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tv   Politics and Public Policy Today  CSPAN  November 24, 2015 9:00am-7:01pm EST

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i can't commit to that because we have an open period of comment until january on this. what i can say and i think we talked to this to some degree -- in fact, i know we did on the phone. the proposal, although, again, we have a number of comments. weighing very seriously but in the proposal we have tried the staff has tried to build in -- it's not just sort of one letter which is a risk and would be solicited on the issue. they have received in choice, the proposal tries to address but i fully take your comment about switching the presumption basically. >> my mom, who i love dearly, is 87. she can barely use a cell phone. and, you know -- >> but, again, she would have the option not to receive it. she could get paper.
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i fully take the concern. >> i thank you very much. i'd like to move, chairman white. our financial industry is the envy of the world and it gives all kinds of options to save for retirement or kids' education and, also, is the backbone of liquidity to our economy that allows us to grow and raise capital and hire more workers. i'm very concerned, you and i talked about it this summer, asset managers and pension fund managers being designated and, in particular, i know there's been a movement through some of the other folks who come before us that you're start iing to lo at activities instead of asset size. would i like to ask you if i can right now what activities are a concern of yours because we manage a couple different pension funds, his performance is better than mine. my clients would go to his and
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assets are not on balance anyway. if something happens to me it's no systemic risk to the economy or to the capital markets. >> and i think that's why you've seen the activities. liquidity risk management kinds of issues just to make sure that in an open end fund you're entitled to get your money right away. assess managers and other people not even under the s.e.c.'s jurisdiction, does it pose a risk. there are no answers there. it's really just asking questions and i think it's good to ask those questions. >> i will submit to you, mr. chair, chair white, theres no risk in the business model to the economy and please look at that carefully and make sure with your position on the international regulatory bodies that you make sure that we stand
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up for american asset managers. thank you very much. have a wonderful thanksgiving. >> thank you. you, too. >> madam chair, thank you for being back before the committee and congratulations on a good gao audit. i know that makes every management team smile when you get that, and also congratulations on clearing up some of your 50 front burners, maybe down to 50 or so now. i'd like to start out by talking about equity market structure. there was a piece written about suggestions on challenges that we've seen including references to this summer and you've now formed a structure advisory committee and a couple of comments about that i'm concerned about, i'd like to get your thoughts. i understand they plan to have
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subcommittees meet in private without mi traany transparency. i'd like your thoughts on that. and then i noted that the overall membership in the committee didn't include nasdaq. it didn't include the new york stock exchange. it didn't include a big retail broker deal, and i come from the retail broker dealer space so i'm always concerned about best execution, the promise that we make to you as our regulator to achieve best execution so i'm concerned that those entities are not involved in your market structure advisory committee. could you respond to that, please? >> yes. i'm happy to respond. all five of us went through a lengthy process of vetting and trying to diversify from points of view, expertise, the 17-person committee, which is what it is by charter. and so there is an exchange
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obviously represented on the committee. there actually, as it turns out, two other representatives who were formally actually at primary listing exchanges as well. there is a representative who represents the retail brokerage, you know, point of view, although we still keep looking at that. i mean, and we've clearly had requests for others to join. one of the things we've done and, again, this is something you keep looking at because you want that diversity of perspectives, is to structure that committee so that we get input from others from every constituency whether it's retail broker or it's nasdaq or the new york stock exchange. each of the meetings in effect is a roundtable where we have nasdaq and new york stock exchange. and the subcommittees, that's something that the other advisory committees use to great effect to get things done but they don't decide anything and they're also able to open at
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least parts of their meetings if they choose publicly. >> let me urge you to open those meetings or parts of those meetings. let me urge you to make sure you get full complement of those who want to participate in the process and the retail industry and particularly you can say you include exchanges but to not have the two leading exchanges, nasdaq and the new york stock exchange not represented strikes me as shortsighted. let me switch gears. generally in your experience, i know you have an enforcement and legal background and itch an investment management background, do you believe retirement fund managers have the principle obligation of maximizing long-term returns for their beneficiaries and a general thing you bring to the table as a belief is their primary objective? >> look, i don't -- i think -- maybe it's because of that legal background and the s.e.c.'s jurisdiction you want to serve
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the best. >> if you have full discretion over an account and you're an investment manager, you have to act in their best economic interest, wouldn't you say? >> yes. >> that causes me concern about a recent decision by the department of labor, not the if i douchery standard, but secretary perez has recently encouraged and given guidance to institutional managers that environmental, social issues are equal to economic return issues world of underperforming defined benefit plans that aren't fully funded and yet we have direction from the guy who is in charge to look at other things besides economic performance. want to take a response at that? >> do i want to or -- would you like me to? >> it's so much fun to do it. >> i don't want to comment on a specific comment.
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i will say i think what you -- it's a little out of my -- i think what you are trying to do is serve the best interests of your client. you can have a client, you know, who says, look, i care about this, this and this as you invest for me, but that's really up to your client. >> we're not fully funded in economic returns or how we achieve that, and i think the department of labor is way off track there. the last question, you've got some vacancies on the commission and would you commit to this committee that you wouldn't bring controversial or elements up if you don't have a fully functioning commission that has bipartisan members on it? >> anything can be controversial. i think -- >> true. any big, major issue follow on that we're working on? we're concerned you're not going to have a fully functioning commission and we'd like your commitment that you'd be cautious about what you try to bring through the commission without fully confirmed bipartisan appointees.
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>> i do think the work -- right now there are four of us. i guess one independent, one republican and two democrats. we're moving forward with our agenda. i think we can. but i will say, i mean, i take everything into account. we should proceed. i don't know obviously how fast confirmations, assuming they occur, which i assume they will occur, but you sort of read your agenda as you go along. >> thank you. i yield back. >> mr. rothfus. >> thank you for being with us today. i want to touch on the -- some of the folks have been talking about the corporate bond market. i want to ask you a question about that. has there been an analysis of the systemic risk that could result from a lack of liquidity in the corporate bond market due to regulatory initiatives?
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>> i don't think as phrase d tht way. obviously the four or five of us who report to this committee do that kind of assessment at least in terms of the volcker rule. >> as you know the chairman reached out to you at the beginning of the year for a status update on a number of initiatives designed to if ed e facilitate capital formation rather than focusing on politically divisive issues. the chairman asked for the status of s.e.c. efforts to modernize the rules governing transfer agents. this topic is of interest because the rules have not been updated. it is a rare occurrence when you have bipartisan support within the s.e.c. given that former commissioner gallagher and current commissioner aguilar's statement in june of this year. in february 2015 you stated in your response letter that the
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s.e.c. staff is considering recommendations. i would like to follow up with the chairman's request for a status update as of today. >> we're quite actively focused on the transfer agent issues. i don't want to get ahead of a specific date but i think you'll see something coming out quite soon. in the next couple of months. >> in what form would that be? >> i don't want to say that until it comes out. one of the things you're having to balance is because we haven't updated it for 40 years, you need some data to inform yourselves in terms of some of the things you might propose. there may be other things that you can tee up as a direction you think you're going in as part of that. so that's really what we're trying to balance, to be aspin pointed as we can but also get the input we need by whatever form we put this out in.
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>> you haven't made a determination whether there will be a release? >> we have not although we're thinking about maybe some combination. >> mr. gallagher and mr.al gar said a lengthy delay will be bad for the markets, investors and issuers, a concept to release may be warranted to gather viewpoints on certain topics but there are critical reforms requiring immediate action that we can propose now. would you agree with that? >> yes. not only do i agree with that, i asked them to do this. in other words to come back with areas of agreement. so i do agree with that. >> you have questioned whether s.e.c. disclosure powers are best used to meet -- to address societal ills, other mandates, the mandatory disclosure exerting societal pressure to
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change behavior rather than to disclose financial information that informs investment decisions. that is not to say that the goals of such mandates are not laudable. indeed, most are, seeking to improve safety for workers or to end horrible human rights atrocities in the democratic republic of the congo which as a citizen i wholeheartedly share. but as the chair of the s.e.c., i must question as a policy matter using the federal securities laws and the s.e.c.'s powers of mandatory disclosure to accomplish these goals. closed quote. what is the cost to investors when there is an overemphasis on requirements that seem to be targeting societal ills rather than what may be considered material, closed quote, by a company? >> it's hard to say what the cost is obviously. investors can see things differently. i think i went on in that speech to say, though, if there's a congressional mandate, even as described in the prior remarks,
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i do consider that our obligation to carry out. >> as you know last april the s.e.c.'s conflict rule violated the first amendment because it required companies to shame themselves. given the political nature of the pay ratio rule, is it unreasonable to assume that the pay ratio will likely also violate the first amendment? >> we studied that precise issue and believe it come ports wipore first amendment. >> it was proclaimed the s.e.c.'s corporate disclosure regime has been hijacked with a activists. do you agree that the rules are meant to serve investors and not special interests? >> i certainly agree that our disclosure regime is meant to serve investors. again, if they're mandated disclosure rules, we are mandated to carry them out. it's the law. >> how does it serve investors over special interests? >> i think, again, if it's in the release, i think what the pay ratio rule does is -- and it's mandated rulemaking
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obviously -- is to provide investors another data point in judging a ceo's compensation. that's the finding in the release. >> i yield back. >> thank you. >> thank you, mr. rothfus. it looks like it's just us. >> okay. a couple things. you've always been fine to me, your staff has been terrific. because of that i'm going to yield myself as much time as i can consume because i have a lot of questions. you already hit the clock on me. okay. this -- i'm going to ask you almost for a narrative answer on this and pretend no one is watching. being someone who is both, i think, intellectually and emotionally vested in reggae plus, let's use jobs act and the crowd funding portion. almost four years.
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almost four years beyond when the rules should have been done and something that from the iq you have around you and yourself should not have been very complicated. could you walk me through what happened? >> i think three years, i think, not that that answers you. >> three plus. let's call it three. your staff and others were kind to let us see the letters coming from certain union front groups and other groups that disparage crowd funding. help me understand. this is to be about resources. was this a resource issue. was this a political issue? was it an intellectual capital issue? why so long? >> clearly i won't -- but i have already described how our need for resources really across-the-board.
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this is one where, and i believe i testified to this in march. we knew this would be complicated going into it because the statute is prescriptive in some areas. funding portals which are enormously important to investor protection is a complicated piece of that as well. so we did our proposal. we got it out pretty quickly after i got here, i think. and then the comments came in. we have to work within the statute when it's prescriptive. >> also the statute had some deadlines, too. >> i'm just saying we do need to observe those. obviously some places give us discretion. some places don't. and the goal is to make it workable and to safeguard investors in the new marketplace. and that proved to be very, very
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difficult. >> and what i was asking you in my question, and i need to do this in writing because some is uncomfortable. the power of certain activist groups to delay something at the same time both the right and left get behind microphones and talk about the need for growth and the new economy and the future that brings us and some of the things, take three years to get a rule set done. >> again, i'll give you my own perspective, talking in the context of crowd funding. this was pure on the merits, get it workable, to protest investors. there's no politics, no activism, no anything. >> at the same time, a dozen, half a dozen, did their own rule sets and are up andbvh5z runnin. >> they also did not have the same statutory framework we had to work with and it's not a if he had rule. i mentioned it earlier. one of the really important, i think exciting things we did the same day, are these amendments
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to rule 147 and 504 because that is really quite solicitous of the state crowd funding statutes, too. obviously it's a proposal at this point. i think that is a good thing. >> if done robustly, there is actually an interconnectivity there that could be very helpful for the economy. and this is one of those -- because i was walking out to grab a meeting, i thought i heard something in a previous question i think with representative luetkemeyer and it sounded like the additional regulatory scrutiny when an investment organization will pledge holdings for shorts or a loan on their book. did i pick up something there? >> i don't think so. >> the last one that's also important to us, we accept your commission, the board right now.
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you're short one republican. there is a certain nervousness out there that in the waning days of an administration the independence of the s.e.c., this is more just a request for your greatest prudence as rules are being brought for a vote of yourself and your fellow commissioners that you are short-handed. and something that would be controversial have a cascade effect be dealt in the light there's a voice missing. >> i think literally and otherwise i'm extraordinarily independent. we try to do these rule makings on the merits. i think we've had an allusion to the votes and that's a landscape at this point in time. i think we need to move forward with the agenda. i will be sensitive to all things.
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>> and because i have no one else waiting and i'm going to give myself a couple extra moments here, for the s.e.c. and your team, how much interest and focus is there, shall we say, on the new economy as we cecil con valley is spending lots and lots of resources trying to find ways to provide products, lending products, crowd funding platforms or other types of platforms. do you have someone on your team that is specializing in trying to say this is our future, this is coming at us, here is new technology? >> yes is the answer to that. one of the things we've been doing the last several years is to make sure that we have -- i'm going to call it the market expertise but the points of view -- >> are there some things, this is one of the things in our lives that may be bi-partisans, some of the things we can do as policymakers to provide you tools or statutory mechanics to
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allow you to embrace and run with those ideas that are good and do it as fast as;;4 possibo we're not slowing down. >> what really helps us is that outside expertise genius, that we make sure we have in house when we do that. >> chairman white, thank you for your patience and the time you gave us today. >> i'd like to thank our witness and without option all members will have five legislative days in which to submit additional written questions for the witness which will be forwarded to the witness for her response. i request that you please respond to promptly, which your team has been pretty good on many of the things we have sent you. without objection, five legislative days to submit extraneous materials to the chair for inclusion in the record. and with that this hearing is
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adjourned. congress is on its ten-day thanksgiving recess. monday, november 30, the house convenes for legislative business at 2:00 p.m. eastern. the house is expected to take up energy legislation that week.
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live coverage is on c-span. and on c-span 2 the senate comes back at 3:00 late they're day the senate begins debate on the nomination of gail smith to be administrator of the u.s. agency for international development. c-span presents "landmark cases" the book, which explores 12 historic supreme court decisions including marbury versus madison, koramatsu versus the united states, brown vs. board of education, miranda vs. arizona and roe vs. wade. features introductions, background, highlights and the impact of each case written by journalist tony morrow and published by c-span with an
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imprint of sage publications. "landmark cases" available for $8.95 plus shipping. get your copy today at c-span.org/landma c-span.org/landmarkcases. the senate homeland security committee last week held a hearing on the terrorist attacks in paris and whether the u.s. should change its refugee policies. testifying before the committee anne richard who heads the bureau and leon rodriguez. ron johnson chaired the almost three-hour long hearing. this hearing will come to order. i think it is appropriate that we begin today with a moment of silence.
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out of respect for those individuals that have lost their lives in paris and beirut and egypt over the last three weeks with the result of isis' barbaric activities. so a moment of silence, please. thank you. welcome our ranking member. >> thank you. >> when i took over chairman of this committee working with senator carper, we developed a rather simple mission statement for the committee. it is simply to enhance the economic and national security of america. we've committed ourselves to that. the threat of isis, of islamic terror, threatens both. i mean, we have seen the tragic
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loss of life repeatedly. obviously, that threatens national security. but think of the economic harm, as well, that these acts of terror result in. so it is fitting and appropriate that this committee of the senate committee of homeland security government affairs take up this very serious issue of the threats that isis poses across the board. now, in speaking with ms. richard earlier, she acknowledged the topic, primary topic is about the administration's plan to allow about 10,000 refugees in from syria. we are compassionate. a humane society. and so i think as we have had secure briefings, we're going to lay out the reality in terms of what the vetting process will be to make sure that we maintain a secure nation. that we minimize if not eliminate the risk that any of those refugees may cause america.
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so i think we have had secure briefings. i think we are going to hear a pretty robust vetting process and so i really do appreciate not only the department of homeland security with u.s. c.i.s. and mr. rodriguez and the state department sending ms. richard here. this is very short notice but i truly do appreciate and i think everybody on the committee appreciate it is fact you're taking the time to lay out that reality for the american public. refugees could pose a risk. but i think when we take a look at what the vetting process will be and we consider all the risks that isis poses to america, we may find there are far greater risks. i think in our briefings we had questions by members of our visa programs, the visa waiver program or student visas or the whole panaplea of visas we offer. what type of controls, vulnerabilities, how are we exposed because of the openness of our society? i think all of these things are very appropriate questions. and i think they definitely need to be explored.
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but if you really want to tick a look at where we are most vulnerable, this committee dedicated itself as a priority is border security. we have held 12 separate hearings on that problem, trying to lay out the complexity, the difficult nature of that problem. and the conclusion that certainly i've come to, i think most committee members have come to is our borders are not secure. a few members including senator carper and i made a trip down to honduras and guatemala a couple of weekends ago and there was a new -- apparently not new. first time i heard this. i heard otm, other than mexico and described in the committee hearings, this is frequently people from central america. but when we were down i believe in guatemala, i heard a new term. sia, special interest aliens. currently most of those are cubans coming in through central america taking advantage of the
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dry foot policy in terms of immigration law. but we're also told it includes syrians and somalis and pakistanis. this is a concern to us. i believe there were five syrians just apprehended in honduras. we had some syrians apprehended at the border. we don't know what threat level. it is reported they weren't a threat. but this is serious concern. we have heard now the new government in canada is going to open up and potentially streamline their refugee program to allow 25,000 syrian refugees. we certainly discovered in this committee that our border with canada is far from secure. again, our border in the southwest is very, very far from secure. the one metric that stands out in my head, proving how unsecure our border is, general barry mccaffrey testified we are only interdicting between 5% and 10% of drugs coming in through our southern border. so, again, we've got to look at all of the vulnerables. we'll talk about the refugee and vetting process and fitting we
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do so and we really do need to understand the threat that we face. it is real. it is growing. and coming from manufacturing background, i've done a lot of problem solving. and the first step in solving any problem is first laying out the reality, acknowledging that reality, looking for the root cause. and let's be honest. the root cause of the problem is that isis exists. that it was able to rise from the ashes of what was a defeated al qaeda in iraq. and so, what we need to do is address the root cause. the refugee crisis, the flow into europe, the fact that we're even here today considering bringing in on the basis of compassion refugees from syria. that is a symptom of the problem. the root cause is isis. and so, the solution is committing this nation together with a coalition of the willing of the civilized world to
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destroying, to defeating isis. that's a goal that president obama stated. degrade and ultimately defeat isis. i would argue ultimately ought to be very, very soon. so, again, i want to thank the witnesses. not only this panel, the next panel, for taking the time for your thoughtful testimony. i look forward to the questions. with that i'll turn it over to senator carper. >> thanks, mr. chairman. let me just set aside by prepared remarks. i would ask consent they be submitted to the record and make a couple comments if i can. a lot of attention paid to refugees coming from syria to the united states. in the last year there have been about 2,000 refugees. it's not an easy process to go through as my colleagues know. it's a process to make as much
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as two years. and it starts with vetting by the united nations, one of their high commands. and if folks make the cut to get to the next step then they go through a bunch of screens, personal interviews, in person interviews. data to the extent that we have data files to check, we do all those. dhs does some. we work with other countries with whom we're allied. out of the 2,000 that have come in as refugees in the last year or two, about 2% were military-aged males. 2%. of the folk that is have come to our country so far i'm told out of 2,000, not one person is arrested. not one person's been arrested. it takes two years and it's a process that if i were a bad guy trying to get in, that's the last place i'd try -- last way i'd try to get in.
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if i were trying to -- a bad guy, i might try a visa waiver program or a student or a tourist. and good news. i understand now the four french nationals who were killed in paris either three or all four of them folks who never would have been allowed to get on a plane because we had suitcased in terms of who they were, they would never get on a plane to come to the u.s. one of the things that challenges for us is i think is to understand -- had a hearing already on this visa waivers as i recall. and we need to dust off the books and see what we have learned. in terms of how we're strengthening the program. a lot has been done. what started off as a travel facilitation program has now become an information sharing program. with 38 other nations. and in order to participate in the program with us they have to agree to provide our assess to every kind of data and intelligence file we ask for. if they don't, then they're not
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included as one of the visa waiver countries. one of the latest, one of the other developments is not too long ago was if you want to be a visa waiver country, of these 38 countries, you have to make sure if a passport is stolen or lost it is reported to interpol and then when someone shows up to try to come to the u.s. or some other place, they can be stopped in their tracks. preamble to the constitution says to form a more perfect union. my guess is that as much as we're trying to make the visa waiver program better, it still isn't perfect. and our goal should be perfection, and we're going to work on it every day and i think there's things we can do legislatively and hopefully in this committee and work with colleagues of jurisdiction. the last thing that i would say, we have -- we face a moral dilemma here.
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the pope was in town two months ago. spoke to all of us. invoked the golden rule. invoked matthew 25. did you take me in? everybody stood up and applauded and the joint session you may recall that when he said those words and now we're not so sure we believe those words and we have a moral imperative to the least of these. to treat people the way we want to be treated. we have an equally strong morally imperative and i think a duty by virtue of our oath of office to make sure that we don't meet that moral imperative to the least of these by putting at risk the citizens of this country. and the question for us is can we do both in can we do both? i think we can and i think morally and just by common sense we need to do both. our challenge is to figure out how to do that, thread the needle, build on the good work that needs to be done. last thing i'll say is this. what the department of homeland security is doing good work and
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committee of large muslim population in this country, just to try to make sure we're inoculating against the success and the chairman mentioned this, the success of efforts to use social media to radicalize our own people and there's a request by the administration to increase the funding for that program. it seems to be working and i think as we consider the appropriations bills i hope we keep in mind what works and doing more of this and lastly, there's a guy, a fellow named adam zubin i think who is -- senator is that right? adam zubin. heavily involved in a leadership role and trying to cut off iran's access to international financial markets. when we were trying to cut off north korea and their access to international financial markets and i understand he's been nominated to -- at a very senior position in treasury and there's
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obviously work that still needs to be done and can you -- senator heitkamp, is that still pending? >> it is pending and the hearing is completed. pending vote in in the banking committee. >> this committee's done great work making sure that senior level leadership, department of homeland security, vacant positions year and a half ago, they have been filled and done very good work in that regard and this is another nomination that's going to be very helpful in terms of the root cause, cutting off isis money. it's all good well and good to face them on the battlefield. we have a good guy willing to serve. we need to get him done. thank you. >> thank you, senator carper. i also have an opening statement to enter into the record without objection. a couple of housekeeping items. great we have such strong attendance and going to limit questions to five minutes. i thought there might be a few acronyms thrown around and i had the staff publish a little acronym glossary here. speed things along.
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a 13-step vetting process, just put out by the u.s. committee of refugees and migrants and help the committee asking questions. it is the tradition of this committee to swear in witnesses so if you'll both stand and raise your right hand. do you swear the testimony before this committee will be the truth, the whole truth and nothing but the truth so help you god? thank you. please be seated. our first witness is ms. anne richard, the assistant secretary of state for the bureau of population refugees and migration at the u.s. department of state. prior to her appointment, ms. richard was vice president of government relations in advocacy for the international rescue committee, the irc and international aid agency that helps refugees internally displaced and other victims of conflict. ms. richard? >> thank you very much, senator johnson, senator carper, all the senators on this important committee for holding this
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hearing today on the impact of isis on the homeland and refugee resettlement. i have provided some testimony that talks about the humanitarian assistance we provide overseas, the diplomacy in the humanitarian area. working with other countries but what i would like to focus on right away is the refugee resettlement process. i know the attacks in paris last friday evening raised many questions about the spillover of not just migrants to europe but also the spread of violence from war zones in the middle east to the streets of a major european capital. let me assure you that the executive branch and the state department i represent here today has the safety and security of americans as our highest priority. as an essential fundamental part of the u.s. refugee admissions program we screen applicants rigorously and carefully in an
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effort to ensure that no one that poses a threat to the safety and security of americans is able to enter our country. all refugees of all nationalities considered for admission to the united states undergo intensive security screening involving multiple federal agencies. these are intelligence security and law enforcement agencies including the national counter terrorism center, the fbi's terrorist screening center and the departments of homeland security, state and defense. consequently, resettlement is a deliberate process that can take 18 to 24 months, as you mentioned earlier. applicants to the u.s. refugee program are subject to the highest level of security checks of any category of traveler to the united states. these safeguards include bio metric or fingerprint and biographic checks and lengthy in-person overseas interviews by specially trained dhs officers who scrutinize the explanation of individual circumstances to ensure the applicant is a bona fide refugee and is not known to
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present security concerns to the united states. these dhs interviewers report to director rodriguez as part of his leadership of u.s. citizenship -- citizens and immigration services. so he is really the expert on this. what i would like to say is the vast majority of the 3 million refugees who have been admitted to the united states including from some of the most troubled regions in the world have proven to be hard working and productive residents. they pay taxes, send their children to school and after five years many take the test to become citizens. some serve in the u.s. military and undertake other forms of service for their communities and our country. i'm happy to answer any questions you have about any part of my testimony that i didn't get into. but i think the hot issue today is the security aspects of our program and, therefore, i'm very
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pleased to be here today to answer any questions. thank you. >> thank you. our next is leon rodriguez, is director of u.s. citizenship and immigration services at the department of homeland security playing a key role in the u.s. refugee admissions program. prior to this position, mr. rodriguez served as the director of office for civil rights at the department of health and human services and deputy assistant attorney general for civil rights at the department of justice. mr. rodriguez? >> thank you, chairman, thank you ranking member, thank you members of the committee. and thank you in particular for convening this very timely hearing. i'm going the use the time that i have to do something which i think is really critical at this juncture to lay out with some care how the refugee screening process works, what its structure is, what its redundancies are and what the resources are that are utilized as part of that process.
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most refugees, the overwhelming majority in the case of syrians who enter the u.s. screening process are first encountered in refugee camps. in the case of syrians the majority of those will be either in turkey, jordan or lebanon. their first encounters with the united nations high commissioner for refugees where they register their claim for refugee status, some are referred to the united states. others are referred to other countries that have also expressed a willingness to the united nations to receive refugees. the united nations conducts an interview. it explores possible inadmissibilities that may apply in the case of the united states or other countries. it also makes a determination of priority based on particular vulnerabilities of populations. once those determinations are made, if, in fact, there is a
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claim and there do not appear to be severe inadmissibilities at that point the u.n. refers that individual or case because very typically they come to us not as single individuals but rather as family units that are traveling together and refers them to whatever country it is. in our case, to the state department. where a series of things occur. at that point, a second interview is conducted by ms. richard's staff in a set of biographic tests and are conducted at that point, querying holdings, state department holdings including databases that are of an intelligence nature. security advisory opinions in the large number of the cases which is a database hosted by the fbi. and very critically for our
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discussion here, what is called the interagency check which is a network of queries hosted by the national counter terrorism center of a broad swath of intelligence and law enforcement holdings. i know we have talked about the comparison of this case and iraq. the fact is when we talk about syria, we are talking about isil, we are talking about al nusra, the syrian government itself. all of which have interests and desires very much adverse to those of the united states. there is a constant process of gathering information about what's going on in those places. and as a result, in several cases -- in a number of cases, rather, our queries of those databases that phase have registered hits, those hits have been basis either to deny outright admission to individuals or to place people on hold.
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if the individual clears the state department process they are then referred to u.s. cis. we have the benefit of the work done prior. the state department interview, the u.n. interview, the fruits of those background checks. and we place in particular those officers who work in environments like syria or others through a particularly rigorous battery of both training and predeployment briefing as well as apprenticeship while out in the field with that briefing they then conduct very intensive interviews of the individuals to identify credibility issues, possible inadmissibility issues or other possible derogatory admission. at the same time the individuals are fingerprinted, and those fingerprints are run against u.s. customs and border patrol holdings, fbi holdings and department of defense holdings. only after they clear that process and after their cases are carefully analyzed do they move on.
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if there are concerns identified at that point they move into what is called the controlled application resolution and review process which is a joint undertaking of my refugee afirst division and my fraud detection to national security director. in fact, a number of cases going back a while now, hundreds of them, in fact, are on hold because of concerns identified during the process. only after an individual has or a family unit has cleared that entire process is the decision made in fact to have stamped approved that file to allow that individual then to have plans made for both cultural orientation, medical examination and then planning to move to the u.s. i also underscore when i talked
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about the biographic checks earlier, that's a recurrent process, meaning that even though we do it before the interview, in fact, that system is constantly queried now. it's a recent improvement to the manner in which we do our work and means if new derogatory information arises about that individual we'll be notified about that information in order to take appropriate action with respect to that case. i look forward to the questions which i think will give me further opportunity to aluis alucidate this process. thank you, chairman. >> thank you, mr. rodriguez. i want to start out because we've been told in briefings the fact that only 2% of the 1,869 syrian refugees that have been allowed in the country over the last year were men of military age. 21 to 30. but that's a little more narrow than that, isn't it? i'm looking at figures of 994 men, 875 women. out of that 1,869.
