your recommendation. Last week, I asked the heads of
the banking regulators if they intended to prioritize
implementing your recommendation. Based on their answers, I am
now very concerned they may try to make it a part of a much
larger review of the Fed's regulations, one which could
literally drag out for years.
So this is my concern, and I have been raising it for
nearly 5 years, but it remains unaddressed. Do you agree that a
fix on inter-affiliate margin requirements should be a
priority? And will you impress upon those agencies the
importance of acting?
Secretary Mnuchin. Yes and yes. And thank you for
acknowledging my patience.
Mr. Lucas. Absolutely, Mr. Secretary. Because if we don't
address this, we will drive resources and we will drive
business out of this country--a reflection, I think, of the
topic of this hearing.
And after pursuing this for nearly 5 years, I would simply
say, when I chaired another committee, it took me 2\1/2\ years
to pass a farm bill that would successfully pass a Republican
House, a Democrat Senate, and be signed by a Democrat
President. I and my former colleague from Tennessee, when it
came time to do what was necessary to reauthorize the Export-
Import Bank, literally used an extraordinary legislative
process from 1910 to take it away from a then-chairman and over
the heads of an entire majority leadership to get a piece of
legislation all the way to the President's desk to be signed.
I would just simply observe that after 5 years, it is time.
And if the agencies can't bring themselves to focus to address
this issue, perhaps it is time to help them. I simply use you
as the courier of the message, Mr. Secretary.
I appreciate your responses.
I yield back, Madam Chairwoman.
Chairwoman Waters. Thank you.
The gentlewoman from Iowa, Mrs. Axne, is recognized for 5
minutes.
Mrs. Axne. Thank you, Chairwoman Waters.
And thank you, Secretary Mnuchin, for being here again. I
appreciate it.
I would like to talk to you a little bit about tariffs and
trade. I am from Iowa, so of course we are being hit hard.
First of all, I appreciate the removal of the Section 232
tariffs on steel and aluminum. However, those were put on by
your Administration. But thank you so much for removing those.
But I want to talk to you about the tariffs that were just
placed on Chinese goods this month. And the tariff is on almost
$200 billion of imports, and it was just increased from 10
percent to 25 percent.
Do you agree with President Trump that China is footing the
bill for these tariffs?
Secretary Mnuchin. I agree that China is footing most of
the bill for it, yes.
Mrs. Axne. So who is paying the price for these?
Secretary Mnuchin. Well, again, when you look at the
tariffs, there are probably three or four different things that
are going on. One is a change in the currency, which leads to a
lower price for us. We can buy things. Two, it is margins that
are being absorbed by companies in China. And, three, there may
be in certain cases an impact passed on to our consumers, and
we are closely monitoring that. And that would be part of the
exception process.
Mrs. Axne. Well, I appreciate you bringing up that last
piece, because major retailers like Walmart have said they will
raise prices as a result of your Administration's tariffs.
Do you understand how a tariff operates, and could you tell
us a little bit about that?
Secretary Mnuchin. I am not sure if you were here when I
mentioned earlier that I just spoke to the CFO of Walmart. We
speak on a regular basis. So I am monitoring with them very
carefully--
Mrs. Axne. So are tariffs a tax on imports?
Secretary Mnuchin. Tariffs are a tariff on imports. They
are not a tax. They are a--
Mrs. Axne. Well, tariffs are a tax on imports, and they are
paid for by the U.S. companies who import those goods.
So do our companies like Nike and Adidas and Walmart, who
have said they are going to pass on these prices to consumers--
would you not consider that an increase on costs on folks like
mine in Iowa and Americans across this country?
Secretary Mnuchin. Well, what I mentioned earlier and the
reason I spoke to Walmart is because, obviously, they have a
lot of these consumer issues. The way the tariffs were designed
was the last tranche was really the consumer issue.
We are monitoring carefully. There will be some exceptions.
My expectation is a lot of this business will be moved from
China to other places in the region so that there will not be a
cost to--
Mrs. Axne. So, reclaiming my time, I am not getting a
straight answer here. Do you agree that American consumers will
be paying more as a result of these tariffs?
Secretary Mnuchin. I don't necessarily agree with that. And
that is something we are monitoring very carefully, and we will
be issuing exemptions--
Mrs. Axne. So you disagree with all of our key retailers in
the country and experts who understand that a tariff is most
likely passed on to consumers because that is historically what
happens? You disagree with that, as the Secretary of the
Treasury?
Secretary Mnuchin. I just spoke to many of these CEOs.
Mrs. Axne. Do you disagree with that, that the tariffs
won't be passed on to consumers in any way, shape, or form?
Secretary Mnuchin. Again, there may be a small number of
items where the tariff may be passed on, and those are the
things we will specifically--
Mrs. Axne. So you agree that American consumers will be
paying more because of the tariffs?
Secretary Mnuchin. No. We have made no decisions on that.
The last tranche is subject to the President's approval and
subject to exemptions. So, no, I don't--
Mrs. Axne. I think it is the importers that make the
decisions on that. Isn't that correct? It is their products
that they are importing?
Secretary Mnuchin. Excuse me?
Mrs. Axne. The decision is being made by the folks in our
country who own the companies who are importing the products,
not necessarily you, who is deciding what price they are going
to put on their product.
Secretary Mnuchin. Well, again, if we issue an exemption,
then there will be no price increase.
And, again, most of those companies are moving products to
other places--
Mrs. Axne. So, reclaiming my time, moving on, can you tell
me what the average Iowan makes in a year?
Secretary Mnuchin. I can't tell you exactly, but I would
guess it is--
Mrs. Axne. Can you tell me what the average American family
makes in a year?
Secretary Mnuchin. Yes. Depending upon whether you use the
mean or the median, it is between $45,000 and $65,000.
Mrs. Axne. Yes. Median is $60,000, closer to $79,000 for
the mean.
Can you tell me what cost these tariffs will put on these
American families?
Secretary Mnuchin. I don't expect there will be significant
costs on the American families. And that is something that we
are absolutely focused on.
Mrs. Axne. Have you done research on this?
Secretary Mnuchin. I have. As I said, I have just spoken to
all the major companies that provide consumer goods.
Mrs. Axne. So, if you have done research on this, why
haven't we seen this research? I haven't seen it. I don't think
my colleagues have seen it. Why hasn't that been passed on to
us to ensure that the constituents in our districts aren't
paying the cost for this?
Secretary Mnuchin. Well, let me just comment, the last
tranche is under investigation. The President has not yet made
the decision, and the consumer products are, by design, in the
last tranche.
Mrs. Axne. So will you commit to providing us this
research?
Secretary Mnuchin. Again, at the appropriate time, we will
brief Congress on what the economic impact is of it, yes.
Mrs. Axne. Okay.
Well, let's move on--
Mr. San Nicolas [presiding]. Time has expired.
Mrs. Axne. Thank you.
Mr. San Nicolas. The gentleman from Texas, Mr. Gooden, is
recognized for 5 minutes.
Mr. Gooden. Thank you for being here, Mr. Secretary. I also
wanted to congratulate you, because after today you will hold
the record for the longest time served in a hearing by any
Secretary of the Treasury. So, apologies for not marking the
occasion better.
Secretary Mnuchin. Thank you. I think it will be 5 hours.
Mr. Gooden. Oh, very good. Well, we are happy to have you.
I was going to ask more about these tax returns. My
colleagues across the aisle seem to be so obsessed with these
tax returns. Has anyone in the Administration asked you to
release tax returns for Members of Congress or anyone else for
political purposes?
Secretary Mnuchin. No, they haven't. And neither Chairman
Brady, when he ran the committee, nor now-Chairman Grassley
have asked for those returns, which they would have the right
to ask for, subject to constitutional protections.
Mr. Gooden. And I have also heard that it is important for
the Ways and Means Committee and others in Congress to
determine whether or not the IRS is actually auditing our
President and Vice President. Is there any reason to think that
the IRS isn't doing their job with respect to audits?
Secretary Mnuchin. No. We have offered to brief the
committee on the audit process. They haven't taken us up on
that. But I don't see any reason why they need access to actual
returns to understand that the process of the audit is fair and
going through correctly.
Mr. Gooden. And you were asked earlier today--in today's
Washington Post, there is a story about a confidentiality memo
from the IRS. Do you make your decisions based on what is on
the front page of The Washington Post or confidential memos
that you haven't seen? Is that how you do business at the
Treasury?
Secretary Mnuchin. Very rarely. I don't think I have made a
decision on that basis.
I would also just comment, the memo was marked, ``Draft.''
It was not a final memo. But I don't know how it got to The
Washington Post. It would have been more interesting if it had
gotten to me or the Commissioner to review.
Mr. Gooden. Well, I want to thank you for your work. I want
to thank you for standing up for the American taxpayer.
I don't believe that tax returns should be used for
political purposes, and I believe you share that view.
Republicans certainly shared that when they were in power in
the House a few months ago.
And I want to encourage you to continue fighting for the
American taxpayer. And thank you for your work.
Secretary Mnuchin. I assure you, weaponizing the IRS is a
major concern of ours that affects all taxpayers in both
parties.
Mr. Gooden. Well, I think if you are looking for evidence
that the U.S. Congress doesn't need tax returns of American
citizens, you can look no further than the House Financial
Services and Ways and Means Committees. So, thank you.
I yield back.
Mr. San Nicolas. The gentlewoman from North Carolina, Ms.
Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Mr. Chairman.
And thank you, Secretary Mnuchin, for returning.
You know, you said you are patient. I am patient too, but I
have to tell you, I am losing patience with the President.
Do you know how many times President Trump has publicly
offered to release his tax returns?
Secretary Mnuchin. I do not.
Ms. Adams. Well, we should have something on the screen. He
has personally offered to give us a glimpse of his tax returns
at least 24 times. It was scrolling on the screen, and it will
probably be back up.
It was April 19, 2011, in an interview, when he first said
that--he said if President Obama would release his birth
certificate, then he would release his tax returns. But, of
course, President Obama did do what he said he would do, and
President Trump did not do what he said he would do.
So do you think the American people have a right to know
what is in those tax forms?
