in painting folks as extreme and trying to keep an eye always on the next election and for a while at least just focus on governing, then there is probably 70% overlap on a whole range of issues. a lot of republicans want to get infrastructure done just like i do. a lot of them believe in basic research just like i do. a lot of them want to reform entitlements to make sure they're affordable for the next generation. so do i. a lot of them say they want to reform our tax system. so do i. there are going to be differences on the details. and those details matter. and i'll fight very hard for them. but we shouldn't think that somehow the reason we've got these problems is because our policy differences are so great. >> well, the -- >> a typical day would begin with her coming in in the morning, probably around 9:00.

and she would come in toting a straw bag in each hand filled with some of these things you see on her desk that she had taken home for signing or speech writing or event planning or whatever she was working on. she'd come in. her desk was always very orderly. and as she worked on her desk with letters she was processing or things, when she completed things she'd put them on the floor. she loved this office because she could look out at her alma mater and then a corridor through to the capital in the city she loved so much. we had three office staff at the time. we had a person who handled her calendar. we had a person who came from the white house as her press secretary who helped her work on speeches. and then i was in the office. by friday afternoon she was ready to leave and go to the ranch, which she really called home. and about 3:30 in the afternoon

she would say do i have anything else to do? and if the answer was no she would say tell the secret service i'm ready to go. watch our program on the first lady lady bird johnson on our website. or see it saturday at 7:00 p.m. eastern. and you our series continues live monday as we look at first lady pat nixon. now a hearing on the future of digital currency. members of the senate banking committee also discussed how to better protect consumers online. this is a little more than an hour and a half. i'm pleased to co-chair this joint subcommittee hearing on

the present and future impact of virtual currency.mpact of my friend senator merkley and ir also appreciate the work that senator heller has done. i know senator kirk is going to be joining us as well.one we're going to do this a little different because this is a joint subcommittee hearing. i will chair the first panel. and senator merkley will chair the second panel.s the uses of virtual currencies have proliferated in recent years. my hope for this hearing is to educate the senate members and m others. and start the education of the public about virtual currencies, including their potential and drawbacks. i also hope to explore how regulators are keeping up with g this technological innovation to protect consumers. and i've gotpr a full statement here, but i actually have to he acknowledge that, you know, i'vc been following this kind of development of bitcoins for the

last few months.hs. and i think i'm only starting to wrap my head around the ntial potential up side, down side, regulatory issues, monetary policy issues, taxation issues, consumer protection issues, tha this innovation represents. and rather than going through my whole -- i'll just point out tot the witnesses and those that back in 1982 i had the opportunity to get engaged in a new industry at that point that was on the cutting edge of an innovation called cellular o telephones. and all of the experts at that h point t thought it would take t world 30 years to develop out a wireless network and at the endr of that 30 years about 5% of of

americans would use them. luckily for me the experts weree wrong. and now these devices transform our lives. getting it right from all of the regulatory, financial, consumer points around virtual currencies, bitcoin in particular, could poise as great if not greater challenge and opportunity. and what my hope is this will b the beginningsbe of an effort t come in with open minds to hearu about the potential but to also hear about the important ramifi ramifications around monetary policy, around taxation. think about the notion with this 21 million bitcoins that could be created and as we see

acceptance, i understand the f.e.c. has already allowed s political contributions to be te made in bitcoins. so this is a development that's already in process. but if this becomes a standard currency or tool, it could radically and dramatically transform the role of central banks, monetary policy. tran it could transform -- it has enormous security concerns. i so i am very, very interest ed s this hearing as a member of the intelligence committee. i'm concerned as well about the potential abuse of this velopmen development. but i think as we see now aboute somewhere between 10 to 12 million bitcoin that's have beee mined and just the reactions yesterday from senator carper's hearing where i believe bitcoin spiked at over $700 per unit., r