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ms. richard, can you tell us the difference, the distinction there? >> yeah. thanks for bringing that up. there's been 2,000 syrians resettled to the united states since the start of the crisis 4 1/2 years ago and 1,700 came last year and of all the one that is have come, 2% are young, single military age males who don't -- who aren't with a family or don't have a family connection in the united states so truly on their own. the number of males, the percentage of males is a little over half but that includes boys to grandpas. >> right. okay. i just kind of want to set the record straight there. you know, my concern is where are the vulnerability is, where's the holes of the system? i think in briefings people are
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very concerned about, okay, you checking databases, watch lists. first question is, what does it take to get in a database or a watch list? how do you avoid it? what people wouldn't be on there and then completely rely on interviews? let's first start. how do you get on a watch list an how do you stay off it? >> yeah. in some of the specifics about how that works are things that we would need to address in a classified briefing. >> okay. >> but suffice it to say, if there is a heightened level of concern that somebody is a terrorist or otherwise an actor who would be seeking to harm the united states, that would be the basis of either nomination to one of the databases i described before, watch listing, again, and i think in a classified briefing we could probably go into deeper detail as to how that -- >> they would have had to do something or associated with somebody that's nefarious. correct? >> those are at least two ways. >> so let's say they're a citizen of syria or a citizen of
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france, that really didn't travel or maybe citizen of france that snuck into syria, never had the passport stamped and sneak back, there would be no -- there would be no reason for them to be on a watch list or a database? correct? and then during the interview process, they would be able to answer all the questions and not come across as particularly suspicious, right? >> yeah. i go back to what i said at the beginning. there is no question that isil, al nusra, syrian government itself are our enemies. there is therefore a constant process of looking for information about those entities, about their activities, about where they operate, about who they are that in turn becomes -- again, without describing the techniques of now that occurs, in turn becomes information that's available to us through these various databases that i
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describe. and therefore, becomes a reason either directly or through association in some cases to at a minimum hold the case and subject that case to further scrutiny. >> again, if you had a clean record and from syria or a citizen, you may not be on the databases and you'd have to have a pretty good interviewer to potentially catch that. what's the current and hopefully you can talk about this in open session, what's the current estimate of the number of foreign fighter that is are european citizens or citizens -- let's put it this way. citizens of a country that has the visa waiver program in place, with the united states, how many of those foreign fighters are we aware that have gone to syria, possibly come back? >> i apologize, chairman. i believe that's sort of analysis exists. i don't have it at my fingertip. >> ms. richard, do you know? okay. i think that's -- i think one of our greater vulnerabilities. as other people ask questions, we'll see a robust vetting process for refugees.
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and probably a less robust process for other forms of visa waivers or visas coming into this country. and i think that's part of the vulnerabilities we need to explore. with that, i'll turn it over to senator carper. >> thanks. again, we appreciate very much your being here with us today. you know, just given what we have talked about here today and learned in the last several days about the rigor of the refugee program, the screening process and refugee program, if these guys aren't stupid that we're dealing with. bad guys. and i can't imagine why they would want to spend two years going through a refugee screening process when they could try to get to this country and any other country with a tourist waiver, tourist visa rather with a student visa. come through the visa waiver process we have with 38 other
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countries. so, we're going to continue to focus on the refugee process for folks to get over here, whether it's 2,000 this year, 10,000 next year. it's hard to imagine if i try to do mischief to wait two years to go through that process. knowing that at any step of the way i could be bumped out. and probably would be detected. okay. i think where we need to as a committee focus our attention is on the visa waiver program and i might be mistaken. we have a lot of hearings in this committee as my colleagues know but i believe we had one in the last year or so on the visa waiver situation and it was good an we learned there had been -- was it perfect? no, it wasn't. is it better? yes, it is. are there other things to do to make it better sill? there probably are. i don't know, mr. rodriguez, if you could just talk to us
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about a little bit -- may be outside of your lane in the visa program but give us some advice as to what legislatively we can do to strengthen it further. >> i confess it is outside of my lane although the individual that that runs that lane doesn't sit too far away from me and that would be the customs and border patrol. >> is there anybody here with you from -- >> no. but we could work with the committee to arrange a briefing or a hearing as the case might be to discuss those issues. >> all right. good. you said something in your testimony, mr. rodriguez, about i think the term you used was recurrent process. going over -- reexamining as new information comes to the fore. and that can be used in terms of either denying or revisiting somebody's ability to come here and stay here.
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would you talk a little bit more about that? >> i talked before about the interagency check which is essentially an electronic query of a number of different law enforcement and intelligence databases. we have now upgraded our approach to those checks to have the system advise us if further information is entered into that system about an individual, about who there has been previously a query. so if we had queried in the initial phases -- rather, the intermediate phases of the screening process an individual, new information arises about that individual, we would be notified about the existence of that new information and that occurs right up until the very moment of arrival in the united states. that query process continues to occur right up until that point. the other thing that i might say
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about -- if i may, senator, about the interview process. my training is as a state and federal prosecutor. i spent a lot of my life around law enforcement of all types, state, local and federal. and i have conducted and observed thousands of interviews. i have taken the opportunity to observe my officers in action. i was with them in turkey this june. and i can tell you that the quality of the interviewing that they were conducting was as good as any i have seen. in my professional career. >> okay. the -- will you talk to us a little bit about whether or not we need to examine more closely -- we have talked about the process of the refugee process of getting here. visa waiver process of getting here. how about student and tourist visa process of getting here? i'm told 40% of the people here -- say there's 12 million, i think 40% came here under some kind of a legal status, maybe
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using a tourist visa, student visa. are there any things that he would should be mindful of, thinking of those processes? >> yeah. i think the main -- >> the vetting of those people. >> i'll try to say it in five seconds is those processes also involve both law enforcement and national security database checks so it is -- the fact they're outside of the refugee process does not mean that we're undertaking some of the same rigor applied to the refugee screening process. >> all right. thanks so much. >> senator portman? >> thank you, mr. chairman. thank you for holding another hearing on this topic. we were here last month talking with the secretary of homeland security. your boss. also talking to the fbi director and the counterterrorism folks about this very topic. and i think it's clear that we live in a dangerous world and it's something we have to be concerned about.
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not just on the refugee program but all these various entry points. one, of course, is if visa waiver program. we talked about the fact that there are 5,000 foreign fighters coming from 38 countries with a visa waiver arrangement. that's a huge risk. and i think it is appropriate that this committee focus on tightening up those standards. i know there are a couple of proposals floating out there now. we would love to have your input on that today. we also, of course, have to worry about visas. 9/11 terrorists came here, overstayed the visa. that's an immigration reform issue. legal immigrants. we have foreign fighters ourselves and some coming back to my home state of ohio. one came back to columbus, ohio. plotted to commit terrorist acts in the united states and was arrested for it. it's happening. we, of course, have the issue of illegal entry. this morning we hear about the five individuals who were stopped in honduras with fake syrian passports and then we have apparently a couple
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families at the mexican border this morning. and this is a problem. and this goes to our need to have a secure border not just for immigration purposes but for money. and then homegrown terrorists. my hometown of cincinnati we have one person currently incarcerated and under arrest for wanting to come to this capitol, blow us up here. and in akron this month we had a homegrown terrorist arrested. this is in ohio, the heartland. so, this is a very real issue. but i don't think we should ignore the refugee side of it either. let me tell you a story and maybe you can tell me that this is something that could never happen under the current program. but there were a couple brothers who were brought in as refugees from iraq, not syria, but from iraq. they were in the heartland right across the river from where i live in kentucky and recently the sixth circuit court of appeals confirmed their conviction for terrorist
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activities including providing assistance for al qaeda in iraq and they were taped saying they wanted to build a bomb in the united states. they wanted to kill a u.s. army captain in the united states. and they were quoted as saying, quote, many things should take place and it should be huge. these were refugees. so, this notion that somehow we need to worry about all these other issues but it's okay in the refugee program. of course, we need to know who is coming in. and we need to be sure not only who they are but what their intentions are. and with regard to these iraqi refugees who came in, they had been fingerprinted at the border in syria because they had to go through syria to come to iraq. they were entered into a biometric database and when they were checked by your department and department of defense they were clean and admitted to the united states. and later they bragged about what they had done to attack and kill u.s. soldiers in iraq. they weren't picked up.
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my concern which was something that came forward in our last hearing on october 8th in this room where we had your boss, fbi director, counterterrorism officials, they told us point-blank we do not have the intelligence in syria to be able to do the appropriate background checks. here's the quote from director comey, the fbi director, in response to asking about our gaps in intelligence, collection and sharing process that posed great risk he said, senator, to me there is a risk associated with bringing anybody in from the outside but especially from a conflict zone like that. my concern there is that there are certain gaps i do not want to talk about publicly in the data that is available to us. end quote. you said something similar this morning. you can't talk in open session about the gaps we have. but obviously we don't have intelligence on the ground there. we've just sent 50 special forces there. that's great. they're not there to collect
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data on refugees so i do think it's a concern. i do think we have to tighten it up, and if we do not we are ignoring -- agreed many other threats. some of which may be greater threats in the sense of numbers of people but for us to say we're somehow against refugees because we think there ought to be proper checks in place, that's ridiculous. we're the most generous country in the world and thank god we are. and i along with my colleagues on both sides of the aisle are in support of the refugee resettlement programs but let's make sure we don't have the same thing happening in bowling green, kentucky, we had less information with regard to the iraqis. your response? >> yeah, a lot has -- since the bowling green case, a lot has been done to upgrade the security check system. i've heard it recently said by others that those individuals would have, in fact, been picked up under the kind of biographic screening that we do now.
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nothing of what i'm saying should be seen as contrary to what either secretary johnson or director comey did. there is, in fact, risk in what we do. what i am saying is that we engage in the sort of process with redundancies with resources and highly trained officers to keep those risks to an absolute, absolute minimum. >> thanks, senator portman, out of respect to all of our members i will be using the gavel to keep the question and answer period as close to five minutes as possible. with that, senator mccaskill. >> thank you both for being here. i won't ask you to take the time to identify all the different ways that foreigners can come to our country, but i think it's obvious and it's been stated today and many times over the last few days that these radical jihadists are all over the world. they are in our country.
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they are in many countries. and if you look at the number of refugees that have been brought in from other countries there's a number of countries on that list that we brought in much more than syria like somalia, like iran, like yemen. and we have intelligence gaps everywhere there's intelligence gaps. so, the question i have for you is, if you were a terrorist, well, maybe this isn't a good question because we don't want to tell terrorists this. let me ask it this way. let me ask it this way. which of all the ways to get into this country are you subjected to the most scrutiny? >> yeah, i can say with great confidence that applicants for refugee status and in particular refugees from syria are subjected to the most scrutiny of any traveler of any kind for any purpose to the united states. >> so, my biggest concern is,
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listen, let me acknowledge america's on edge. people i love are on edge. we're worried and we're angry. worried and angry. and what i would like us to do on a bipartisan basis is to calmly come together as a country, democrats and republicans, and figure out what we can do that enhances the security in all of the categories. but it seems to me we've gotten distracted by the shiny object of refugees because of this image of people swarming our borders without any checks not realizing that this, of course, is not like europe where all they saw at the border of france is welcome to france. that's it. i mean, once they got into europe, you have free access around that country -- around those countries.
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so, what i would like you to tell to us, both of you, is if you were going to spend time and energy crafting better policies to keep america safe, from those people who want to come here, where would you focus attention? >> for me, it is -- that is an operational question as much as a policy question. and it is an operational question that we ask ourselves every single day. in what we do, which is, you know, to the extent that we're screening be they refugees or the other example given was individual student visas, what are we doing to plug up risks that we identify in those processes. so, even though i've identified what i think is a very rigorous process, we are constantly looking for opportunities to upgrade that process. to improve the scope of information that we access, to
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deepen the training and understanding of our officers. one example actually is to the extent that we talk about increasing admissions, our officers learn a lot from the refugees that they interview. >> right. and all that goes -- that all goes into our process. >> that's correct. and that deepens their ability to be able to screen the people that -- >> what about students? are we doing this for students? are we checking them in all the databases? >> in many cases depending on where they come from and the circumstances in which they come, we're certainly checking in the databases. we do that for just about every immigration category that we operate. the configurations are different depending on the categories, but we basically do a national security check, a criminal justice check, just about every applicant for immigration benefit or other sort of immigration consideration who we encounter. >> what about biometrics for all of the 38 countries that we have visa waiver programs with, how
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many of them now do not have the facial recognition and the fingerprint recognition and the chip-embedded passports that we think now should be standard? how many of those countries do not have that as a bare minimum? >> yeah, senator, i'm going to respectfully defer to my customs and border protection colleagues. they really are the experts on the operation of the visa waiver program. >> if we're crafting legislation i think it's a big mistake not to use this as a moment of leverage with our visa waiver partners to insist on the same kind of biometric protections that we have in our passports for those passports since clearly i believe the foreign fighters in those countries i believe pose much more of a risk to us than the small number of refugees who have gone through a great amount of vetting. >> senator mccaskill. senator ayotte? >> i want to thank the chairman.
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i wanted to, director rodriguez, just to be clear following up on senator portman's question about the current program and the refugee program. director comey not only did he testify before this committee with what he told senator portman, but also i think what has concerned many of us is the testimony he gave before the house committee on october 20 -- excuse me, 21st of 2015 and in which he basically said that the u.s. government may not have the ability to vet thoroughly all the syrian refugees coming into the united states. he explained that if a syrian person is not already in the fbi's database, that person is unknown to the agency. leaving an inadequate basis for the person's background to be screened for terrorism risk. he said, quote, we can only query against that which we've collected. he cautioned, he also said so if
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someone has never made a ripple in the pond in syria in a way that would get their identity or interest reflected in our database, we can query our database until the cows come home and there will be nothing because there is no record on that person. i guess my question is i understand all the multiple steps you're taking but isn't one of the big gaps here we don't have the kind of intelligence we had in iraq where we actually had because we had many representatives on the ground we had men and women who fought there, we had diplomatic representatives that we do not have in syria that this presents a different challenge to us? >> yeah, there's no question that in iraq we had a unique level of intelligence saturation to what i think was senator mccaskill's point, though -- >> but i'm asking this question -- >> no, no, no. >> how do we reconcile what director comey has said about these gaps with concerns that
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are very legitimate about the vetting process based on a gap in information? >> i'm trying to explain. this is not the first time by far that we have been vetting individuals coming from a country that was a zone of conflict where we were not participants. where we did not have the intelligence gathering ability that we had in iraq. the fact is that we are gathering intelligence throughout the world. >> okay, just simple question. do you diminish at all the concerns raised by the fbi director to the congress? >> i think i was very clear that what we do is not without risk. what i am saying is that we are using multiple intelligence resources -- >> i understand that. just a simple yes or no. do you disagree or do you have any quarrel with the comments that he has testified to in the house committee? >> i do not have quarrel with what he said. i think there is context that is critical. >> okay. i appreciate. i just want to understand. so, i want to understand so of
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all the individuals involved in the paris attacks can either of you answer the question of how many were on our no-fly zone -- list? >> i am -- i don't -- i know that i'm not in a position in an open hearing to discuss that information. >> okay. and can either of you answer the question of how many were on our terrorist watch list or is that something we cannot answer in an open session? >> again, in an open session i don't -- >> i would agree with senator mccaskill, i think there are -- that our allies on this visa waiver program which we -- this committee actually has been focusing on for a while, a number of hearings related even psthat understand what information and what gaps were on that, based on whether those individuals who are engaged and perpetrators of the attacks in paris were on our list, number one. i think that we've all received
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some briefing on that in a classified setting, but this is something we have to have an open discussion about as well. where are those gaps that need to be fixed because if they can't get on our no-fly zone list this is a real problem with the visa waiver program because potentially they can come here. so, that's something that needs to be addressed. i don't think that it's mutually exclusive that we address these gaps in the visa waiver program that need to be addressed. obviously there's legitimate and important reasons for people to travel to the united states of america but we need to make sure that we address that issue as well. but i think many of us are concerned based on what we're hearing from some of our top intelligence officials and the director of the fbi that the gaps we have don't allow us to fully know what we need to know on some of the individuals that are coming potentially to our country. finally, i just want to say on a
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point that if we do not address isis, with what they are doing in syria and iraq, then we are going to be in a position if we don't work together with our allies to defeat isis, then the refugee problem is going to continue because these individuals will not have a home and i hope that's something that we all work together on a bipartisan basis. thank you. >> senator tester? >> thank you, mr. chairman. thank you for holding this hearing and thank both the people who are testifying coming today. if a refugee's application is denied is there a tag put on that form, on that record? >> in other words, if we see the individual again, i assume that's the essence of the question, senator. >> that's the next question, yes. >> we certainly make sure that we know who that individual is. >> okay. >> it's also if critically if future cases demonstration some connection to that denied individual that's something that we are able to identify.
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>> okay. >> we are always looking at networks of people, family networks, networks of associations as part of our vetting. >> so, is it fair to say that a refugees that have been denied acceptance none of them have tried to reapply? and none of them have received, once been denied they're out? >> i can't say whether that's unheard of. we can certainly get you an answer to that question. >> could you tell me, what would cause a denied application to become one that would be accepted at a later date? >> i suppose if -- if it was a situation where it turned out that the individual was able to effectively refute the basis of the denial, that would be a pretty high bar. i would just underscore that. >> could you give me an idea how many refugee applications are received and how many are accepted? >> in any given year we admit -- this past year --
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>> what i'm talking about is you applied, you're turned away or you're accepted. can you give me the difference between application and acceptance. i know how many people have come in already. if you can't answer that, you can get back to me. >> i will get you that. >> let me ask a little bit about the process or screening that you went through and i appreciate that, by the way. you said that the refugees were continually queried through databases for additional information. is that while the vetting process is going on or does that even occur after they're admitted right into the country? >> from the time that the check is first run during the intermediate portions of the screening essentially the state department leg of the screening and that occurs right up until the time of their admission. >> okay. without getting into the specifics, we've talked about visa waiver. we potentially will talk about political refugees and the
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difference. talking about different ways of getting into this country. does your department put together a list of things as an ask of congress to give you additional tools to make sure that the vetting process is where you believe it needs to be, if any are required, are you willing to give us your suggestions on what needs to be done, not only with refugees but with the entire -- the entire overlay, political refugees and others? visa waivers and others. >> sure. we're always willing to work with the congress on those issues. i think important to understand that my agency is a fee-funded agency. >> yeah. >> the fees paid by most of our fee payers subsidize the -- they don't play an application fee. that's subsidized by other fee payers.
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>> okay. >> it's not from tax revenue. >> i've got you. but that isn't the question. the question is if we need to tighten up visa waiver, for example, or if we need to tighten up political refugees and the regimen that they have to go through to get accepted into this country, are you guys willing to put forth those recommendations to us? i'm not saying there are any needed, but it would be nice to deal with the folks who deal directly on where the gaps are. you know them better than i. >> senator, we absolutely are willing to work with this congress at any time to refine the way we do our work absolutely. >> okay. let's see. what else is there? that's probably about it. i just want to say thank you for your work. i think that there's not anybody that serves in congress who doesn't want to make sure this country is as secure and safe as it can be. i think what happened in france rattled people to their soul. and so we need to make sure the work you're doing fits the risk. thank you. >> senator, before you yield
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back your time, let me just share something. at our briefing yesterday and some discussion at our lunch today, there was some mention of a program i think it's funded within dhs. the number of $45 million per year sticks in my mind and the money is used to combat the radicalization in this country. could you just take, like, 20 seconds and just tell us about that? because we heard yesterday that that's something we should do more of that. if it works, we should do more of it. >> secretary johnson has assembled at a high level in departments something called the office of community partnerships, to engage in the activity we call countering violent extremism and that is a series of engagements at a
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national, state and local level, at a community level, with youth, with nongovernmental organizations to really identify the root causes of radicalization and to use smart approaches to, in fact, interrupt the process of radicalization. >> senator baldwin? >> thank you, mr. chairman. like my colleagues i certainly -- i'm hearing from the public in wisconsin, with sincerely held concerns and fears about an attack such as the horrific attack we saw in paris happening here in the united states. so, i was grateful to hear your response to senator mccaskill's question about which methods of entry into the united states would set up or provide the greatest amount of scrutiny. and i think i heard you say fairly specifically that the
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refugee path especially if you are a refugee from syria would provoke, prompt, the most intense scrutiny. is that correct? >> yeah, that is correct. that is absolutely correct. i mean, i know what we do and across all lines of business, that's absolutely the most scrutiny to which we subject. >> so i wanted to follow-up because a number of the governors in the united states have come forward to try to cut off that path in terms of announcing some sort of refusal to participate in a refugee resettlement program that is a national program. governor walker from the state of wisconsin, the state that i represent, was among those governors. and i just wanted to share what he communicated in terms of
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raising concerns. he said that there are not proper security procedures in place to appropriately background and accurately ascertain the identities of those entering our country through the syrian refugee program, end quote, and additionally that, quote, this deficiency in the program poses a threat to the safety and security of our people, end quote. can you respond to those concerns? >> sure. one of the things -- there have been refugee populations that because they come from conflict zones, because they are, you know, running from their house, have not presented a lot of documentation when we've encountered them. that has not generally been true of the syrian refugee population. i would also point out that our
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officers as part of their rigorous training are trained in identifying fraudulent documents to the extent that that's something that we're always looking for as a concern. it is also a critical part of the vetting process from end to end, in other words, what unhcr does, what assistant secretary richard's folks do, what we do, to really drill into the identity and associations of these -- of these individuals. so, i do have a high level of confidence that when we stamp a case approved, we know whose case we approved. we know the identity of that individual. >> thank you. miss richard, my next question has to do with the implications on funding that flows from the federal government in support of refugee resettlement programs generally.
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if a state were to announce that it wasn't going to participate in that program. i know that you work in partnership with the department of health and human services, office of refugee resettlement in all of this. let me just ask, do you think the state decisions jeopardize this funding stream and a series of programs that back up refugee resettlement such as medical assistance, social services, and housing? and i'm particularly concerned about refugees who may have settled in our states from other places in the world aside from syria. >> thank you for your question. three departments of the federal government are the ones who help run the process. although as you've heard, a lot of law enforcement and national security and intelligence agencies are involved in the vetting process. in terms of running the process, the state department is
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responsible for working with unhcr. unhcr refers refugees to us. we have staff in centers around the world who help the refugees to put their case together and tell their story and collect their documents. the essential decision of whether they come or not rests with dhs. the vetting process is complicated, as you heard. and we also are responsible for getting them to the u.s. working with partner organizations and met at the airport and get settled here in the first three months of their new lives in the united states. at that point the department of homeland -- the department of health and human services has a program to provide assistance through the state governments to give additional support to refugees. they'll have refugee-specific programs. it varies from state to state. so, in the past there has been at least one governor who said i don't like refugees coming here. i'm not going to accept this money and a member of congress
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from that state told him please accept the money. i work very hard up here in washington to get assistance for our state to help with these kind of tests and this is a federal program. the governors do not have the ability to block the resettlement of refugees. but more important than that is this program depends very much on the support of the american people. it's run at the community level. there are a lot of community organizations, volunteers, churches, faith-based groups, temples involved. a lot of the things that help a refugee family get started once they get here are furnished by charity. i've been to places in miami where recently where i have cuban refugees get furniture from a furniture store that where the founder was a cuban refugee. these contributions are a big part of this program. it's a public/private
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partnership. it only works if the people at the community level support it. so, i'm less concerned about the legal ramifications of the governors' actions and much more concerned about the message it's sending to the american people. that we are running a program that is dangerous. we have no desire do that. and we also need public officials and senators and members of congress to help us -- the responsibility is mine but i can use the help, educate people about what this program is and why we do it and why it's in the best interests of our nation to honor this tradition of bringing refugees to the u.s. >> thank you, mr. chairman. a couple things. first off, just to -- just because i know you guys have deferred a number of times on the visa waiver program. i'm not going to ask you specifics. but i do want for the record to acknowledge that 20 million
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people last year in 38 countries and i'm not saying say they all traveled to the united states used the visa waiver program. and we know very many of those 38 countries do not have the same level of scrutiny, do not have the same level of biometrics, not even looking at e-verified passports, that we've allowed in the interest of commerce and certainly with allied countries, maybe not being as enforcement minded as what we are. and so i think that this is a huge part of what we need to be concerned about. but we're here talking about the refugee program. and so i'm going to just ask a simple question. do you think it's legitimate for the american public to today ask you to provide answers to their questions about this program? but also for you to take a look at this program and analyze whether, in fact, there are any gaps, things that we could be doing better, choices that we
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could be making? let's say, mr. rodriguez, for example, we have someone that we know nothing about, compelling story, but we know nothing about him. another compelling story over here we know a lot about that person given the competition for resettlement in this country, don't you think it makes sense for us to prioritize those folks that have compelling stories but that we know a lot about? >> so, first off, i am accountable to the american people. [ inaudible ] my apologies. i am accountable, let me say it with the microphone. i am accountable to the american people first and foremost, so whatever questions they have are questions that i'm fully prepared at all times to answer. and i think their questions are about how we conduct this process and how we prioritize within this process. the basic design of the refugee referral process is to
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prioritize individuals in the most need. and at that point it starts what is a very rigorous process of screening and a lot of information is gathered from everybody that we encounter. and if we can't get that information, we don't clear them. we don't approve their cases and they either go on hold or they're outright denied. >> i think that's something that's been missed in this discussion today because a lot of people are saying you know nothing about them as the fbi director has said and what you're saying now is if you can't really find out about them, if there isn't any third party verifiable information that person may not, in fact, probably won't make it into this country? is that what you're saying? >> not entirely. in other words, the individual has to give us enough information that matches other information that we know about what's going on -- >> wouldn't that be third party information? >> i guess you're right, senator. >> that's an important question
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about how you prioritize because no one here is suggesting there isn't a need or there aren't compelling stories. but there's a lot of compelling stories. and maybe we prioritize those where we actually have a higher level of assurance. i don't have a lot of time. and i want to get to this issue of the northern border, because obviously we have a fairly open border with canada. i can attest to that. and i think the ranking member who has flown over the canadian border can testify to that and i think the chairman mentioned the northern border in his opening statement. canada's goals regarding syrian refugees, i think border security remains critical priority for this country. i think we also have to include the northern border, which i've been beating the drum for on this committee since i've been on this committee, so we have to make smart investments on the northern border. one of the issues or questions i have regarding the refugee
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program especially as it relates to canada, are there any issues with how the canadians vet their refugees, any suggestions that you've made to expand their vetting process or improve their vetting process, and can you speak to what would occur if someone was admitted into canada as a refugee and that person later tried to legally controls the border to the united states? would that person even though they may not have passed the rigor in our country be allowed entry through canada? >> and i'll ask assistant secretary richard to add what i miss. we are in constant consultation in particular with the other english-speaking countries on how we conduct our refugee screening process. the canadians have been in this business for a long time. they do conduct at least sort of a basic outline of their system which is what i'm familiar with
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is also quite rigorous. but we are in a constant state of dialogue with them to make sure that we're learning from one another. >> is the canadian system as rigorous as ours? >> i can't say. i can't say. it appears to be, again, from where i've been watching -- >> that's something you can get back to me on. >> certainly. certainly. >> i've used up my time and the chairman has offered to gavel us down if we go too far over, so this is a dialogue that i think we need to continue. >> senator, i'm meeting with the canadian official tomorrow, so if you give me some questions i'll get answers for you. >> i'd like fear being a motivating factor. senator peters? >> thank you, mr. chairman, and thank you to our panelists for your testimony today. this has been an interesting hearing. one that i'm sure we're going to be discussing for some time. but it is of particular importance to me and the folks in the state of michigan as i think both of you are aware, we have one of the largest middle eastern populations outside of
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the middle east is in primarily the detroit metropolitan area. we are the home to many refugees from around the world but particularly from the middle east that come to the detroit area. i've had an opportunity to work with refugee resettlement groups, with the religious community, and get to know many refugees who have come to this country who contribute to the country. they are for the most part -- i should say the most part the refugees that i talk to are patriots. they are so excited to be in the united states because they are away from a very hazardous situation where their life was in jeopardy and this country opened up their borders and opened up our hearts to bring them here. they are store owners. they're entrepreneurs. they're physicians. they're engineers. contributing folks to our country, and basically it's what this country has been about since its founding that we are about folks that come from around the world that want to pursue the american dream as
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patriots. but i think it's important that the context that we're discussing this we're dealing with a humanitarian crisis in proportions i don't think we've seen since world war ii. we've got literally millions of people who have been displaced from syria and they are displaced because thousands and thousands of syrians were murdered and they left because they are not -- they fear for their safety, for their families and their loved ones. i was at about two months ago at a syrian refugee camp in jordan. i had a chance to visit the largest refugee camp there. at the time there were 85,000 individuals crammed in a camp in the desert not far from the syrian border and not the best of conditions to live in. they were receiving food allowance that was equal to 50 cents a day is what they were living on. you can't buy a whole lot of food for 50 cents a day. you have one propane bottle for your family to cook from. you can't do a whole lot of cooking. but what was most impactful to me was the conversations i had with those refugees who just had
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a sense of hopelessness. that they had been there for a long time. usually when you go to a refugee camp you go for six months and you're back in your country. that's not the case here. the folks were there for four years those that i talked to with no idea what their future held for them. and the children had difficulty surviving and getting an education. i asked them where do you want to go. you know are in this camp, you don't know what your future is. do you want to go to the united states or to europe. every one of the refugees that i talked to had the same answer. we want to go home. we just want to go home. we don't want to go to a foreign country. we don't want another language. we just want to go home. i think everybody here certainly everybody in this room today if we were in that situation, we would just want to go home. so, obviously the most important thing is we have to stabilize the region. we have to deal with isis. we've got to have a credible government there and a strategy to make sure folks can go back and be comfortable but we know in the meantime it will take some time. it won't happen overnight.