Secretary Mnuchin. No, I don't. Presidents are not required
to. And the American public knew that he didn't release them
before they voted for him. So that is--
Ms. Adams. All right. I am reclaiming my time now.
Do you know what the President is hiding?
Secretary Mnuchin. Can you repeat that? I'm sorry.
Ms. Adams. Do you know what he is hiding? I mean, he
doesn't want anybody to see them, certainly not the Congress.
Secretary Mnuchin. I don't think he is hiding anything,
but--
Ms. Adams. Okay. So you don't know.
Secretary Mnuchin. Correct. I don't know anything about his
tax returns.
Ms. Adams. All right.
We have heard a lot of excuses over the years about why he
could not release them. He said, well, it was under audit, but
once they finished that, he would release them. But an IRS
Commissioner confirmed that an audit is not necessary for you
to release your tax returns. Are you aware of that?
Secretary Mnuchin. I am. But that is the President's
decision, and I am not involved in the President's decision.
Ms. Adams. All right. Let me reclaim my time. I want to get
through my questions
Are you familiar with Congress' oversight authority?
Secretary Mnuchin. Yes, I am.
Ms. Adams. Okay. So it is found in the Constitution and
public laws and the House and Senate rules, and it does say
that when the request is made by the appropriate offices, that
he should release them. Are you aware of that?
Secretary Mnuchin. I have read the law. I have also been
advised of the interpretation of the law. And I understand the
constitutional issues.
Ms. Adams. All right. So why haven't you complied with
Chairman Neal's request?
Secretary Mnuchin. Because I think that would be unlawful,
as advised by the Department of Justice. And that is why there
is a third branch of government that most likely will review--
Ms. Adams. All right. We are aware of that. Let me reclaim
my time, sir.
So are you aware, then, that by denying this you are in
direct violation of the law?
Secretary Mnuchin. No, absolutely not. I have been advised
I am not violating the law. I never would have done anything
that violated the law. And quite the contrary, I have been
advised that had I turned them over, I would be violating the
law--
Ms. Adams. All right. Let me move on, sir.
Secretary Mnuchin. --which I would not do.
Ms. Adams. So are you alleging that Chairman Neal lacks a
legislative purpose, and that is the basis for your refusing
his request?
Secretary Mnuchin. Well, given that this is now most likely
going to litigation, I think my letters have been quite clear
in why we have denied the request. And that is based upon the--
Ms. Adams. All right. Okay, sir. Let me move on.
Secretary Mnuchin. --advice of the Department of Justice.
Ms. Adams. Thank you very much.
So are you intending to comply with the request at all?
Secretary Mnuchin. No. I have made clear that--
Ms. Adams. You are not. Okay.
Secretary Mnuchin. --we have sent him a letter that it
would be unlawful for us to--
Ms. Adams. All right. Okay, sir. I am reclaiming my time.
Now, have you told the IRS not to respond to Chairman
Neal's request?
Secretary Mnuchin. The IRS independently--the chairman
independently wrote a letter concurring with my position.
Ms. Adams. So can you give me a yes-or-no answer? Have you?
Secretary Mnuchin. Can you repeat the question?
Ms. Adams. Have you told the IRS not to respond to the
request?
Secretary Mnuchin. Again, I just said, the IRS
independently wrote a letter concurring with--
Ms. Adams. Sir--okay. Let me reclaim my time. Can you give
me a ``yes'' or ``no?''
Secretary Mnuchin. I don't understand the question.
Ms. Adams. All right. Okay. You will not--you won't give me
a ``yes'' or ``no.''
So let me ask you--first of all, I did a little research
myself, and I know that you have done some work with Goldman
Sachs in the investment banking sector. Have you ever lost a
billion dollars?
Secretary Mnuchin. I have never lost a billion dollars.
Ms. Adams. Would you enter into a business relationship
with someone who had a track record of losing a billion
dollars?
Secretary Mnuchin. It depends. If they made $10 billion and
lost $1 billion--
Ms. Adams. All right. Okay. Let me move on. Would you
invest in a business venture that has lost a billion dollars?
Secretary Mnuchin. Again, if it made $10 billion and lost
$1 billion--
Ms. Adams. All right. Thank you very much. Thank you, sir.
Let me reclaim my time.
Really quickly, I do have some concerns about the
Opportunity Zones. I sent a letter to you. We haven't gotten a
response yet. I hope that you will be able to respond to the
questions that I have asked in that letter. Did you get the
letter?
Secretary Mnuchin. I assure you that I will check with my
group this afternoon. We very much support the Opportunity
Zones, so we will be very responsive.
Ms. Adams. All right. I hope that you will ensure that the
program does not accelerate disruptive gentrification in those
designated census tracts.
Secretary Mnuchin. I share your--
Ms. Adams. Sir--I yield back. Thank you very much.
Secretary Mnuchin. I share your concerns.
Ms. Adams. Thank you.
Secretary Mnuchin. Thank you.
Mr. San Nicolas. The gentleman from Colorado, Mr. Tipton,
is recognized for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman.
Mr. Secretary, thank you again for taking the time to be
here with us today. My home State of Colorado is home to a lot
of institutions that play a very important role for rural
customers as part of the Farm Credit System. As you know,
despite the fact that the Farm Credit Bank focuses on rural
America, they have deep ties in the global financial system.
As developments around Brexit continue to unfold, there is
concern over possible spillover effects for rural borrowers.
Could you help us understand what Treasury is doing to mitigate
consequences that may arise out of Brexit, both in your
discussions with your U.K. counterparts and with your
colleagues in Brussels?
Secretary Mnuchin. We have been very closely involved in
these discussions now for close to the last 2 years. I think
you know we are not primarily involved, but we have been having
very close discussions, and I am relieved that there is an
extension. And I just hope that the U.K. and the Europeans take
advantage of that so that we don't get to the brink again with
a hard Brexit, which could have very detrimental economic
impacts.
Mr. Tipton. Thanks.
I want to be able to revisit a topic that my colleague,
Mrs. Wagner, brought up in regard to the Belt and Road
Initiative, and then also to the Asian Infrastructure
Investment Bank. What is Treasury doing to pressure Beijing so
the Chinese do respect some of the same standards and
principles that we and our allies uphold in terms of financial
transactions?
Secretary Mnuchin. Well, this is something that we are
absolutely unified in working with our allies on. It is a topic
at the G7 and the G20. I will be going to Japan in the near
future and focusing on this issue. The IMF and World Bank are.
And I think there is a consistent view that proper lending to
developing countries is appropriate; inappropriate lending is
not. And we have concerns about that, and it should be full of
transparency. They should play by the rest of the rules as does
everybody else.
Mr. Tipton. I would agree with that, and it is obviously
problematic, when we are talking about the Asian Infrastructure
Investment Bank seems to be the go-to creditor right now for
nations that are in need. Do you think that they ought to be
able to have better development standards through that bank,
and are there tools we can use to try and force that?
Secretary Mnuchin. Absolutely, and that is something, as I
said, we are very focused on.
Mr. Tipton. Great.
When we are talking about the World Bank, it is often
rewarded for churning out large loans to middle-income
countries, including billions each year to China itself.
Tougher environments do tend to get left behind when we look at
who they are lending to, even though the Bank is supposed to be
able to prioritize them. How can we address Beijing's Belt and
Road Initiative when it has major ambitions, obviously, in
Africa, and isn't and shouldn't the World Bank be more
incentivized to be able to tackle some of the challenging
projects on the continent?
Secretary Mnuchin. Well, let me just say I couldn't be more
pleased that my Under Secretary for International Affairs,
David Malpass, is now leading the World Bank. It is the first
time in an awfully long time that we had an uncontested vote on
this. I think David is very focused on reforms at the World
Bank and is very focused on these issues that you have talked
about, making sure that the World Bank is lending to countries
that really need the money and making sure that there are
consistent standards throughout the developing countries. So we
look forward to his progress on that.
Mr. Tipton. Thank you.
Before I close, I do want to make mention of your work
related to the IAIS capital standards for insurers. We have a
150-year-old system of State-based insurance regulation that
seems to work well for consumers and for the market, and there
is concern that the European-centric rules of the road will
raise insurance rates in my district.
Are you working to ensure that our system of insurance
regulation isn't governed by foreign regulatory bodies?
Secretary Mnuchin. I am, and I actually can tell you, I
just gave a speech to the large insurance group here. It was my
longest speech I have given yet on this issue, and we will make
sure you get a copy of it.
Mr. Tipton. Great. I appreciate that, and I yield back.
Mr. San Nicolas. The gentleman from Illinois, Mr. Garcia,
is recognized for 5 minutes.
Mr. Garcia of Illinois. Thank you, Mr. Chairman.
Good morning, Mr. Secretary. I would like to switch gears
briefly and talk about the Financial Stability Oversight
Council. Last October, the Financial Stability Oversight
Council, known as FSOC, which you Chair, removed the
systemically important financial institution (SIFI) designation
from Prudential, meaning that no nonbank financial institutions
are currently designated as SIFIs.
Do you think it was appropriate that Prudential, which New
York University rates as the third most systemically risky
institution in the U.S., now has as its chief regulator the New
Jersey Department of Banking and Insurance?
Secretary Mnuchin. We absolutely support the State-based
regulatory system, and at FSOC, as you said, we have moved to a
different system of risk-based management.
Mr. Garcia of Illinois. FSOC then announced in March that
it would no longer designate nonbanks as SIFIs and that, going
forward, nonbanks would need to demonstrate a high ``likelihood
of distress,'' before being more closely scrutinized--a very
high bar that nonbanks would likely fail to meet until their
impending collapse.
Last week, former Fed Chairs Ben Bernanke and Janet Yellen
joined former Treasury Secretaries Jack Lew and Tim Geithner in
criticizing this move by FSOC, warning that it would ``neuter
the designation authority.'' Writing of their experiences at
the helm during the financial crisis, the former regulators
noted that the failure of nonbank financial companies was
central to the propagation of risk from the financial system to
the U.S. economy, international finance markets, and the global
economy as a whole during the crisis.
What do you make of this criticism? Isn't it true that FSOC
just made it harder to protect against risks taken by nonbanks?
