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House Appropriations FSGG Subcommittee Hearing with Treasury Secretary Mnuchin

House Appropriations Subcommittee on Financial Services and General Government

“Department of the Treasury Budget Request for Fiscal Year 2020”

Tuesday, April 9, 2019

Key Takeaways

  • Cybersecurity: Treasury Secretary Steven Mnuchin stated that Treasury is working with the Department of Homeland Security (DHS) on cyber issues specifically related to financial infrastructure and that the two agencies “take it very seriously.” He continued that it will take an ongoing investment in cybersecurity and discussed how Treasury is hosting a meeting with bank CEOs and cyber experts tomorrow, along with DHS and the intelligence community and regulators, to discuss cybersecurity. Mnuchin stressed that cybersecurity is “one of the highest priorities” for Treasury and that they will continue to work with the private sector, noting the need for improvement when it comes to the U.S. government working with the private sector.
  • Sanctions: Mnuchin stated that sanctions are a “very important tool” that have been used “very effectively” against Russia and that Treasury will continue to use them for “bad behavior,” but would not comment on specific future sanctions.
  • Cannabis: Members on both sides of the aisle asked about cannabis companies not being able to access the banking industry, to which Mnuchin replied that while regulators cannot help with the discrepancy between federal and state laws, the issue does create a “significant conflict” at Treasury.

Witness

Opening Remarks

Chairman Mike Quigley (D-Ill.), FSGG Subcommittee

In his opening statement, Quigley discussed Treasury’s budget request for FY2020, noting that it includes cuts to the Internal Revenue Service (IRS) that will result in weakening the agency’s ability to protect the tax system. He continued that the budget also includes cuts to the Community Development Financial Institutions (CDFI) Fund and “slashes” funding for the special inspector general. Quigley did note that the budget includes increases for the Office of Terrorism and Financial Intelligence (TFI) and Financial Crimes Enforcement Network (FinCEN) but criticized the budget for including funding for the President’s wall.

Ranking Member Tom Graves (R-Ga.), FSGG Subcommittee

In his opening statement, Graves applauded the Administration’s work on tax reform, stating that 80 percent of individuals are now paying lower taxes and businesses have lower tax compliance costs. He continued that he appreciates the budget making investments in the military and border security, as well as sanctions enforcement.

Witness

The Honorable Steven Mnuchin, Secretary, U.S. Department of Treasury

In his testimony, Mnuchin stated that due to tax reform, regulatory relief and trade deals, the U.S. now has the strongest economic growth since 2005 and “the best job markets in generations.” He noted that Opportunity Zones are a key component of the Tax Cuts and Jobs Act (TCJA) and will offer capital gains tax relief, allow for investment in distressed communities, and described the enthusiasm for the idea across the country. Mnuchin explained that trade is a top priority for the Administration and urged Members of Congress to support the United States-Mexico-Canada Agreement (USMCA), adding that they are “making progress” when it comes to negotiating with China. Regarding Treasury’s budget request, he explained that it includes an increase in funding for TFI and FinCEN, as well as cybersecurity and modernizing the IRS.

Q&A

Cybersecurity

Graves discussed how bank executives have said cybersecurity is the biggest threat to the U.S. financial system, to which Mnuchin replied that Treasury is working with the Department of Homeland Security (DHS) on cyber issues specifically related to financial infrastructure and that the two agencies “take it very seriously.” He continued that it will take an ongoing investment in cybersecurity and discussed how Treasury is hosting a meeting with bank CEOs and cyber experts tomorrow, along with DHS and the intelligence community and regulators, to discuss cybersecurity. Mnuchin stressed that cybersecurity is “one of the highest priorities” for Treasury and that they will continue to work with the private sector, noting the need for improvement when it comes to the U.S. government working with the private sector.

Sanctions

Rep. Chris Stewart (R-Utah) asked about sanctions, to which Mnuchin replied that they are a “very important tool” that has been used “very effectively” against Russia and that Treasury will continue to use them for “bad behavior,” but would not comment on specific future sanctions.

Cash Markets and the Cannabis Industry

Rep. David Joyce (R-Ohio) noted the inability of legal companies to access banking in the cannabis industry due to the conflict of federal law versus state law. Mnuchin replied that the issue does create a “significant conflict” at Treasury, including the IRS collecting taxes and having to build “specific cash rooms to hold cash,” adding that Treasury is working with banking regulators where there are conflicts.

Rep. Charlie Crist (D-Fla.) asked what happens when markets exist in cash only, to which Mnuchin replied that there is a need to track cash as it comes in and out of the banking system, so it is not used for illicit uses. He continued that while there is a move towards becoming more digital, there is still worldwide demand for U.S. cash, especially since it is the reserve currency of the world. Crist then noted that policy makers should want to push money out of the cash space and into the regulated space, to which Mnuchin replied that while cash transactions generally create a more complicated regulatory environment, he does not want to regulate that cash cannot be used.

Crist also discussed the discrepancy between federal and state law when it comes to marijuana, stating that there has been a failure of Congress and regulators to act. Mnuchin replied that this is a bipartisan concern, but that regulators have no way to deal with the federal versus state law problem.

Opportunity Zones

Joyce discussed Opportunity Zones and how the proposed rules inadvertently exclude tribal lands, stating that the final regulations should include tribal governments and land. Mnuchin replied that Opportunity Zones are a “very important program” and that he hopes Members of Congress can work in a bipartisan effort to implement, noting that this is one of the technical issues Treasury is trying to figure out how to solve.

Treasury Forfeiture Fund (TFF)

Rep. Norma Torres (D-Calif.) stressed the importance of the TFF, noting her concern that projected balances for the fund will be insufficient to fund essential operations for FY2019. Mnuchin replied that he does not share this concern.

CDFIs

Torres and Rep. Matt Cartwright (D-Pa.) questioned Treasury for proposing a 94 percent decrease in the CDFI Fund, to which Mnuchin replied that the CDFI program makes “significant contributions to certain communities” and that it was “a difficult decision of allocating money.”

For more information on this hearing, click here.