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you have folks not just where i visited but the millions of other folks that weren't in camps, jordan has taken on an incredible responsibility opening up and saying they are going to help the people who are displaced and hurting and running away from the bad guys. these are folks who are running away from war. they are running away from violence and trying to find a place for peace where they can raise their children. the united nations visits that camp where they were looking at folks to prioritize. i want to get a sense of how we get screened. you talked about the prioritization that the u.n. has as to how do they determine which families should be in this program and i think another important number if both of you could respond to is my understanding is about 20,000 folks have been referred to the united states from the united nations as potential refugees roughly. out of that number i understand we have looked at about 7,000 and that we admitted less than 2,000.
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so, already the u.n. has done some screening, prioritizing, probably those who are in most need, who have been there a long time, but i'd like to know what that is. how we can continue to screen down. so, i think those numbers alone show how robust the system is and that -- i think we heard some folks discuss here, you know, if you're a terrorist wanting to get into this country you're going to take the path of least resistance. i look at this process, this is far from the path of least resistance. you have to be in a refugee camp for a while before you're looked at by the u.n. this is a multi-year process that folks go through and from seeing it firsthand, it is horrible conditions that oftentimes these folks find themselves in and there isn't anybody in this room that would want to be in that position and they would want someone to say we have some compassion. we know you can be a valuable contribution when you come here as well. if you could talk about that, please, the priorities and why we've moved those numbers down so much. >> so, unhcr works with us all around the world and refers
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refugees to us and they know that we would like to take the people who are most vulnerable and could most benefit from the safety and the economic prosperity that america offers. and so they send us some of the most vulnerable people. so, and my experience has been like yours, senator, that most of the refugees you meet want to go home again. so the resettlement sort of tears families apart in some ways. but the people who we offer resettlement to, then, are widows with children, sometimes an older generation as well. people who have been victims of torture, trauma, people who have seen terrible things happen in front of them for whom there really is no going home ever again. we also give a home to people who are persecuted religious minorities, people who are lesbian, gay, bisexual, lgbt,
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lesbian, gay, bisexual, lgbt, lesbian, gay, bisexual, lgbt, lesbian, gay, bisexual, lgbt, and we also anyone who for perhaps people who feel that there would be a death threat on them if they went home again. >> thank you, senator peters. just a couple quick questions and i'll give you each a chance to kind of wrap up, if you have some closing comments. mr. rodriguez -- we're going from 75,000 to 85,000 total refugees. -- goal of going from 70 to 100,000 that's a 43% increase from 2000 to 2017. do you have the resources to take on that large of increase? >> we do. it requires us to look for efficiencies in our process. i've often said when organizations are challenged in this way, it actually becomes an opportunity to improve themselves. that's how we're treating this challenge. but it does require us to move some resources around. it requires us to improve our
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processes where we can. keep in mind we're a $3 billion a year organization. so, the challenge is an operational one more than a financial one, but we are rising to that challenge. >> how many syrians are currently in the hopper that are being reviewed? >> currently in review, i thought i had this information -- do you know what, i will need to get back to you with that information. >> that's fine. the house just passed the american safe act of 2015. i've introduced the senate companion bill. it basically says that no refugee may be admitted until the director of the fbi certifies to the secretary of homeland security and director of the national intelligence that each refugee has, quote, received a background investigation that is sufficient to determine whether the refugee is a threat to the security of the u.s. then the refugees may only be admitted to the u.s. after the secretary of the department of homeland security and director of the fbi and director of the national intelligence certifies to congress the refugee is not a threat to the security of the united states. now, that passed on a pretty
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strong bipartisan basis 289-137. that seems like a pretty reasonable way to assure that these checks that this robust process you've been describing is carried out. under sarbanes/oxley, ceos have to certify that their financial statements are accurate. do you think that's pretty reasonable response? >> yeah, i think you saw that the white house took a position indicating that its view was it didn't add that much. i will say that the process that we engage in is essentially equivalent to the process contemplated in that bill. people are subjected to the most intense scrutiny. there is intense supervisory review. cases that present concerns are actually elevated, our fraud and detection and national security directorate brought in to participate in the analysis of those cases. so it would be my view along the lines of what the president has
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said that, in fact, it would not necessarily add much beyond the process that we already have in place. >> as you're seeing by the very legitimate questions of the panel, the concerns of our constituents, i would think this would just be one additional level of control to provide that kind of comfort to make sure that these, you know, this redundant system would actually work both -- ms. richard, do you have any closing comments? >> yes, sir, thank you. i want to assure senator mccaskill to make america safer is work with the europeans to make their borders safer. that's an active discussion overseas. senator peters asked about the 23,000 who had been referred to us and we have brought 2,000 to the united states. but we continue to review cases and we'll get new referrals and it's really more of a pipeline that people are flowing through. senator tester asked how many
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have been denied and worldwide and i'm sorry i didn't tell him this when he was here, under our current screening worldwide it's about 80% are approved. so one in five are denied. and so i don't have specifics by nationalities. the issue about the fbi having no holdings, it is normal for the u.s. government to have very little information about most refugees at the beginning of the resettlement process. refugees are after all innocent civilians who fled war zones. iraq and afghanistan are exceptions. we have a lot of information about people that worked alongside the military or nearby and the people who are, therefore, referred to the program we work with them so they tell their stories and put together a case file and fill in the gaps that i know are a concern right now to everyone based on the fact that the fbi doesn't have the whole picture on hand for syrians. so, i don't think that has to be -- stop the program.
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i think that we can work with the nctc and with other intelligence agencies to help fill in those gaps working with other agencies. i want to reassure this committee that we work very closely with dhs. this is my fifth time on the hill in the last three days. and that's partly why i was so glad you gave leon all the tough questions. but we're very happy to continue to -- we work together on a daily basis and we're happy to continue to respond to you. one question was, you know, should we be looking closer at our program. the white house has already asked us to really go through the entire process carefully to look at are there ways to have efficiencies with it without cutting corners on security. you know, is it really the best process that we can possibly have. we're convinced it's a very secure process, but everyone has noticed it's lengthy. so, we're willing to do that.
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that's part of our jobs. thank you very much. >> mr. rodriguez? >> chairman, ranking member, senators. i want to thank you first and foremost for leading what i think has been an incredible from my perspective an incredibly thoughtful and productivity hearing. i think the questions you've asked of us were questions we needed to be asked, and i hope the answers that we offered, offered some clarity. i think one of the things that's become very clear to me over the last two weeks is that we have a burden with the american people and really explaining to them how this process works. what the safeguards are in that process. and this has been a great opportunity the way this hearing has been led to accomplish that. i was asked a question that i fear i didn't actually answer which is are you looking for ways to make your process better and the answer is absolutely yes. it's something that i and my staff and some of my leadership is here with me today, we do it every day.
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because we realize what this means to the american people. we realize what this means to the individuals often in great distress who are asking us to admit them to the united states. and so to that extent we always are looking to improve and we always are willing to engage with this committee to talk about how we can improve that process further, so thank you, again, for your invitation up here today. >> we want to thank you both for your service and taking your time. want to appreciate and thank the administration for making you available. this was very short notice but we all agree it was very important and useful information for the american people to hear. thank you very much. with that you're dismissed and with that we'll call up the next panel.
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>> i'm just going to make you all stand up again. why don't we all stand up. raise your right hand. do you swear the testimony you will give before this committee will be the truth, the whole truth, and nothing but the truth so help you god. thank you. please be seated.
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i like to be as efficient as possible. again, appreciate you all for taking the time. our first witness of the second panel is mr. peter bergen, vice president at new america in washington, d.c., director of studies of several programs. professor -- mr. bergen is cnn national security analyst and at fordham university. >> thank you for being able to brief today. we have already addressed at length the question of the refuge
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refugees. it wasn't clear from the answers of the witnesses how many were on watch lists. let's assume some of them were. it certainly shows with 1800 french citizens having gone to syria and 700 brits and 700 germans, you have a substantial number. it would be much easier to go through the student visa or visa waiver program. another issue we learned, the bombs were made from tatp. they were used in 2006, which didn't work. they were used to bomb the manhattan subway and 9/11.
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hydrogen per oxide bombs are what the jihadi terrorist groups want to use in the future. it is obviously easy to require and doesn't flag in the same way that nitrate or other issues. it is something we should be flagging for suspicious activity reports. a lesson of the sinai attack is the question of airport worksers. we have seen five members, five american citizens since 9/11 involved in jihadi terrorist crimes, had jobs at american airports. three at minneapolis airport. two members of chabad. one member of isis. one at jfk. it didn't work out.
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and one at l.a.x. planning to attack synagogues, l.a.x., and military communities in california four years after 9/11. stepped that problem to someone like heathrow airport. an employee gave information about security to a self-described member of al qaeda. luckily, she was arrested and he was arrested. sharm el sheikh shows a huge vulnerability. don't send a group of people to a can k-47s. put a bomb on a plane. there's 129 dead. this question of airport security is i think an important one. in the brief time i have left,
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america have done a survey of 474 named foreign fighters going to isis. here are the headlines about what we find. we found that one out of seven were women. that's an a stostonishing findi. these groups did not attract women. in paris we had a woman blow herself up just 24 hours ago. we found the average age was young. a lot of teenagers. an astonishing 80 named teenagers from the west who had gone from the united states from phrausz like colorado and chicago. many of them have familiar ties to jihadism. brothers and sisters fighting in jihad. people get married in syria. or people who have been prarping in previous terrorists phrosz. in paris, two brothers were involved. the leader boarded his 13 erld
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kwraoe brother basically to fight there. young. one in six are women. and a key point here is 9 of 10 were active in online jihadi circles. final point, the war in syria and iraq very deadly. half the foreign fighters, the male ones, are dead. and 6% of the females, even though they are not on the front lines. >> mr. bergen, our next witness is brian michael jenkins. national transportation security system centre. mr. general keups is a decorated veteran, is a member of aviation and security safety for mr. clinton and adviser on terrorism. mr. jenkins? >> chairman johnson, ranking
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member carler, members of the committee, thank you very much for inviting me to address this urgent issue. i would like to be able to report in to the terrorist attacks in paris, all the perpetrators have been identified and apprehended. they will be executed promptly. air strikes have smashed the islamic state and an event such as this will never happen again. however, reality is that this conflict is likely to go on. there are no quick or easy solutions. and terrorists will attempt further attacks. let me give you some observations from the written testimony i have presented. first, with respect to the conflict itself. the fighting in syria and iraq will continue. right now the situation is at a military stalemate. they are effectively
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partitioned. i think the partitions will consist. it will make them hard to settle. the world will be dealing with the fallout of this conflict for years to come. isil's ideology continues to exert a powerful pull despite the bombing, the coalition bombing, the number of individuals joining or planning to join isil has not diminished. isil is calling on more to come. the uniquely destructive nature of this conflict has produced 4 million refugees, caused 4 million people to flee from syria and iraq, and another 12 million are internally displaced. these are the new palestinians. neighboring countries cannot absorb them. they will be a continuing source of instability. we will be dealing with this issue for decades. hundreds of thousands of these
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refugees have headed to europe, raising fears that terrorists can hide among them. some may have done, which brings me to the events in paris. the attack in paris offers some important takeaways. it underscores the importance of intelligence. now, just how this group managed to get past french intelligence, we're still not sure. but the french services are simply being overwhelmed by volume. the numbers that peter mentioned. those who had gone from france. the numbers suspected on planning to go. the number that is in france suspected of planning to carry on homegrown terrorists attacks. that has overwhelmed the authorities. it's thousands. the availability is of terrorist recruits in france and belgium and elsewhere in europe reflect some societal problems,
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marginalized and alienated communities where extremist ideologies can easily take root. that will take a long time to fix. the paris attack increased the fight against isil. we can do more militarily. we must keep cool and stay smart here. in the long run, and this has the potential to be a very long run, could prove to be unsustainable or counterproductive. now, paradoxically, it may heighten the threat of terrorism beyond. that is, it will scatter the foreign fighters, this is the final showdown between believers and the unbelievers and we could see a surge of terrorism worldwide even as we achieve? measure of success of isil and
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syria. further terrorist plots must be presumed. we must prepare for an array of scenarios, including armed assaults at multiple locations like the ones in paris. although we're likely to cee lo-level attempts but still may be lethal. with regard to refugees and immigrants, immigrants since the 19th century from brought their kwaurls with them. these are jeff rhees from an active war zone, where foes continue to exhort followers to carry out attacks. this adds a layer of risk. however, good news, the u.s. is not europe. the numbers here are much smaller. the american audience for isil
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propaganda remains unreceptive. they are simply not selling a lot of cars here. we are not dealing with hundreds of thousands of refugees, however, much smaller numbers. an important point here, we are not just trying to filter out bad guys. radicalizing and recruiting is not a one-time sign-off that gets us through. but america historically has been successful in assimilating immigrants and finally our domestic intelligence have achieved a remarkable level of success. we're batting at about 900. >> thank you, mr. jenkins. mr. garden stein-ross is a
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senior fellow for defense, the democracies and adjunct professor at georgetown and lecturer at the catholic university of america. he cops traeut >> chairman johnson, ranking member carper and senators, it's an honor to be here testify before you today. the first panel was quite strong. it was gratifying to see it echoed my own conclusions and written testimony. i had like to go over a couple points and look at broader issues. the first and most important point is that i concluded, as did the previous panel, that moving op teufrts into the united states is low. it is an in efficient way to place op actives. we are selecting about 10,000 out of over 2.1 million refugees
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in recognized unhrc camps. that is a very small figure. they have no control over whether an operative would be selected. and given the way we privilege the most vulnerable populations, it's highly unlikely they would be. that being said, it is also significant that the previous panel acknowledge the intelligence gaps, which we need to be forth right about. they characterized as one in which the risk we face is low but it isn't a no-risk proposition. there is risk. but the selection process reduces the risk as well as the in efficiency of moving op actives in. that being said, i think the selection process is much more of a barrier than the screening process. it is a multi-layered screening process. but as fbi director comey
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acknowledged as mctc director acknowledged, there are limitations on our intelligence. indeed, recent events in paris dramatically underscored the limitation of this intelligence. not only do you have two -- at least two large cells interlocking, but it is important to look at the travels of abdelhamid abaaoud. he was involved in a plot in belgium was interrupted january of this year. he moved back into syria to plot the attack in france. while he was a wanted man, he was able to move past european authorities, into syrian, then passed again and moved in. i think it was very important to highlight the fact that when you're looking at vulnerabilities that the united states have to terrorists entry,
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visa waivers are just more important than refugee resettlement. there are dramatic pictures of large numbers moving into europe. as we all know, the situation we face is very different in the united states. rather than a population kfg in, they are being selected out of camps. i think it makes sense for this legislative body to think of the means oven try that are highest risk. and refugee resettlement is not. the fourth point, i do think we should think about the eus slammic's state use of refugees. this is a problem that will arise. they released a dot videos.
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it seems that either one of the attackers used a refugee route or planted a refugee's passport or syrian passport. there is evidence that points at both directions. one thing they will absolutely in my view try to do is make it -- either infiltrate an operative that way or make it seem that has happened to provoke a backlash against refugees. they talk about their desire to destroy the gray zone between the european population and the islamic state to muslims have nowhere to go. that's worth thinking b. not so much for our on resettlement program. that is an issue that will come up. if such an attack occurs we need to think about that so we can fashion appropriate policies. the final policy point i want to make we also, as several senators said, should consider our own policies in order to
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reduce the destabilization. it deserves much more scrutiny. i think there are very deep problems. i don't want to divert this hearing. the final thing, taking off my hat as an expert witness and talking as an american, i want to thank you for this hearing. we should come together as americans. we are compassionate people. we want to welcome refugees. both sides should recognize there are legitimate concerns and be able to talk and advance ourselves.
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so thank you as an american for holding a hearing that was very reasonable and very measured. >> thank you. >> our next witness is earth schwartz, dean of humphrey school of public affairs. mr. schwartz previously served as u.s. assistant secretary of state for population, refugees and immigration. high commissioner for human rights. mr. schwartz. >> thank you, mr. chairman. the committee has asked that witnesses discuss any vulnerabilities in their program for resettlement of syrians. this is a very important issue. but it is really only relevant first if we believe we have a national interest in resettling syrians. second, if we're confident that we're asking the security-related questions. nobody disputes the importance
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of issues surrounding the syrian conflict, stemming the proliferation of weapons of mass destruction, supporting friends and allies, sustaining economic relationships, defeating isis and others seeking to export campaigns of terror, and providing assistance to desperate peel in need. all objectives that demand u.s. leadership in highly uncertain times when more than any time in recent memory we need the support of our friends and our allies. how does refugee resettlement of syrians address these concerns? more particularly, how might obstacles our prrp. if we're asking turkey, jordan and lebanon to continue to host 4 million refugees and if we're
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expecting the support it is important to sustain efforts. here again, our commitment to our settlement is critical. the failure will be perceived as hipocracy. third, the battle against isis is also a battle of ideas in which isis rejects any notion of the compatibility of islam with other traditions. our refugee resettlement program rebeauties that preposterous notion. but imposing obstacles to particular groups does risk playing into the very narrative
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that we seek to combat worldwide. sit worth reflecting i think we have to reflect that the fact that legislative efforts to single out particular programs in iraq or syria do risk playing into that narrative and might indeed be welcomed by our adversaries. so if there is a compelling issue in interest in resettling syrians. first, we shouldn't be asking whether the syrian refugee resettle program, or for that matter, any eupl tkpraeugz program, could guarantee admission of an individual with ill-intent. to put this in perspective
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between 2010 and 2013, 4 million people moved into our country to establish residence. applications for syrian refugee admissions are the most thoroughly vetted in our process involving reviews by intelligence, security, and law enforcement agencies. all applicants pried data. these do provide a rebust degree of safeguards in light of the national security humanitarian interest they serve. in conclusion, in yesterday's smithsonian.com website, daniel gross writes of herbert carl frederick barr who claimed to be a persecuted jewish refugee.
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barr's store unraveled and he was convicted of conspiracy and planned espionage. the event helped to stoke the contention that jews could be part of a fifth column of spice. as united states officials turn their backs on those who were in need protection from the holocaust. some voices condemned this. but they were drowned out in the name of national security. and recognize that our refugee admissions program not only meets national security interests but reflects our value as a people.
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>> thank you, mr. chairman. ranking member carler. national nonprofit organization serving refugees and immigrants with a network of over 90 agencies and offices orpbd the nation. i'm honored to testify in support of the reskwreltsment program and provide information on the program. i want to thank you, chairman johnson, for complementing our security screening fact sheet, which my staff works hard to keep up to date. and it has been around two years. we keep changing it as we learn more. we're the outside so we don't have the inside information.
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over 100 years, it protected the rights and addressed the needs of persons in voluntary or forced migration. we are proud to do this work in the united states because our country is the world leader in providing protection to people who need it. this globalí.@< refugee crisis requires strong leadership and the u.s. will inherently make a statement by our presence or absence. for refugees who are the most vulnerable, the tortured survivors, women at risk, for those individuals resettlement is often the only option. we must not like the heinous acts in paris turn our backs when our heritage is to welcome
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refugees in the united states. when i was i invited to testify i went out to our network and i said tell me what syrian refugees that we have resettled are saying. way syrian refugee in september wanted everyone to know that his family are so happy to be safe again after arriving in the united states. he told us, i truly appreciate the kindness of the american people that we witnessed. a sorry swrapb family who arrived in erie, pennsylvania last night told us that they were very happy with arrive in the united states after many years of waiting. the family was thankful to be in erie, pennsylvania.
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and wishes to see more syrians have the ability to come here. uscri supports a solutions based approach. we would like the u.s. refugee program to be supported through all aspects of our government and electd through a safe
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program. we would like to see funding for the department of homeland security increase to maintain the integrity of the security checks. we would like to see increased support for the office of refugee resettlement for newly arrived refugees. as the former director of the federal office of refugee resettlement and after a four-year career of helping refugees, i am proud that it works and is in the benefit interest of measuring. thank you for holding this hearing and listening to our point of view. >> thank you. mr. garden stein-ross, let me start with you. you talked about the refugee flow. you think it is a public relations disaster for isis? >> yes, absolutely.
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this was made very lear khrao in their own propaganda. the 235bg9 that people are fleeing from them and other syrians, rather going from assad-controlled areas or war-torn areas, they are going to europe rather -- that. >> that was the point i was going to make. we're being told the refugee flow is not in isis-controlled areas. it is primarily because assad bombing his own people. it is the syrian government's genocide causing the problem. >> it's really both. the flow out of mosul was all because of isis. yes, it's not as though must refugees are fleeing isis. i agree with those assessments. but let's be clear. there are refugees clearing isis. the reason why it is a public
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relations disaster for them is isis is right there in syria. >> let's talk about the greatest risk. as we have heard testimony, the vetting process is redundant. it is pretty robust. pretty in efficient if you're trying to bring people into the united states. at least going into europe. that refugee flow. as i said in my opening statement, i our greatest risk is our literally unsecured borders. people potentially coming in here. i want to kind of go down the list, down the panel here. what is the greatest risk? then i'll ask what is the number one thing we should do? >> i think it shows that the schengen europe agreement is the risk. european countries understand who is coming in to other countries. for example, "the master" mind,
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his travels that david laid out. still not entirely clear. the french weren't sure what the belgians knew. there are 30,000 of them. if we don't know who they are, everything else is moot. >> again, so the free throw in europe, creates risk for those -- two america, to our homeland is the greatest risk. >> yeah. mr. jenkins. >> first of all, i would agree that you and senator mckaskel broadened it to say let's look at the whole thing. let's look at visa, visa waiver and see what are our gaps and the most likely routes for terrorists.
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and i think there is probably consensus that the refugee may be the least productive route for them. i certainly would agree with peter that a major vulnerability is europe. one, because of the numbers. two, because they do not have the capability of selecting. these are people that are arriving and the europeans are then trying to sort them out. a third problem is that the europeans are not sharing information with each other in these senses. either cooperation will increase or we will see increasing border controls in europe, which will challenge free movement altogether.
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the weakness that i think we have in our system overall is we are dependent on list of names. we don't have -- in terms of looking at visas, we have a robust system for interviewing refugees. but a lot of other things are dependent on a name being on a list. we don't have a name on a list, we don't have much else to go on. it would be useful at the very least if we could develop new ways of looking at this saying there are some we can clear pretty fast because of who they are. there are others that are going to require a new way of looking at this. >> people haven't created that ripple. >> right. >> i'll pick up on this.
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>> thank you, mr. chairman. i wanted to just hang around because i think what you are 25ubging about is so important. as you have complimented the committee and i share that compliment or share your complimentary statements with the chairman, i think we have a great panel here. and so just to begin, everything i have read in your testimony and what you presented here, would you say the focus we have put at this point on the refugee resettlement program is misplaced and has diverted attention from much more critical security issues that we have. it seems to be unanimous on the panel. if you disagree, please way in. and you represent national
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security experts. would you say your view is kind of the majority view of people who study national security? so you guys almost talk to each other at some point here. can you tell me, building on what the chairman has asked, what things you think were missing that we haven't talked about today. the visa waiver program is on everyone's mind. obviously it is much more timely now. we expect to have a discussion on it. what are we missing that people within our expectation are saying, wow, why don't they get this? and that's for anyone. >> i agree with peter spiral about the greatest threat in
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terms of entering -- terrorists entering the u.s. being schengen zone and visa waiver. the key thing for me is in the past, because of the schengen agreement, there is certain information the united states does not get from european allies because of that agreement. over the course of the last several months we have seen the virtue wall collapse of the agreement. we need to see where schengen has posed a throat. and see where we can get in bilateral or multilateral negotiation. >> what have we missed? >> they are very concerned about turkey now. the pressure on the turks has
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impacted the foreign fighter throw any encouragement and/or peter tease would be very useful. that's where overwhelmingly the foreign fighters are coming in. >> let me add to a comment in terms of putting pressure on but assisting them as well. there are profound differences in europe. philosophical differences about how to deal with these issues, privacy issues, about resettlement issues. foreign fighters, whether they should be charged with criminal violations or rehabilitated and
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put back into society. when you deal with that many differences it tends to dilute the efforts to the least common denominator. so we have to work on a bilateral basis to ensure that we are getting the information that we need for our own national security issues. >> go ahead. >> i would just make four very brief points. they are disjointed since we have been talking about a lot of different issues. i think support for front line states is absolutely critical. i was part of a letter of 22 former officials, including deputy secretary wolfowitz and michelle florney and others with an allocation up to $2 billion in large measure to support jordan and turkey because they
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are experiencing such significant challenges that that would be a very valuable symbol of solidarity and support. my second comment is i agree with the other panelists that the refugee program is not anywhere near a major threat. third and fourth points, i agree we need to take a close look at the visa waiver program and other programs. but i also think that we have to accept the fact or understand the fact, without prejudice to that point about looking at the visa waiver program, we have to accept the fact that our strength is also our vulnerablity. in our system of immigration is responsible for creating a super power. without the kind of immigration policies we have had in the past century or more, the united states would not have achieved
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the kind of economic and political dominance we have in the world. we have spared some of the existential challenges that some of our european allies and japan face. that is our strength. but it is also our vulnerability. >> rink our greatest risk is that we our political discourse and climate in the united states to make it anti-immigrant to say things that are negative and stereotypical of people whereby the mainstream population thinks it is okay to turn our backs on newcomers. i think when you look at europe you can see the sort of social isolation, the lot of their communities live with day to day. the strength of america, the
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beauty of beauty is that we don't do that. that our values and our ability to assimilate, and i'll use that old-fashioned word, we do in fact, assimilate new people. by the second and third generation they usually can't speak their grandparents's or parents's language. when people are willing to share our values of freedom and individual ality and acceptance and incorporation, they become americans. we native-born people look at them in some point and go, we're american. i don't know when that shift take place, but it take place. and that ability to incorporate keeps us from having that group that may have on us internally. so we have to keep that political discourse and the leadership to say to the american people. and it's not easy. people are different. people don't like different. it makes everybody uneasy. it is the political leadership
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to have to keep the dialogue in that positive way that it reinforces the beauty and strength of america. >> unfortunately, it the past is not a complete predictor of the future. i'll start with mr. garden stein-ross in terms of the greatest risk. >> as i said before, i agreed with peter about the schengen agreement and the problems in europe being the greatest immediate risk. eufplt to highlight something else very much related. this hearing, for very good reason, focused the islamic state in isis. it has been pushed from the headlines. and this is not a good thing. al qaeda today enjoys a lot more tpraoeld only of movement than anyone would have thought possible five years ago. if you look at a high-level
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leader of the group, you can see a lot of u.s. sanctions are getting peeled back. al qaeda is receiving state support in syria. it is getting support from qatar, saudi arabia, turkey. we need to pay attention to this rebranding of al qaeda as a more reasonable jihadi force. if we don't pay attention to it now, we will fully regret it in several years. >> i refer to it islamic terrorists. there are a number of different groups. but they are islamic terrorists. >> mr. schwartz, the greatest threat? >> i'm sorry. in terms of -- >> i could sign on to former
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joint chiefs of staff as debt and deficit. >> i'm sorry? >> debt and deficit. we're talking about our vulnerabilities. looking for more specifics from that standpoint. >> yeah. as i said before, i think my expertise here are on immigration and refugee program in particular. and i -- to my mind, the refugee program is a durable program -- >> but where is our greatest srurblt within these programs. >> as i said, i think it's clear that the visa waiver program has graeter vulnerabilities. i'm frankly not an expert on all
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the immigration programs. i can tell you that the program, which i know very, very well is not one of those. if i could just make one other point, which i made in my testimony, i really think it's important if members of congress feel that the department has made the case about the security procedures in the refugee resettlement program. i would think long and hard on this issue of additional legislation. because of my concern that it does play right into is the narrative of us against them. are choosing a particular group to create greater obstacles when we have a system in place that is rigorous and responsible. i think our geo-political interests require that we reflect carefully about that legislation. even if the president has promised to veto it, the passage
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of it is very worrisome. >> my office received phone calls from people wore who who are worked up about syrians. i live in des moines. i want the names and addresses of every syrian brought here to des moines. that's one of the nicer things that have been said. when we look at settling syrians right now. someone arrived in erie last night. people are going to arrive in chicago tomorrow. we have state government officials saying we want the names and addresses of these people. and we're like, whoa, what's going on here? these people are legally
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admitted to the united states. how are we going to protect them. they have been persecuted. who have been fleeing violence and persecution because of their race, religion or membership in an ethnic group. they come to america, the land of the free, and we say you may be persecuted because of your membership in a particular ethnic group. it is a dangerous time. thousands of people are calling us going what am i supposed to do? >> which is why i think a certification process would give the american people the assurance they are looking for. senator carper. >> i appreciate being out. there's a lot going on. something i said earlier i think you heard and i talked about the competing moral imperatives. one of the moral impair actives
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reminded to us by pope francis a month or two ago was our obligation to the least of these. when i was a stranger in your land, did you take me in. and the admonition, the biggest applause line he got when he spoke to congress when he evoked the golden rule we should treat people the way we want to be treated. i'm reminded of it every day the imperative as we confront this challenge. but we also have a moral imperative to the people who live here. we want to be able to live to a ripe old age. and the question is can we do both. we have to be true to one and not to the other. another committee that i serve on. i was out of the room because my response was on the committee.