Secretary Mnuchin. Well, first, let me say I think it is
good that we have a system where people can put in comments on
proposed regulations. I actually spoke to Secretary Lew about
his letter. They have a different view on regulatory issues. It
is a different time, but not unlike their letters, we will look
at other letters before we put in final rules.
Mr. Garcia of Illinois. And their views stem from the
experience of the meltdown that we experienced in 2008. Would
you please explain what recourse FSOC would have in a scenario
like we saw in 2008 when AIG, for example, greatly expanded its
sales of credit default swaps, becoming a major contributor to
the financial crisis?
Secretary Mnuchin. Again, because of the way we are looking
at it, we would have picked up AIG in their risk associated
with credit default swaps. Their risk was primarily in the
holding company and not in the insurance companies, which were
regulated, and that is the type of activity under our new rules
that we would indeed pick up.
Mr. Garcia of Illinois. Mr. Secretary, last week the
Federal Reserve released its financial stability report which
found that leverage lending has grown and that protections that
shield lenders from default on those loans has eroded. In light
of stern warnings like these, why has FSOC only convened on one
occasion this year?
Secretary Mnuchin. Actually, FSOC and specifically the
private working group, the President's private working group,
which is also associated on this issue, has addressed this. We
have calls in between formal meetings, so the primary
regulators are studying this issue, and it is something we are
not particularly concerned about at the moment. We are
monitoring very, very carefully to make sure this doesn't
become an issue.
Mr. Garcia of Illinois. So you are not very concerned about
a change in the economy and a potential recession looming?
Secretary Mnuchin. No. I think, in the near future, the
chance of a recession is quite low. I think the credit quality
is extremely good, and in the case of leveraged lending, most
of it has moved outside of the banking business into nonbank
areas and areas that don't have insured deposits, and we take
great comfort in that.
Mr. Garcia of Illinois. Thank you, Mr. Secretary.
I yield back my time, Mr. Chairman.
Mr. San Nicolas. The gentleman from Arkansas, Mr. Hill, is
recognized for 5 minutes.
Mr. Hill. I thank the Chair. Mr. Secretary, welcome back to
the committee. We never get tired of our Treasury Secretary
visiting House Financial Services. I want to raise an issue,
first, on Puerto Rico and the Virgin Islands. Congressman Duffy
and I wrote you a letter last November 30th about challenges in
getting the appropriated funds by Congress out into the
contracted private sector both in the Virgin Islands and Puerto
Rico. Obviously, both of the Territories have a huge cashflow
problem. So we appropriate money here. We give that money to
HUD or to FEMA. That is approved by OMB and fully in compliance
with Congress' wishes, and then it is allocated for projects in
Puerto Rico or the Virgin Islands. But they have no money to
pay the contractors.
So, while I am not suggesting that we should have a line of
credit to Puerto Rico, there has to be a way within OMB and
Treasury, with you as our chief financial officer of the
country, of having that money flow because I have
subcontractors in Puerto Rico who live in my district who
haven't been paid in over a year. It is just an accounts
payable. The work has been done. It has met standards. Puerto
Rico commissioned to do it, but Puerto Rico has no money to pay
the contractors, and yet we have appropriated funds at FEMA to
pay those services. So this is a puzzle.
I got an answer back in February from your office, which
was a nonanswer, saying that, ``We will contact other Federal
agencies for input and investigate the issue of barriers to
timely payment.''
And so today, I won't debate whether that was a nonanswer
or not, but I would like to get your personal commitment that
you will help Congressman Duffy and I engage with FEMA and
drive an outcome on this where funds can flow to the
Territories.
Secretary Mnuchin. I would be happy do that. I actually
spoke to the Governor of Puerto Rico yesterday. We are very
focused on opportunity zones there. We actually are, within
Treasury, very involved in the finances of Puerto Rico. We
negotiated a standby line in case Puerto Rico, through
effectively its bankruptcy--what you are referring to--and I
apologize. It was a nonanswer. I acknowledge it was a little
bit of a form letter. The issues that you are focused on are
issues of FEMA and HUD. I would be happy to speak to the
Secretaries in DHS and HUD, Secretary Carson--
Mr. Hill. I think it would be helpful because I think at
the sub-Cabinet staff level, we haven't made any progress. So,
I appreciate your attention to that.
Turning to North Korea and sanctions, on March 5th, the
United Nations Security Council released a report on sanctions
compliance. It said that financial sanctions remain some of the
most poorly implemented and actively evaded measures of the
sanctions regime. Individuals in power to act as extensions of
financial institutions of the DPRK operate in at least five
countries with seeming impunity, and that includes to say
diplomats of the DPRK in those countries. And, of course,
diplomats have immunity when they are functioning as diplomats
in certain countries.
My question to you is, how can we work with the U.N.
sanctions regime and tighten financial sanctions on influence
peddlers in China and in the diplomatic corps across the world
with North Korea?
Secretary Mnuchin. So my Under Secretary for TFI, she has
recently traveled abroad to specifically talk about these
issues, talk with financial institutions. We are very focused
on money transfer items. We are focused on people doing money
laundering. We are working very closely with the intelligence
community on declassifying certain information and enhancing
the U.N. sanctions with our specific sanctions against people
who are trying to use the financial system. So, I assure you we
are on top of that.
Mr. Hill. Thank you. I was pleased to see in The Wall
Street Journal today that additional sanctions are being
proposed for Venezuela, and I congratulate the President and
our U.N. representative for getting a U.N. Security Council
resolution on sanctions on North Korea with Russia and China's
approval. So my question to you is, in our national security
work, is there a possibility we could get a U.N. Security
Council resolution in a similar way with Russia and China
actually being constructive on Venezuela?
Secretary Mnuchin. I can't comment on the outcome of a U.N.
resolution. I can tell you I was personally involved in the
North Korea situation, and the Chinese were particularly
helpful in getting that done. I, personally, have had
conversations with the finance minister in Russia about the
situation in Venezuela. I have also had conversations with my
counterparts in China. I believe that Secretary Pompeo has had
similar conversations. So this is something we are very focused
on.
Mr. Hill. Thank you, Mr. Secretary.
I yield back.
Mr. San Nicolas. The gentleman from Georgia, Mr.
Loudermilk, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman.
And thank you, Mr. Secretary. I want to continue on the
conversation about FSOC and SIFI designation, but before that,
I want to congratulate you on making free trade advocates out
of people who just in recent history have been totally opposed
to free trade and never found a tariff that they didn't like.
And so that gives me confidence from what I am hearing about
some on the other side of the aisle that is in the majority at
this point. It appears that we have free trade advocates which
I think will pave the way for USMCA to get approved. So
congratulations on achieving something. I remember, in the
previous Administration, many in the other party were even
opposed to the previous President trying to get some free trade
agreements because they liked the tariffs. So I think we are
making headway.
And also the obsession of some on this committee with the
President's tax returns is not new. From the moment that he was
inaugurated, there were some on this committee who began
immediately calling for the tax returns. So I also want to say
this: I am not expecting a particular answer from you. So, if
you give something different than what I am expecting, I will
let you answer. Okay?
Regarding FSOC and the SIFI designation process, I am
usually supportive of it. I think it is important to relieve
the regulations on especially those nonbank entities. In fact,
I am working on reintroducing a bill from last Congress that
actually passed the committee on a--and passed the House nearly
unanimously.
So this is a bipartisan effort, and the bill would
basically ensure that nonbanks, such as investment advisers and
mutual funds, are not subject to the bank-centric stress test.
Quick question, do you agree with that approach, that they
should not be under the same stress test as the banks?
Secretary Mnuchin. Yes, generally, I agree with that.
Mr. Loudermilk. Okay, and I appreciate that. What are the
differences between the banks and nonbanks where it makes it
where the stress tests are not appropriate for nonbanks? What
are those differences?
Secretary Mnuchin. Well, the biggest difference is that
banks have taxpayer-insured deposits that create risk for the
government.
Mr. Loudermilk. Okay. I appreciate that. I think if we can
continue in our efforts to reduce the regulatory burden on a
lot of our industries and understand that, even in the
financial services arena, one size does not fit all, we will do
more to benefit the cost to consumers than anything else we are
doing.
Another topic that I want to address--and I appreciate the
Administration starting to address housing finance reform. I do
agree with the FHFA Director that Fannie Mae and Freddie Mac
need to raise significant capital, but I strongly believe that
we should start reforms in housing finance. How much housing
finance reform can be done administratively?
Secretary Mnuchin. I think a lot can be done
administratively. We are working on that. We are also working
on a report for the President, but I would also encourage there
is an opportunity for Congress on a bipartisan basis to make
some significant reforms. These were not entities that were
intended to be under government control forever and funded by
taxpayer money forever. So I would hope that Congress would
look at this with us, but if not, we will do things
administratively.
Mr. Loudermilk. So is the Administration willing to work
with Congress to make some significant reforms?
Secretary Mnuchin. Absolutely. I would look forward to
working with this committee and others. This is a priority of
ours.
Mr. Loudermilk. I am also encouraged that several private
sector industries, mortgage insurers and reinsurers, for
example, have a strong interest in absorbing risk from the
GSEs. Does the Administration plan to expand the involvement of
these types of private capital in the housing finance system?
Secretary Mnuchin. Yes. Our fundamental view is that there
should be risk capital in front of the government's money and
whether that is a government guarantee on securities or
Treasury lines, fundamentally there should be private risk
capital that supports a liquid 30-year mortgage market.
Mr. Loudermilk. I appreciate that, and in my opinion,
reform is not just relieving debt and walking away from it. I
don't think that changes any behavior when you just relieve
debt and you reward an agency for bad behavior. So, thank you.
I look forward to working with you on these reforms and I
appreciate you being here.
Secretary Mnuchin. Thank you.
Mr. San Nicolas. The gentleman from Minnesota, Mr. Emmer,
is recognized for 5 minutes.
Mr. Emmer. Thank you, Mr. Chairman.
It's good to see you, Mr. Secretary.
Secretary Mnuchin. Thank you.
Mr. Emmer. I appreciate your work to produce the report on
nonbank financials, FinTech, and innovation last year. As you
may know, after 5 months, the committee was able to get around
to creating a FinTech Task Force, on which I am going to serve.