we're talking about a currency that has already been monetized and we as policy makers in wayse will have to catch up. so i'm very much looking forwara to this. really appreciate my colleagues and in particular senator merkley's interest in this. and with that i'll turn to senator heller and we'll go back and forth with just a couple ofc quick opening statements.k witha and then i'll get to introducins the wintszs. and >> thank you, mr. chairman.ommie i want to thank you and chairmag merkley for holding this we're subcommittee. i think we need to have more of these. and with that i'll keep my statement relatively brief. today we're here to learn aboutn virtual currencies and cryptocurrencies.cies. the most popular of which of course is bitcoin. while generations in nevada have mined for gold and silver, copper, today nevadans can now l

mine for new virtual currenciess on their computer. while these virtual currencies a are not yet widely accepted, th number of users continue to grow. and we must recognize that these innovations decentralize digital payment systems. today i look forward to learning about the long-term viability and practicality of virtual ticy currencies. i also want to learn how various government regulators interact i with virtual currencies, which by their design are meant to ben independent, of course, of any government. i will end with this note. the internet is a new frontier of innovation. is new with every new internet-based technology i believe that members of congress should sh recognize we often don't knowoun what these new advancements wilw develop into. adv while we must ensure proper safeguards, it is my hope that c through hearings like this we nt can help maintain an environment that helps promote new technologies and innovative growth. thank you again to my n colleagues. i look forward to hearing all ow the testimony from our witnesses. >> senator merkley.

>> thank you. and it's a pleasure to co-chaira thisir gathering. i see by the full room the level of interest and enthusiasm in this topic. certainly this is a new technology strategy that has a tremendous number of implications. the wave of innovation is he wor reaching into the world of curren currency, payments, and money transmission. we've all heard about exciting developments such as mobile payments and companies like square which rely on classic com banking system payments. this latest generation of technology, which we're talking about today, takes things to a whole new level. with the creation of virtual currencies like bitcoin and more recently ripple, we're actually seeing payments transacted entirely with peer to peer trust driving the stores of val krewe. combined with open source code and a public transaction ledger listing every transaction, virtual currencies are truly a completely different animal.t similar to the ways that the e last decade's innovations out of the silicon valley and silicon forest have improved people's

lives -- i had to throw silicon forest in there because that's r inow oregon. developments in virtual currency have real potential to provide r value to american consumers and businesses.zens and lower transaction costs. more secure money transmission. these are significant qualities. at the same time leaving this space unwatched and unregulatedn will all but ensure it is full i of pitfalls for userlls and lawa enforcement alike. we've had recent news about illicit activities, narcotics, money qularngd. we've had rapid fluctuations in the value of the market for the bitcoins p p we have questions about consumer protections. and there are certainly therefore a lot of issues aboutr whether virtual currencies are ready for primetime. today's hearings will explore is the current and future state of virtual currency, especially ho it affects core financial ia services that families and businesses rely on to move mone and make payments.a whereas the potential for and innovation and opportunity and where are the gaps and weaknesses along the way? i wanted toga note, i have a g

recent article here called ses businesses enter the world of digital currency. back in 2009 greg abbott, the owner of withee's fried pies, e was hanging out with a bunch of tech enthusiasts along his food cart and he was discussing the s potential of the then new online currency known as bitcoin. and one of the folks hanging out, an early investor, offered abbott 1,000 bitcoins for one of his hand pies.pies. he says, "i didn't say no.he s i just got distracted and the n. individual wandered off."in and he says, "that was a stake. $250,000 mistake.. silly me."based on well, based on yesterday's value that was a $700,000 mistake.n that certainly would have been the most expensive pie in the history of humankind. this is absolutely fascinating. by the way, he did proceed to start accepting bitcoins as a number of portland facilities have done, using a mobile app

that converts from dollar co bitcoin to dollar and back and forth based on the most recent exchange rate.rate so. this is actually a functional, viable technology at this very moment. so with that senator kirk. senar >> senator kirk. >> thank you, mr. chairman. not just thank you for gathering us together on this bitcoin effort. i would say that i have been i o worried about bitcoins, that rrd because it's so complicated it could -- it could facilitate illegal activities or terrorist activities. >> thank you, senator kirk. sen and i think that's obviously one of the focuses we'll work on ine this first panel. let's get to the witnesses. let's get to the real experts.es the firsset panel, as mentioned will focus on the governmental side. the second paneler will focus ml from some of the advocates, and i think it will be an interesting afternoon. we have ms. jennifer