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oversight over nuclear regulatory commission. but always resting with the commission in that committee. we have cleaner air, cleaner water. and at the same time have a stronger economy. or is it a choice of one way or the other? i think we can have both. if we are smart, we will have both. but in terms of the moral were imperatives, how do we meet both moral eupl peimpaierativeimpera one in particular, to keep people safe. we want to see what's good about that. it certainly improved of time. is there something more we can do? i think so. adam i want to say starts with a z. he's a terrific guy. his nomination is hung up in the banging committee for reasons i don't understand. he sort of helped bring iran to its knees and cut off other
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funding. and the same with north carolina. we would like him to do that with isis if we can get him confirmed. just respond if you would, please. thank you. >> we have become a risk averse security obsessed nation. that's understandable. and we're still in the shadow of 9/11. we are dealing with these extraordinary times and threats. but we cannot remove all risk. we have been doing a pretty good job in terms of our domestic intelligence, in terms of preventing these attacks and so on. but we don't get to zero. the problem is if we try to get to zero, that has costs in other directions. costs in terms of real economic costs if we were to abolish the
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visa waiver program, costs in terms of moral costs in terms of our reputation as a society. so i think part of it is, without this missing, the very real threat. and this is very much a long-term thing, this is the shape of things to come. but we have to be able to accept that none of these programs, not one of these, provides us with an absolute guarantee. no amount of screening. no signatures. you can, as the senate, keep the heat on people on this. people go slack. and you can energize that. but we don't get the zero. >> excellent point. others, please. >> make a make an observation. every person who has been killed by jihadi terrorists has been
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killed by an american citizen or resident since 9/11. refugees have not been involved. the real domestic terrorism problem is provoked by homegrown terrorists. >> that's a great point. >> senator carper, i think that -- i certainly agree that the refugee resettlement program has robust procedures in it to help ensure the security of americans. and i also believe that the refugee resettlement program is the best expression of american values of the moral imperative. but let me repeat what i said in my testimony, which is i also believe in this particular instance and in many others, the continuation of this program serves vital national security imperatives. our burden sharing with front line states that are hosting over 4 million refugees. burden sharing with european
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governments that we are asking to treat humanely hundreds of thousands of syrian refugees. these are deposits with he need in terms of the geo-political objectives we are trying to achieve in syria and other places in the world. third, and perhaps most importantly, we rebuke the isis narrative of us versus them. it is an expression, our program is an expression of the proposition that it is not the muslim world and everyone else. that isis narrative that we combat day in and day out with our refugee program. so i think we have stakes in this program that go far beyond the humanitarian programs. >> wonderful point. thank you. >> you talk about the i c community being overwhelmed by
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the volume. keep cool, stay smart. nobody would dispute we can't turn this into a risk free world. but these are threats. and i believe these threats are growing. we just witnessed it in paris. so if we sit back and play defense all the time, how do we go on offense? how do we solve the problem? >> i wind argue for a defensive strategy. i agree that we do have to become more effective in how deal with this in syria. i personally happen to think that is not by deploying large numbers of american forces on the ground. i think the numbers that people mention underestimate the task i think that that would become very quickly an unsustainable
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thing. can we do other things with the air campaign, with increasing the number of special situations personnel. i think we can do even more creative things. for example, creating a guerrilla army -- >> is it obviously didn't work. >> it didn't work. however, that doesn't mean that repep active recruiting won't work. i'm not talking about throwing people into battle. among sunnis, it may make sense for us to recruit them and pay them in a sense to be on our payroll rather than spending the money to go after them. >> let me ask. has the threat grown or receded in the last year and a half for
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strategy? >> i would say in some cases we have checked isil's advances. >> has the threat grown or seeded? >> it is overwhelmed by the volume. isn't it growing? >> it is overwhelmed. >> again, that's our greatest threat is what you're telling us. >> it is. >> so that threat is growing. so the strategy currently isn't working. so the risk is increasing. >> the risk of terrorism outside is going up. that i think is true. for a variety of reasons. even as we have more threat on the ground that is outside. you can't necessarily look at the threat outside as evidence of failure inside syria. that threat can go up even with success. >> but, remember the mission is to enhance the economic and national security of this nation. so you have a destabilized
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middle east. you start to stabilize nations in europe. that destabilizes the entire economy. that also affects our economic situation as well. >> it clearly does. so far, though, so far, we have been able to manage -- we have been able to manage this. this is a matter of can we improve things as opposed to fundamentally alter our strategy. so over a period of time i think we have been extraordinarily cautious. >> do you think it's a good thing that iran and russia's gaining greater influence in the middle east? -- regional security -- >> russia is not a newcomer to syria. >> i understand. but its influence is growing in the middle east, correct? >> i'm not sure that it is. >> mr. gartenstein-ross, do you
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think it is? >> i don't think it's good that both are growing. in terms of strategy, there are things we can do. as brian said, and direct answe question is, the threat has grown worse in the past year and a half. but number one, if you look on the ground in iraq and syria, isis has experienced a year of steady losses with the exception of one very good week in may. publicizing their losses is very important. they have a narrative of strength. one area where the u.s. has clearly failed is it hasn't publicized their losses, including their losses outside of iraq and syria. they have at least four major losses in africa that almost no one is aware of, including people in africa. i know this because at an african union summit i was at in namibia, people were absolutely unaware of isis's failures
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there. if you look at the terrorism problem writ large, tunisia is now fundamentally threatened in ways it wasn't two years ago. yemen is falling apart. that's not an isis issue, there are other things related and isis has glommed on to that. violent nonstate actors, including jihadists, are gaining much more ground. this is a real problem. not just a problem of islamic terrorism, but the problem set of the democratization of violence. we'll see much more violence at a substate level. a lot of these concerns, including what senator car per i think articulately describes as competing imperatives, are going to remain. when discourse becomes jaded, we lose the ability to reason through as one body these very, very difficult issues that we're
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going to be grappling with for a long time to come. >> senator carper? >> thank you. on the question of the influence of the russians and the iranians waning, i think one of you said maybe not so much, the other i understood to say yes. actually iran, talking about competing interests, they have competing interests there. you have one group led by the supreme leader and the revolutionary guard. then you have another group led by the elected president of the country, in a country where i want to say like 78 million peop -- 7, 8 million people, the average age of the country is 25. most of the places, it seems to have more to do with shia versus
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sunni than anything else. the greatest threats to us, i don't believe from what i can tell that the greatest threats to us are necessarily with respect to syria and isis. i don't think they're necessarily related those going through the refugee resettlement program. i think we've pretty established that. i'm not sure that those going through the visa waiver program are the greatest threats, or those coming in on a tourist visa or student visa or some other way that i'm not thinking of. i think you said it, mr. bergen, the thing that keeps me up at night more than anything else is the folks that are here, home-grown, born here, raised here, in many cases. and they become radicalized. and they can do great damage from the inside. those are the folks i worry about. and in order to address that threat, reduce the threat, a
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couple of things. i read a couple of books not long ago by a woman named phyllis schwartz, do i have that right? jessica stern. not even close. jessica stern. jessica stern went around the world, met with all kinds of terrorists, i can't believe they let her in and opened up their hearts to her, but they did. the older book is not the isis book, the isis book is the newer book. but she -- one of the things she found in talking to all these terrorists, a lot of them were faith-based, but there were people, mostly guys, who had not had a lot of success in their lives, and they were working for a way into the big time. and the big time could be to be involved in a military operation, to be trained, be effective, be a hero, to get killed, you have all these brides or wives.
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if they don't, you get paid, you get on somebody's payroll, make some money. their families if they do die actually get money from the organization, in this case isis. and so one of the points that came to me from reading her first book was, if isis is not successful, if they're losing territory and not gaining territory, if we're cutting them off financially, they become a whole lot less attractive. they can still pop off on social media, but if the back story is, these guys are faking it, as they say in montana, all hat, no cattle. that's why it's so important, mr. chairman, i agree on this, it's so important to crush these guys, sooner rather than later, but to do that. the second piece is, we actually have the ability, the department of homeland security has this ability, we talked about one of the programs they have that we've been asked to fund, that enables them to run a countermessage within the muslim
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communities here in our country where there's a lot of people, and particularly the young people are subject to being radicalized, to have a countervailing message there and to work with the community to make sure that's an effective message. do you all want to react to any of that? if you do, please do, if you don't, that's okay. >> as a minnesotan by way of new york and washington, i do need to say a word about the great work of the u.s. attorney there, andrew lugar, who has -- well, you know, the countering violate extremism program is one thing, but what he has done and his office has done is engaged refugee and immigrant communities in very significant and substantial ways, in dialogue, in discussion, in helping to understand the challenges that they confront, without sacrificing in any way,
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shape, manner, or form, the law enforcement imperative of his office. i think it's a real model for the rest of the country and deserves mention. >> just a show of hands, on the issue of greatest threat we face to the homeland, whether it's, you know, refugees, visa waiver folks, student visas, tourist visas, home-grown, does anyone think the home-grown may be the biggest threat we face? thank you. four out of five. thank you. >> this is pretty well widely known, more than 7 million refugees displaced within syria, 4 million refugees outside, hundreds of thousands have now flown into europe. the more that are accepted in, the more flow, isn't that a destabilizing -- again, ms.
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limon, you talked about the lack of assimilation. part of the problem i think in france is you've got just around paris, 1.7 million muslim population, not particularly asame late assimilated, people who lack futures. they're more easily drawn in to a radical viewpoint. isn't it a problem? anybody? >> yes, it's a problem. i think it's pretty unprecedented as well, since world war ii, the idea of all these people coming in. it faces huge challenges in dealing with this. but i think it's also time, when germa germany, i think they're bringing in 800,000 people, and angela merkel sees that as a benefit to her country, which i happen to agree with her, but they're going to have to do this
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wholeheartedly. and that's when you talk about those communities outside paris. there's second, third generation moroccans and other middle easterns who live there who do not feel they're french. >> it's that lack of assimilation, balkanization of societies, which is not a good thing. it's very destabilizing. >> it's not a good thing. europe has to deal with that and we have to make sure we don't do that here. >> mr. bergen, i have to challenge you, you talked about the terrorist attacks with u.s. citizens. i would argue the 9/11 had coijs were on visa overstays. in the end we had 9/11. and by the way, talking about being perceived as winners or losers, you down a jet three
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weeks ago, you have successful and i would consider low tech terrorist events in beirut, i would say another low tech terrorist event in paris. i do push back on the sophistication of these. people talk about sophisticated, it kind of deloudes us, it take planning. it's pretty easy to say, here are the targets, we're going to hit them at zero hour, if you take a look at the weapons, readily available on the black market. the explosives may be a little more complex. speak to the real threat and the growing threat. mr. bergen. >> i think you're absolutely righted, sir, the attacks in paris were not sophisticated, but they were complex. >> they were organized. >> they were highly complex. the point i was trying to make, sir, since 9/11, the tsarnaev brothers came as minors to this country. they were radicalized here. they were perfectly normal, lived here for ten years. it's in the last two years of
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their existence. >> point well taken. anybody else want to comment? mr. gertenstein-ross? >> i agree, you made a point about wildernesses and losers, obviously this is a pointwhen isis has had a string of successes. at such a time, having an information campaign about their losses is not going to be effective. there is strong proof, and i testified to the senate about this back in april, that they have consistently exaggerated their strength. i think we can do a better job knocking that down. bearing in mind, when they have big successes, like these awful tac attacks that we've seen, you're not going to be able to convince people that they're on the losing side. >> i would agree that the sophistication is in the use of social media, the way they're able to recruit, inspire, enjoin this barbarity, it takes a fair amount of sophistication to
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identify people willing to blow themselves up. but the actual attacks themselves strike me as relatively low tech, which gives me a great deal of concern. mr. bergen, did you want to stay something? >> i totally agree. >> mr. chairman, can i address the other question you asked about incentives? >> sure. >> you know, in most cases, when you're dealing with migration, and it's economic migration, you feel you can as a matter of policy and ethics, it's reasonable to create certain deterrents to undocumented migration. the dilemma in the syria case is that, yeah, there's 7 million internally and i sa lly displac refugees, but very few of those are people who didn't have good reason to move based on persecution, abuses, or
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conflict. now, traditionally, there are three ways that situations like that are resolved. either they are locally integrated into the places they flee. they return to syria. or they have -- or to their country of origin. or they're resettled in a third country. and traditionally, third country resettlement is really, for a pretty small minority of refugees. >> again, that's my point. it points to what the solution should be as an attempt to stabilize the situation in syria and iraq, which requires wiping isis off the face of the effoar in terms of their territory. i think that has to be the solution. i guess i was baffled, mr. jenkins, by your assertion that's going to make it even worse. >> no, it is not that i'm saying that, look, don't go after them because it will make it worse. i am saying that that is a
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consequence we have to be prepared for anyway. that's not a reason not to go after them. we to continue, and indeed increase our efforts to destroy isil. i have never been equivical about going after isil. there is no option, there is no option that allows the continued existence of isil. and i would agree with daveed, i don't make these distinctions between, you know, a bad isil and a slightly less bad al qaeda. we're talking about an ideology. >> islamic terror. >> yes. >> i think we as a civilized world, it is about time we begin, we become completely, 100% committed to defeating them. i realize it's a long term process. >> that's the point.
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>> we've taken care of one situation, we say, okay, we've mopped that up, and we forget about it. >> that's the point here, that first of all, this is about this type of ideology, number one, that we must destroy the military formations. i can't tell you that we'll ever change people's souls or beliefs. there are still nazis in the world that believe in this. but we can destroy these organizatio organizations. every been the senator cato in repeating that isil and al qaeda have to be destroyed. however, we have to accept this is going to be a very long task. and therefore, and therefore, pick our way through this in a way that we can sustain it in a long run and not do things that
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will immediately erode both international and domestic public support, and not do things that are going to be counterproductive. this is not about going after them. this is about how we go after them. >> i think we're on the same page here. it requires that, again, the 100% commitment by the civilized world to understand the reality of this, it's not going away, and it has to be destroyed. >> absolutely. >> anybody else? >> i would only say that there's nothing inconsistent between that objective and the efforts to bring together the major -- the powers that are so dramatically impacting the situation on the ground in syria today. if that doesn't happen, and i credit the information fadminis the efforts it's making, if that doesn't happen, the humanitarian crisis that overlays this whole situation will be continued, because however desirable these
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objectives are about the destruction of isis, that is a long term proposition. and right now, the imperative has got to be to chart out some sort of disposition, that situation in syria, so that the humanitarian crisis that we're seeing, you know, can be addressed. >> i would say the imperative is to make it not so long term. i would say the imperative is shorten the term of when we finally do achieve, you know, basic victory. anyway, let me give everybody a chance to kind of summarize. i've taken enough of your time. we'll start with you, ms. limon. >> thank you, mr. chairman. the majority of the refugees are fleeing the government of syria and assad and their actions. having spent my entire career trying to help refugees fleeing bad governments, i am really wishing we would start putting
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our attention on those actions, not to take away from destroying isis and al qaeda and the rest of it, that's a good thing, but it's also, when does the international community punish governments that have bad policies, that have people fleeing? we have tens of thousands of eritreans fleeing for what's going on there, i could give you a laundry list, i don't have time. when do we get to the source of this? >> i would say when america leads. mr. schwartz. >> i guess the issues at this hearing have been many and varied and quite fascinating. the issue of the day is the legislation that was just enacted in the house of representatives. and i know you have expressed your perspectives on it. i would only ask that if you and other members have a reasonable degree of confidence that the
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testimony of the administration was per sidewa-- persuasive, th implications with respect to our allies, governments, people that are listening very, very closely to what comes out of the u.s. congress and the administration, and i have expressed my views on this early in the hearing. >> i generally do try and consider everything. i think a simple certification provides the american people the type of assurance that all these redundant safeguards, all these vetti vetting processes are actually done. we require certification under sarbanes-oxley. >> why target this particular program? >> mr. gertenstein-ross?
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>> i thought this was a strong conversation, as eric said, the topics were many and varied. we've talked at great length about the primary topic, which is the risks of refugee resettlement. we had a consensus on this panel. so let me just point to a couple of things that relate to some of the last rounds of questioning. i think one thing that i would love to see the legislature exercise more oversight over is our cia program for arming syrian rebels. a lot of the recent revelations are extraordinarily disturbing. and i think that they are making the situation worse in terms of the primary topic that we're talking about, which is refugees. it's also something which is at a disservice to our strategic interests. the second thing i'll say is, we talked about winners and losers. that's another area where i think the legislature could play a very strong role. this obviously is the time when isis has a number of prominent
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wins in terms of awful, deadly attacks. they're also experiencing some significant losses. their loss of sinjar, for example, and their major holding, their major victory in the past year, ramadi, is now increasingly threatened. being able to publicize that is important. the final thing, because you asked about the influence of iran and russia, is iran has been at the forefront of pushing back isis. this is not a fully positive thing at all. the atrocities being committed by the pro-iran shia militias against sunnis is the kind of thing that lays the groundwork for this to be a tragedy that continues add infinitum. >> i appreciate your insights. mr. jenkins. >> many people don't like to use the term, but we are at war. we've been at war for a long time on this. that means we are going to incur costs. we are going to incur risks in
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this. we cannot say on the one hand we are committed to a war, and we're going to go after these people, and on the other hand, treat every time we confront a risk as if it's an outrage, a failure. and so if we're going to be as determined as i believe you are, then that has consequences. and it has consequences not just from what we do in terms of going after isil, but how this nation ought to be -- ought not to be panicked into fear as we go forward with this, which sometimes i think we tend to do. >> i think we've done a pretty good job in this hearing of laying out reality and getting a broad spectrum of views on this thing. mr. bergen?
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>> i couldn't agree more, this has been an excellent hearing, a lot of light was shown on an issue that's been politicized. we don't want to come back here in 2019, having the same hearing about afghanistan, because the plan to draw down to zero in afghanistan is basically not a good idea. and hopefully -- we've already seen how this video plays out. isis already has a small presence in afghanistan, which is growing. so we don't want to make the same mistake that we've made in iraq. >> thank you, mr. bergen. i really want to thank all the witnesses. i come from a manufacturing background. i like information. i like facts. i hate demagoguery. all of you, and a previous panel too, i really do appreciate the administration. this was a very fast turnaround, for the administration to provide us witnesses, and i truly appreciate that. i think it inured to their benefit on this issue. again, i appreciate all of you for bringing forth some good
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information for the american people to hear. with that, this hearing record will remain open for 15 days, until december 4#z
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just an a couple of minutes where he's expected to talk about u.s. intelligence capabilities and homeland security issues. our road to the white house coverage will be live starting in 15 minutes on our companion network, c-span. later, president obama will present the medal of freedom to 17 individuals, among them barbra streisand and steven spielberg. see live coverage beginning at 5:00 p.m. eastern on c-span. french president hollande is meeting with president obama to discuss terror attacks in paris and around the world. should the u.s. form an anti-isis alliance with france and russia? tweet us or leave your comments on our facebook page and we'll try to read your responses later in the day. john hinckley of course was the person who shot president reagan. and president reagan was not
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wearing a bullet-proof vest that day. it was a short trip from the white house. john hinckley was stalking jimmy carter before this. >> sunday on "q&a," ronald fineman, author of "assassinations, threats, and the american presidency," talks about physical threats made against presidents and presidential candidates throughout american history. >> there's been 16 presidents who faced assassination threats, although nondirectly since ronald reagan. i also cover three presidential candidates. i talk about hughie long, who in 1935 was assassinated. i talk about robert kennedy in 1968 who was assassinated. and george wallace who was shot and paralyzed for life in 1972. i cover candidates as well as presidents. and it's a long list. >> sunday night at 8 eastern and pacific on c-span's "q&a."
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up next, securities and exchange commission chair mario white testifies at a house financial services committee hearing on sec operations and the commission's fiscal year 2017 budget requests. this is just over three hours. the committee will come to order. without objection, the chair is authorized to have a recess at any time. i recognize myself for three minutes. this morning, we welcome securities and exchange commission chair mary jo white. [ inaudible ]
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-- performing. it is on their behalf this committee acts to ensure that the sec protects investors. maintains fair, orderly, and efficient markets. and promotes capital formation. all key ingredients to growing a healthy economy with bigger opportunity for all. vigorous oversight is also needed to be sure the sec is a good steward of its resources, a budget that has increased by 64% over the last 10 years, while the monitors to my left, right and in front of me show the rapidly rising red ink of our national debt. this is chair white's last appearance before our committee. we have seen both good news and bad news. first, the good. the sec finally completed the bipartisan jobs act rulemakings to implement the red a-plus in
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crowd funding titles. this is noteworthy and commendable. further, the sec has asserted its jurisdiction to hopefully stop financial stability oversight council from regulating asset managers like banks. this too is commendable. regrettably, there is more to discuss that is not so commendable. a pay ratio rule which was pushed through which may appease left-wing activists but does nothing to protect investors or facilitate capital formation for small and medium-sized businesses. does nothing to help struggling families get ahead. another example of the sec squandering resources that does nothing that protect investors or facilitate capital formation. additionally, as much as left-wing activists may want to drag the sec into political advocacy, the citizens united decision does not involve or implicate federal securities laws.
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a political disclosure rule making is not within the sec's core competency or more importantly, it is not within its mission. it would simply create more opportunities for abuse and politicized enforcement as we have seen with the irs scandal. and further damage the sec's credibility. the sec should instead, redouble efforts to simplify the disclose sheer regime and renew its÷'bsñ commitment to the matel at this doctrine expressed by the supreme court in 1976. instead of modernizing our proxy system, the chair's recent action to cut off staff guidance to public companies in the middle of this past proxy season was ill-advised. and the universal proxy ballot proposal favors special interests in short termism rather than benefitting the vast majority of public company shareholders.
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finally, the sec does have an opportunity to act and stop the labor department from making financial advice and retirement planning less available and more expensive for americans with low and moderate incomes. this we hope they successfully do. real investor protection comes from innovative capital markets that are vigorously policed for deception and fraud. they give investors the freedom to make decisions free from government interference and control. i now yield three minutes to the ranking member for an opening statement. >> thank you very much, mr. chairman. welcome back to the committee, chair white. today we gather to discuss the sec's work to oversee our capital markets. this work, however, is hampered by harmful republican cuts to your budget requests, which, will make it harder for you to police these markets.
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please know that democrats are committed to full funding for the sec, because the commission provides the first line of protection for investors. it has been eight months since you were last here and more than five years since dodd-frank was enacted. but the sec is still yet to propose a uniform fiduciary standard. i'm pleased to learn that certainly, while the department of labor is doing its part to create a rule that works, that you are working toward this end and that there should be something in the reasonable future, dealing with this issue. regarding the inadequate level of adviser exams, i join industry associations and volkswagen and -- and advocates
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and members of this committee in calling for a modest fee on advisers, and i'm concerned about any costly third-party exams which your staff may be working on. i'm also concerned -- well, as we've discussed, i'm deeply concerned about the continued seemingly reflexive granting of waivers of bad act or disqualifications. these waivers allow some of the worst actors in our financial system to continue business as usual, and i look forward to your explanation of exactly how these decisions are made. in recent times, i've learned that they're made quite differently than i thought. lastly, i received your letter concerning a bill we considered last week, related business development companies. while this isn't quite the bill i would have offered. we did craft a compromise which i believe addressed most of your earlier concerns with the administration. i also offered an amendment with mrs. velasquez to address your
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new concerns. we disagree relative to the modest increase in leverage, but i urge you to help us craft language to further improve this bill before it moves to the house floor. thank you, and i yield back the balance of my time. >> the gentle lady yields back. the chair recognizes the gentleman from new jersey, mr. garrett. chairman of our capital markets subcommittee. >> so i thank the chairman. i thank chair white. it's good to see you again. i may be echoing some of the comments that the chairman has raised. i do that because the last time you appeared before the committee, i noted my concerns back then over the large number of 3-2 votes that were occurring in the commission over the last several years as well as the general perception that the sec is becoming well, increasingly politicized. since that time, really little has happened to relieve any of those concerns of myself or the chair or others have raised. in fact, in the last six months,
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the sec has prioritized and completed the partisan and politicized pay ratio rule and is in the process of developing a universal proxy balance on the rule. these are two things that may appease special interests but they do very little to make our markets more competitive. i would note that this was also done along a partisan vote, three years after the congressional deadline. at the same time, the sec's ongoing failure to develop what i might call a capital formation agenda remains one of the most serious deficiencies. it seems that the only time the sec actually modernizes the security laws to the benefit of the growing number of businesses is when we tell them to. tomorrow the sec will host the annual forum on small business capital formation.
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that's good. as in previous years, i expect this forum to produce a number of valuable ideas that would help small enterprises get capital and grow. but as in previous years, i also expect that the majority of these recommendations will be basically ignored by the sec. finally, the sec clearly has an important mission and role within our sector, financial sector. but right now it's up to the agency that's got to get its priorities in order. so i look forward to hearing from you today on how the sec can refocus for the benefit of america's capital market. i yield back. >> the gentleman yields back. the chair recognizes ms. maloney. >> i thank the chairman for heading this important hearing and welcome chair white. quite a bit has happened since chair white last appeared before this committee in march. for starters, the sec has
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finalized several rules, such as the ceo pay ratio rule and two jobs act rules. perhaps most importantly, the extreme volatility in the markets on august 24th was the first real world test for many of the market safeguards that the sec put in place after the flash crash of 2010. in particular, the automatic trading pauses for stocks that experience extreme volatility. known as the limit up/limit down rules were triggered. nearly 1,300 times on august 24th. and a lot of the stocks that were halted that day were exchange traded stocks, rather than stocks of individual companies. many stocks that were temporarily halted had trouble opening up again, because when they opened brac up for trading, their prices rose too quickly, which triggered another automatic pause.
