FinCEN Keynote Address, February 23, 2022

Keynote Address from Chris Brummer, J.D., Ph.D

Agnes N. Williams Professor of Law

On the Occasion of FinCEN’s Black History Month Celebration

February 23, 2022

It is a great pleasure to talk to you today. Black History Month is a special occasion. It is an opportunity to look back, and forward, and, perhaps above all else, it is an opportunity to be seen.

It’s this opportunity to talk about being seen that is a particular honor. And I am deeply grateful to Acting Director Das, Kristin Moses, and Gail Fuller for the invitation. FinCEN is, after all, in the business of making things seen. Of bringing things out of the dark, and into the light, for the integrity of our markets, and ultimately, the protection of the American people.

It is also, perhaps ironically, a job that is itself often unseen. Every day, so many of you go to work with a mission to serve and to protect. And the fruits of that work are enjoyed throughout the country, and indeed the world, but are not always recognized.

It’s something that perhaps places this audience in an especially unique position to understand Black History Month.

After all, African American history is the art of making the unseen, seen. The art of making not just Black Americans seen, but also American history seen, in all its awesome complexity. Black American history is, of course, an expression of American History; part of the journey of a unique nation that has reinvented itself time and again, and is once more on the precipice of change.

But the men and women here today, perhaps above all else, know that making things seen isn’t always easy. It’s a journey unto itself. The story of America, reflects just this. And to understand our shared journey is to appreciate that it does not consist of just one dimension, not just one tragedy or triumph. Instead, telling the story of America involves participating, and putting in the work of asking where the story goes from here.

Take for example, the story of Black Wall Street. As has been now well recounted in the media, and even by the President, in May 1921, the Tulsa, Okla., neighborhood of Greenwood was, as described by the New York Times, a fully realized antidote to the racial oppression of the time, a thriving community of brick and wood-frame homes dotting the landscape, along with blocks lined with grocery stores, hotels, nightclubs, theaters, doctor’s offices and churches.[1] But on Memorial Day of that year, everything would change after a white 17 year old elevator operator accused a Black 19-year-old shoeshiner of assaulting her. When the young man was taken to jail, armed groups of Black and whites began to gather at the cell, with rumors rife that he would be lynched. In the end, words were exchanged, gunfire ensued, and the outnumbered African Americans began retreating back to Greenwood.[2] Pandemonium ensued. Blocks were raised. Elderly couples were shot while kneeling to pray. Private citizens flew planes dropping bombs on their neighbors living just across the city’s railroad tracks — the only domestic aerial assault prosecuted on an American city.

Yet perhaps the most violent aspect of the raid was that it was forgotten. That the victims were quite literally made invisible, both in the law, and to history. To remember them again–to see them again, would take generations. And even as society looks the descendants of those victims in the face, we ask what’s next. We ask ourselves, where does the story go from here?

We’re doing part of the job today, as part of the great American family. Together, even in our diverse backgrounds, in our different races and religions. Remembering the past, making seen what has been forgotten.

But I’m a law school professor, not a historian. And I would be remiss not to talk briefly about what more the country can do from here — and specifically what more FinCEN can do as the agency tasked with making the unseen, seen. How can it do its job, even better?

I think that one step of that journey should include a serious assessment of where even well-intentioned rules impact inclusion, racial and otherwise. As I told our colleagues at last year’s SEC Black History address, too often people look to laws that explicitly mention race as the fulcrum points for doing something about inequality in the country.[3] But in reality, it’s the facially neutral rules that usually have the biggest impact.

The examples proving the point tend to concern monetary policy, but even those scarcely scratch the surface, because they don’t drill down in on the operation of our capital markets. That’s where we see blind spots, and too many questions that go unasked. Like if the Federal Reserve engages in buybacks of corporate bonds and stocks, subsidizing risks for holders of financial assets, what does this mean for the racial wealth and income gap? Or if the SEC uses income or wealth-based standards for determining who qualifies as an accredited investor, and is permitted to make certain investments, does one inadvertently end up redlining minority communities out of opportunities to invest in the fastest growing parts of the economy?

The arc of our national security conversation for illicit finance has for the most part escaped this scrutiny, and to the extent to which questions have been raised, they have centered on the identity-making operations of FinCEN — “blacklisting” — and whether it’s lived up to its name by inadvertently or unnecessarily penalizing or stigmatizing people of certain backgrounds or national origins.