shaski-gavari is the director of financial crimes enforcement network. prior to joining treasury she was chief of the asset forfeiture and money laundering section at the u.s. department of justice. as chief miss shasky-cavalry managed a justice department program responsible for the of annual forfeiture of more than 1.5 billion in criminal assets and related programs to make hoe sure those assets were returned to victims and reinvested in law enforceme enforcement. she's also testified before congress on a wide range of issues including transnational organized crime, financial nal crime, state business me, incorporation practices, and this one will please break some new boundaries as well.mmonwe welcome. mr. david kameny has served in that position since november 2010 over seeing over ng200 ban and credit unions with assets in excess of 325 billion.cotney

mr. cotney is an active contributor to consumer protection efforts both in massachusetts and nationally. in 2013 he was elected as vice chairman of the board of directors of the conference of state bank supervisors whose behalf he testifies here today. mrs., mr. cotney. miss shasky-cavalry, if you could start. >> chairman warner and merkley, rafrking members kirk and heller and members of the subcommittee. i'm jennifer s hachlt sky calvery, the director of the financial crimes enforcement network. i'm pleased to be here to i'm he discuss the work we're doing at finsen to prevent illicit actors from exploiting the u.s. financial system as technological advances such as g virtual currency create new ways to move money. recognizing the potential for abuse of emerging new payment a methods anymd understanding tha anti-money laundering l protections must keep pace with these advancements, finsen begag

working with our partners several years ago to study the issue. here's what we learned.le illicit actors might decide to use virtual currency for many of the same reasons as legitimate a users but also for some more us nefarious ones.specif specifically, an ullist-it actor may choose to use virtual ency b currency becauseec it provides anonymi anonymity, is easy to navigate,y may have low fees, is accessiblw globally with a simple internet connection, does not typically have transaction limits, is generally secure, and provides a loophole from the aml cft reg regulatory safeguards in most mt countries around the world. indeed the idea that ill lits actors might exploit the vulnerabilities of virtual currency to launder money is not theoretical.to l liberty reserve engage in a 6 billion major money laundering e operation. and just recently the department of justice addressed that y, customers of silk road, the largest contraband marketplace on the internet, were required t to pay in bitcoins to evade y

detection and facilitate launders hundreds of millions of dollars. that being said, it's also important to put virtual currency in perspective. it's been publicly reported that bitcoin process transactions worth approximately $8 billion p over the last year.last but by way of comparison, in in 2012 bank of america alone made $245 trillion in wire transfersa thus, while of growing concern l to date, virtual currencies have yet to overtake more traditionar methods to move funds whether for legitimate or criminal none purposes. nonetheless, to address growing concerns, in july 2011 after a public comment period fincen released two regulations which update several definitions and provide flexibility to t accommodate payment system g innovation including virtual currencies under our pre-existing regulatory framew framework. then last more fincen issued additional guidance to further u

clarify the compliance regulations. in short they're required to register with fwincen, put aml controls in place, and provide s certain reports to fincen.n repo it's in the best interests of virtual currency providers to u comply with these regulations. any financial institution could be exploited for money laundering purposes. what's important is for poses. institutions to put controls in place to deal with those money laundering threats. at the same time being a good e. corporate citizen and complying with regulatory responsibilities is good for a company's bottom line.om every financial institution needs to be concerned about its reputation and show that it is operating with transparency and integrity within the bounds of the law. legitimate customers will be drawn to a virtual currency or administrator or exchanger wher they know their money is safe ny and where they know the company has a reputation for integrity.i and banks will want to provide r services to administrators or t exchangers that show not only great innovation but also great