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however, despite this widespread disruption, the market-wide circuit breakers which would have halted trading for 15 minutes were not triggered on august 24th. so i would be interested to hear chair white's perspective on how these new safeguards performed. did they work as intended? or are there problems with the safeguards that need to be fixed? i thank you and yield back, and i look forward to your testimony. >> the gentlelady yields back. today we have the testimony of the honorable mary jo white. i believe she needs no further introduction. without objection, chair white, your written statement will be made part of the record, and you are now recognized for five minutes to give an oral presentation of your testimony. thank you. >> thank you. this is on, right? okay. chairman, ranking member waters and members of the committee. first, thank you for inviting me to testify about the recent
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activities and current initiatives of the u.s. securities and exchange commission. since i last testified in march, the sec has advanced significant rulemaking, continued to bring strong enforcement actions against wrongdoers, and made significant progress on our initiatives involving the asset management industry, equity market structure and disclosure effectiveness. the commission has adopted or proposed 17 substantive rule makings, including rules required by the dodd-frank and job acts. and these have included final or proposed rules addressing over-the-counter derivatives, new means for small businesses to access capital, including the fine rules, as the chairman mentioned for updating and expanding regulation aid. enhanced oversight of high frequency traders and our supervision of investment advisers and mutual funds, amendments to the sec
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rules, executive compensation disclosures and removing references to credit ratings from our rules. the commission also approved a proposal by the national security exchanges and finra for a two-year pilot program that would widen particular sizes for stocks of smaller companies. we deliver very strong results with the commission bringing 807 enforcement actions and obtaining monetary remedies of approximately $4.2 billion in fiscal year 2015. of the 807 enforcement actions filed, 507 are record as being independent actions for securities laws. more important than the numbers, these actions addressed meaningful issues for the markets and investors, spanned the industry and included a number of first-ever kinds of actions, approximately two-thirds of our substantive actions in fiscal year 2015 included charges against
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individuals. the commission also continued to seek admissions, including the first-ever admission settlement with an auditing firm and to pursue complex cases with criminal authorities, including a recent action involving dozens of defendants with a global scheme to profit from hacked, non-public information about corporate earnings announcements. going forward, we plan to continue to focus on completing our mandatory rule makings while pursuing other initiatives that are critical to our mission, including those related to asset management oversight, and equity market structure, and disclosure effectiveness. this afternoon, for example, the commission is expected to consider new rules to enhance the transparency of equity alternative trading systems. we will also continue to strengthen our enforcement and examination programs, striving for high-impact efforts that protect investors and preserve market integrity. and we'll continue developing a number of ongoing initiatives designed to facilitate capital formation, particularly for small businesses.
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the agency's fiscal year 2017 budget request reflects these priorities, focusing on the execution of core programs and operations, by seeking to hire individuals with the skill sets necessary to enhance the agency's oversight of increasingly complex securities markets. striving to build significant new oversight programs assigned to the sec in recent years, and continuing to enhance our technology, including our ability to analyze and access large volumes of data. as we continue to try to allocate or resources effectively and efficiently, we received an unmodified audit report, the best ever from the gao with no deficiencies identified in fiscal year 2015. we plan to build on these improvements and continue to enhance the execution of our mission. the commission's extensive work to protect investors, preserve market integrity and promote
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capital formation is not limited to the initiatives i've just summarized today or in my written testimony, but i've tried by example both here and again in the written testimony to convey the breadth and importance of the commission's ongoing efforts and provide a sense of our progress in the last few months. thank you for your support and for the agency's mission and for inviting me to be here today. your continued support will allow us better to protect investors and facilitate capital formation and more effectively oversee the markets we regulate. i would be happy to answer any of your questions. >> thank you. the chair now yields himself five minutes for questions. chair white, it was reported that you announced at a conference recently that the sec is quote, full-out focussed on developing its own fiduciary rule. i alluded to it in my opening statement. you were last here in march, and we've spoken about these matters both privately and
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publicly, and it is my understanding that the sec has, -- staff has not yet performed an updated analysis of the potential impact of uniform fiduciary involvement on retail investors, is that correct? >> the answer is, in terms of -- there's not another study that's been done. as we proceed with the staff's recommendations which are active in process. >> is there any work being done to update the 2011 study? >> part of the rule making as it advances will be very deep economic analysis by our economists at the sec to judge impacts as well as all relevant baselines. >> will that analysis be complete before the proposal of any uniform fiduciary standard? >> certainly, there will be economic analysis that is complete before there's any proposal. there's always additional check analysis as there should be before you proceed with any adoption, but certainly, that
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would be part of a proposal process. >> and not necessarily the complete analysis. >> not necessarily, but it depends on how it's assessed as we go through that process including with our economist. >> will this be shared with the committee and made public prior to the proposal of any uniform fiduciary standard? >> typically, unless there's a paper produced separately, which happens from time to time, from our dera folks, it's part of the proposal and made public this -- public in that way. >> we would encourage you to do that. chair white, i don't know if you share the concerns of many in looking at the similar proposal in the u.k. the public sources i've been able to access show they imposed a similar fiduciary rule that 310,000 clients stopped being served by their brokers because their wealth was insufficient to advise profitably. 60,000 investors were not
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accepted as new clients for the same reason. and in the year before the commission ban went into effect a number of advisers serving retail accounts plunged by 23%. does the experience in the uk concern you? >> i'm familiar with several, actually u.k. analyses. clearly a concern of this rulemaking is what impact does it have on the ability of retail investors to get reasonably-priced reliable advice. as i think i've said before, part of this rule-making process will be very much devoted to what impact it will have on precisely that. >> i would hope that the sec would look very closely at the u.k. experience and also look at -- i hope you have received similar testimony that we have received that the best interest contract exemption is frankly unworkable and not an exemption at all, meaning that the u.k. experience
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is most parallel. switching subjects to bond market illliquidity, you last appeared before us eight months ago in march. you acknowledged the concern about bond market illiquidity, and we spoke about these matters publicly and privately. since you testified, at that point you did not see a link between the volcker rule capital requirements in reduced bond liquidity, it has been eight months. in that intervening eight months, may 20th, the wall street journal reported that the number one concern of financial professionals was lack of liquidity in the markets. in august of 2015, price waterhouse published a report saying that multiple factors due to new regulatory
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frameworks. last week, the "wall street journal" reported that the u.s. firms are holding negative corporate bond inventories for the first time since the fed began reporting this separate data. the chair of finra has testified in this committee. quote, there have been dramatic changes with respect to the fixed income market in recent years that has led to much higher capital requirements, the volcker rule, a range of other issues that have all had significant impact from the standpoint of liquidity of the fixed-income market. so since it's been eight months since you've last appeared before us, there has been news. have you been able to determine whether regulations like the volcker rule are a contributing cause to the dramatic decrease in liquidity. in our fixed income markets. >> it remains a concern of mine. but the answer to your question is no.
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as is reflected in the quarterly reports that we make actually to this committee on that subject with our fellow financial regulators. i think the most recent one reflects both levels of liquidity in the primary and secretary -- secondary markets as set forth there and the conclusion that one cannot determine impact from the volcker rule. obviously there are a lot of factors, including capital requirements and others that go on. i do note that at least recently, reports do indicate that dealer inventories have gone into negative territory, and that's something that obviously we will be looking at very closely before the final report for this year, not try to get ahead of the report, but we'll be looking very closely at that for its existence, its meaning and whether impacts can be judged. >> my time is expired. chair white, the rest of the world is concluding otherwise, so i would hope the sec would pay very careful attention. the chair now recognizes the ranking member for five minutes. >> thank you very much, mr. chairman.
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chairwoman, you will be asked today about your efforts on a number of issues. and i'm appreciative for your response on the fiduciary duty" rulemaking. but just for a second, would you please explain to us how a lack of adequate funding does not allow to you move as quickly as we would like you to move on some of these issues? are you at all hampered by inadequate funding of the sec? >> we've clearly, we have responsibilities far beyond our resources. and so we obviously try to make the smartest decisions we can in core areas, in new areas we've been assigned since dodd-frank and the jobs act. but clearly, it becomes a zero sum game as they say at some point, and it does slow you down. of course it does. >> well, thank you very much. with that, i'd like to just have
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you describe to us the sec waiver process. the last time you testified, i expressed concern with the sec's policy of providing waivers of disqualifications to bad actors on a seemingly reflective basis, and i question the transparency or whether or not there should be public input. as you know, i have a proposal that i think would remedy this problem that among other things would require the process to be conducted and voted on by the commission level. provide the public notice and an opportunity to request a hearing and require sec staff to keep complete public records of all waiver requests and denials and create a public database of all disqualified bad actors. so here i am, even with the bill talking about more work for you in this area. before i go any further, because i know this is a little bit more complicated than most people think, would you explain to us a little bit about that process? >> yes, first i want to make it clear that the sec very
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aggressively pursues financial institutions and senior corporate executives. and our record bears that out during and after the crisis. when it comes to disqualifications and waivers, it's very important to understand that those are not enforcement remedies. those are separate provisions in the securities laws that are governed by their very separate rules, very separate guidances that the commission and commission staff apply very vigorously case by case. an enforcement action of ours or someone else may trigger a disqualification and if a party is seeking a waiver, and it's typically a waiver to be allowed to pursue or continue to pursue business in a totally unrelated area than the enforcement action was about. the burden is on that party to show us that, you know, to simplify it a little bit. it would be in the public interest to grant that waiver. the staff in order to increase
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transparency and robustness has upgraded at my tenure, at my direction the wixy waivers as well as the bad actor waivers, and i think the commission and the staff do very deep dives and apply those standards quite robustly before making those decisions. if a waiver is granted, it is made public on our website. if a waiver is not granted, typically, the party will withdraw the request for that, and it includes non-public information. so one of my challenges is to, because i think, if you look at only the public record, you think we're granting them routinely in all of them, and that is not the case. there are many, many that we do not grant. so the challenge is preserving the privacy of non-public information but yet being able to provide publicly the information that shows we're not granting these waivers as they are requested each time. it's a very robust process. >> i'd like you to take a look at my legislation and see if there's anything that we could do with that legislation to help
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you improve the process if you believe there's room for improvement. lastly, on bdcs, you've written a letter to us with your concerns. i and others are concerned about support for small businesses. and we want to make sure that we do everything to create resources. can you help me understand what your concerns are a little bit better and what we can do to make the bill better. >> first let me say that i think bdcs are designed to be an engine for economic growth for small businesses. that's good for everybody. it's something that the staff and the commission have been supportive of throughout the years, frankly, since they were set up. and i appreciate, by the way, that some of the concerns that i've expressed a couple years ago with a prior bill were addressed, happy to talk about it further, but i did recently submit a letter to you and to the chairman expressing my concerns with certain aspects of the current bill, really investor protection concerns that are significant concerns
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that i felt, that i really must express, obviously, it's up to congress what they do. essentially, in several areas, but primarily the increase in leverage as well as the reduction of rights, if i can again, oversimplify a little bit in preferred stockholders. kind net-net. you also end up allowing the bdc to invest 50% of their assets in a financial institution. it used to be 30%. and the core objective for the bdcs is really to invest in operating companies that, and new operating companies that you want to give a boost to. these are retail investors that we're talking about who own the vast majority of bdc shares, so that obviously heightness whatever investor concerns we have. >> thank you mr. chair, and i hope you'll work with us to improve the legislation. >> the chair now recognizes the gentleman from new jersey, mr. garrett sherman of our capital market subcommittee.
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>> thank you, chair white. when you were here once before i opened with the statement, are the markets rigged. let me follow up now with specific rigged as far as the coverage you get from there. does the small investor actually know that he has no coverage under cfic? let me give you an example. years ago, i invested $2,000. over 30 years, the market is up, i've gotten dividend payments out, i've gotten capital gains, i withdrew money over the years to pay tax and do likewise. over the past 30 years, my statement says it's going up and up in value. i've taken out that $2,000 that i initially invested. as i understand it, my cfic coverage, my statement which says i have $6,000 in an account, my coverage is exactly zero. is that correct? >> as i heard your scenario, that is correct because of what spic is designed.
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>> i have zero coverage even though my statement is telling me i have like $5,000 in there. there's an indication on the bottom that cfic coverage, does anyone have an obligation to inform me that i have zero coverage on my brokerage statement? whose obligation -- >> first of all, your account statement should be accurate, and what has given rise is a huge ponzi scheme. where the account statements are false, basically. >> who should tell me that i have zero coverage right now? >> the broker should tell you, but the broker in question may be committing a massive ponzi scheme. so you may not get that disclosure. >> it is a fiduciary duty of the investment adviser to tell me i have zero coverage? >> i'm not sure i can give you a legal opinion. what i can say is, what spic covers is securities in cash that the broker has custody of. if for example in your example that when you put in your $2,000 you
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had invested in certain securities. >> right. >> that had appreciated, so there were securities in the hands of that broker, they would be covered by cfic, but instead, what your broker did was essentially never engage in bona fide trades, it doesn't protect against fraud. >> if i'm a simple investor, find out something went wrong. it's not a market issue. but in actually, your answer to the first question is i have zero coverage, there is an obligation of someone, i guess the broker, to tell me this. and at that point, the wise thing for me to do would be what, move down to the street to another brokerage account? because then my account would go back up, the full amount i invested? >> if you put that amount in that broker's custody, it with be covered by cfic. >> right. so investors should be told the smart thing to do, once you have withdrawn the initial investment, the smart thing to do is to prove to another company? >> keep in mind, if you've withdrawn your $2,000 and it
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appreciated to 7,000, and the broker had those securities and then went under, you would protected -- >> not by cfic. what you're not covered for is essentially these ponzi schemes that are reflected falsely on your account statements. >> so it depends on how the investments are made, in other words, so i as an investor now need to know when i get this statement whether the investments are being done like in a madoff situation or whether they're done in some other way. it really depends, how is the investor supposed to know that, whether he's really getting coverage or not. >> the problem is in the madoff, and it's a huge problem, obviously, in the mad of situation investments weren't being made, so you had a massive ponzi scheme. so you were being defrauded from beginning to end. >> the bottom line, me as a simple investor, and that describes me well in these things, i don't now how it's being done and i don't know whether cfic is going to be
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there at the end of the day. i would like to move on, i have a bunch of other questions. the dodd-frank act, rail quickly here, you have proposed amendments to that and the question is what is the effect of those amendments on the marketplace? the s.e.c.'s division risk analysis said that only 2% has come under 506 of the jobs act. that would tell me there's a suppression effect of the amendment hanging out there. can k you withdraw the amendments so we can get the full effect of the jobs act and 506-c of dodd-frank? >> as you mentioned, those -- there hasn't been consensus on those amendments. they have not moved forward. i think they're important, however. i believe they're important to give greater information, greater clarity into how the markets are operating. we have a year and a half of operation now and we've an in inner divisional group looking
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at the markets. i've inquired about it because i've heard the concern, the fact that the regulation is proposed may be hampering the markets. the feedback i've gotten from our folks that they don't believe that's the case, that's not a definitive finding but clearly the 506-c market, it has been used but not as much as one might have anticipated and certainly not as much as the 506-b market is being used. >> 2%. i yield back. >> the chair now recognizes the gentlelady from new york, ms. velasquez. >> thank you, mr. chairman, chair white, recently it was reported that ubs was underwriting bonds for puerto rico's retirement system and then placing the same bonds into mutual funds that were sold to customers on the island, something that would be prevented by the investment company act of 1940. however, due to the high cost of air travel at the time the act was passed, puerto rico and
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other u.s. territories at the time, including hawaii, were exempted from the 1940 act. i have recently introduced legislation, hr 3610 to close this loophole and ensure that puerto rico and other u.s. territories have the same protection protections. >> the lau in the territory was not there. today is a very different world. i share your concerns, i think the loophole should be closed. >> thank you. in the ongoing financial crisis in puerto rico, hedge funds are playing a significant role. it's impossible, however, to fully understand the scope of
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their investments. some disclosure requirements are only available to regulators while others do not cover the securities or derivatives. i recently introduced legislation, hr-3921, to close these loopholes and increase disclosure requirements on hedge funds. do you believe that further disclosure in this area will benefit investors and the public? >> i think -- i would have to study it further, the precise parameters of it. i can see pros and cons, frankly, to that approach. clearly registration and reporting are critical to increasing transparency and protecting investors in private funds. and this has been looked at very closely in connection with dodd-frank when we were given authority over private funded a visors, and there's a lot of information produced on form pf by hedge funds and others but the judgment was made then not to basically expose -- expose
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more than was prescripted to be exposed strategy, whether hedge funds or not because that could lead to front running and other actions with respect to that disclosure. so there are pros and cons to that, i need to study it further. >> okay, thank you. and i hope that we can work with your office at least to hear some feedback regarding the legislation. another issue that has come to our attention that i care about is the small business online lending industry that has grown rapidly in the past five years and experts are expecting double-digit growth through 2020. last week, i sent a letter requesting information on your agency's involvement with small business online lending. is there anything, any
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preliminary comment on my request? >> i've seen the letter, we will obviously be responding to in the due course. in in terms of what our space is with respect to online lending is we don't regulate the loans themselves. the lenders in the terms of the loans to borrowers, that's not in our space. however we do regulate online lenders when they sell securities to investors to fund these loan, whether through notes or investment contracts. they may need to register the offerings, some platforms, depending on how they do it, could register as broker dealers. we have brought cases in the enforcement space on some of this but our jurisdiction relates to protecting investors if, in fact, there are offerings made under the federal securities laws. >> thank you. i yield back. >> gentlelady yields back. the chair recognizes the gentleman from texas, chairman
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of the financial institution subcommittee. >> thank you, mr. chairman, and thank you chair white for being here today. i want to go back to a line of questioning that the chairman was talking smbt, something i've had a great deal of interest in and that's the fixed income market. can you tell me exactly what resources the s.e.c. are dedicated to the fixed income market? >> and i think we may have had this discussion at our last hearing. primarily but clearly not confined to our trading and markets division and it's not segregated out as a separate unit which i think we did talk about before and i've had -- but we have i don't know, 15 to 20 trading market folks who primarily deal with the fixed income markets, we clearly have the office of municipal securities which is a small office within the muni space deals exclusively with that area as well and i've had several
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considerations with steve luparello, our director of trading and markets, about the need for additional resource, perhaps a restructuring so we make sure the fixed income markets are getting the attention they deserve and i think certainly in his view now and he's persuaded me, i think we're structured as we should be and resourced as we should be although i will note in our budget request for fiscal year 2016, obviously we're operating under cr now, we saw 15 positions in trading and markets and at least two of those will relate exclusively to a study assessment of the fixed income markets. >> and that's in the future but today there's how many people doing that? >> i would say in trading and markets the last time i asked for that number -- and it's not -- it was about 16. >> just for corporate bonds. >> not counting the muni securities, about 16 was the last number i was given.
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it's a rough number, congressman, if i may say because it's not how it's structured. there are other people that work in the space as well but don't devote the predominance of their time. >> back in august pricewaterhouse cooper released a study of what they call the brittleness of liquidity in certain asset classes and the studies findings that are of concern to me are studies where liquidity declined including difficulties in executing trades, increase in market volatility and the bifurcation in liquidity. the study notes pending future rules and regulations could have further significant impact on the market-making activities as we exit or extort a period of monetary policy. are you aware of the pricewaterhouse study? have you read that and looked at it? >> the answer i've read a number of studies and i believe that one as well and certainly our staff has and it's also something that really both in the trading and markets area and
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investment management area that we've been very attuned to and in dialogue with market participants about those risks and eventualities particularly when interest rates go up. >> market liquidity is a pretty big deal, isn't it? >> it certainly is. >> i think the concern i have that and others have is we're not sure your agency is giving the attention to it because we hear in that from a lot of different market participants that the liquidity issue is a real deal and so i would hope that as you move forward that if you are doing studies in that area that you would share the finds with this committee. i want to move to -- 2015 commissioner stein released a statement supporting proposals to shorten the trade settlement cycle for certain security transactions. industry groups in the commission's investor advisory
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committee encouraged the market participants to move forward on reducing the settlement cycles citing it would improve investor protections and systemic risk. additionally an industry-led committee of members across the securities industry issued a white paper outlining the timeline in actions required to move from t-3 the-2 settlement tyke ls for transactions in the united states in the third quarter of 2016. do( you agree with moving to t-2? >> the answer is yes. the direct answer. we responded to a letter i think it was from sifma to others as well, i think the letter was addressed to me as the position i took on it and asking for regulatory support to help bring that about so my letter was quite supportive. it's public, we can provide that and i think the only thing i wanted to be sure of is that it didn't foreclose possibly down
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the road and even shorter settlement period. >> so why haven't y'all acted on that? >> i mean, i think it's not timely to act on it. we will act timely. >> what is "timely"? >> essentially we're -- the letter reflects this, because i think they've gotten traction, we're allowing the industry coalition, if i can call it that, to get to the place where their systems can actually accommodate the t plus two. so the regulation will be in place by the time that happens, 2016. >> the time of the gentleman has expired the. chair recognizes the gentlelady from new york, ms. pla loanny, ranking member of the capital markets subcommittee. >> i think the chairman. chair white as i mentioned in my opening statement, i am interested in the events of august 24 in the markets, the extreme volatility that that day meant that the s.e.c.'s automatic trading halts for individual stocks were triggered nearly 1,300 times and i know
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the s.e.c. has said that it's collecting data as quickly as possible to analyze what happened and determine if there are changes to the agency's rules that are necessary. can you give us a sense of where this preliminary review, what >> yes, it's well along and i'm expecting that we can share some initial results from that review in the near term and you're right as you commented earlier we obviously had a -- we didn't invite the mini stress test on august 24 but we had one, the markets performed quite well but clearly there were issues that came out of that and one of the singh want ones was the market wide circuit breakers as you said were not trigger ed we hada
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large number of trading pauses in etfs. most were in etfs but not all etfs. so it's a more complex issue which we're studying and in part what we're looking at is we have the limit up limit down rules in place which were put in place as a volatility moderator after the flash crash. it's on a pilot basis so one of the things we're interested in is the data that comes out of august 24 as to what modifications if any, what calibrations should be made in the limit up limit down rules. we're looking very closely at the opening of the markets as well because that's when the majority of this occurred and there were delays openings on the new york stock exchange. >> well, this information or this analysis, will it be available before the end of the year? >> i hope it will be. i don't want to commit but i hope it would be. >>less december you outlined a comprehensive plan to update the regulatory regime for asset managers in order to account for
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the significant changes that this industry has undergone in recent years. the s.e.c. has now proposed two of the rules that you promised and has disclosures in the liquidity management rules you proposed in september. we still haven't seen the third rule yet for winding down asset managers. when will this be proposed? >> the next in the series? this will be the rule on derivatives and following that will be the transition rules and stress testing. i think i categorized it as three but it's five separate areas. so in terms of the transition planning rules which is designed to have funds and the industry be able to deal with disruptions in their business, that won't be
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this year but i would hope it would be relatively early into next year. >> in terms of the stress test. when do you expect the s.e.c. to propose a stress test rule for large asset managers and secondly what are the challenges you've encountered in developing stress tests for large asset managers? why is it such a challenge? >> it's a challenge and it's also -- probably the fifth in the five i mentioned and the staff is working on them all at the same time and working very hard on it. but it's not a -- they're not banks so one first just can't transfer trest testing for banks into this space so to come up with a meaningful tests for different funds with different kinds of assets and stresses that matter is a real challenge. so we're working very hard on it. it's a requirement under dodd-frank. >> lastly, i'd like to ask you about the s.e.c.'s use of administrative proceedings.
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as you know dodd-frank expanded the s.e.c.'s authority to try cases in an administrative forum where decisions are made by law judges rather than always have to go to federal court which is expensive and time consuming. some critics have claimed the s.e.c.'s administrative proceedings amount to an unfair "home court advantage" and some r v claimed they deprive defendants of due process. k( you speak to these issues? how do you feel about it? do you think the s.e.c. does get an unfair home court advantage when they try in the form of administrative law judge and what protection are in place to ensure defendants are still receiving their full due process? >> administrative proceedings and administrative law judges have been used by the s.e.c. for many, many years as well as other federal agencies. congress obviously gave the s.e.c. as well as other federal agencies the ability to bring
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enforcement cases in either district court or administrative proceedings. with respect to the s.e.c., we have a lot of expertise? our administrative law judges. they deal with very technical issues. they're impartial and they have unique due process rights. no president same as a district court but unlike in district court if you're a respondent in an administrative proceedings you -- we provide jenks and brady material which is essentially exculpatory information. that's not required in district court. we turn over our unprivileged investigative file. we've proposed for notice and comment amendments to our rules of practice to provide additional rights for defendants. >> time of the gentlelady has expired. the chair recognizes the gentleman from missouri, chairman of our housing and insurance subcommittee. >> thank you, mr. chairman, ms. white, thank you for being here today. i want to start off my questions with regards to designation of insurance companies as sfiys.
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the chairman of the insurance subcommittee it's concerning to me. as we continue to discut this issues with shurns industry folks as well as insurance companies that are designated, can you tell me the specific standards that you looked at when you voted in favor of designating two of our domestic companies as sifys over the objection of the insurance expert on fsoc? >> we may have talked about this in march as well. i participated in the met life -- >> i'm aware of that. >> that's why you said two. and the met life designation is in litigation so i'm limited as to what i can say. but i can say because the statutory criteria are in the statute in public, fsoc's guidance as to what it looks at
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is public. >> my question, though, is what standards did you look at that were different or more significant to you than what the insurance expert on fsoc said were not something that in his eyes rose to the level of designated as isify. where's the alarm? >> it's hard to get into granularity but we get analysis from the staff i was satisfy the criteria were met in that instance. but listening very carefully and respectfully and understanding the knowledge that the insurance representative brings to bear on thi this. >> but you went against them? >> i made my independent decision, yes. >> the concern we get from insurance industry folks is we need an off ramp we need a
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delineation of things for them to do to become d-designated. would you support something like that? >> it exists to a degree so it's important to know that because there's an annual review process of anyone that -- any company that is designated: >> with all due respect, that's not delineation of things for them do to -- all that is a report of where they're at. it doesn't tell you -- >> again, what a company that's designated will have received is a very detailed and sis for the basis of the decision of designation. in some cases -- in in cases you mafr a situation where it's the core business model and how much leverage is used or the kind of derivatives that are used so there hasn't been a delineation. it can be difficult to do it but bottom line for me the clearer we are at fsoc about what it is
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that gets you designate and dedesignated is a good thing. >> the concern that we have is that there's a rubber stamp effect with fsoc with regards to insurance sifys. when we had the insurance expert say it's not a problem but everybody else goes along with international designation versus what we think is good for our companies in this country it raises questions and concerns so moving on. >> all i would say is there's not a rubber stamp, it's an independent decision in my view, clearly. >> appreciate the comment. i would venture to disagree with that. sify designation for asset managers seems to be headed down that same road fsoc has decided to look at activities and products. does that concern you? >> i think fsoc hasn't ruled out designations of asset managers but i think the fifth if i can
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call it that to products and activities siffy that may raise potential systemic risks makes senseofi that may raise potential systemic risks makes sense do you believe it'siffy t potential systemic risks makes sense do you believe it's important? >>i that may raise potential systemic risks makes sense do you believe it's important? >> my question is do you think the business model can be systematically important? >> as a business model it's an agency model and therefore i think that ordinarily it would not be. >> interesting. i see my time is up. i yield back. thank you mr. chairman. >> gentleman yields back. the chair recognizes the gentleman from massachusetts mr. capuano for five minutes. >> thank you, mr. chairman, thank you, madam chair, for being here. in the last, i don't know, 20 years, do you though which issue at the s.e.c. has received the most comments of any? >> you're probably going to tell
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me political contributions. >> i'm not going to tell you anything. >> i don't know the answer to that. >> that's my understanding political contributions has received over a million comments. >> it has and i think 2,000 of those are unique so that's a lot of comments, no question. >> that being the case, again i'm asking do you plan on as dressing that issue in the foreseeable future? >> essentially -- i know we had this conversation last time, very strong views on both sides of this issue. i have three fairly recent outstanding letters from members of this committee. i'll be responding to those and i -- but as i've said before, our focus is on -- and our regulatory agenda focuses on congressional mandates and what i consider to be mission-critical initiatives buts. asset management, disclosure effectiveness, equity market structure. but i want to make clear there are avenues through the s.e.c.'s
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rules, which is the shareholder proposal route, to raise these issues and they are raised actively and the staff -- >> they are raised. >> -- doesn't permit exclusion of them. >> they are raised but not required by the s.e.c. -- >> there's not a mandatory disclosure rule. >> which is great, there are some people that are good citizens that like to tell people what they're doing but there are a lot who are not. >> and companies are voluntarily making those disclosures. >> and i applaud those who are done voluntarily. no regulation is done because everybody does voluntary. all regulations on every group is done because there's a handful of people who are not good players. regulations are not targeted to everybody because everybody is a bad player. all regulations including s.e.c. regulations are targeted because there's a handful of bad ones. if you have voluntary compliance, that's good, i applaud them, nonetheless you have many that are not. you say obviously and appreciate the fact that you clarified that you're trying to focus on congressionally mandated ones but your disclosure effectiveness review generated i believe 64 comment letters.