I’d like to add more depth to the conversation, but with a twist. After all, this is Black History Month, a time to be clear eyed, and to dream. But I like prose as much poetry, and I think it’s worth thinking hard about the policy spaces that don’t appear to have anything to do with race, or, for that matter, financial inclusion. But that’s where you find the meat and potatoes of policy. Where both challenges and opportunity live in the margins of subparagraphs and roman numerals. And where they are too often, forgotten.

That said, while making things seen, and keeping them seen, can be hard, it’s not hard to embed better outcomes into the regulatory process. My one simple suggestion for you today, is for all of our great agencies to ask a simple threshold question while enthralled in the midst of their policymaking process: Does the regulatory policy, reform, or proposal at issue discourage serving low-income, or low profit customers?

It’s an admittedly challenging question for our nation’s crime fighters, and FinCEN in particular, since a key feature of anti-money laundering efforts has been to require more reporting from companies in order to protect the public.

But as many of you know, even the essential de-risking of markets can create costs for financial institutions that can trickle down to customers in the form of interest rates, overdraft fees or other account charges. At a minimum, the costs exacerbate the problem of the underbanked and badly banked as many banks direct fees away from wealthier, higher yielding customers to those in more fragile economic circumstances. This is unfair, and in worst cases, charges can end up driving vulnerable individuals already at the margins away from vital financial services.[4]

And it’s more than just minority consumers with something at stake. Compliance costs can also impact the MDIs and CDFIs — the Black, Brown and Asian banks serving as lynchpins of their community. I’ve spent half my career talking to many of our great financial institutions about regulation. And many institutions, regardless of size, have voiced concerns about the volumes of information demanded under our vital AML/KYC statutes. Some criticisms frankly strike me as less sincere than others. But others are repeated across industry, even by the little guys, and in some instances with even more passion. Indeed, it’s the smallest ones, the minority banks, the rural banks with the least capital and the most vulnerable customers, who tend to bear the brunt of regulatory expectations, necessary or otherwise.[5] And that reality, and the reality of their regulatory conundrum, even if unavoidable, should not be unseen.

Addressing the challenge honestly requires us to think hard about just what substantive reporting requirements to impose of financial institutions in order to protect America, and under which conditions, and how. And indeed, this is a conversation that has accompanied the Bank Secrecy Act since its inception.[6] But increasingly, a second step is necessary: asking what technologies are available to FinCEN or the broader market that could enable it to accomplish or to achieve its mandate in ways that are inclusion neutral, or even inclusion enhancing.[7] Are there ways, in short, for the agency to either mitigate unintended consequences of its vital surveillance activities by adopting or enabling the development of new government or market tools? And are there other policy measures that could be taken to offset the disparate economic impact of any regulatory framework?

To the credit of FinCEN in this and previous administrations, these are not entirely new questions for the agency, though they have been asked against very different backdrops, and against a constantly evolving stream of technology.[8] Former FinCEN Director Ken Blanco established a dedicated outreach initiative for HBCUs to increase the cognitive diversity and smarts in cybersecurity. Acting Director Mike Mosier likewise engaged with Tribal Nations on Beneficial Ownership outreach, and also spearheaded an Innovation Hours to promote privacy-preserving technology in AML, and even brought on a dedicated Digital Identity advisor. And I was delighted to see the recent RFI from FinCEN geared towards modernizing risk-based AML/CFT regulations and guidance — and the recently announced digital tech sprint.

As this agency is seeing every day, new developments central to financial inclusion await FinCEN’s scrutiny–and exploration. Digital identity is indeed moving quickly from the theoretical to the practical, with ISO standard-making underway that leverages cryptographic methods to offer self sovereign identities. As many of you already know, digital driver’s licenses are being developed in 30 states, and in conversation to be used with agencies like TSA to lower barriers for people who lose their ID, and help.[9] New applications will likely follow, along with opportunities for FinCEN and sister agencies to whitelist individuals and layer new trust solutions in ways that could reduce compliance costs dramatically for community banks, and for that matter, young companies struggling to scale in an increasingly challenging economy.

Distributed ledgers are likewise increasingly offering new opportunities to think about the cost curve, inclusion, and effective monitoring all in one. A basic tenant of AML/KYC has been, rationally, to keep people some out, especially those who might do damage to the financial system. But that posture has come with the downside of “M&M surveillance” — hard on the outside, soft on the inside. And actors able to evade SARs have considerable leeway to evoke havoc within financial systems once they pass initial screens.