Can you give us an update on your work to implement some of
the changes, and are there any specific urgent recommendations
you have for Congress in this area?
Secretary Mnuchin. Well, I just participated in--the FDIC
hosted a Fintech conference. It was extremely well-received. We
are working with the regulators on all these. We appreciate the
work that you are doing. We look forward to sitting down and
prioritizing what things you think you could get through on a
congressional basis.
Mr. Emmer. Thank you.
How is the communication between other agencies like the
CFTC, the SEC, and the OCC, and is there anything we can do to
better facilitate communication to reduce regulatory
uncertainty in this area?
Secretary Mnuchin. I would say now versus 2 years ago, the
communication is excellent between the people who run these
regulatory entities, again, whether it is through the
President's working group when we convene, whether it is
informal sessions on issues. I have regular conversations. We
have monthly calls. So I think the communication is excellent,
and one of the things that all of the people who run these
agencies are trying to do is make sure down through their
agencies, the regulators, that the message is sent to make sure
that they work together.
An example I would use is cyber, a very important issue.
Different regulators should have cyber exams, but there is no
reason that the OCC, the FDIC, and the Fed have to conduct
three separate exams at different times. We are trying to get
them to do that together. That's just one of the many examples.
Mr. Emmer. Right. Another report of the Treasury covered
community bank and credit union relief. I have been hearing
frequently from small community banks, particularly those that
engage in banking from Minnesota's agriculture sector.
Are you hearing from these community institutions, and are
there any statutory changes you would recommend to deliver more
relief to keep rural communities growing?
Secretary Mnuchin. We are very focused on the regulatory
burden on community banks. As I have said before, I think, in
many cases, these community banks understand their customers.
They know their customers. They know how to underwrite credit.
They are a very important part of our economy, so we want to
make sure that they are not struggling in overburdened
regulation, and there shouldn't be a one size fits all.
Community banks don't need the same level of regulation as
trillion-dollar global institutions.
Mr. Emmer. Secretary Mnuchin, I just want to thank you for
paying particular attention to every financial institution or
entity within the financial services food chain because, as
your last statement and your testimony indicates, they are all
important, whether it is the Main Street community bank or
credit union, all the way up to some of the largest banks in
the world that are here in the United States that service all
kinds of things here and around the globe, we need them all,
and we need to make sure that people on the street get access
to the capital they need to grow new opportunities that not
only benefit our local communities, but ultimately today's
small business obviously is tomorrow's big business.
Secretary Mnuchin. Thank you. I agree with you.
Mr. Emmer. Thank you, sir.
I yield back.
Mr. San Nicolas. The gentleman from Colorado, Mr.
Perlmutter, is recognized for 5 minutes.
Mr. Perlmutter. Mr. Secretary, good morning.
Just a couple of questions. First, you know, and you
probably had it a dozen times, and I am just now coming into
the hearing room--the tax returns are something that we have
been seeking for a couple of years now and have tried to,
through the proper procedures, bring them to the Floor based on
the fact that every other President has released theirs. It has
been a traditional--it is just sort of a matter of course. But
then we have run into this stonewall, which is how we perceive
it.
And I understand--and I guess I didn't hear your testimony
earlier, but the fact is that you hadn't seen a memo, but there
was some sort of draft memo, is that right?
Secretary Mnuchin. I was just contacted by The Washington
Post 2 days ago. We heard about it--I first saw it this morning
in the paper and, yes, it is some draft memo that never did get
to us.
Mr. Perlmutter. Who drafted it?
Secretary Mnuchin. I have no idea. We are looking into
that.
Mr. Perlmutter. Okay. In your dealings with the President,
has he asked you just to hold the tax returns and not--
Secretary Mnuchin. I have never had any conversations with
the President or anybody in the White House about what we are
doing with his tax returns.
Mr. Perlmutter. Okay. So this is all within the Treasury
that you are making certain decisions and--or not?
Secretary Mnuchin. Treasury, IRS which is within the
Treasury, and the Department of Justice (DOJ). We have
consulted DOJ, who are effectively our lawyers.
Mr. Perlmutter. How has the--at least the tradition of
every other President releasing their tax returns, how has that
played in your decisionmaking?
Secretary Mnuchin. It hasn't played into my decision at
all. I think that is an independent decision of the President.
The American public knew that he wasn't releasing his tax
returns prior to voting for him, and they made that decision.
That to me is a personal decision of his and the American
public. I have nothing to do with that.
Mr. Perlmutter. Okay, and I guess, from our perspective,
obviously, we think there's something that is being withheld or
covered up, but until we actually see it, till you release it,
till a court orders it, we are not going to know; it is going
to be all supposition on our part. And that is just the way it
is. So I am going to change the subject because--
Secretary Mnuchin. Thank you.
Mr. Perlmutter. --really, you and I were sort of
adversarial on Deripaska--or however you say the guy's name. I
don't want to do that. I want to talk about marijuana.
Secretary Mnuchin. Thank you, I appreciate that. It is rare
that I would say I would prefer to talk about marijuana than
those other two subjects, but I am happy to.
Mr. Perlmutter. Mr. Secretary, and thank you, obviously,
FinCEN and the Treasury have been willing to work with us as we
have moved this subject forward. And I would advise you, sir,
that, at this point, we have had a hearing. We have now had a
markup. We passed the bill out of this committee, 45 to 11, I
think, or 45 to 15, 34 Democrats, 11 Republicans. It is now
going to eventually get to the Rules Committee and to the
Floor, and we have included the FinCEN guidance as part of the
legislation.
So I don't know if you are familiar with how this thing is
proceeding, but again, the basis is to try to get the cash off
the streets. For me, it is a public safety kind of a matter,
and I don't know if you all have been talking about it or if
you have been following this at all.
Secretary Mnuchin. I have been following it, and first of
all, I appreciate what you are doing on this. I have testified
before that this is an issue for Congress to decide. We have a
big problem, and the problem is there is a Federal law and
there are State laws, and from our perspective at Treasury, we
are caught in the middle of this, both from the standpoint of
the IRS, where we have to build cash rooms to take in cash, and
from the banking sector. And I would encourage Congress to
address this issue. It has to be resolved one way or another,
but it is not in anybody's interest to have this amount of cash
on the streets, which, obviously, will just end up in illicit
hands in a bad part of the economy and things that are unsafe.
I can tell you that we are having an interagency review on your
bill, but in one format or another, this is an issue for
Congress to address one way or another.
Mr. Perlmutter. And I want to thank you. I want to thank
you, and I want to thank the Department and a number of your
regulators because you have been working with us. As we have
moved this along, we have made some modifications based on
suggestions, and we will continue to press this forward. I know
it is going to pass the House, and then we will see where it
goes from there.
I thank you, and I yield back.
Mr. San Nicolas. The gentleman from Illinois, Mr. Foster,
is recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
I am going to raise the issue of the pending debt crisis,
the potential default. What is the best estimate for when that
may happen if we continue on with business as usual?
Secretary Mnuchin. I haven't given it an exact date, but I
would say it is late summer. And I share your concern, and I
would urge Congress to raise the debt ceiling as soon as
possible.
Mr. Foster. Are you familiar with the Treasury report on
the macroeconomic effects of the debt ceiling brinksmanship?
Secretary Mnuchin. I don't think I need the report to know
the impact, which would be quite significant.
Mr. Foster. Were you in finance at the time and during the
2011--
Secretary Mnuchin. I was. And let me just say that I had a
meeting with the Big Four yesterday, and I raised the issue of
the debt ceiling with them. And, again, I would urge Congress
to raise the debt ceiling. We should have a situation where,
when we commit funds, we commit that we have the capacity to
borrow. So I have no issue with--Congress should have the
ability to control borrowing and have the control of spending.
But these things should be done at the same time.
Mr. Foster. I concur on that. The whole situation is sort
of analogous to refusing to pay for a meal after you have eaten
it. But, actually, without objection, I would like to enter
into the record the Treasury report entitled, ``The
Macroeconomic Effect of Debt Ceiling Brinksmanship,'' dated
2013, so--
Mr. San Nicolas. Without objection, it is so ordered.
Mr. Foster. And I urge you to have a look at it. It is just
a few pages. It goes through the drop in consumer confidence,
small business optimism; S&P 500 took a hit; the VIX spiked;
corporate bond spreads, mortgage spreads. It was just bad. You
know, household net worth, the wealth of American families
dropped by more than, I think, multiple trillions of dollars.
This was a big deal when it happened, and yes, there is a
danger of it recurring.
Yesterday, I introduced a bill that would just clean repeal
of the debt limit so that we would actually use the budget
rather than the debt limit to limit spending, and I am not
going to ask you to opine on any specific thing. I understand
there isn't really a consensus on the issue, and I personally
remain committed to working in a bipartisan manner.
There are proposals that were hammered out in the
bipartisan policy group that would give cover to a number of
Republican members who want to, sort of, at least maintain some
sort of fig leaf. These are proposals that would defuse the
issue, basically defang it so that, although it would
technically still be there as a threat, it would just
effectively not--be so unlikely to be triggered.
And so I was wondering if you would consider supporting
proposals or maybe even taking leadership and trying to hammer
out some sort of bipartisan permanent fix so that this thing
doesn't come up again and again?
Secretary Mnuchin. I would be pleased to meet with a
bipartisan group. We would also be pleased to provide technical
assistance. Again, in one format or another, the debt limit
shouldn't be used as hostage to other things. So I am fine with
keeping the debt limit as long as we have a mechanism that we
kind of do these things simultaneously.
Mr. Foster. Some mechanism where it would never be the
limiting factor that would cause us to default?
Secretary Mnuchin. Well, as you said, so we don't end up--
you used the example of you had the meal. I think it is more
like: We had the meal. We left the restaurant. We don't want to
pay the credit card bill.
Mr. Foster. Do you have confidence that the market will
react appropriately, or is there a danger of overreacting if we
threaten to default on our debts?
Secretary Mnuchin. I have confidence that this Congress
will not let that occur. From my meetings with senior
leadership, everybody understands this issue, and I surely hope
we never get to the point in late summer where we are even
contemplating these things.