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64 versus 1.2 million. and as i understand it, of those 64, 10 of them related to corporate political disclosures madam chair i would suggest -- >> we'll undoubtedly get more letters it proseeds but at least a couple of those letters, you're right, were committed on political contributions in connection with that initiatives but also urge us to focus first on our congressional mandates. >> clearly i think america has spoken in every capacity they can to you and your organization that they want to prioritize this. it's not that difficult it's not that difficult and the fact that you refuse to do it raises lots of questions but you say you want to focus on congressionally mandates ones. what about dodd-frank section 956-a. you haven't focused on that. >> incentive compensation rules. >> yes. >> that's a joint rule making with our fellow regulators and
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we're very active. there's been a proposal some time ago before i got to the commission. >> 2011. >> correct. and we are working on it actively as we speak. >> 2011, 2015, almost 2016 and you think that's "active"? >> i'm describing the current state of affairs, we're working on it actively. s.e.c. is participating actively. >> when do you think you might have a final response? >> we're working very hard to come together on that in the very near future. >> the -- >> the very near future. >> is your deaf nation "very near future" the same as mine? >>. [ laughter ] i don't know. but it is the very near future. >> those are two issues that one of which is congressionally mandated and nine months after passage you did have a proposal, your predecessor had a proposal in 2007. since 2014 the other regulation lators have come up with a conclusion and it's the s.e.c. holding -- >> no, actually all the
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regulators are working on this jointly and we're covering the entire swath of friend kind of registrants. it's complicate bud it's all of us working together. it's not the s.e.c. holding anything up. >> it's not complicated to require political spending to be disclosed. that's simple. if you and your staff can't do it let me know i'll have it for you in a week. it is relatively simple. as far as compensation, i want to be clear. it only applies to companies with assets over a billion dollars, that's you will it does. it doesn't say how much. pay anybody you want any amount you want, we want to make sure incentives don't encourage companies to endanger this economy again. that's all it is. >> absolutely, absolutely. that's all it is although how you bring that act so it will be effective is not so easy. >> well, i understand that but something is better than nothing and my time has run out, thank you, mr. chairman, thank you, madam chair. >> time of the gentleman has
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expired chair recognizes mr. huizenga. >> i never can find you. >> it's the new construction. we're about a mile away. a couple of things. the seat you occupy today yesterday was filled by minister of mines for rwanda and we had a hearing on conflict minerals 1502. he was accompanied by the ambassador. very concerned about the effects of conflict minerals in 1502, what it's having on central africa and as you may recall it's not just the democratic republic of the congo, there's nine other countries covered by this. as he put it it's not a conflict minerals boycott but ruther an african boycott the way the 1502
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has been implemented and you said so yourself. i'll tear you the whole regurgitation of your own speech from october of 2013 but you said "we as the chair of the s.e.c. i must question as a policy matter using federal securities laws and the s.e.c.'s powers of mandatory disclosure to accomplish these goals." which i think we all share and certainly you and i do share of making sure that the laudable goals of reducing conflict, keeping extortion out of the marketplace and those kinds of things is very true. there was a letter that we had asked for along with chairman hensarli hensarling, chairman rice and subcommittee chairman garrett sent you in february. your response letter stated a period of july of 2010 through march -- middle of march of 2015, this year, the s.e.c. spent over 21,000 hours and approximately $2.7 million on
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this particular provision this ichy we agree the s.e.c. has little or no experience with. the hearing brought two questions to mind for me. first and foremost is 1502 achieving the objectives that i think many of us agree on of helping the people of central africa, giving them a better life and opportunity. i will tell you the minister does not believe that is the case. they are investing more money into compliance than what their entire budget is for going out and exploring new mining possibilities. the "washington post" had said that that did a story on the conflict minerals rules saying it's well intentions but set off a chain of events that thrust millions of congolese miners and their family into poverty.
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is s.e.c. the right agency to pursue and enforce these rules in light of other important investor protection actions that fall under the mandate. my friend has left but my colleague from massachusetts who was just beating you up about 956-a that has been waiting action since 2007. resource ex-traction, ceo pay raise disclosure rule, all these things that had time and attention but aren't doing anything to make sure that investors are protected. i just really am struggling with how the this is an important element to you when we are seeing -- and i you're being mandated to do these things but we're seeing faster action on those than 956-a or so many other areas we need to have that regulation. help me understand. >> first, that rule was proposed before i got here so some of the
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history. >> i fully understand. you're implemented -- >> the early history i don't know. but i believe it contained also a deadline where some of the others may or may not. but that's just a fact. look to some degree in both directions i sometimes get at cross purposes because my view of correct congressional mandate which is is i believe we have to carry them out and to do in the the most cost effective ways we can. in terms of what's in the queue when. when i first got here because we had a lot in the queue was to try to get separate work streams going and so for example 956 rule making isn't done by the corporation finance division as this one is but separate work streams. we do them as well as we can. some time and dollars are because we have to be true to the statutory prescription and do it as well as we can.
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>> in my last remaining five sends, we've seen the s.e.c. budget increase 35% since 2010. 64% since 2005. 300% since 2000 and i hope you are hearing from me and my other colleagues on both sides of the ail is we need to have priorities and we may not be having to increase budgets if we would focus in on what your core mandate is and that's what i want to encourage you to do. >> time of the gentleman has expired. the chair recognizes the gentleman from missouri mr. clay, ranking member of our financial institution subcommittee. >> thank you, mr. chairman, and thank you madam chair for attending today. in fairness to the s.e.c. budget, it does not contribute to the deficit of this country, is that correct? >> that's correct. we're deficit neutral. >> let's stay on budget. the house and senate appropriations committee's mark
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for the s.e.c.'s fy-'16 budget represent level funding ignoring yours and the president's request for substantial increases. please describe what would be the effect of the s.e.c. -- of level funding in fy-ee '16. what initiatives buts would you not be able to pursue? >> i think we're talking about in terms of budget increases over time. we have to look at what's happened to our spaces of responsibility. the new spaces like crowd funding and other areas but the complexity of the markets and how much they've grown. so what you see in our budget, and i try to do this very carefully is to prioritize our core mission. we have a lot of core missions because that's the nature of the s.e.c. so there are a number of things that we could not proceed with. under the current cr we are
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essentially in a hiring freeze which means that just as we need to exfoond cover crowd funding, for example, we can't get those skilled personnel that are so important to our initiatives but. it will hurt enforcement and exams, it will hurt our i.t. development and enhancements which is so critical to us being an effective regulator. >> and how does your budget compare to the industry you are regulating? as it went pace with the growth in the financial services industry? >> i mean, we're outmatched, no question about it. i think one metric that i think sort of makes the point dramatically is that it's been reported that six of our largest registrants spend about 10 billion a year on technology. our entire budget is $1.5 billion. >> and that the time -- and you mentioned crowd funding. do you expect oar need additional resources to oversee
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those new entities? >> we have to build out that entire regime as well as municipal advisors and others. >> thank you, madam chair, as this time, mr. chairman, i'd like to yield to remainder of my time to the gentleman from massachusetts. >> i thank the gentleman from missouri. madam chair, thank you for being here. i know the ranking member spoke earlier in the hearing about the wicksy waivers and you made comments recently regarding that. the idea, though, the basic idea here is that we would reward good behavior with a wicksy title or label, well known seasoned investor and also allowing them off-the-shelf registration. yet we would withdraw that privilege if we had felony
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conviction or securities fraud on the part of these companies and so what we have seen here repeatedly i must say from the s.e.c. is that even though they're convicted of felonies, even though they're convicted of securities fraud we let them have that privilege. we don't discourage bad behavior. so i'm just asking you to try to explain that because i red your statement but it's confounding to me. >> i've tried to lay this out. i made a speech i think last march on this. >> i read it. >> to be as clear as one can be but first of all i think we're all about trying to punish bad behavior and particularly senior executives who committed wrongdoing and our record of enforcement is aggressive and impressive. in terms of wicksy, that was part of offering reform, it had
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a different more streamlined set of procedures, if i can call it that, for well-known seasoned issuers, not just financial institution, manufacturing company, et cetera. in addition to streamlining, it provides more information realtime to investors. that's part of the wicksy regime. if a company is indicted or commits securities fraud or some other trigger for being disqualified as a wicksy. this is covered by regulation or statute with respect to all disqualifications. then what we also have covered by statute or regulation is a procedure for granting a waiver. putting the burden on the party seeking the waiver and in terms of the wicksy, what you're looking at most closely is going forward can this entity, can you rely on their disclosures going forward? so if the trigger happens to be -- >> my time has expired what i'm
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saying is a fiction for fraud, a conviction for a felony, that's reason to be less reliable -- that hurts the reliability of these companies and they should have that title withdrawn from them. that's my argument. >> time of the gentleman has expired. the choir recognizes the gentleman from wisconsin mr. duffy chair of our oversight investigations committee. >> thank you mr. chairman and welcome chair white. great to have you back. we talked privately and i've seen the press release from the s.e.c. in regard to the tick sized pilot program you have implemented a five-month delay, we've talked about that. this is not going to be a death by a thousand delays, is it? you're still committed to implementing the pilot program? >> totally committed to it. totally committed to it. we want to get it right so it will be meaningful. that's the goal. we thought long and hard about it. we calibrate it had extension so
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we could get good reliable data so we could get the results. >> and we want good data as well to make sure the program is set up correctly, a little more time isn't met with a big objection from us as long as you're still committed to implementing the pilot program so thank you for that. i want to follow up on the chairman's question in regard to the corporate bond liquidity and its relationship to the volcker rule. we think there's a great tie in to economic growth and job creation through the corporate bond market and you indicated today and in your last testimony you don't see a correlation between the volcker rule and lack of liquidity in the bond market. is that correct? >> that has been the conclusion of each of the -- the joint agencies, including our's, quarterly reports to this committee. in terms of not being able, certainly, to determine that it is is a better way to say it perhaps. >> let me be clear. you would agree there is a
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liquidity issue in the corporate bond market? >> i agree there is a concern, yes. we try to give the quarterly port what we're seeing in liquidity and sometimes it's strong and sometimes it's somewhat more volatile but clearly close eye on it and a concern. >> so if not the volcker rule what? what is causing the lack of liquidity. it has to be a concern for you. what's causing it? >> well, you have to look at whatever particular market we're talking about and what is the liquidity because sometime there is will be talk about lack of liquidity and it's quite robust so in those reports we do what we're seeing in the primary markets and what we're seeing in the secondary markets and try to analyze what is having an impact on that. everybody keeping very close eye on the diminution of liquidity which is of of great concern to anybody. but ferreting out impacts is not easy in that space. >> right, there's great
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liquidity but you hit a bump in the road and liquidity vanishes. i think that's the cause for concern so you can say yeah sometimes there's great liquidity but we care about the bumps when liquidity vanishes and a lot of us would argue that the liquidity issue has arisen with volcker and the rules that come to pass. and i don't know if you don't want to share your personal position because it might be contrary to fsoc. i get that. >> it's not that. i do bore into this with our own staff, too. because one thing that we do for every single rule making we do is to try to judge those impacts. >> i would argue people on the outside per the questions by the chairman have some significant disagreement. i only have a little time left. i want to make a quick comment in regard to the corporate political spending. obviously i get a lot of letters
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as well. i know people rally folks up around the country whether they're on the right or left to send me letters. i'm sure you get the same and know where the letters come from. there's a political agenda. but for a corporate political spending disclosure would that protect investors if you did a rule to that? would that be toerl decisions investors make? >> that may be to some degree in the eye of the beholder but if you're looking for what's material to investors, under current flaw the particular context of a particular company it could be level of spending or something else unique, if it's material now it has to be disclosed. what is being sought is a mandatory disclosure rule across the board. >> this isn't material in regard to investment decisions that are made. this is politics. police are coming at play and they're trying to send a bunch of letters to you so we can find
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out how corporations might give politically and they can rally protests and sit ins, we know how the game works but i would encourage you to push back and keep a sound study course: i want to quickly pivot. is we had the director of investment management david grim into the committee. i don't know if you watched that testimony but we talked about the systemic risk of asset managers and how fsoc had actually used your team and his team to get insight and i didn't feel very confident that the expertise within the s.e.c. has been tapped by fsoc and it gives me concern that we have fsoc making decisions that are contrary to those experts in the field. say at the fec with asset managers, also as was brought up mr. wood yaall voted against me life and others so we have -- i
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know my time is up. >> i would say the staff is providing extensive expertise to fsoc on the subject of asset managers in terms of requests for information that went out in december. that's active and very important we do blow ride is that. i think it's being received? >> i didn't feel very confident through the testimony. >> time of the gentleman has expired. chair recognizes the gentleman from massachusetts, mr. lynch. >> thank you, mr. chairman, and thank you again, madam chair for being here. i'd like to revisit a topic ms. maloney from new york raised earlier today and that is going back to the august 24 problems in the market, i realize at that time the markets -- our market, u.s. markets were responding to a selloff of chinese sox earlier in the day, however according to the furnl there were dozens of exchange-traded funds that
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traded at sharp discounts to their net asset value or their component value and ledding to outside -- outsized losses for investors. i know your opinion was that the markets worked very well but there are some retail investors that are very upset. do we have a sense of how much money retail investors lost on the 24th of august? >> i mean, there's -- not as a net-net figure, i think. particularly if you're trying to tie it to -- >> ballpark? >> we'd have to get back to you with whatever we could do on that. but with respect to atfs themselves, clearly you worry about retail investors in whatever spaces they're in and they're in etf spaces. one of the interesting things and i think it will come out in our initial results when they're made public is why some sate jeffs with the same characteristics didn't have that phenomenon occur and others did. >> reclaiming my time.
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>> sorry. >> i know that we have a couple of indisya here, i guess, the vanguard consume yer staples et and the $5.8 billion vanguard health care etf plunged 32% within the opening minutes of trading but yet if you look at the component stocks within those baskets they were only down about 1% so it was also troubling at the same time the vix went dark, it didn't come on until 10:00 and people didn't know how much peer was in the market so that was a problem. this is all in a time when the dow experienced its largest pointdrop in history so a couple of questions i have. again, i ask you how much was the loss for retail investors and approaeciate if you can get back to me on that but given the
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fact that the whole idea of etfs was respond to the flash crash and the lack of liquidity so people could actually trade. we have examples of -- i think they were -- in the first 37 minutes there were i think 1300 stops instituted on individual stoc stocks. >> i think that number covers the etfs as well. >> how can we prevent this problem? we're going to have selloffs in china again at some point. >> again, not coming on the cause or causes of august 24 but what you're preferencing now, at least primarily is the limit up limit down mechanism put in after the flash crash and that's precisely what we're studying based on the data that was
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general rated on august 24 and how to recalibrate that to make it more effective. the circuit breakers -- >> why the delta in the component stocks versus the etfs? >> that's exactly what we're looking at. but it's not as simple as analysis because you'll have the other etfs with the same characteristics that didn't experience those trading pauses so why is that? and that's one of the things we're analyzing as well. as i say this will be an ongoing study but i'm hoping in the near future we can share results that will answer some of the questions. >> do you know if in the beginning -- you talked about the opening, that was the real problem. do you have any correlation at least evidence that high frequency traders jumped on this in the early opening? >> that -- again, we should wait for the initial results because we're analyzing everything but
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that doesn't pop out. >> okay. all right. i thank you and i yield back. >> gentleman yields back. the chair recognizes the gentleman from pennsylvania, mr. fitzpatri fitzpatrick. >> madam chair, thanks for your testimony here today. when members of congress, when we listen to our constituents, we learn a lot about the economy, about what's holding it back, what the problem is with job growth in the country. four, five, six years ago when i used to hear from my con stitch wednesday, high health care costs, high taxes, uncertainty in the tax code. over the course of the last two years or so the focus has shifted dramatically and almost exclusively to the cost of regulation. last week i was back home in bucks county pennsylvania. i met with a constituent whose clients are banks and he talked about this one particular new start up, 10, 12 years old. i think there's less than 50 employees in the bank, he said eight were compliance
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individuals complying with regulation. i have to say as much as we pay attention i was shocked at the numbers and those banks would tell us these are individuals that are not able to be processing loan, meeting with customers last night i met with a constituent not in the financial services industry but the same issue. he was emphatic at the cost of regulation and what it was doing to his particular industry. in my community, bucks county, pennsylvania, we have a lot of high tech, biotechnology firms, startups, investors taking big risks for them. about three years ago one of my constituents, a representative from a pharmaceutical company that employs many constituents, his name is jeff hatfield, he testified before a subcommittee on capital markets and i have his testimony here. what he was testifying was the cost of regulatory compliance, the negative impact on research, hiring and potential growth p specifically one remedy he cited
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was the filing status classification 12b to encourage growth but protect investors. as i'm sure you're aware, biotech companies may research new therapies for years at great cost without seeing profit despite a lot of market valuation. they're still required to comply with all the regulatory requirements. he was talking about 12b-2. i think he testified about four or 4b that is sarbanes-oxley that requires external audits. the s.e.c. i'm sure looking at this. what are your thoughts about what jeff hatfield testified and whether or not cost is dragging down innovation and hiring? >> what we do at the s.e.c. is really quite vigorous cost benefit analysis. of all of our rules. one of the great success stories at the s.e.c., frankly, is our
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deara unit. our economists who perform that work and other work at the s.e.c., studies to try to calibrate both the baseline, where are we now in terms of what are we trying to accomplish with the regulation? what's the benefit of that? ma where's the market now and if we impose this tropical depression in this form what will the cost be? you clearly look at size of company when you do that. you look at different industries. i can't tell you that that net-net comes out so there's not some of those costs imposed obviously but i can say that the s.e.c. does a very thorough analysis of cost benefit. >> in terms of the size of the companies, a lot of the pharmaceutical and biotech don't have a lot of employees, they're highly compensated employees and they may have a lot of market value but they won't have revenue for ten years, it could take a billion dollars in research to get a therapy to market with no profit until that point in time. what does s the s.e.c. cost benefit analysis saying about those company that are very
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important in my district? they can't grow -- they're spending money hiring external auditors complying with a rule that i'm sure was well intentioned but not intended to be impacting firms like these. >> i don't know how to answer that other than to say that our economists try to look at it not just as here are the compliance costs but what does it do to competition what does it do to other economic impacts besides just -- and i don't mean to minimize it -- but besides just the compliance costs but what's driving that analysis a perceived need for some regulation to protect investors, the markets, facilitate capital formation but we should be doing as deep as a dive as we can no matter what the industry, no matter what the complexity or uniqueness. appreciate that that that is how the pharmaceutical r&d works in particular. >> thank you, yield back. >> the choir recognizes the
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gentleman from massachusetts mr. scott for five minutes. >> thank you very much, over here, chair lady. chair lady, are you aware when we wrote dodd-frank that in section 913 we gave exclusive responsibility to the change commission if there came a time when we needed to put together a best standard for fiduciary, you're aware of that, aren't you? >> i'm aware 913 gives the s.e.c. authority to proceed, doesn't mandate it. >> let me ask you this. why are you allowing the labor department to take over your territory that we put in dodd-frank that was approved by the house, approved by the senate and signed by the president of the united states? >> i don't view it -- and i've heard the comments before. i don't view it that way. i think again we are separate agencies they do have
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responsibility and statutory authority. even as we sit here now, brokers have to comply if they here in the space with the department of labor rules and ours. >> let me respond to that, please. i was here, i hoped write section 913. there was a reason why the securities and exchange commission came to us and set let us do this. because they were the regulatory agency. you mentioned aris a. not one time did the labor department come over and say oh, hold on, let us handle the retirement. no. there was no discussion of that. that is just happening now this is a critical issue and if there ever was a time for the securities and exchange commission to stand up and do its duty so that all of the american people can receive the proper financial advice to make
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those critical decisions, do you realize what the labor department is doing? do you realize the position it's putting you ins for complying, these complexities? and if you allow and cyst back and disavow the authority we put into 913 that would be a very, very serious indictment on the securities and exchange commission. so what i'm asking you -- and this is why, when you allow and you pass a rule that says that instead of a commission base that now you have to pay up front fee for service out of pocket before a financial investor can even talk to you about it that has a clear disproportionate impact on the lower income, the middle income and especially african-american
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investors and other minorities. because they're not going to -- they don't have that much and when you get to what they basically do, even if you get to the annuities what is what they really utilize but you have three different ones, you have to fixed annuity, the variable annuity, the index annuity. that in and of itself is enough the run most people away. then if they go through that they have to sign a contract now i tell you ms. white, i want to ask for you to get more aggressive here and because you are going to be placed in the middle. fend a is going to be placed in the middle. if they had this unworkable best interest contract exemption it would result in low and middle-income people being pushed from these less expensive
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commission-based accounts to the more costly fee-based up front out-of-pocket accounts. how do you see fen draw managing this conflicting compliance obligation because under current regulations fend a must fine cost to be a fifthal issue when assessing and making the difference between what is best here. our financial system is complex and complicated and you are going to push out lower and middle income people from being able to invest with their retirement i have great respect for you and i want you to make it plain. seize your authority back on this few douche area issue. the labor department should have said if we got a retirement it's
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written in the dodd-frank that the s.e.c. has its responsibility. the respectful thing for them to do is at least come to you and fend a and say let's work and harmonize something to this. this is not their battle alone. and i'm searching for an awful lot of very, very important people. the low income, the middle income, and most african-americans. they need you to stand up on this. >> the time has expired. the chair now recognizes the gentleman from georgia. >> thank you, mr. chairman. thank you, chair white, for being here. you realize that some of the things that we're responsible for in trying to help our constituents solve problems, and
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i've got one that i would very much like for you to address on his behalf. do you know what a naked option stress analysis is, or nosa? >> i do now, i believe. i think your staff indicated you have this issue with the constituents. >> you and i both know more about it than we used to. and my constituents are very, very aware of it. and the nosa is an algoram by merrill lynch to eliminate risk from naked options trading. the account holder must post an nosa margin to cover potential
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losses. and our constituent has contacted me and we have been over and over and over with the s.e.c. and merrill lynch and others trying to find out what triggered this call. he has been unable to get that resolved, even though he has asked merrill lynch on several occasions. they say that is a resource, a trademark. now, you think it's necessary -- i mean, do you think it's okay that a company like merrill lynch could pass something to use on their investors and not be able to tell them what that is? microphone. >> is it on? okay, sorry. i don't want to speak about the
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specifics until i know all of the specific. but clearly there are a number of obligations with respect to this. suitability obligations. what i would suggest on this is that i, you know -- sounds like you've been talking to the s.e.c. i don't know who at the s.e.c., but if i could have one of my senior staff people follow up with yours, let's see if we get to the bottom of it. >> i appreciate that. and i've got a pretty good file here that will get to your staff before you go. but it would certainly be something good. this gentleman has jumped through all the hoops and done everything, he and his wife both. so any help you could give us as far as getting an answer or conclusion to this, it would be much appreciated by me and mr. and mrs. denny. thank you very much.
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i yield back. >> the chair now recognizes the gentleman from texas, mr. green. >> thank you, mr. chairman, and thank you madam chair for appearing today. i would like to get some things for the record. these are things that are common knowledge to a certain extent. it is true that you're a member of fsoc, correct? >> yes. >> and as a member, you have voting privileges. and as a member of fsoc, you have the ability to look at the entire financial system looking for risk that may be that may be out there that can hurt the system, correct? >> yes. >> now in doing this, madam chair, would it be fair to say that if we had had fsoc prior to
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2008, we would have been more interested to see the concerns that aig posed than less likely? a greater likelihood we would have seen some of those concerns with aig? >> it's always hard to judge that, obviously. you see what you see. but this is a mechanism that's enormously important to seeing, you know, risks as early as possible, because you've got all of the relevant financial regulators are a good component of the financial regulations from different strata in a room together talking about what they're seeing. and there's no real substitute for identifying a problem early than that, i think. >> this is why i ask in term of more likely or less likely. more likely to have seen it or less likely? >> i mean, certainly in theory, it should be more likely. >> and reviewing entities such as (çf]aig, which had this lon
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office that was doing some things that we didn't find quite acceptable after the fact, in reviewing these things, do you spend an inordinate amount of time looking at entities that don't come under the $50 billion threshold as a trigger or designation? do you spend a lot of time before you cast that vote? >> you spend a lot of time before you cast the vote. a lot of time. >> and do you have an office to help you with research, ofr, to help you with the research of people who provide expertise to the treasury and the treasury can share its -- >> the ofr does research on various issues. the fsoc staff and the staff of the member agencies also do a lot of work. >> thank you. and when you cast your vote, are you told how to vote? does someone say to you you have to vote a certain way on these
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issues? >> no. >> is it your opinion that you've been a pretty independent person serving on this fsoc? >> yes. >> and as an independent person, you put your time in and you study things and come to final conclusions. >> yes, and i study it with not only fsoc staff, but our staff. >> now, i just looked at the information on some of the very large companies in this country. a good many of them have triggers that bring them under the auspices of fsoc and the siffy designation. if you had to study every one of them to ascertain whether or not it should be a siffy, would it take a lot of time to do this? >> no question. >> do you have the personnel such that you could study all of these mega corporations, 50 billion and above, do you have the personnel to look at them
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with the kind of detail that you need if you did not have the trigger to bring some of them under an umbrella? >> well, i mean, obviously the resources are finite. you try to prioritize the ones that pose potentially a systemic risk. >> and do you find that it's beneficial to have a trigger, whether it's at 50 billion or some other amount, is it beneficial to have a trigger? >> that's a little hard to judge, because obviously what we're presented with are those that have met that trigger, so you don't know what hasn't met that trigger i guess to some degree. but logically, yes. >> without that trigger, would you find yourself having to answer a good many more metlife questions and a good many more
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questions relating to entities that you're trying to sift through and ascertain whether or not they're sifis? >> i think it would depend on what substitute methodology you had. >> okay, thank you very much, i yield back. >> the chair now recognizes the gentleman from california, mr. royce. >> thank you very much. if we look back to the collapse of lehman brothers, would have been the lessons was the need to quickly understand the relationship of corporate entities to one another. and so out of the ashes of lehman's down fall came the financial stability board's concept -- this was actually at the direction of the g20. this concept of legal entity identifiers, or leis, as we call them, where each entity has to register that unique 20-digit code. and that makes their identity
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very clear when you're trying to unravel something in realtime. in terms of all their financial transactions. so last month, this committee pass up legislation, which i authored, requiring the office of financial research to provide an annual update on the progress of adoption of these leis here in the united states. now, the global adoption i think is at 400,000. 400,000 leis now in 180 countries, so if the ofr were to conduct its report today, i'm afraid that the s.e.c. would lag behind a bit in terms of the adoption in other countries, as we moved towards more transparency, this obviously is part of our mission, and i think the commission did mandate the use of leis in its security-based swap rules. it didn't require it in other rules, so i guess i'd ask should
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we expect that the s.e.c. is going to require greater use of this important risk management tool in the future, and is there anything holding you back in that regard? >> the s.e.c. has been a strong proponent in hose efforts. we are looking for opportunities to use it more, i guess is the way i would answer your question. >> but to get to that point, you might promulgate more rules in that direction in order to increase the adoption where appropriate? >> as we are adopting whatever rules go forward, we would look for that opportunity. >> right. let me ask you another question, and that goes to the financial services committee's focus here
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under the chairman, what we've been trying to do under the chairman's leadership is to take a strong interest in housing finance reform and see how we can move forward, the concept of bringing more private sector credit risk sharing into the gses. we'd like to get as many positive things done as we possibly can in this quarter. so real estate investment trusts are a logical investor in these transactions. we've seen the communication from the fhfa that say that it does not perceive any drawbacks from greater involvement by reach, and credit risk transfers. this might be an area that sooner rather than later we can move forward additional steps to get more private capital. could you work with us to clarify that all of these risk transfer deals are viewed as good assets that do not
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undermine investor protections? >> i think the staff may be working for you. >> i think that will be helpful. it's very clear that the federal housing agency feels, that at the end of the day, there's a clear benefit in getting credit risk transfers. get more private capital back in here for this part of this equation. and that they can do this, according to them, according to us. we certainly see a benefit to this. and when you're looking at a significant source of private capital like this, it just doesn't make sense. it's because of regulatory hurdles, prevent that capital from being deployed. so we'd appreciate that assistance. >> thank you, mr. chairman. >> the chair now recognizes the gentleman from washington. >> thank you very much, mr.