Infrastructures like blockchain technologies invite a very different, and radical thesis: to let everyone ‘in’, and to use decentralized screens and the immutability of the blockchain to not only prevent, but also track bad actors. To learn from their habits and transactions. To create metadata that could be leveraged to not only keep bad people out, but to get good people, and especially the underserved, in.[10] Indeed, it’s not hard to imagine in the very near future sanctions networks that could manage lists of individual and group identifiers that appear on sanctions screening lists so that a master repository of problematic entries can be maintained and accessed, including pro-active alerts, in real time by a decentralized network of nonprofit, governmental or trusted private sector sanction checkers.

For many technologists and technocrats, innovations like these are examined and evaluated from the standpoint of operational efficiency. But today, I’m admittedly thinking about what this could mean for the MDI in Baltimore. Or for the CDFI in Puerto Rico. I’m taking the time to think big in ways this important time of the year demands. To imagine a world where individuals can whitelist themselves, or where the process can be automated, saving Black and Brown banks from independently running screening processes. I’m thinking about ways whereby AML and KYC processes might not merely require proof of identity in order to exclude, but a world in which the agency could itself help facilitate, and provision, identities with which people can build their financial lives.

I understand very well that these are only dreams — only questions — and not answers. But asking the question is its own vital act of accountability. It is its own important condition precedent to seeing. So while questions of technology are vital for efficiency, it’s worthwhile taking the step of exploring what new tools mean, or could mean, for deeper historical challenges. And whether the introduction of new technologies might not only further the critical mission of FinCEN, but also the greater mission and creed for of our country, the pursuit of a more perfect union.

The lessons of Tulsa, and Black Wall Street, for all the horror, are not those of the brutality of man. Nor is the moral of the story what was lost, never to be rebuilt. The moral of the story is up to us. It’s up to the people who tell it, who remember it, and who live their lives conscious of it and the innumerable other stories like it. We all have a part in the story. And because that uniquely American story is lived history, each of you has a say in how it guides and heals our country. May you do so, and this great agency, in ways that are worthy of the past — and worthy not to be forgotten.

[1] Yuliya Parshina-Kottas, Anjali Singhvi, Audra D.S. Burch, Troy Griggs, Mika Gröndahl, Lingdong Huang, Tim Wallace, Jeremy White and Josh Williams, What the Tulsa Race Massacre Destroyed, https://www.nytimes.com/interactive/2021/05/24/us/tulsa-race-massacre.html

[2] Tulsa Historical Society and Museum, 1921 Tulsa Race Massacre, https://www.tulsahistory.org/exhibit/1921-tulsa-race-massacre/#flexible-content

[3] Chris Brummer, SEC Black History Address, at https://www.sec.gov/files/c-brummer-sec-african-american-history-month-03172021-508.pdf.

[4] In some ways, individuals can be penalized by the larger, more stable financial services economy for just trying to make rational choices in order to participate. For example, while credit scores are not usually a top factor, how long you have been a customer at a particular bank may be, in addition to how regularly you make deposits and where they come from. Thus if you are a person making some cash on the side cutting hair at your apartment, and you make a series of regular small cash deposits in addition to your weekly checks, that’s going to get flagged as unusual — even where that work may be undertaken to pay off a payday loan.

[5] For an overall exploration of technology challenges and especially solutions facing MDIs and CDFIs, see DC Fintech Week, Future Proofing Inclusion (2021) at https://www.dcfintechweek.org/wp-content/uploads/2021/10/FTW21_Ebook_FINAL_102121-B.pdf.

[6] Among the most relevant in recent years has involved interagency cooperation, and the degree to which government authorities can cooperate in ways to attain the information they need from small banks.

[7] For another seminal piece centering on the cost-inclusion matrix, see Aaron Klein, 3 steps to improve anti-money laundering regulation, at https://www.brookings.edu/research/3-steps-to-improve-anti-money-laundering-regulation.

[8] Some of the most interesting views and interventions have come from the remittances literature. See Michael Barr, Karen Gifford & Aaron Klein, Enhancing anti-money laundering and financial access: Can new technology achieve both?, at https://www.brookings.edu/wp-content/uploads/2018/04/es_20180413_fintech_access.pdf.

[9] William Gallagher, 30 states working on digital drivers licenses, TSA will allow them soon, https://appleinsider.com/articles/21/12/21/30-states-working-on-digital-drivers-licenses-tsa-will-allow-them-soon

[10] For other applications as to how crypto-native solutions might be leveraged to enhance compliance, but also foster integrity and whitelisting, see Chris Brummer, Disclosure, Dapps, and DeFi (forthcoming).