So that was one of the topics we talked about yesterday,
and I would hope, for the benefit of the American people, we
raise the debt limit soon.
Mr. Foster. Thank you.
I yield back.
Mr. San Nicolas. The gentlewoman from Michigan, Ms. Tlaib,
is recognized for 5 minutes.
Ms. Tlaib. Thank you so much, Secretary Mnuchin, for being
here.
I would like to ask you about the announcement this past
March that the Treasury Department will allow companies to
offer employees and current retirees a lump sum payment for
their pensions instead of paying out the lifetime guarantee
that employees expected.
In Michigan, the Office of Retirement Services lists over
280,000 retired employees who participate in public employee
pensions. That is a lot of people, and this move by your
Department will have a huge impact on the retirement savings of
my residents in Michigan's 13th Congressional District.
Do you believe that lump sum retirement payments
shortchange our retirees as they would be getting far less than
they would have received over time with their pensions?
Secretary Mnuchin. Let me just comment, I pride myself that
I am on top of a lot of issues in Treasury and in the pension
area. I am focused on the multi-employer pensions and others.
This is not an area that I am up to speed on. So I will follow
up with you and get back to you.
Ms. Tlaib. Yes. I would recommend that you look at the
Government Accountability Office, who reported that retirees
who take lump sum payments could see their assets drop, and
Forbes estimates that by choosing the lump sum payment,
retirees could receive a staggering 20 to 30 percent less than
what long-term pensions would provide.
Do you currently have any rules--and maybe you can ask your
staff behind you--or do you plan to implement any rules that
require companies to disclose this information to retirees?
Secretary Mnuchin. We are, unfortunately, not sure
specifically what you are referring to, but we would be happy
to follow up with your staff today.
Ms. Tlaib. It is a decision the Department, your Department
that you oversee, in March made a decision to allow lump sum
payments for retirees.
Secretary Mnuchin. You may be referring to the PBGC, which
I am a board member of, so let me--again, we would be more than
happy to follow up with you for clarity.
Ms. Tlaib. Thank you so much.
Your Department is also responsible for implementing the
Employee Retirement Income Security Act, correct--are you
familiar with that, before I continue?--which is designed to
protect and preserve pensions.
Do you think cutting benefits by 20 to 30 percent is a
threat to pensions? You can answer that without actually
referring to the rule.
Secretary Mnuchin. Well, obviously, the pension issue in
this country is a very serious issue and, particularly, the
serious issue with the PBGC in taking over pensions. I will
tell you, as it relates to this rule, Treasury's role is purely
mechanical in that people apply to us for this. We run the
tests and then determine whether it fits the tests and then go
to a vote. It is not a subjective issue.
Ms. Tlaib. What my residents are also really concerned
about though, Mr. Secretary, because with the huge amounts of
profit that corporations are making off of these lump sum
payments that you should be aware of, Michigan's Whirlpool
Corporation, for example, estimated that these payments would
cut $39 million off of its pension obligations.
I want to ask you if your Department will look into any
plans that would require companies, again, to disclose their
profit at the employee's expense when they shift to lump sum
payments?
Secretary Mnuchin. We would be more than happy to look into
that and get back to you. And as I said, the PBGC issue, and
pension reform, is a significant issue.
Ms. Tlaib. Thank you. I would like to discuss one last
issue, if I may. U.S. pension plans with assets in Peruvian
reform bonds--many workers and retirees in Michigan, Mr.
Secretary, have pension plans that are invested in these bonds.
And, unfortunately, the Peruvian government has not paid the
U.S. investors the debts they owe. This negatively impacts
workers in Michigan.
In the 13th Congressional District, about 30,000 people are
in danger of losing a big portion of their retirement funds
with the government of Peru owing them over $34 million. Are
you aware of that?
Secretary Mnuchin. I am broadly aware of it, yes.
Ms. Tlaib. What actions in your Department are you going to
be taking in regard to solving this issue?
Secretary Mnuchin. Well, again, this is not the only
situation where pensions buy foreign government debt. There are
other areas. And we assist the pensions although it is not our
obligation to enforce it, but we do assist in these areas.
Ms. Tlaib. Well, you know this. U.S. investors purchase
these bonds in good faith and expect that the Peruvian
government would uphold their end of the agreement, and I hope
you will do something about it.
I would be remiss as somebody who truly believes in the
rule of law, as somebody who has practiced law and is an
attorney--I would advise you, Mr. Secretary, to get personal
legal advice because the cover-up by this Administration goes
beyond just providing the taxes. You can consult the Department
of Justice, but you personally making decisions not in the best
interest of the American people, but to cover up the occupant
of the White House, I think you need to be very, very clear
about what your role is and what your responsibility is to the
American people.
This goes beyond just providing taxes, right? It is about
transparency and the fact that no one is above the law. So, Mr.
Secretary, please seek out legal advice personally of what your
obligations are because the Department of Justice is not
protecting you; it is protecting the President.
Chairwoman Waters. The gentleman from New York, Mr. Zeldin,
is recognized for 5 minutes.
Mr. Zeldin. Thank you, Madam Chairwoman, and thank you to
Secretary Mnuchin for being here today.
One thing that comes up in this committee a lot when we are
talking about effective policy is that a one-size-fits-all
approach usually doesn't work. This may sound like another
boring D.C. policy debate, but in my district on Long Island,
imposing regulations meant for large international
multibillion-dollar banks on a small community lender or the
same capital standards meant for a massive international
insurance giant on a small, family-owned broker is not helpful.
This subjective style of regulation that isn't tailored to
the size of a company translates directly to less credit,
higher premiums, and less opportunity for homeowners and
businesses and hardworking families. That is why I want to
start off by saying I appreciate your work at FSOC to formalize
an activities-based approach for addressing systematic risk.
I commend you for moving away from the arbitrary
designation of certain firms as risky, which is what the last
Administration did enthusiastically, and instead focusing on
actually protecting markets and consumers from real financial
risk by dropping the questionable one-size-fits-all approach.
Mr. Secretary, last week, your colleague at the Financial
Stability Board, and its current Chairman, Governor Randal
Quarles, received a letter from 42 bipartisan Senators
regarding concerns about an ongoing attempt by bureaucrats in
Brussels to export European insurance regulations around the
world and into the United States.
We then echoed those concerns in this committee during last
Thursday's hearing. The European model is another perfect
example of an arbitrary one-size-fits-all approach that would
not work in our country where we have 50 different States with
50 different markets that suit the needs of local consumers.
I appreciate your commitment to protecting U.S. sovereignty
in the State-by-State system in any negotiations where Treasury
is taking the lead.
The most important goal is to ensure the U.S. insurance
regulatory system is deemed outcome equivalent. That means our
system and, most importantly, our companies that are creating
jobs in the U.S. can be competitive in a global marketplace but
not subject to European standards that don't make sense for
American companies or consumers. This is a priority nationwide
and in my district for the local brokers who are insuring our
farmers, our fishermen, and our working families.
What I would really appreciate from you today is an update
on some of these international negotiations and what you are
doing to prioritize American consumers. How can we put America
first but also open up markets overseas for American companies
that want to be competitive abroad?
Secretary Mnuchin. Thank you. On the international
insurance issue, I just did give a significant speech last week
on this. We would be more than happy to get a copy of it to
you. Team USA, which is what we call the interagency group of
the regulators working with the Europeans, are very much
focused on defending the U.S. State-based regulatory system.
Mr. Zeldin. Thank you. We are here in this committee having
an ongoing debate about how hardworking Americans are going to
have access to the American Dream and how to keep our booming
economy growing so it can continue to deliver opportunities for
prosperity to all. We all have to work together to keep our
system competitive in the global economy but always put the
needs of American consumers and businesses first. There are
tremendous opportunities for American companies, including
companies in my district, as we look abroad for those
opportunities all throughout the entire world.
On a personal note, I want to say thank you. You staffed up
quickly when you took this position, and incredibly, there are
a lot of really high-quality people at the highest levels of
your agency, and it has been fantastic to work with all of
them. So I just want to thank you for making them an open
resource because I am confident, not just as a New Yorker, not
just as a member of the House Financial Services Committee, but
as a Member of Congress that I am able to go to any one on your
team on any calls, any question. It helps me represent my
constituents as effectively as possible. So thank you for
bringing in the best of the best to fill these important
positions.
Secretary Mnuchin. Thank you for the recognition of our
team because many people, some of whom are here with me today,
have given up very big careers to come and serve the government
and are proud of being part of Treasury. So, thank you.
Mr. Zeldin. Thank you.
Thank you, Madam Chairwoman, and I yield back.
Chairwoman Waters. The gentleman from Minnesota, Mr.
Phillips, is recognized for 5 minutes.
Mr. Phillips. Thank you, Madam Chairwoman.
And greetings, Mr. Secretary. I come from the great State
of Minnesota, home to a lot of farmers and particularly from
the Third District, the district I represent, home to a lot of
multinational corporations from Cargill to Polaris and a number
in between.
And as you can imagine, I am hearing from all of them on a
weekly basis with concerns about trade policy and other things
right now, but I want to begin with just a quick question for
you, as you reflect on your first 2 years in your role, is
there anything as you look back that you might have done
differently or anything from the Administration's perspective
that might have been done differently?
Secretary Mnuchin. Broadly, I would say no. We have been
incredibly busy across a large range of issues. So, broadly, I
would say no. We are pleased--
Mr. Phillips. Anything?
Secretary Mnuchin. Nothing that comes--I am sure there are
small things here and there that, with experience, we may have
changed.
Mr. Phillips. Quick question about OFAC, approximately how
many people work at OFAC with the Treasury Department? Do you
know that number?
Secretary Mnuchin. We have several hundred people in OFAC.
Mr. Phillips. And how many dedicated to the Western
Hemisphere and Cuba, particularly, roughly?
Secretary Mnuchin. Well, the way we manage these teams is
they are not necessarily--we move the resources around, whether
it is North Korea, whether it is Russia, whether it is Iran. We
tend to move all these resources. So it is a team--
Mr. Phillips. So, not dedicated to certain regions. Okay.
As you surely know, farm income is down substantially, over 50
percent in the last 4 years. I'm curious, why would we not open
up Cuba to agricultural trade and help our farmers right now?