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chair. and madam chair, thank you so very much for being here. i want to ask you about the volcker rule, which i consider to be fairly important. the rule is final, that's not yet being enforced. i want to pick your brain a little bit about it as we await the time when it's implemented. so what are you seeing in terms of market behavior and anticipation of the effective date? how do you see that the market changing -- how do you see companies adapting to it? and do you yet perceive any change in the risk being taken in the risk to the financial system? just talk generally about those kinds of things. >> it's a little hard to judge
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at this juncture. not any definitive on this. we're basically just about now going into the exam for compliance period, actually. and all the agencies are and we're coordinating well. we'll learn more from that. but before that period actually kicked in, we were talking to those subject to the rule to see if they -- were they able to provide the metrics they needed to comply, and really i think a very -- at least initial positive read on that. i mean, obviously -- >> what does positive read meryl streep -- mean? >> they should be able to comply in a timely way.mean -- mean? >> they should be able to comply in a timely way. there are exceptions in the volcker rule and prohibitions in the volcker rule. compliance is really at the trading desk level, so there's a lot to look at, in terms of this market making or something that's prohibited? so i think we have to see what comes out of certainly this first wave of exams to see, is it working, is there good
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compliance, and in terms of judging its effects, i think that's down the road a bit. >> but where you sit here today based on what you know and given that it is limited, are you confidence that it will, in fact, reduce risk to the financial system? >> that is certainly the objective. which is basically to not have these institutions that are connected elsewhere engage in proprietary transactions. again, i'm a person who sort of waits on the data. but that is certainly the purpose. >> it is the purpose. are you confident it will achieve the purpose in large part? >> i have to see the data i'm afraid on that. >> all right. subject two. you're also currently reviewing a change in definition for accredited investors. your predecessor was pretty clear that it very much needed to be changed and updated. so i'd like to ask you about the
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status of your review of the definition of a credited investor, just the general timeline where you think that work will end up, what you personally think the direction needs to be. >> i mean -- sorry. first, clearly, it for a while needed a real deep dive look in terms of all the various criteria that need to be considered, not just net worth and income levels, but including them. our staff has, you know, been studying that quite intensively for some time and they really are coming to a conclusion of their work and the next step in the last phases of that, and the next step, which i think will be relatively soon. to basically put out publicly what those findings are and what the analysis is.
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>> relatively 90 to 100 days? >> i would think so. >> do you personally believe there is a definitive need to update? >> i do believe there's a definitive need to update. >> i can say that much. >> can you give an example of the kind of change? >> again, we'll have to decide this. so i don't want to get ahead of -- we're a five-person commission also. but clearly what we're looking at beyond the traditional test of net worth and income are other kinds of sophistication, experience qualifications that certainly many, many would argue should entitle you to be an accredited investor. i think one wants to be sophisticated and realistic about what those other criteria are that would meet any investor concerns. >> thank you. with that, i yield back the balance of my time. >> the chair now recognizes the
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gentleman from virginia, mr. hurt. >> thank you, mr. chairman. i thank the chair for appearing before us today. in your testimony, you touched on equity market structure. i wanted to highlight one of the things you said. you said you all had been proceeding since your last visit here with an ongoing assessment of u.s. equity market structure, to ensure that our markets remain the deepest and fairest in the world and optimally serve investors and companies of all sizes seeking to raise capital. i wanted to turn your attention to the national market system plans that were created in 1975 as an amendment to the act 40 years ago. the u.s. equity exchanges at that time were not for profit. they were member-owned.
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today, of course, publicly traded and they are for profit. a lot has changed in the last 40 years. when you talk about plans for the collection dissemination of market data, i think we would all agree that if you want to ensure the deepest and fairest markets in the world, you have to have accurate market data, and that's got to be collected and disseminated in a fair and accurate way. in the aftermath of the nasdaq sip outage, in august 2013, i think there were some concerns that were raised about the governance of these plans. you know the nms plans were representatives of the exchanges, with no industry representation. and that leads -- it has been argued two separate problems. one is that you don't have a broad-based representation among these participants in providing the best sort of leadership and
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vision for what needs to take place in making sure that these sips are the best that they can be. and secondly, of greater concern is the conflict of interest issue. that has to do with the fact that because of the way the revenue is shared, that these -- that there is a disincentive to invest in the sips to make them as good as they should be. also the secondary issue relating to the conflict of interest has to do with the fact that these exchanges have their own data feeds. i was wondering if you could talk a little bit about where you are, what you think can be done, should be done as it relates to reforming the governance of these nms plans. >> i think that -- this is one of the reasons i sort of identified this very deep
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comprehensive review of nms, even before i was confirmed as one of the highest priorities. and we've proceeded on that. really on -- in a sense, on two parallel tracks. there's some things that clearly would optimize the markets on certain rule making. the other is the more comprehensive review that takes into account. and we've spent a lot of time dealing specifically also with sip governance and single point of failure and enormously important that the sip provide its information quickly. there was the consolidated information. i think you can see from our work on the market structure advisory committee and the subcommittees that we just formed that we're looking very much at that issue, those issues as well as just kind of the whole role of the exchanges in the equity market system. we haven't concluded on those things, but very much front
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attention. >> can you -- as you sit here today, can you explain to me why -- what resistance there is or why we should continue to have these participants that are exclusively from the sros without including anybody from industry? >> i'm not sure i can provide that answer other than to say one of the things -- we need to make sure that as we are making the changes, the system continues to function. i'm not suggesting putting up a representative from the industry. we're trying to sort of optimize every aspect as we go. i could probably provide you some further information on that. >> i do think the conflict of interest issue is something that -- obviously goes to the fundamental fairness issue that i think we all want to see in the markets. >> thank you. i yield back.
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>> the chair now recognizes the gentleman from california, mr. schouman. >> thank you. i bring up thasby's $2 trillion addition to the liabilities on the american balance sheets each time you're here. i want to commend you from stepping forward and saying yes, he gets their authority from the s.e.c. and you take responsibility for your decision to delegate that authority. they didn't follow the administrative procedure act. they didn't listen to anybody in the construction field. they didn't do any cost-benefit analysis. and we're going to see a decline in construction employment as a result of this new rule. so i'll just ask you, you take responsibility for all that? >> well, we have had this discussion before, and again, the s.e.c. has ultimate responsibility for accounting standards.
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we've recognized the private sector is the standard setter. the s.e.c. has the power -- >> the s.e.c. hasn't required they follow the administrative procedure act? nothing with regard to their processes? >> well, i can't say they have -- i understand your point of view, they haven't followed their due process procedures. i certainly haven't received that information from any other quarter in terms of the process that they followed. >> you haven't received that information from whom? >> among others, i mean, obviously people comment on their process publicly all the time, as well as our staff. >> the people who comment live in this world i used to live in of accounting. they barely know -- they barely heard of the administrative procedure act. it is foreign to that world to let carpenters and pipe fitters come before the agency and say
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please don't ruin my family and my job. and so they refuse to listen to any of those people. >> again, information that's coming to me is that thasby comments were received on this proposal several times, and that they were responsive to some. and not to others. >> that's why i'm using the word listen rather than the word invite people to send e-mails that people will throw away. they wouldn't listen to anyone. they didn't do a cost-benefit analysis. we're going to see a decline in construction jobs. there is no benefit from this. >> the accounting standard is meant obviously to convey the economic reality of the transaction. i know we've had this conversation before. it was actually in 2005 that the s.e.c. staff actually recommended that thasby undertake -- >> right. no cost benefit analysis.
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never discussed it with anybody who showers after work rather than before work. >> again, in terms of work cost-benefit analysis, because of the purpose, i know you're a cpa, but obviously a very good one. but it's really to convey the economic reality of the transaction. i know they put off the transition period. >> the transition -- they don't convey economic reality in their discussions, which is why they have no defense for thasby number two, which also distorts the american economy by penalizing companies that engage in research. and i will ask your chief accountant to look at this. because it's proof that they don't always do it on the basis of economic reality. every accounting theorist for decades said that you capitalize research. they don't. because it's not convenient.
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and to come here and say well, they just reflect accounting theory and economic reality is a misstatement of what they do, and i know i brought up with your people thasby number two and they basically say look, we don't want to listen to reality. we don't care. we want to do what's convenient. and this approach, if the same people that tell you that accounting theory -- and it doesn't -- requires leases to bh capitalized, let them site you any -- to any accounting theory that says research should be written off and not capitalized. the accountant you have empowered, you take responsibility for, they give you some talking points. these decisions are as important as any reached in congress. they affect hundreds of thousands of lives.
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and the procedure and the outcome is not something that your agency can be proud of. i yield back. >> the time has expired. the chair recognizes the gentleman from south carolina. >> i thank the chairman. thank you, chair white, for coming in today. a couple of minor deals that i ordinarily do. you understand where we are on a couple different things. thank you very much, by the way, for offering the proposed dregs on crowd funding. the last time we spoke in march, you had given your best effort to get them done by the end of year. i understand they were published october, and now they're out for review. when can we expect those to be implemented on the jobs act and crowd funding portion of that? >> i think they become effective in -- i want to say it's in 2016.
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their final rules now. i think it may be october, but it may be earlier. >> october of next year. >> it could be may. i'll have to give you the exact date. >> that's fine. when i got them, one of the questions i had is i used to run a small business. almost 700 pages, which i suppose on one hand is to be expected, given what we're doing here, which is going out to the retail public. small investors for the first time. there's a lot of protections that need to be built in. one of my questions is have y'all talked about how you're going to handle the violations? we've got small mom and pop organizations. that's who this is designed to help. now having to deal with 700 pages full of regs. have y'all given this much thought? >> look, the answers -- we're not out there -- we want this marketplace to work. we want investors protected. one of the things i've done since i've been here on these new marketplaces that we're
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setting up, whether it's lifting the ban on general solicitation or crowd funding, is to have an interdivisional working group all over it when it begins, as opposed to sort of looking at it a year from now, which means as part of that, it's not just enforcement or examination. although it includes that clearly. it's also corp fin, trying to give people guidance and help people conform to the regulations as we go. so hopefully that will be helpful. the effective data, i happen to have it here. may 16th, 2016. >> beautiful. thank you for that. lastly, y'all changed some of the signs of the investments. you took it down to $2,000. very briefly, could you tell us your thinking on that? >> we did take it -- again, what we were doing in the crowd funding space was to try to -- we got comments from kind of both directions, which was this
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is not going to be profitable. we really are concerned about fraud and people losing money. so that was one of the adjustments we made in respect to comments we got. >> thank you. i encourage you to keep an open mind. we can review those limits as overwhelm well as other things with the bill. i want to switch gears now. i'm going to speak more than i'm going to ask here, to let you know where we're coming from on a couple different things. so we're talking now about bdcs. we got your most recent letter from early november. we're very excited about working with you to get the s.e.c. okay with it. you raised a couple things in your letter that we think are probably not entirely accurate. specifically dealing with
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preferred stock. the bill does exactly what you say you want it to do. we look forward to sitting down with you. maybe your concerns are a little bit misplaced. you have concerns about the leverage and the impact on that on a retail investor. we thought we mitigated that by having that cooling off period. in order to give folks time in order to get out of the investment. we think we've addressed some other things. regarding the one year, i know you objected in your letter to only having one year to write the rules. that grows a little bit out of our experience. they're almost three years later. so trying to hold your feet to the fire, as we do as congress. we do think a lot of the changes that are contained in the bill are not going to require very dramatic changes in the rule
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making. it could be as simple as changing ratios or numbers without doing a wholesale review. we hope you'll see maybe it will be easier to write these rules than you anticipated in your letter. finally -- and this is the big one. i hope that -- and when you first looked at it back -- i can't remember, october? you didn't have a problem with a couple of different sections, specifically section 60 of the bill, when you said in your view, these provisions did not raise significant investor concerns. in the most recent later, you say the exact opposite about the same section. so we do hope when we do sit down, we won't have a circumstance where the goal posts move. >> it was based on experience in between. happy to work with you and your staff. >> thank you very much. >> the chair now recognizes the gentleman from minnesota, mr. ellison. >> thank you, mr. chair. conflicting investment advice
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cost investors a lot of money. i'm very concerned that workers who sold iras with high fees and hidden commissions damaged their retirement security and i'm very supportive of the department of labor's decision to move forward with the rule making to protect workers. the s.e.c. and dol have different jurisdictions, statutes, missions, mandates. for example, the s.e.c. does not have the authority over insurance. i would prefer the s.e.c. follow the lead of the docht lepartmen labor. i wonder, can you respond to that? i'd like to know what your thoughts are on this issue. do you see there being a looming retirement crisis, and what role would a best interest of the consumer standard be, and what value would that be in terms of moving forward in this space? >> well, i think my own personal
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conclusion is that we should subject brokers and investment advisers to uniform fiduciary duty based on the section 913 recitation of best interest of the client in respect of your own financial interest. that applies to those classes of registr registrars. in terms of what the department of labor is doing, i've said befo before, they're a separate agency. they have separate authority. and coordination is important. we do that with all kinds of agencies, when there's some overlap. from my point of view, and it's up to the entire commission as to what the parameters would be, it would be done under section 913 of dodd frank, which provides parameters to our duty, that takes some specific cognizance of the broker model i think. so that's one of the things we
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would obviously have to be considering as we proceed under that authority. >> also, when you were here in march, i urged you to file the worker pay ratio rule. glad to see the s.e.c. has finalized that rule. congratulations and thank you. the gap between ceo and worker pay has grown substantially, as you know, from 20-1 back around 1980 to now 300 to one. which is really remarkable. most people come at this from a moral standpoint. and they say it's not right and it's not fair. i agree that they are right. but i want to ask you about something a little different. is it good for the economy at large? and so i'd like to direct your attention to the graphic that i have. many argue that paying ceos in stock options encourages them to prioritize their personal short-term benefit over long-term means of workers and investors in the firm. many have called to eliminate
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the ceo performance pay loophole in section 162m because stock options are considered performance base. do you have any thoughts about this? >> well, i speak as the chair of the s.e.c. here. i mean, i think one of the things that we've been very active in is disclosure of executive compensation. we talked a little bit earlier about the 956 under the dodd frank act that we and federal regulators are working very hard on, which is basically incentive to make sure that excessive risks aren't taken. i think you have to leave to others the broader issues, because that's really not in our remit, as they say. >> do you agree that -- i'm sure you're well aware when people talk about the disparity between
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ceo pay. a lot of argument about is this right or not. do you have an opinion as to how a very wide disparity, going from 120 to 300 to one like nowadays, how does that impact the functioning -- the proper functioning of markets of retirement, of consumer demand? do you have any views on that? >> well, again, i think where we operate many that space, if we do in particular would be in the 956 space, which is basically tried to ensure that the incentive compensation of executives, oversimplifying a little bit in financial institutions is not done in such a way as to encourage excessive risk taking. >> that's what i'm asking you. do you think it does? >> well, we're doing rule making with our fellow regulators to try to deal with that. >> appreciate your answers. >> the chair now recognizes the
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gentleman from north carolina, mr. pittinger. >> thank you, mr. chairman. in your opening statements, you clearly conveyed you're committed to the three-prong mission to protect investors, maintain fair and orderly and efficient markets and facilitate capital formation. do you read anything that would be considered social engineering? >> i wouldn't, no. >> yes, ma'am. well, in that light, over the last five years, you have spent thousands of man hours and millions of dollars to defend rule makings that really don't address the crisis and from our perspective don't fit into the scope emission, whether you're dealing with the confident minerals issues, or the resource extraction or the ceo pay disclosure rules that were just discussed. how do you relate your role in
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these issues? it seems to me to be a diversion, whether in terms of scope of mission. is this an interest of yours? is it something of the administration that you feel compelled to carry? why would you move away from what clearly is your scope of mission? coming and wanting to increase your budget by 25%, a billion and a half right now. significant amount of money. it seems to me that it's an expansion of your footprint, an expansion of your role. suspension of bureaucratic entrenchment of your agency. as we look at the federal government today, people are concerned. they see the overreach. they see the footprint of the federal government. they see the impact. look at our economy. very slow economic growth at 2%. do you appreciate the fact that
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this death by a thousand cuts in terms of the overregulatory involvement, the engagement in so many of these unrelated efforts are having an adverse effect? it may be well-intended, well-designed by those who share those concerns, but killing the goose that laid the egg, you're trying to protect everything, you're hurting the overall cause. >> well, first, i very much believe in furthering our mission. i think i've talked about that at some length. and it has several aspects to it. i think what you may be alluding to, at least primarily, are some of the congressional mandates that the s.e.c. was charged by congress to carry out. what i said earlier is i do believe when i have a congressional mandate, that means i carry it out. we try as hard as we can to
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carry it out. >> do you feel that fits into your scope of mission? >> well, it is part of the mission. >> as you stated earlier, to protect investors, still take capital formation. do these extra additional forays, do they fit in? >> i think we can't talk about them as a group. we've done a number of the mandates that you might put in that category. again, if it's a congressional mandate, i think we have an obligation to carry it out. >> let me ask you this in closing. if there are excessive disclosure requirements that hurt our capital markets, if that's true, would you buy in? >> part of what we're trying to do with the disclosure
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effectiveness review is to make the disclosures more meaningful for investors and not to create gratuitous -- >> we're talking about an exc s excessive amount. >> i understand. >they increased the compliance cost. they make it more difficult to raise capital. would you agree that the reality is that these excessive burdens are really having an adverse effect? >> well, it's one of the reasons we do that very deep cost benefit analysis that i was describing before. we obviously want to look at -- not burdening. >> i've just got a few seconds left. respectfully, can i say look at the results today. it's all about results. can you say with all your good judgment that all these
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disclosures, all these requirements, all these mandates, all these compliance issues have been healthy as it relates to a growing and expanding of our economy? or has it had honestly an adverse effect? >> i don't think it's static. i think we have to be focused on as these rules go out that we think are important, looking at exactly that. >> thank you. >> the time of the gentleman has expired. the chair now recognizes the gentleman from florida, mr. murphy. >> good to see you. >> my first question i think was asked by a gentleman from massachusetts regarding petition for 637 on the shareholder funds for political activities. just to dive into that a little bit more, as far as timing for a response from that, where do you think we stand and what's the timing that you think we can expect to hear back from you? >> on the letter you mean? >> yes. >> as i said, i said earlier, i think three relatively recent
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letters, some from members of this committee, another one from different members of this committee. i'm expecting to respond to them fairly quickly. we are focused on our mandated rule makings and mission critical initiatives that i've described. >> and just to make sure, my understanding has been 1.2 million comments put in, that this is a record, i guess? just to make sure that you feel that that is sufficient to move forward. >> well, there have been a lot of comments on this, and very strong views on both sides. i think there are about 2,000 unique comment letters. i mean, there's clearly intense interest on both sides of this issue. one of the things i mentioned before is that i watch what's happening in terms of companies, the shareholder petitions that are being filed. that's through the regulations that's made possible. and the number of companies increasingly that voluntarily are making those discle suosure.
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there's a recent survey out the last two or three days showing those numbers are up. >> as it relates to dol, there's been some questions on that as well. can you just elaborate a little bit more on the distinct responsibilities between s.e.c. and dol and how you plan on moving forward with this? >> essentially, two separate agencies, two separate statutory regimes. the department of labor, obviously responsible for the space. and again, i think i mentioned this earlier, but actually even as it exists now, brokers, for example, who are are in the space are subject to different dol rules and different rules under the securities laws and regulations. so i think each agency has to judge for itself how it is proceeding. with respect to the s.e.c., we don't have a mandate to proceed with the uniform fiduciary duty
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but we have authority given to us by dodd-frank to do that. i personally after lots and lot of study made the judgment that i think we should proceed with analyzing and rule making to impose a uniform fiduciary duty consistent with 913. there's a lot of analysis to do on it. economic and otherwise. it's complex and not a quick exercise. i think the initial proposal on there was in 2009. >> one of the concerns i think we all have on both sides of the aisle is duplication and multiple agencies are looking at the same exact thing. i know you've had some meetings with secretary perez, and hopefully i'm sure having these conversations of staying in your lane and who's doing what. i think we all want to get the bd a bad actors out, but at the same time don't want duplication. we want taxpayer money spent as wisely as possible. have you had that conversation? how do you see that heading? >> what we have done, and i
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think this is before i was here, but i think from 2009 forward, and i'm more familiar with the more recent context, is to provide staff for the s.e.c. this is not a commission. but i also participated in meetings with secretary perez to provide technical assistance and expertise from our space to them. our economists met with them on a number of the issues. any time you overlap with any other agency, you each have your authorities. somewhat different at times. you try to be as consistent as you can. it's not good for market participa participants. often, different markets, different statutory only giggss. it's very important as you go forward. you try to do what you can to reform. >> can you talk briefly about
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what you think the s.e.c.'s rule is in cyber security? to me, that's one of the biggest threats. >> it is one of the biggest threats and risks we all have. i mean, full stop. the s.e.c. has sort of three areas that are sort of specific jurisdiction. one is we did i think in november of last year our regulation sci. security compliance and integrity, which is rule making with respect to our critical market infrastructures to raise the bar at the resiliency of their systems and report incidents to us when they and others when they actually have them. part of that is cyber. we deal with the brokers and the investment advisers and their risks. we put out disclosure guidance. and we also bring enforcement cases. when peel don't do what they're supposed to under our rules. >> the time of the gentleman has expired. the chair recognizes the gentlelady from missouri, ms. wagner. >> thank you, chairman. thank you, chair white. i wore my kansas city royals blue to make you feel welcome
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for your first ten years growing up with the world champion royals. >> but i'm a yankee fan. >> i know, i know. i'm a cardinals fan. >> okay. >> following up on some of the questions that have been asked about the fiduciary rule make, i do want to associate myself with mr. scott. in the s.e.c.'s absolute purview on anything having to do with the uniform fiduciary rule. following up on what the chairman said, you talked about the last annual meeting about this full-out focus. what does full-out mean to you? when can we expect rule-making? i want to make clear this is my view. they're very, very actively working. it's complex. it's not quick.
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but we're working toward -- in the very short term, the -- most of the details of what the proposal would be. that doesn't suggest -- this is a long, complex exercise. and it has to involve the full commission. >> it does and i'm glad to see that you're looking at the shorter term rather than the longer term. and obviously, you'll need to come back before this committee and senate banking. you have to talk about turning your remedy that would address investor confusion, including simplifying of titles and enhancing disclosure. all of these things are things that i hope are a part of this ongoing analysis. your division of investment management stated that further analysis still had to be done. what is the scope of that analysis, and what do you anticipate is the timeline for completing it? >> i mean, again, i cannot kind
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of overstate the complexity and the importance of getting this right. and part of that is clearly the very deep economic analysis that our economists will do as we're proceeding with this. in terms of impacts, for example, i think i said this before. if we ended up at the end of the day with the rule that imposed that uniform fiduciary duty, we deprived retail investors of reliable reasonably priced device, we would not have succeeded, obviously. our economists have a lot of work to do as we proceed with this. >> we have to get it right. i think the dol's proposal is a thousand pages wrong. so tell us about in your analysis, including the study of the dol's proposed rule on investment advisers registered with the s.e.c.? >> you know, i think -- it would have impact i think on investment advisers as well as
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broker dealers. what we did was provide the technical assistance to them which included from our staff providing how it might impact on investors and what the lay of the land is. it depends on how that -- >> and thousands of comments. and in fact, we received a letter from secretary perez saying they were going to make no changes, no proposals. even prior to the public comment period opening up. i'm very dissatisfied with this. i know you've said you're providing technical assistance in that quote before senate banking, you even talked about particularly the lower end, which i care deeply about in terms of customers' choice, access to products, cost of those products. i think that's absolutely key. do you have any concerns that
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some u.s. investors could potentially suffer based on the new fiduciary definition that the dol is proposing? >> well, i don't want to comment on that specifically other than to say the department of labor and certainly our technical assistance was included in that concern. and we have it in proceeding with ours. >> i'm just looking at a couple of examples here. i understand the dol's fiduciary duty rule will require financial advisers to provide one, five, and ten-year projections on investment returns as part of projecting investment costs under the best interest contract exemption. does this potentially conflict with the investment advisers act of 1940, especially its anti-fraud provisions? >> i'd have to analyze that with the folks in the investment management division specifically. what i indicated earlier is even
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now, we have different rules, different statutory authority that apply to our brokers, our registrars and the federal securities laws require. i'm happy to get back on that specific one. >> i'd like to take a look at that. also with the indulgence of the chairman. take a look at the definition and term on recommendation. it differs completely from the definition used by fenra. i am concerned about some of these differences and really reiterate this is the s.e.c.'s purview and we would love you to move as quickly as possible. thank you, mr. chairman. >> the chair now recognizes the gentleman from colorado, mr. tipton. >> thank you for taking time to be able to be here today. you've previously stated that the independence of the s.e.c. should be respected and noted your particular expertise in terms of dealing with a variety of issues.
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with that in mind, i believe it's important that we consider the federal reserve's work on transactions within the capital markets. this is an early stage to be able to have the federal reserve regulate much of the capital market and the guy's complex transactions. are you fully committed to making sure that the s.e.c. maintains its position as the regulatory body? >> yes. i think one has to recognize, though, that after dodd-frank, there was some reassignments of some things. so we end up doing more things in consultation with. the short answer to your question is yes. >> if the fed does continue this policy, with the securities products and firms, if they're beginning to be regulated under banks, what type of an impact will that have?
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>> it's hard to answer that in the vacuum. i do think -- and we've discussed it in connection with outside managers. are doing stress testing as we're required to. that means that however you regulate, however you stress test, if you do it optimally, it's going to be different. >> i think that's actually part of the concern that we're seeing. some of this being formulated. we're going to see and this seems to be the track that they are on. to be able to derisk completely. that it's going to impact some of the work that apparently you're trying to do in terms of being able to have some capital formation access to capital. that's some of the big issues that we're hearing in our communities. simply for small businesses to be able to actually -- to be able to reach out. do you think it's important that they decided to review products in the asset management industry for systemic risk? >> do i think it's important,
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you say? >> yes. >> i think it's a focus that makes sense. and it really goes beyond asset management. i think i cited before the example of securities lending as one of those activities that's not just asset managers. fsoc really is charged with looking for systemic risk and addressing them in the system. they have certain authorities to deal with them. but i think the pivot, at least for the time being, you know, from a firm focus to products and activities makes sense. the s.e.c. staff has been quite active on -- in, i should say, the december request for comment on those risks. i've seen their work as complementary to ours, but we obviously are the primary regulator of the asset management industry for 75 years and we're proceeding with a regime of regulations that we think is important to do and makes sense to do. and that's completely independent from fsoc. i think what they're doing is complimentary.
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>> okay. well, appreciate your answer on that. >> one comment that you just made in terms of going through and seeking comment. one of the big concerns in my district and maybe nationwide are small you have the government business forum on small business capital formation and the response from this forum comes out and what do you believe are some of the most specific issues that small businesses are talking about right now? >> i mean, there are a number of them. we actually have that meeting tomorrow. our annual forum is tomorrow morning for the day. enormously useful. i think if you look over the years, i mean, there are a number of the recommendations from that forum, i'm not suggesting all of them, that we've actually proceeded with. clearly there's a lot of interest in crowd funding. there's a lot of interest in a plus. one of the things we did, by the way, when we did crowd funding, we also proposed to amend rule 147 and rule 504 which is
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addressed precisely at, you know, those small instate businesses that the want more facility to raise capital. and so, you know, we're very -- and that goes beyond the jobs act. that's not something mandated, that's something we're very excited about, in fact, as well as the state regulators. >> i think it's worthy of note pepper dine university did conduct a study and said 53% of the small businesses believe the small business financing is restricting growth opportunities and 46% believe it's restricting their ability to hire new employees. i would encourage you as you're holding those forums not only to listen but actually hear what they are having to say, because the impacts and cost/benefit analysis that you're speaking to have a role. and i would like to submit a question for the record in regards to the 10k filings on a lot of our mining industries.