integrity and transparency. the decision to bring virtual currency within the scope of oun regulatory framework should be viewed as a positive developmen for the sector.or it recognizes the innovation virtual currencies provide and the benefits they might offeprr society. several new payment methods in the financial sector have proven their capacity to empower customers and expand access to financial services. we want such advances to continue. however, those institutions that choose to act outside the law will be held accountable. fincen will do everything in its regulatory power to stop abusesl of the u.s. financial system. we have proven our willingness . to do just that by using our targeted financial measures nes under section 311 of the patriod act to name liberty reserve as a primary money laundering concert and take steps to terminate its access to the u.s. financial system. we stand ready to take additional regulatory actions a necessary to stop other abuses.s as the financial intelligence unit for the united states, fincen must stay current on how, money is being laundered in the

united states so that we can share this expertiseow with ourn domestic and foreign partners ri and serve ass the cornerstone o this country's amlcft regime. we are meeting in obligation in the virtual currency space as we continue to deliver cutting edge analytical products to inform the actions of our many r many partners.as m the administration has made appropriate oversight of the ove virtual currency industry a priority and fincen is very encouraged by the progress we have made thus far. thank you for inviting me to testify before you today. i would be happy to answer any questions you may have. >> thank you so much. mr. cotney. >> did you.merkle good afternoon, chairman warner and merkley, ranking members kirk and heller, members of the submit. my name is david cotney and i serves t as the commissioner of banks for the commonwealth of massachusetts. it is my pleasure to testify before you today on be-half behalf of the conference of ou state supervisor.hold i thank you forin holding this n

hearing today to address the risks and benefits of virtual currency. theri risks of virtual currency include consumer protection, payment systems, national ity, m security, money laundering, and other illicit activities. the potential benefits are also differ.fits are speed and efficiency, lower transaction costs, and providin an outlet for the unbanked and underbanked. with these evolving payment technologies states are exploring the connection between existing money transmitter regulation and virtual currencies. state regulators have long supervised money transmitters to protect consumers and preserve national security and lawnete enforcement interests. state regulators are talking with industry and other regulators about evolving methods of moving funds. this includes virtual currencies, prepaid cards, vir mobile services, andtu peer to pier transactions.

state regulators believe that ae open dialogue among regulatory, industry, and other stakeholders is key to accomplishing the goal of determining the appropriate level of oversight and supervision. emerging payment technologies e and alternative currencies are at their core aboutar the movem electronic movement of other people's money. this is not unlike the activities of money transmitters, for which the states have an established structure for regulation and oversight. licensing is the foundation of supervision, ensuring businesses in a position of trust are legitimate and accountable. an entity seeking a state license must submit information to verify their credentials typically including criminal background checks, business statements and surety bonds. state regulators examine money transmitters on an ongoing basis ensuring that a company does noc

lose its customers' money and complies with consumer protection laws. further, states actively examine for bank secrecy act and oordint anti-money laundering requirements coordinating with fincen and the irs. in addition to licensing and examinations, enforcing is a key part of state supervision. after working with the brazilian central bank and two private h banks in brazil my division earlier this year found evidencr of forgery and ongoing illegal conduct by a licensed money transmitter. relying on existing state to state coordination processes, 37 states were able to ensure that all customers were made hole after we shut down the company.e cooperation has been a hallmark of state supervision, manifested in a uniform licensing system for all states. originally developed by the states as a mortgage licensing platform and codified into

federal law by the safe act of 2008, the nationwide multistate licensing system has become an integral part of state supervision for a variety of non-bank financial services providers. massachusetts and 14 other states currently use nmls as the wliensing platform for money inh transmitters and 14 more will start using the system in the next year. to improve the state asability to use the nmls for other licenses like money transmitters i want to note csbs's support for s 947, which enhances the safe ablths protection for confidential information. to address the rapidly changing technology and payments landscape csbs continues to explore policy options for digital issues facing regulators. we look forward to working with congress and policy makers to continue a collaborative approach to all innovative

