Following the Money: Tools and Techniques to Combat Fraud

House Subcommittee on National Security, Illicit Finance, and International Financial Institutions

2025-04-01

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Source: Congress.gov

Summary

The hearing focused on analyzing the increasing problem of investment fraud in the United States and evaluating the effectiveness of current tools and techniques used to combat it within the financial system. [ 00:25:25-00:26:20 ]

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 There was a strong consensus that consumers are losing billions annually to various scams, which criminal actors are increasingly perpetrating by leveraging technology and exploiting regulatory gaps. [ 00:26:27 ]

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 The discussion highlighted the devastating impact of these crimes on individuals and businesses, as well as the need for modernized approaches and improved collaboration.

Themes

The Alarming Rise and Devastating Impact of Fraud

Investment fraud is rapidly increasing, with consumers losing billions of dollars annually, affecting everyday Americans, particularly vulnerable senior citizens. [ 00:26:27 ]

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 The Federal Trade Commission reported $5.7 billion lost to investment scams in 2024, with some estimates suggesting actual losses in 2023 could be as high as $158.3 billion, far exceeding reported figures. [ 00:26:27 ]

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 These schemes are often transnational and lead to catastrophic financial ruin, emotional distress, and even family breakdown for victims. [ 00:26:57 ]

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 Small businesses are also targets, facing intellectual property theft and scams that drain resources.

Challenges and Inefficiencies in Current Anti-Fraud Frameworks

The Bank Secrecy Act (BSA) serves as the foundation for anti-money laundering and counterterrorism financing measures, but its effectiveness is questioned given the evolving landscape of technology and financial crime. [ 00:28:16 ]

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 Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs) are frequently filed, yet law enforcement agencies access only a small fraction of them, highlighting significant inefficiency. Outdated monetary thresholds for reporting, which have not been adjusted for inflation since 1970, further contribute to a growing burden without a clear improvement in effectiveness. Financial institutions, despite investing in anti-fraud measures and customer education, feel bogged down by "check-the-box exercises" rather than focusing on real threats, indicating a need for regulatory reform and a risk-based approach.

The Dual Role of Technology: A Tool for Both Criminals and Investigators

Criminals are increasingly leveraging advanced technologies like generative AI, social media, and telecommunications to execute sophisticated and scalable fraud schemes. Social media platforms are identified as major vectors for fraud, attracting victims with false promises and facilitating illicit activities. [ 01:02:21 ]

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 However, technology also offers powerful investigative tools; blockchain analytics, for instance, provides unparalleled transparency into cryptocurrency transactions, enabling the tracing and freezing of illicit funds. Experts emphasize the need for law enforcement to be equipped with blockchain analysis training and tools to effectively combat crypto-related crimes.

Debate Over the Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA), designed to unmask anonymous shell companies, is a point of contention. Supporters argue it is a critical tool for law enforcement to detect fraud and identify beneficiaries of illicit schemes, while opponents, including many small business advocates, consider it an unconstitutional overreach and a significant data privacy risk. Concerns were raised about scam operators preying on businesses regarding CTA filings and the potential for a federal database of beneficial ownership information to be hacked. The Trump administration's proposed exemption for a large percentage of companies under the CTA was lauded by some as an improvement for American citizens but criticized by others for weakening fraud prevention efforts.

Call for Enhanced Collaboration and Information Sharing

Witnesses stressed the critical need for a more strategic, "whole-of-government" approach involving government, the banking industry, and other sectors. They called for greater transparency and timely, actionable data and feedback from the government to the private sector regarding priority threats and analyses of SARs. There is also a recognized need to modernize and streamline bidirectional scam reporting and response mechanisms between public and private entities to facilitate restitution and prevent further victimization. Creating centralized points of contact for fraud victims and for financial institutions to share information and receive feedback would be a significant step forward.

Tone of the Meeting

The tone of the meeting was largely concerned and urgent, reflecting the widespread acknowledgment of the severe and escalating problem of financial fraud across the United States. Speakers expressed frustration with the current system's inefficiencies, such as outdated reporting requirements and a lack of actionable feedback from government agencies to financial institutions. While there was a general spirit of collaboration and a desire for a "whole-of-government" approach to solutions, discussions became divisive regarding the Corporate Transparency Act, with clear partisan disagreements on its constitutionality, burden on small businesses, and effectiveness in combating fraud.