Secretary Mnuchin. Well, the number one reason we wouldn't
do that is that Cuba is probably the single biggest problem
with Venezuela today. They effectively have a national police
there. The situation in Venezuela is just horrible. I convene
these meetings, the economic situation--this is a rich country.
The people are starving, and Cuba is a major reason for that.
Mr. Phillips. Which I agree, so hopefully when Venezuela is
resolved, is that a possibility? We might allow our farmers to
sell product to Cuba?
Secretary Mnuchin. You know, I would think, okay, that if
Cuba changed their bad activities, that would be an incentive
for them and a possibility. So, again, the reason why we have
the current Cuba policies is because of the way they are
behaving.
Mr. Phillips. Okay. My next question is about our China
tariffs, and Polaris is an example of a corporation in my
district being significantly impacted, probably $150 million to
$200 million to the bottom line because of our policy right
now. What do I tell companies like Polaris, and what is the end
game? How can I communicate why this policy is in our best
interest and in their best interest?
Secretary Mnuchin. Well, first of all, I speak to literally
probably a hundred different CEOs. So I would be more than
happy to speak to the CEO of Polaris if it is impacting them.
If you get me their contact information, I actually find it
interesting speaking to people.
Mr. Phillips. And I would welcome it.
Secretary Mnuchin. The President has been very clear. He
wants fair trade, and we made enormous progress. Ambassador
Lighthizer and I have literally spent the last 6 months
negotiating a detailed agreement that would take up this whole
book, as I have said, going word by word by word.
I publicly said I thought we were close to an agreement. We
were beginning to set up a date for the two Presidents to meet
and a signing ceremony. I think it would have been the most--
the biggest change in their economic relationship that we have
ever had, it would have been great for our farmers, for our
companies, for our American workers, and, unfortunately, China
has taken a big step backwards.
Now, sometimes you have to go backwards before you go
forwards. So I am still hopeful we can get back to the table.
The two Presidents will most likely see each other at the end
of June. I can tell you the President is very focused on
farmers. The idea is not to have tariffs; the idea is for them
to treat our companies fairly.
Mr. Phillips. My last question is about our national debt
and deficit. I am gravely concerned. I wish this institution
was as concerned as I am. I would welcome your thoughts about
what you think this nation needs to do relative to our fiscal
policy and the risks inherent in the current status quo.
Secretary Mnuchin. Well, as I said, when we designed the
President's economic plan coming in, the number one issue was
growth, that we have to grow our way out of this; we can't cut
our way out of this. I think the good news is we have achieved
this growth, and we are way on our way to sustainable growth.
Having said that, we also have to be conscious of expenses.
Yesterday, I met with Mick Mulvaney and the Big Four in trying
to reach an appropriate 2-year budget caps deal. We are happy
to do that if the numbers are prudent. I think that the debt--
we have to be careful of the debt-to-GDP ratios. In the prior
Administrations--in the Obama Administration and prior to that,
the debt has doubled.
Some of that was as a result of costs in the Middle East.
Some of that was as a result of fiscal policies. But I share
your issue that right now our debt is fine, but we have to be
careful that it doesn't continue to grow disproportionately to
GDP.
Mr. Phillips. So you share my concern?
Secretary Mnuchin. I do.
Mr. Phillips. Okay. Thank you. Thank you, Mr. Secretary.
I yield back.
Chairwoman Waters. The gentleman from Massachusetts, Mr.
Lynch, is recognized for 5 minutes.
Mr. Lynch. Thank you, Madam Chairwoman.
Madam Chairwoman, I would like to use my time for the
purpose of a question of order before this committee.
Madam Chairwoman, this witness, the Secretary, has been
requested by the House to deliver to Congress certain documents
that are pertinent to a legitimate inquiry before this
committee. And my question is, basically, where the statute
says that the Secretary shall deliver such documents and does
not anticipate or embody any consideration regarding discretion
on the part of the Secretary, would it be in order before this
committee to hold the current witness, the Secretary of the
Treasury, in contempt of Congress? That is my inquiry, and I
would love a response.
Chairwoman Waters. Thank you very much, Mr. Lynch.
The question that you have put before this committee is one
that we are unable to address at this time. We will take your
question to the General Counsel, and we will put it in writing,
and we will seek an answer from him or her about what our next
step could or should be, given the way that you have described
what you think may be contempt based on what the law says. So,
we will move forward with that as quickly as possible.
Mr. Lynch. If I might just add, Madam Chairwoman, the
tactic of this Administration and the strategy of this
Administration has been to circumvent the oversight
responsibility of Congress and to basically negate the
constitutional power that we have as a body by, in my opinion,
unlawfully refusing to deliver pertinent information to an
active inquiry before this committee and others, and that for
us to continue to allow that delay to occur without meaningful
consequences will cripple our democracy and be contrary, I
think, to the Constitution itself.
So I am hoping that counsel can act expeditiously so that
we can actually respond to whether or not the Secretary is,
indeed, conducting his job in contempt of Congress.
Chairwoman Waters. Thank you very much, Mr. Lynch. I think
everyone who has read the information that is available to us
about the responsibility--
Voice. Time--
Chairwoman Waters. I beg your pardon. The time has ceased
for us to have this colloquy, but we will take the information
directly to the General Counsel. Thank you.
Mr. Lynch. I yield back.
Chairwoman Waters. The gentleman from California, Mr.
Vargas, is recognized for 5 minutes.
Mr. Vargas. Thank you very much, Madam Chairwoman.
Before I yield to Mr. Cleaver, I would like to say to the
Secretary that I did read the story about your father and Jeff
Koons. I have to say it was a delightful story. I have never
met your father, but after reading about him, he must be a
great guy.
Secretary Mnuchin. Thank you. And I would just say, for the
record, he didn't buy it for himself; he bought it for a
customer.
Mr. Vargas. No. It was very clear in the article, but
again, just reading about him and his successful career in
business, and then his enthusiasm for art, was a very happy
reading for me. I just want to say that.
But I do want to yield to Mr. Cleaver. Mr. Cleaver?
Mr. Cleaver. Thank you, Mr. Vargas. Mr. Secretary, just one
short question. When you were here last--I represent Kansas
City, Missouri, and the rural areas around it, about 125 miles
away from the City--I asked you about soybeans. And you
responded that there had been a very large purchase--your exact
quote was, ``a very large order while we were negotiating; they
have committed significant orders in soybeans.''
So I responded, ``Already?''
And you said, ``Yes, already.''
I was excited about it, and so I started sharing that
information to reporters and people back home, and my staff
followed up the next day, and the next day, when I raised the
question, you talked to some of the gentlemen behind you, and
we can find no such orders that have been made, and it put me
in a really awkward situation. I am sure you misspoke, but
something needs to be done--I think you need to acknowledge
that you misspoke. I have your exact comments here. I don't
want to be nasty. I just want you to know that you put me in an
awkward situation.
Secretary Mnuchin. Am I allowed to respond to that?
Mr. Cleaver. Yes. It is Mr. Vargas' time.
I yield back.
Secretary Mnuchin. I don't believe I misspoke. I apologize
that my staff didn't get you the information. We will share it
with you.
I will tell you that, since the recent actions of trade--
Mr. Cleaver. Mr. Secretary, I hate to interrupt you. This
is Mr. Vargas' time. I have your exact quote of what you said.
I am not trying to be mean or nasty, but when you tell me that
I made a mistake, that is creating a whole new environment that
I don't want to go into. And all I want you to do is just
acknowledge that you misspoke and that you are going to get the
correct information out.
And if you say you didn't misspeak and you are not going to
get the important information out--I yield back to Mr. Vargas.
I don't want his time running out, Madam Chairwoman.
Mr. Vargas. I do want to make sure that you have time to
respond, Mr. Secretary, if you would like to respond to that.
Secretary Mnuchin. Well, I just--I apologize. I wasn't
implying you made a mistake. So, we will follow up with you
this afternoon to clarify exactly what I said and get you the
information. So, my apologies.
Mr. Cleaver. Thank you.
Mr. Vargas. Reclaiming my time, I know that--Mr. Secretary,
again, thank you for being here. I know that you have already
been asked about this, but I have to ask again about Chairman
Neal's request. I think it does have a legitimate legislative
purpose. I believe that you may not have been aware of the
draft memo from the IRS, but certainly I wasn't, and now it has
come out. And it seems to be somewhat clear that we do have the
ability and the right to have that information. Again, I want
to follow up. Are you, once again, going to take a look at it
in light of this memo?
Secretary Mnuchin. I will take a look at the memo. I had
not seen it until this morning. We didn't receive it. It was in
The Washington Post. So, obviously, we will take a look at it.
To the extent it changes our analysis for whatever reason, we
would recognize that.
Again, I think this is a very important issue. I would just
say we have tried to be responsive to Congress on hundreds, if
not thousands, of requests for information. On this one
request, we have been advised that there are different legal
views, and this is why it will most likely go to the third
branch of government. And if the third branch of government
opines on Congress' right, then we would obviously supply the
document.
Our issue is we want to make sure that the IRS is not
weaponized for any party, and as I said, we have been advised
based upon constitutional issues, that it is not legal for us
to pursue it. And we are--this has nothing to do with anything
else.
Mr. Vargas. Okay. I do hope you go and review it again
because I think this memo makes it clear that we do have a
right to this information. My time has expired, but thank you.
Again, say hello to your father for me.
Chairwoman Waters. The gentlewoman from Massachusetts, Ms.
Pressley, is recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman.
And thank you, Secretary Mnuchin, for joining the committee
again here today. I do believe our diversity is our greatest
strength and arguably the greatest contributor to our economy.
Mr. Secretary, do you believe that representation matters in
American politics and imagery?
Secretary Mnuchin. I'm sorry, what was the last part,
American politics and--
Ms. Pressley. And imagery. Do you believe that
representation matters in American politics and imagery?
Secretary Mnuchin. Yes.
Ms. Pressley. I am so glad we agree. A few years ago,
Secretary Lew put out a call to the American people soliciting
feedback on ways to modernize our Nation's currency. In April
2016, following long-time organizing efforts from several
grassroots organizations, he announced a currency redesign
overhaul that would more accurately reflect the diversity of
our society.