financial products and services, ensuring individuals and economies are well served. thank you. and i look forward to answering any questions you may have. >> thank you both for your testimony. i will put five minutes on the clock and go back and forth. i'll pick up on something his o senator heller did if his opening statement, as i try to wrap my head around this.he we have to strike the right balance since we're talking about here no governmental enti entity. we're talking about the anonymity that is allowed to take place, the ability to set up these exchanges with very little oversight. if we lay too much regulatory burden we could simply chase che these exchanges offshore and ant still leave americans unprotected. so i guess my first question for both of the witnesses is we're b talking about this as a currency

but have we really determined even that? there are some who say this may simply be an internet protocol. or is this a security? have we thought through -- or is it a currency? and from fincen and also david, if you want to make a comment as well, has fincen consulted at all with the s.e.c. or the cftc as you've started to develop your guidance? and then mr. cotney have you answered the question as well? is there any kind of international convention as you talked with the brazilians, how they're categorizing this development? >> so thank you, senator. i'll attempt to take those questions in turn.se so first on the issue ofna is ia currency? fincen is the regulator for anti-money laundering and counterterrorist finance ever

purposes. we've never opined and still are not opining as to whether virtual currency is a real currency, a commodity, as those questions are really outside our purview. what we do recognize is that it exists and that it's operating and value is being transferred through the u.s. financial system and as such we need to th protect that financial systeatm from illicit actors. so we were able to cover it under our pre-existing definitions and regulations, which include the concept of other value that substitutes for currency. so we did not need to take a no position. but in terms ofpo have we consulted with other regulatory bodies here, at least federally, and the answer is we have. again, as a part of our rulemaking and our guidance on our narrow lane and issue, we spoke with fbi, the secret e, service, d.e.a., ice, fdic, occ

irs, the federal reserve, ncua -- and -- ticate >> andd they all this sophisticated opinions? >> now, that i'll let them answer. but we did consult with -- including cfpb from the consumer fraud perspective. but you know, we've consulted with all of them as we can. this is a developing and innovative arena. we were lucky to be able to cover it under our pre-existingi ralss. as we talk to our counterparts abroad which was the last portion of your question there is great interest in federal s regulators abroad as they try ts get into what is this and what does this mean p. our german counterparts like usl had fairly flexible regulations in place that they could fit this within pre-existing regulations. so they've done so. and other countries thus far have been asking us to see whats we're doing and why. and finally i understand the

financial action task force, ps which is the aml standard-setting body for the p international community plans to take up this topic. >> mr. cotney? >> in answer to your first question about the level of regulation, that's exactly what the states are trying to do by working with our colleagues, ese both state and federal do w regulators, law enforcement, working with industry, to make sure we have the appropriate level of oversight and supervision and that we have tho tools to detect and prevent ueso illegal activity. in terms of your second questio on international regimes i think it's important to note that many of these evolving alternative a payment systems are in response as we've r demand and seen in europe and as we've see in canada and elsewhere there are -- there is a big demand fon more real-time payments at lower transaction costs, including thi transmission of money from one

country to the next. there are many members of europe and canada that have embarked on efforts to speed the payment systems. ours has not really evolved substantially in the last 40 years. so i think now is the time to be talking about this subject. >> let me turn this to senator kirk. i know he'll press on some of p the potential for abuse. but i -- you know, i may want to get back to some of the folks from treasury at some point because i do think there could at least be the potential of serious implications about li monetary policy. we have taken -- even though with congress's recent actions sometimes we seem to be jeopardizing america's status as the reserve currency with some of our i think mistakes we've made. but if you think a little broadly this could have huge, huge implications.d to i'm looking forward to pursuing

this. senator kirk. >> thank you, mr. chairman. i would just ask jennifer a quick question. have we seen any recognized terrorist group ever express er interest or actually use bitcoin for its operations?opera >> so we've certainly recognized the possibility and the vulnerability there. there's nothing in terms of information in the public domain about a terrorist organization expressing such interest or using it. but we would always be more than happy to have any outside briefings to discuss that topic further. >> thank you. over to you, mr. chairman. >> senator merkley? >> thank you very much. i wanted to ask a couple things related to different forms of crimes that -- quote crimes thaa have occurred with bitcoins. the first thing i want to ask i there is a centralized public ledger that's encrypted. so the anonymity is