Participants

Transcript

The Subcommittee on National Security, Illicit Finance, and International Financial Institutions will come to order.  Without objection, the chairman is authorized to declare a recess of the committee at any time.  The hearing is entitled Following the Money, Tools and Techniques to Combat Fraud.  Without objection, all members will have five legislative days within which to submit extraneous materials to the chairman for inclusion in the record.   I now recognize myself for five minutes for an opening statement.  I want to welcome our witnesses.  Thank you for participating in our hearing today.  It's devoted to analyzing investment fraud in the United States and reassessing the effectiveness of tools used to combat fraud in our financial system.  Earlier this month, the Federal Trade Commission reported that US consumers lost $5.7 billion to investment scams in 2024.   Criminals are increasingly finding ways to bypass U.S.  financial regulations in order to scam Americans into draining their life savings for the sake of the criminal's illicit gain.  This type of organized fraud transcends both state lines and political divides.  These scammers prey on everyday Americans, often our most vulnerable senior citizens.   The United States is supposed to have the world's most capable financial intelligence capabilities.  We are focused in this committee on national security issues.  We also need to use these resources and capabilities we have more effectively to protect our own citizens.  Safety and soundness are essential to preserving our own financial well-being.  Beyond our own population, America's capital markets are home to more than half of the world's invested capital, and the U.S.  dollar is the world's reserve currency.   Since its enactment in 1970, the Bank Secrecy Act has served as the cornerstone for USNA money laundering, counterterrorism,   financing and Know Your Customer compliance measures for U.S.  financial institutions.  The Bank Secrecy Act's regulatory framework is intended to defend and secure our financial system from crime.
However, considering the ever-changing landscape of technology and financial crime, we must continually assess the effectiveness of the tools and techniques traditionally used to secure the financial system.   Today we'll take time to learn more about investment fraud and how financial institutions, including blockchain analytics firms, contribute to combating this pervasive issue.  Investment fraud, as these losses grow in the United States, it's important to consider changes that can be made to enhance the effectiveness of our reporting.   Suspicious activity reports, or SARs, and currency transaction reports, CTRs, are tools used by financial institutions to flag transactions over certain monetary value that could be related to illicit activities.  These reports are filed by financial institutions and maintained by   FinCEN, the Financial Crimes Enforcement Network, and used by law enforcement agencies over the course of their investigations.  A SAR is filed when a financial institution has a transaction over $5,000, and a CTR is filed on cash transactions involving more than $10,000.   Based on CPI inflation, $10,000 in 1970 would be more than $81,000 today.  These numbers in the reporting requirements have never been adjusted for inflation, so the reporting burden keeps growing with no obvious improvement on the effectiveness of the reports.  FinCEN estimated that an average total of 12,600 SARs and 57,000 CTRs were filed each day.   This is 2023 data.  According to a December 2024 GAO report, law enforcement agencies accessed only 5.4% of those CTRs filed between 2014 and 2013, or 2023.  So you got a 10-year period there with data and only 5.4%.  That's not very efficient.
It was long overdue for Congress to consider these clearly outdated thresholds and frameworks so that we can protect our people and our financial institutions.  Even as we update old laws, it's important to consider other updates.  Thankfully, the Trump administration has muted the disastrous and unconstitutional Corporate Transparency Act requiring businesses   to report the beneficial ownership to FinCEN.  Presumably, by the law's framework, operating a business or even a homeowners association means you're engaged in illicit finance.   But our Constitution says that when the government wants to know private information, they need probable cause, at least reasonable suspicion, to get a warrant or a subpoena.  Surely we can minimize the financial harm suffered by Americans exploited by scammers without infringing on their civil liberties or adding ways to make ordinary citizens   criminals.  As we consider legislative solutions to maximize the effectiveness of our financial intelligence architecture, I'm hopeful that we will increase and improve nationwide education on investment scams, and I'm also hopeful that we'll equip law enforcement agencies with better tools to go after criminals that are continually operating unseen.  I look forward to the insights gained on these issues from today's hearing, and I yield back.   Chairman now recognizes the ranking member of the committee, Ms.  Beatty, for four minutes for an opening statement.
Thank you, Mr. Chairman and ranking member.

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