The American people understood the importance of
representation on the bank notes of the world's most powerful
economy, representation that acknowledged our history and all
those who have contributed.
Mr. Secretary, yes or no, do you believe people other than
white men have greatly contributed to this country and its
history?
Secretary Mnuchin. Yes.
Ms. Pressley. Great.
After 10 months of soliciting and analyzing responses,
Secretary Lew announced that Harriet Tubman would be featured
on the front of the new $20 bill. As it stands currently, our
currency does not reflect the diversity of individuals who have
contributed to our great American history. He followed the
announcement by directing the Bureau of Engraving and Printing
to accelerate plans for the redesign, so the final design
concepts would be unveiled in 2020, the 100-year anniversary of
the 19th Amendment, which granted women the right to vote,
which we celebrated yesterday.
As you know, 2020 is only 1 year away, and since Secretary
Lew's departure, we have not heard anything regarding the
status of the currency redesign. Will the redesign meet the
2020 deadline? Yes or no?
Secretary Mnuchin. Let me comment that the primary reason
we have looked at redesigning the currency is for
counterfeiting issues. Based upon this, the $20 bill will now
not come out till 2028; the $10 bill and the $50 bill will come
out with new features beforehand.
So the answer is it is my responsibility now to focus on
what is the issue of counterfeiting and the security features.
The ultimate decision on the redesign will most likely be
another Secretary's down the road.
Ms. Pressley. I'm sorry. I just want to be clear for the
record. So you are not--so, yes or no, will you meet what was
originally the 2020 redesign deadline? Yes or no?
Secretary Mnuchin. Again, to be clear, the redesign that we
are focused on--
Ms. Pressley. That is a no.
Secretary Mnuchin. No. We will meet the security feature
redesign in 2020. The imagery feature will not be an issue that
comes up until most likely 2026.
Ms. Pressley. I am just wondering if you can explain that
to me, because after an exhaustive community process, where
people who organized for quite some time and you said you do
share my sentiments and opinion that our currency should be
more reflective of the contributions and diversity of those
contributions, and so why the delay?
Secretary Mnuchin. Okay. I didn't say that the currency
should be reflective.
Ms. Pressley. Well, you said imagery.
Secretary Mnuchin. I said imagery, not referring to
currency--referring to lots of things.
Ms. Pressley. Okay. So do you believe that--do you support
Harriet Tubman being on the $20 bill?
Secretary Mnuchin. I have made no decision as it relates to
that, and that decision won't be made in, as I said--
Ms. Pressley. But there was a community process, there was
a national--there was a community process.
Secretary Mnuchin. Again, it is a decision of the Secretary
of the Treasury. Right now, my decision is focused on security
features.
Ms. Pressley. Well, let me just say this: The occupant of
the White House, Donald Trump, said that the move to put
Harriet Tubman on the $20 bill was pure political correctness,
and he, in fact, suggested putting her on a $2 bill. So do you
agree that nearly a year of collecting responses from across
the country can simply be reduced to political correctness?
Secretary Mnuchin. I think that, right now, I am focused on
the security features of the U.S. currency, which is the
reserve currency--
Ms. Pressley. Reclaiming my time, so does that mean you
have no intention of executing the redesign as planned by your
predecessor?
Secretary Mnuchin. Well, that is correct. I have not made a
decision to execute on a redesign or haven't made a decision,
but yes, I have not made a--
Ms. Pressley. Can you commit to submitting a currency
redesign timeline to this committee?
Secretary Mnuchin. Again, the currency timeline will be
most likely 2026, which even in the most optimistic scenarios
is probably beyond my term.
Ms. Pressley. And do you believe that--is it your personal
opinion, then, since you won't offer it officially, that our
currency should reflect the diverse representation of leaders
who have contributed to this country, since you agree it has
been more than just white men?
Secretary Mnuchin. Again, I can't separate my personal
opinion on these issues from the issue of the Treasury
Secretary--
Ms. Pressley. So what is your position as the Treasury
Secretary?
Secretary Mnuchin. Again, my position is that I am focused
on my responsibility to deal with the security features in a
decision--
Ms. Pressley. Okay. You have addressed that, and what about
imagery? What about the representation?
Secretary Mnuchin. Again, it is not a decision that is
likely to come until way past my term, even if I serve the
second term for the President. So I am not focused on that at
the moment.
Ms. Pressley. I yield back.
Chairwoman Waters. The gentlewoman from California, Ms.
Porter, is recognized for 5 minutes.
Ms. Porter. Hello, Secretary Mnuchin. Thank you for being
here.
In June 2017, the Treasury issued a report on banking
deregulation suggesting that if Congress raised the $50 billion
threshold above which U.S. banks have stricter oversight, that
it ought to do the same thing for foreign megabanks. And last
month, the Fed took this cue, and they massively deregulated
foreign megabanks. And this was on a wish list that you had
suggested would be an improvement.
There is a lot to be concerned about with this, but the
most glaring thing is that now Deutsche Bank would only have to
file their living will once every 6 years. And that is the same
Deutsche Bank that had a surprise $3 billion quarterly loss.
Based on your oversight of Deutsche Bank, which led you to
believe it was appropriate to deregulate them, how did Deutsche
Bank manage to lose $3 billion and not see it coming?
Secretary Mnuchin. Well, I appreciate your concerns.
Let me just say what we are focused on is the U.S.
subsidiary, and--
Ms. Porter. I understand. Reclaiming my time, I understand.
Could you respond specifically to how did they--how the
hell do you lose $3 billion and not see that coming?
Secretary Mnuchin. Well, I hate to say it, but there were a
lot of people who lost $3 billion and didn't see it coming.
Ms. Porter. We don't want to repeat that, you would agree.
Secretary Mnuchin. I surely don't. I can tell you I am
familiar with some of their really bad investments, and I find
it hard to believe that they made them.
But, yes, it is a staggering amount of money, we would
agree on that.
Ms. Porter. And Deutsche Bank has failed its stress test in
3 of the last 4 years, was fined for a New York trading scandal
involving laundering with Russian oligarchs, admitted to
participating in a LIBOR interest rate scandal, and violated
U.S. sanctions against Iran, Libya, Syria, and the Sudan.
Most recently, it came to light that Deutsche Bank had
failed--excuse me--had willfully decided to ignore suspicious
activity reports (SARs) with regard to the President and his
son-in-law.
Why is Deutsche Bank--what is your plan to hold Deutsche
Bank responsible for failing to do appropriate oversight and
respond to the regulatory controls that are in place with
regard to SARs?
Secretary Mnuchin. Well, let me just say the SAR issue I
did read in the paper. I am going to have FinCEN follow up and
make sure that Deutsche Bank, as anyone else, has SARs policies
that are on everyone. So I am not aware of whether this is true
or not true. But we will have FinCEN follow up.
I go back to our obligation as U.S. regulators--
Ms. Porter. Excuse me. Would you be willing to respond back
to this committee as to whether that did or did not, in fact,
occur?
Secretary Mnuchin. I understand that we can't comment
publicly on SARs, but we will follow up with the committee to
make sure that we have done a compliance oversight and whatever
the result is we are comfortable with.
Ms. Porter. Are you planning to ask the German banking
authority to also do additional oversight of Deutsche Bank,
especially given that we now regulate them much less than we
used to?
Secretary Mnuchin. Well, again, the U.S. entity, we will
regulate considerably. So the U.S. entity, with intermediary
holding companies, we will be comfortable that the U.S. company
doesn't jeopardize the U.S. financial system.
In my conversations with the Europeans, yes, I will speak
to them and make sure that they are properly regulating the
parent entity. And I know the Germans share our concerns.
Ms. Porter. I wanted to ask you about FSOC's hedge fund
working group. I had a conversation with Mr. Powell about that.
FSOC's last annual reports in 2017 and 2018 included in each
report 400 words about the 9,000 hedge funds registered in the
United States which collectively have $4 trillion in net asset
value. That is $10 billion in asset risk per word of analysis
from FSOC. And those words are: The Council recommends that
relevant agencies continue to review their data collections and
assess whether they are sufficient to allow the Council to
monitor whether and how private funds may pose risk to
financial stability.
Why is FSOC just copying and pasting the same
recommendations on hedge funds in 2017 and 2018? Do you not
have enough staff at FSOC to prepare updated content? The last
product to come out of the FSOC working group was in 2016. You
are repasting the same financial recommendations even as the
markets are changing and the risks that hedge funds are facing
are changing.
In the 2019 report, will I see that identical 400-word
content, or is the working group going to do some work and mix
it up a little?
Secretary Mnuchin. I very much appreciate your comment. I
acknowledge that that is a lot of assets per word. We have
talked about hedge funds. I believe you are right. This doesn't
reflect, and we should not be copying and pasting. And we will
update that appropriately.
Ms. Porter. Thank you very much.
Secretary Mnuchin. Thank you for bringing that to my
attention.
Chairwoman Waters. The gentleman from Texas, Mr. Gonzalez,
is recognized for 5 minutes.
Mr. Gonzalez of Texas. Thank you, Madam Chairwoman.
I have a few questions regarding debt distress, which is
quickly rising in Africa and Latin America. I come from the
great State of Texas, and I represent one of the border
districts, where we are dealing with the grave refugee
situation on our border. And we are really concerned about
Central American countries fueled by opaque loans from China,
many lending institutions, especially those associated with
China's Belt and Road Initiative.
China has shown little interest in joining established
multilateral mechanisms to coordinate forces on bilateral debt,
let alone write them down, if needed, as major advanced
economies have done for years.
How likely is it that these countries are heading for a
debt crisis? And how difficult will it be to resolve one if it
happens?
Secretary Mnuchin. I share your concerns. I have made some
comments already, but I will repeat them, which is we are very
much working with our allies at the G7 and the G20 on this
issue. We very much support debt transparency. And if China
wants to lend, they should lend on the basis of everyone else
with debt transparency. We are encouraging them to join the
Paris Club. I think that would be important. We are working
through the IMF and World Bank.
So, this is an issue. I share your concerns. And it is very
topical and timely.
Mr. Gonzalez of Texas. What are we doing with the IMF in
order to have them pressure China to adopt global norms and
practices? Are we doing something in that regard?
Secretary Mnuchin. We are at both the IMF and the World
Bank where my previous Under Secretary, David Malpass, this is
one of his big priorities. And I personally had conversations
with the governor of the People's Bank and other senior people
there on debt transparency. The French are leading an effort on
this. There is a lot of unity on this issue.
Mr. Gonzalez of Texas. I am concerned internationally, but
particularly in Latin America, as my district is impacted
directly.
Do these developing countries have the tools, including
internal governance systems, that will enable them to
appropriately evaluate the wisdom of the China Belt and Road
Initiative and other projects? And if not, what are we doing to
try to engage that issue in itself?
Secretary Mnuchin. Well, this is an important area of
Treasury where we provide technical assistance. And this is a
specific area where I think, without spending a lot of money,
it is very, very impactful working with these governments, that
they understand what they are taking on.
And without me saying a specific country, I can tell you
right now, as part of an IMF program, that we are
contemplating, as part of that, there had been discussions
about debt repayments and everything else. So I can assure you
this is a timely topic that this Administration is highly
focused on. I appreciate your focus on this.
Mr. Gonzalez of Texas. What is the IMF trying to do behind
the scenes to get China to come clean on its Belt and Road
Initiative? Are they doing anything?
Secretary Mnuchin. Well, again, I don't like to use the
words, ``come clean,'' because to the extent they genuinely
want to lend, that is fine. But what they are insisting,
particularly where there are IMF programs and China is a
lender, is that the IMF as part of its program has full
transparency into the sustainability of China payments. And we
will not be approving IMF programs without having that going
forward.
Mr. Gonzalez of Texas. So is Treasury engaging these
countries and kind of educating them on the risks of taking
these Chinese loans?
Secretary Mnuchin. Absolutely. And as I said, the current
president of the World Bank, who has worked for us, is taking
this on as a major issue for the World Bank under his
leadership.
Mr. Gonzalez of Texas. Thank you.
I yield back.
Chairwoman Waters. I ask unanimous consent to yield to
myself for 5 minutes.
I would like to ask a few questions.
Mr. McHenry. I reserve the right to object.
Five minutes for both the ranking member and the
chairwoman?
Chairwoman Waters. That is absolutely correct.
Mr. McHenry. All right.
Chairwoman Waters. What I intended to do after my time was
to yield to you also.
Mr. McHenry. Thank you.
Chairwoman Waters. Mr. Secretary, the law does not allow
the Secretary to exercise discretion in disclosing the
information provided the statutory conditions are met. Is that
correct? Is that your understanding?
Secretary Mnuchin. I believe, subject to the Constitution
of the United States, that is correct.
Chairwoman Waters. Okay. There was some information
released last evening, I think in The Washington Post. And the
memo states the Secretary's obligation to disclose returns and
return information would not be affected by the failure of a
tax-writing committee to state a reason for the request. And
the only basis for the agency's refusal to comply with the
committee's subpoena would be the invocation of the doctrine of
executive privilege. Is that correct?
Secretary Mnuchin. Let me just comment, I have no idea. I
just saw that memo this morning. I have never seen it before. I
don't know who wrote that memo. We will try to get to the
bottom of it.
As I have commented before, we will read the memo. And if
it has any new information--but I can't comment on the memo. I
just saw it today. I don't even know if it is genuine or if
someone made it up.
Chairwoman Waters. Since you did not see it, let me ask a
few other questions.
Did you discuss the memo with the President of the United
States?
Secretary Mnuchin. I have had no discussions with the
President or anybody in the White House about releasing the
President's tax returns.
Chairwoman Waters. Did you have a discussion with anybody
outside of the White House about this?
Secretary Mnuchin. The Department of Justice, who is our
lawyer in potential litigation and whom we rely upon for
interpretations of constitutional law.
Chairwoman Waters. I guess I want to make sure that you
never discussed this memorandum with anybody inside or outside
of the White House, is that correct?
Secretary Mnuchin. I have not heard of or seen that memo,
okay?
Chairwoman Waters. My question is about discussion, did you
discuss the memorandum with anybody inside the White House, or
outside of the White House? I am referring to legal counsel. I
am referring to lawyers. I am referring to advisers.
Secretary Mnuchin. Let me be clear. The only person I have
discussed that memo with is my General Counsel on the car ride
over here, who is sitting behind me. I have not discussed that
memo.
Oh, and, actually, I did ask the Commissioner whether he
had seen that memo, and he had not.
Chairwoman Waters. My question is prior to--
Secretary Mnuchin. No. Let me be clear--
Chairwoman Waters. --the first time that you say you saw
it--
Secretary Mnuchin. No, I have not discussed it.
Chairwoman Waters. --was this morning. Is that correct?
Secretary Mnuchin. We received an inquiry from The
Washington Post, I believe 2 days ago, about a supposed memo.
And the first time I saw it was in the car ride over here.
Chairwoman Waters. Okay. The Treasury says it is following
a legal analysis from the Justice Department. But that analysis
has not been released. Do you have that analysis?
Secretary Mnuchin. We have a conclusion. And as soon as the
Justice Department, which we have asked them to work on
expeditiously, has the full memo, it will be released publicly
to you and to others. That is the--
Chairwoman Waters. I would like to, as quickly as possible,
get a copy of the analysis as soon as it is released.
Secretary Mnuchin. I will assure that that is the case. We
are working with DOJ, and I want to get it released quickly.
Chairwoman Waters. Thank you.
I just wanted to take this moment to allow you to modify,
to change, to expound, to do whatever was necessary to make
sure that you were comfortable with your statement about never
having seen it prior to the time that you indicated, never
having discussed it with anyone in the White House, outside of
the White House, legal counsel, advisers, et cetera. I just
want to make sure.
With that, I yield to the ranking member.
Mr. McHenry. I thank the chairwoman.
As we know, under congressional authority, it is the Chair
of the Ways and Means Committee, and the jurisdiction of the
Ways and Means Committee over that division of Treasury that we
call the IRS. And I think it would be appropriate to submit for
the record The Washington Post story in question here. I don't
know if that has been previously done, but it is the Jeff Stein
and Josh Dawsey story from The Washington Post that posted last
night at 6:46 p.m., entitled, ``Confidential draft IRS memo
says tax returns must be given to Congress unless President
invokes executive privilege.''
And I ask unanimous consent--
Chairwoman Waters. Without objection, it is so ordered.
Mr. McHenry. Thank you.
To that end, in my reading of the story, this was a draft
memo. It was stamped, ``draft.'' It has no one that it is
written to nor an author.
And so I just want to ask you, you stated you had not seen
the memo until today. Do you mean you had not seen--you had not
heard of this or seen the memo until you read the news story?
Is that what you--
Secretary Mnuchin. Yes. I mean, to the best of my
recollection, okay, I don't ever recall seeing this memo. The
first I ever heard of this was when we got a Washington Post
inquiry.
Now, let me just also comment, what I have been briefed on
very quickly on this is that this issue is different than the
legal analysis that we have done. Now, of course, we will look
at it and take it into account and make sure. But let me assure
you, there is no smoking gun here. We did a very thorough legal
analysis with the Department of Justice that, again, if this
goes to the courts, the courts will decide and determine.
I, for one, think this is an unprecedented issue of turning
over any individual's tax return, whether it is a Republican or
a Democrat. And I would hope--we all hope that we get to the
right conclusion on what the right law is here.
Mr. McHenry. So, in this regard, just to make sure the
record is clear, have you seen the memo outlined in The
Washington Post story?
Secretary Mnuchin. Someone handed it to me on the way up
here where they took it off of The Washington Post. So not that
we received it independently.
Again, to the best of my knowledge and the people we have
inquired, we have not received--nobody in the senior leadership
had seen this before. So it could be somebody in Treasury
somewhere or another.
Again, from what I have been told, I don't believe this is
really that relevant to the legal analysis that we have done,
but this is the first we are hearing of it.
Mr. McHenry. Well, thank you. And thank you for correcting
the record.
The final question I had--and I ask unanimous consent to
submit for the record my letter to the Director of FinCEN,
dated May 6th, asking for additional briefing and data to
support the legislation commonly called beneficial ownership
here on Capitol Hill. I submit this for the record because I
have not received a response back from FinCEN from our letter
dated May 6th. I ask unanimous consent.
Chairwoman Waters. Without objection, it is so ordered.
Mr. McHenry. And I this raise this to you, Mr. Secretary.
The Director of FinCEN has yet to provide any data to justify
the position to have a massive new collection of the ownership
data of small businesses across America. I raise it to you
because I know you can and will be responsive. I raise it to
you because one of your reports has not been responsive. But
the briefing I received from Director Blanco and his team was,
quite frankly, insulting. It was anecdotal stories. No data in
order to justify a substantial change in public policy. It
would be infuriating under a Democrat Administration for me to
receive a briefing like that. It is even more infuriating when
it is a Republican Administration not giving Republicans on the
Hill any sort of decency of data, nor do I actually think, when
it comes to security matters, that partisan question should
come into play. But it has been one of the more infuriating
issues I have had to deal with.
Secretary Mnuchin. You have my personal assurance we will
be responsive to you on a timely basis and make sure you have
the data so you--whatever your opinions are, are justified by
data.
Mr. McHenry. Thank you.
Secretary Mnuchin. I share your data view.
Mr. McHenry. Thank you. I appreciate that.
And, with that, I yield back.
Chairwoman Waters. I would also like to ask unanimous
consent to enter into the record letters from ONE Campaign, the
Bank Information Center, the International Trade Union
Federation, and several senior fellows from the Center for
Global Development that echo concerns I expressed at last
month's hearing. The letter raises questions about the transfer
of concessional and grant resources from the World Bank Group's
International Development Association, et cetera, et cetera.
I would like to thank Secretary Mnuchin for returning to
the committee and for his time today.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witnesses and to place his responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
And, with that, this hearing is adjourned. Thank you.
Secretary Mnuchin. Thank you very much.
[Whereupon, at 10:50 a.m., the hearing was adjourned.]
A P P E N D I X
April 9 and May 22, 2019
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