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and be able to get a response from that. >> without objection, the time of the gentleman now has expired. the chair now recognizes the generally from texas, mr. williams. >> thank you, chair white, for being here. you talk of your support for small business. i'm a small business owner. and you support the international reporting standards. as you know they do not allow the last in, first out accounting. in we transition from gpa to ifrs, the toll would be unsustainable and frankly cause most of them to go out of business. i think the number to be recaptureded is somewhere in the range of $100 billion. you've publicly stated that considering whether to further incorporate ifrs into the u.s. financial reporting system is a priority of yours. last time you were here i believe you told my colleague mr. barr that your objective was to get a single set of global stand arts.
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while fasb and iasb have made an attempt to come to agreement the efforts have always been unsuccessful. i saw that a chief accountant urged supplemental use of global rules for u.s. companies. yes or no, do you have any comments on how it would work? do you agree with that? do you agree it should be supplemental. >> i think he said he made a recommendation to me also made a speech i think last december about that. and certainly i'm, you know, quite interested in that. just to be clear what i've said, though, i think the commission if we can should speak again on this issue. speak again. i'm not saying what that would be. so i think in terms of the sort of one high quality global standards, i mean, i think, you know, as a goal i certainly favor that. that doesn't answer all the details along the way. it doesn't for a moment suggest what the position might be for further, you know, application of ifrs.
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obviously applied to foreign private issuers. that's very different. >> the comments also said there's little or no support among u.s. companies for a wholesale change. do you still considering incorporates ifrs as a priority of yours, yes or no? >> my priority was to get the commission to say where we are. >> is your inclination to adopt it to have a one standard wordwide reporting standard or you believe the standards are preferable to gaap? >> again, that's not what i at least intended to convey. i think it's -- obviously the s.e.c. before i came in, you know, regulation has allowed foreign private iciivate issuer ifrs and there are differences in the system. >> in the case of last in, first out inventory it does not allow
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the use of lifo in contrast the u.s. tax code requires it if it's used for tax purposes and effectively the s.e.c. would be making tax policy. are you aware of this potential impact? >> i'm aware of the impact but i don't want to imply that i think it ought to be done period. clearly it's got irs and irsc implications. >> uf think you should be setting tax policy? >> no. >> do you have a position on the lifo inventory method? >> i don't. it's the method under gaap is the one that applies. >> you realize, though, what a destruction it would be to small businesses here? >> i'm quite aware of the complexities of it. what i want to make clear is some of the positions you're indicating were mine really are, you know, i haven't concluded on any of that. my only priority is to get the commission to say where it is on some of those issues not suggesting for a moment, you know, where that would be.
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>> have you consulted with the treasury about this potentiality and if so is the treasury comfortable with the s.e.c. setting lifo/inventory tax policy? >> i haven't consulted with treasury because it's not ripe to consult with them at all on it. not that it's not an important issue if we were to reach it. >> lifo is a very important accounting method for all businesses. >> absolutely. >> and the recapture of $100 billion could devastate small businesses, it could cost jobs, so i appreciate your following through on that. >> absolutely. >> thank you, mr. chairman. i yield my time back. >> the gentleman yields bass. the chair recognizes the gentleman from maine. >> thank you, mr. chair. and thank you, chair white, i know you missed your opportunity to go to maine next summer but next year is another year and you'll go on vacation and spend as much money as you can. i appreciate it. chair, the state of maine has the oldest average age in the country.
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and maine's second district that i represent which is western central and northern and downeast maine is likely the oldest district in the country. in addition to that, coast to coast there are 40 million americans that live in rural areas. now, in the parts of maine and i'm sure other parts of the country when you're living in those areas, we often don't have internet connectivity. we have power outages all the time even if we did have connectivity. in addition to that, we have 41% of our seniors in this country regardless of where they live that don't use the internet. so, i know your mission in part is to make sure our investors receive all the information they can to make sure they're prot t protected in decisions they're able to make. one of our own studies in 2012, chair white, indicates that 77% of investors no matter prefer to receive their mutual funds on
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paper. and in this rule if i'm not mistaken a mutual fund company can simply send a letter to a senior or any other investor saying, you know, you are no longer going to receive your quarterly statements or your portfolio holdings or whatever it might be unless you fill out this form and send it back to us saying that you want to continue to receive those reports in paper form. now, what happens if the mail doesn't go through? or what happens if you're on vacation in florida and you live up in maine and the letter gets lost in a snowbank? what happens if you changed locations and you're in between addresses or you're in some other reason you're away from home? this is just not fair in my opinion, miss chair, it's just not right. so, i think when it comes to -- with all due respect when it comes to the mission of the s.e.c. which i know you're responsible for upholding that
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it makes a lot of sense to make sure that our investors have the option of receiving their paper financial reports unless they opt out. otherwise it's much too confusing. now, if someone decides to opt out instead of opt in, that's fine. i'm hopeful you'll commit to me today that you'll retain this option because that is, with all due respect, part of your mission. >> i can't commit to that because we have an open period of comment until january on this. what i can say and i think we talked about this to some degree, in fact, i know we did on the phone is that the proposal, although, again, we have a number of comments in the same vein as yours which were obviously weighing very seriously. but in the proposal we have tried, the staff has tried, to build in, you know, it's not just sort of one letter that gets lost in the mail. which i understand is a risk. don't get me wrong. but also periodically, you know, again, would be solicited on the
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issue. so, some of the problems that have been identified in terms of sort of receipt and choice, the proposal tries to address, but i fully take your, you know, comment about switching the presumption basically. >> chair white, my mom, who i love dearly, is 87. she can barely use a cell phone. >> right. >> and, you know, mom -- >> but, again, she would have the option not to receive it, you know, by -- she could get paper. but i fully take the concern, yeah, fully take it. >> thank you very much. i have a very short of time left. i would like to morph, chairman white, our financial industry is the envy of the world and it gives all kind of options for investors saving for retirement or for the kids' education and also the backbone and liquidity to our economy that allows us to grow and raise capital and hire more workers. i'm very concerned and you and i talked about this summer about asset managers and pension fund manage managers bee designated as sifis
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and you are starting to look at activities instead of asset size. i would like to ask you if i can right now what activities are a concern of yours? because french and i manage a couple different pension funds, mutual funds, and his perfo performance is better than mine -- >> it would be. >> -- it would be, my clients would go to his and the assets are not on our balance sheet anyway. if something happens to me it's no systemic risk to the economy or the capital markets. >> i think that's why you've seen the pivot to products and activities. for example, one of the -- in fact, you know, we're dealing with this in our separate, you know, primary regulator space is the liquidity risk management kind of issues to make sure because in an open-end fund you are entitled to get your money right away. those kind of risks. i mentioned before securities lending which asset managers and other, you know, people not under the s.e.c.'s jurisdiction
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may use and does that pose any risk. it really is -- there are no answers there, it's really asking questions. i think it's good to ask those questions. >> i will submit to you, chair white, that there is no risk in the asset manager business model to the economy and please look at that very carefully and make sure with your position on the international regulatory bodies that you make sure that we stand up for american asset managers when it comes to any regulatory issues with respect to our industry. thank you very much, have a wonderful thanksgiving. >> you, too. >> and the gentleman from arkansas. >> thank you, mr. chairman. madam chair, thank you for being back before the committee and congratulations on a good gao audit. >> thank you. >> i know that makes every management team smile when you get that and also congratulations on clearing some of your 50 front burners. maybe you're down to 40 or so now. i'd like to start out talking about equity market structure.
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i thought there was a thoughtful piece last july i think in 2014 about their suggestions on equity market structure challenges that we've seen over the course of the past few years, including some of the references to this summer. and you've now formed an equity market structure advisory committee. and a couple of comments about that, i'm concerned about, like to get your thoughts. i understand they plan to have subcommittees meet in private without any transparency on their policy recommendations. i'd like your thoughts on that. and then i was -- i noted that the overall membership in the committee didn't include nasdaq. it didn't include the new york stock exchange. it didn't include a big retail broker dealer and i'm always concerned about best execution, the promise that we make to you as our regulator to achieve best execution. so, i'm concerned that those entities are not involved in your market structure advisory
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committee. could you respond to that, please? >> yes. happy to respond to it. i mean, first, the commission and it's really all five of us on the commission, went through a very lengthy process of vetting and trying very hard to diversify from points of view, expertise, the 17-person committee which is what it is by charter. so there is an exchange. obviously represented on the committee. there actually as it turns out two other representatives who were formerly at primary listing exchanges as well. there is a representative who represents the retail brokerage, you know, point of view, although we still keep looking at that. and we've clearly had requests for others to join. one of the things we've done, again, this is something you keep looking at because you really want that diversity of
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perspectives and we want to get input from others from every constituentsy whether it's a retail broker or nasdaq or new york stock exchange. so each meeting is in effect a roundtable where we have nasdaq and the new york stock exchange and so forth. the subcommittees, that's something that the other advisory committees use to great effect to get things done but they don't decide anything and they're able to open parts of their meeting if they choose publicly -- >> let me urge you to open those meetings or parts of those meetings. let me urge you to make sure you get a full complement of those who want to participate in the process and the retail industry. and you can say you include exchanges but to not have the two leading exchanges nasdaq and the new york stock exchange not represented strikes me as shortsighted. let me switch gears. generally in your experience, i know you have an enforcement and legal background and i've got an investment management back ground, do you believe retirement fund managers have
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the principal obligation of maximizing long-term returns for their beneficiaries in their plans? is it a general thing you bring to the table as a belief that's their primary objective? >> i don't -- i think maybe it's because of that legal, you know, background and just sort of the s.e.c.'s jurisdiction. i think that it's -- you know, you want to serve the best interests of your client is what you want to do. that's what the fidushl sheciar is all about. >> if you're an investment manager you got to act in their best economic interest, wouldn't you say? >> yes. >> well, that causes me concern about a recent decision by the department of labor not the fiduciary standard, but secretary perez has recently encouraged and has given guidance to institutional managers that environmental, social, and governance issues are equal to economic return issues. and, you know, we live in a world of underperforming defined
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benefit plans that aren't fully funded and yet we have direction from the guy who's in charge of ar arisa to look at other things besides economic performance. you want to take a response at that? >> do i want to or do you want me to? >> it's so much fun to do it. >> i don't want to comment on the specific comment. i will say what you -- and it's a little out of my, you know -- but, yeah, i think what you are trying to do is serve the best interest of your client. obviously you can have a client who says i care about this, this, this and this as you invest for me that's really up to your client. >> but we're not fully funded and economic returns are how we achieve that. and i think the department of labor's way off track there. last question, you've got some vacancies on the commission. and would you commit to this committee that you wouldn't bring controversial or elements up if you don't have fully -- a
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fully functioning commission that has bipartisan on it? >> athing could be controversial. i mean, i think -- >> true, but i mean any big, major issue, follow-on that we're working on. we're concerned that you're not going to have a fully functioning commission with bipartisan appointees and we'd like your commitment that you are cautious about what you bring through the commission. >> i think the work -- right now, we're four of us. one independent, one republican, and two democrats. and we're moving forward with our agenda. but i will say, i mean, i'm going to, you know, i sort of take everything into account. what i can't -- i do think we should, you know, we should proceed. i don't know, you know, obviously how fast confirmations assuming they occur, which i assume they will occur, but you obviously sort of read your agenda as you go along. >> thank you. i yield back, mr. chairman. >> thank you, mr. french.
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>> thank you, mr. chairman, thank you, chair white, nor being with us today. some of the folks have been talking about the corporate bond markets. i want to ask a question about that p has the fsoc which you are a member ever conducted any analysis of the systemic risk that could result from a lack of liquidity in the corporate bond market due to regulatory initiatives like the volcker rule and basel 3? >> i don't think phrased that way. the four or five of us who report quarterly to this committee do that kind of assessment at least in terms of the volcker rule. >> as you know, the chairman reached out to you at the beginning of the year for a status update on a number of initiatives that are designed to facilitate capital formation and ensure that the u.s. capital markets remain the leader rather than focusing on politically divisive issues. for example, the chairman asked for the status of potential
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s.e.c. rules regarding transfer agents. this topic is of interest to me because the rules have not been updated since the 1980s. i also think it is a rare occurrence when you have bipartisan support within the s.e.c. given that former commissioner gallagher and current commissioner aguilar their statement in june of this year. in february, 2015, you stated in your response letter to the chairman that the s.e.c. staff is considering recommendations. i would like to follow-up with the chairman's request for a status update as of today. >> we're actually quite actively focused on the transfer agent issues. i don't want to sort of get ahead of what we're going to do our give you a specific date. but i think you'll see something coming out quite soon. i don't want to say what time, but in the next couple months. >> in what form would that be? >> i don't want to say that until it comes out. one of the things you are having to balance with that is because
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we haven't updated it for 40 years, you need some data to inform yourselves, you know, in terms of some of the things that you might propose. there may be other things that you can, you know, tee up as a direction you think you're going in as part of that, so that's what we're trying to balance to be as pinpointed as we can but also make sure we, you know, get the input we need by whatever form we put this out in. >> so, you haven't made a determination whether it's a concept release or some other release? >> we have not, although we're thinking about maybe some combination. >> -- a lengthy delay updating the commission's transfer agent rules would be bad for the markets and investors and issuers, a concept release may be wanted to gather additional viewpoints on certain topics but there are critical reforms requiring immediate action that we could propose now, would you agree with that?
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>> not only do i agree with that, but i asked them to do this, in other words, to come back with areas of agreement so i do agree with that. >> let's see. you have questioned whether s.e.c. disclosure powers are best used to meet -- to address societal ills noting in a speech that, quote, other mandates which invoked the commission's mandatory disclosure powers seem more directed as exerting societal pressure on companies to change behavior rather than to disclose financial information that primarily informs investment decisions, that is not to say that the goals of such mandates are not laudable, indeed most are, seeking to improve safety in mines for workers are coming objectives which as a sit zenl i wholeheartedly share, but a chairman of the s.e.c. i must question using the s.e.c.'s powers of mandatory disclosure to accomplish these goals, close quote. what is the cost to investors when there is an overemphasis on
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mandatory disclosure requirements that seem to be targeting societal ills rather than what may be considered, quote, material, close quote, by a company? >> it's hard to say what the cost is obviously. and, you know, investors could see things differently. i think i went on in that speech to say, though, you know, if there's a congressional mandate even if as described in the prior remarks i do consider it our obligation to carry out. >> last april a u.s. court of appeals found the s.e.c. conflict minerals rule violated the first amendment because it required companies to shame themselves. given the political and shaming ratio of the pay raise show rule, is it likely it will also violate the first amendment? >> we studied that precise issue and we believe it comports with the first amendment. >> this week a commissioner said the regime has been hijacked by social activist, do you agree
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that the rules are meant to serve investors and not special interests? >> i certainly agree that our disclosure regime is meant to serve investors. if there are mandated disclosure rules we have an obligation to carry them out. it's the law. >> can you explain how the pay ratio serves investors over special interests? >> it's in the release. i think what the pay ratio rule does and it's a mandated rule making obviously, is to provide investors another data point in judging a ceo's compensation. that's the finding in the release. >> yield back. >> thank you. >> thank you. >> thank you. it looks like it's just us. >> okay. >> a couple things. >> sure. >> madam chairwoman, first off, you've always been very kind to me, your staff has been terrific and because of that i'm just going to yield myself as much time as i might consume because i got a lot of questions. >> you already hit the clock on me. >> okay.
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i'm going to ask you almost for a narrative answer on this and pretend no one's watching or listening. >> uh-huh. okay. >> being someone who was both i think intellectually and emotionally vested in crowd funding in the jobs act in reggae plus, let's use jobs act and the crowd funding portion. almost four years -- almost four years beyond when the rules should have been done in something that from the iq you have around you and yourself should not have been very complicated. i beg of you, could you walk me through -- >> sure. >> -- what happened. >> i don't think it's four, it's three years. not that that answers you. >> three plus. let's call it three. >> okay. >> look, your staff and others were very kind to let us see some of the letters that were
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coming from union front group and other groups that disparaged crowd funding, but help me understand because as this hearing is supposed to be about resources, was this a resource issue? was this a political issue? was it an intelltual capital issue? why so long? >> clearly i won't -- but i have already, you know, described, you know, how our need for resources really across the boards. but this is one where -- and i think i believe i testified to this in march when i was here. we knew this rule making was going to be very complicated going into it because the statute is quite prescriptive in some areas. funding portals which are, you know, enormously important to investor protection is a complicated piece of that as well. and then -- so we did our proposal, you know, i sort of really tried to light a fire under the proposal. we got it out pretty quickly after i got here i think and then the comments came in and,
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again, we have to work within the statute when it's prescriptive but we try to make it -- >> also the statute actually had some deadlines, too. >> yeah, i'm not -- i'm just saying we do need to observe those obviously. some places give us discretion. some places don't. and the goal is to make it workable and to safeguard investors in the new marketplace. and that proved to be very, very difficult. >> but -- and what i was asking in my question design and maybe i need to do this in writing because some of this uncomfortable, it's the power of certain activist groups to delay something at the same time both the right and the left here get behind these microphones and talk about the desperate need for economic growth and the new economy and the future that brings it, and then some of the things we tell our constituents we're doing for them to grow the economy takes three years to get a rule set done. >> i'll give you my own perspective in the context of crowd funding, it was workable, get it to protect investors,
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there's no politics or activism or anything. >> a dozen and a half, two dateve states did their own and produced their own rule sets and are up and running. >> yes. but they also, you know, did not have the same statutory framework we had to work with and it's not a federal rule. and i mentioned it earlier, one of the really important i think exciting things the same day we did crowd funding are the amendments to the rules because it's solicitous of the state funding crowd funding proposal. >> there's an interconnectivity there that could be very helpful for the economy. and this is one of those just because as i was walking out to grab a meeting i thought i heard something in a previous question i think with representative lukameyer and it sounded like the regulatory -- or additional regulatory scrutiny when an
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investment organization will pledge their holdings up for shorts or loan on their book. did i pick up something there? >> i don't think so. >> okay. >> i don't think so. >> all right. last one it's also important to us. we accept your commission the board right now. you're short one republican. there is a certain nervousness out there that in the waning days of an administration, the independence of the s.e.c., this is more of just a request for your greatest prudence as rules are being brought, you know, for a vote of yourself and your fellow commissioners that you are shorthanded. and something that would be controversial have a cascade effect, you know, policywise be dealt in that light that there's
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a voice missing. >> yeah, again, i think literally and otherwise i'm extraordinarily, you know, independent. we try to do the rule makings on the merits. obviously i think we've had an illusion to the 3-2 votes we've had and that's sort of part of the landscape i think at this point in time but i think we need to move forward with the agenda, but i certainly will be sensitive to all things. >> because you have no one else waiting and i'm going to give myself a couple extra moments here. for the s.e.c. and your team, how much interest and focus is there, shall we say, on the new economy? as we see silicon valley is spending lots and lots of resources trying to find ways to provide financial service-type products, lending products, crowd funding platforms or other types of platforms, do you have someone on your team that actually now is specializing in trying to say this is our future, in is coming at us, this is -- >> one of the things is, yes, is
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the answer to that. as i'll describe it. one of the things we've been doing the last several years is to make sure that we have, you know, i'm going to call it the market expertise but really points of view that would, you know, encompass the new products, the new innovations -- >> this is one of the things in our life that may be actually bipartisan. is there something we can do as policymakers to provide you tools or statutory mechanics to allow you to embrace and run with those ideas that are good and do it as fast as possible so we're not slowing down what many of us believe is our future of our economic growth and that's the new economy? >> what really helps us is the outside expertise genius, you know, that we make sure that, you know, we have in-house when we can. and we do try to do that. >> okay. chairman white, thank you so kindly for your patience and the time you gave us today. >> thank you very much. thank you. >> i'd like to thank our witness, and without objection all members will have five legislative days to submit
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additional written questions for the witness, which will be forwarded to the witness for her response. i ask our witness to please respond to these promptly, which you've actually -- your team has been pretty good on many of the things we've sent you. without objection all members will have five legislative days in which to submit extraneous materials to the chair for inclusion in the record, and with that, this hearing is adjourned.
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join us later today when president obama will present the medal of freedom to 17 individuals, among them yogi berra and willie mays and steven spielberg, you can see live coverage starting at 5:00 eastern also on c-span. president hollande is in town to discuss the recent terrorist attacks in paris and around the world and we'd like to know do you think the u.s. should form an anti-isis alliance with france and russia? here's your reaction. arab countries must contribute troops as well. and christopher has a different view, he says i think we should stay out of it. for once other people are doing the heavy lifting and i think it's great. let them. you can tweet us your thoughts or leave them on our facebook
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page at facebook.com/c-span. this thanksgiving weekend, "american history tv" on c-span3 has four days of featured programming. beginning thursday at 4:00 p.m. eastern we'll take you inside the national world war ii museum in new orleans as we look back 70 years to the war's end and its legacy starting with the allied invasion of north africa through d-day and follow the third reich and the war in the pacific curators and historians will share the experience of soldiers who fought on both fronts including african-americans serving in a segregated military. friday night at 8:00 the new series "road to the white househ rewind" takes a look back at campaigns of ronald reagan and bill clinton and george h.w. bush and michael dukakis. and saturday afternoon at 2:00 thomas tudor, on the history of arlington national cemetery the role and creation of the tomb guard and stories about some of the notable people who are
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buried at the cemetery. and sunday afternoon at 4:00 on "real america" the cbs news special report by morley safer on the five-week war on la drang valley. only on c-span3. a hearing now examining the upcoming international climate change negotiations in paris. senators heard differing views about u.s. goals for reducing gas emissions from representatives of groups including the u.s. chamber of commerce, the world resources institute, the business council for sustainable energy and the manhattan institute for policy research. the obama administration has set a reduction target of greenhouse gas emissions of 26% to 28% below 2005 levels by the year 2025. this two-hour hearing was led by shelly morcapito of west virginia.
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the hearing will come to order. we have some unusual circumstances. the chairman, i am not the chairman of the full committee. the chairman is sitting to my right. as you know chairman inhofe. he's on the conference committee for the highway re-authorization and so he has asked to make some statements and then he's going to go to his meeting, so with that i'll recognize chairman inhofe. >> thank you, madam chairwoman. we actually have three members of the iowa conference. i already talked to the witnesses and explained to them it's very significant what's going on. we're actually going to have a formal conference on the highway re-authorization bill. that hasn't happened since 2005, so we're very excited about it. let me -- and i'm sure that another conferree is senator fisher, so i'm sure we'll be wanting -- all wanting to go over there, but she's graciously
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allowed me to make a brief opening statement which i'll do now and i'm sure senator carper won't mind if i go ahead and make my statement. >> i object. >> all right, good. let me start by saying, you know, all of our prayers for the people in what's been happening in paris and so regrettable. i thank the witnesses for being here today to discuss the international climate negotiations. despite president obama's constant rhetoric about transparency, we are a week and a half away from the start of the united nations 21st session of the conference of parties. this is the 21st year that we've had this. and several of us on this panel up here have had different ideas about what is to be accomplished there. my idea is nothing. so, it's -- i just sent a letter in july seeking information relating to the president's intended nationally determined contribution. now, that's where he's supposed to be able to document what he
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wants and he did send information in that he's going to be reaching between a 26% and 28% reduction in emissions and -- but failed to say how he's going to do this, so we tried to have a conference. we tried to have a meeting in this committee and ask the epa to attend and they refused to attend. now, it's the first time in my experience in the years that i've been here, eight years in the house and 20 years in the senate, that the committee of jurisdiction making a request someone would appear and they don't appear. so, that's -- i think there's a reason because they don't know how the calculation of 26% to 28% was working. today we're especially here to discuss the potential legal form of the cop 21 agreement. i think that goes without saying. there's been a lot of things published about is it legal, is it binding, suntil yesterday in "the financial times" secretary kerry announced there would be
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no binding agreement from cop 21. no binding agreement from cop 21 and, you know, that incurred the wrath of president hollande of france along with several other people. so -- but anyway, that was an honest statement because there won't be any. so, when it comes to the financing, i know that a lot of people over there, the 192 countries, are going to assume that americans are going to line up and joyfully pay $3 billion to this fund but that's not going to happen either. so, anyway, this is going to be very similar to some -- to the other 20, and so i'm sure there will be many on this panel who will be attending. i don't plan to attend. thank you, madam chairman. >> we thank the chair and wish good luck and quick work on the conference committee because i think we're all anxious to have that piece of legislation before us. so, i'll go ahead and open if that's okay with you for my opening statements and i want to welcome the panelists, first of
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all and the members, the senators here. much of what senator inhofe has said is contained in my opening statement but i think some of it bears repeating. just yesterday we passed two bipartisan resolutions under the congressional review act one of which i co-sponsored and the other senator mcconnell, or i responsed, and i brought those up because in my opinion they are inextricably tied to the upcoming climate negotiations. president obama cannot meet his goal of 26% to 28% reduction in co2 emissions without full implementation of this regulation and we believe it stands on shaky legal and political ground. the senate has now formally rejected these rules and we expect the house to do the same and the president will have a chance to make his opinion known. but over 27 -- over half our states, 27 to be precised, have now sued the epa to block these rules. last week as chairman inhofe said it was reported that the
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secretary of state insisted the international climate agreement expected to be reached in paris was definitely, quote, not going to be a treaty and chairman inhofe mentioned he said there would be no binding agreement. this prompted the french foreign minister to suggest that secretary kerry was, quote, confused. the french president then weighed in, quote, if the agreement is not legally binding, there won't be agreement. and as did the european union suppose spokesperson was quoted as saying, we are working on the assumption that the paris agreement is internationally binding. if they cannot agree on the legal status of any forthcoming agreement, no wonder those of us here today have questions. will this agreement be legally binding or not? if so, will it be submitted to the senate for ratification as required by the constitution? chairman inhofe as he mentioned, too, invited the epa, the ceq and state department to testify
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before the committee and provide missing information related to the president's 26% to 28% greenhouse gas emissions target. epa and ceq have thus far demurred saying they lack involvement and relative expertise. i share the chairman's hope that the administration will reconsider and allow witnesses to come before this committee in the coming year particularly given press reports such as last week when climate wire reported that epa administrator mccarthy meets regularly with white house staff along with secretary of state secretary and secretary munoz to prepare for paris and is likely going herself. the legal status of the agreement is one negotiators must resolve. financial payments demanded are another. and i hope we will touch on those today. the president has pledged to send 3 billion to the green climate fund. he included a $500 million request in his fy-2016 budget.
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the house and the senate appropriators, i'm on the appropriation committee, have allocated zero dollars. it is important to make clear i think to the rest of the world as climate talks approach that congress has the power of the purse. i look forward to hearing from our distinguished panel of witnesses, again, i thank them for coming and we have a robust discussion as we always to in this committee and i would like to recognize senator carper for an opening statement. >> thanks, madam chair. it's nice to have a couple of west virginia kids up here for leading the charge on this important day. thanks for pulling this together and thanks to all of our witnesses for joining us for a much welcomed hearing. we're here to discuss our country's efforts to fulfill a promise made some 23 years ago, 1992, to address global climate change. george herbert walker bush was our president at that time as
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you'll recall but in 1992 the united states and other countries around the world agreed to a treaty that established the united nations framework convention on climate change. the goal? to find a way to limit global climate pollution and limit the impacts of climate change to preserve and protect our environment for future gentle n generations. in 1992 president bush signed the treaty and the senate subsequently ratified it. today there are 196 countries that are part of that treaty. over the past 23 years the united states and our treaty partners have held meetings usually each year to address the goals and later this month the 21st meeting will take place in paris. these negotiations are critical because to effectively address climate change we cannot act alone. we cannot do this alone. we have to work cooperatively with our neighbors around the world. there is a host of -- there are a host of scientific studies that underscore the urgent need
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for action, but for me the most compelling factor in supporting efforts to address climate change is more personal. i live in the lowest lying state in america. we see every day the ravages of climate change and sea level rise. i have children. some day i hope to have grandchildren and i want to make sure that they have a real bright future in delaware and other places throughout our country and frankly around the world. and the science is clear. our future generations face no greater environmental threat. we face a lot of threats, but no greater environmental threat than the threat of climate change. we know the price of action pales in comparison to the cost of doing nothing. this is why i believe we have an absolute duty to fight to continue to change our behavior not only in delaware and across the country but also around the world to help stem the tide of climate change. when it comes to global challenges the united states doesn't just sit back and wait for someone else to lead. we lead. this should be no different.
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when the challenge was fascism, h communi communism, terrorism, cyberattacks, the u.s. has led as the world has risen to face those challenges. climate change is real. global warming is real. sea level rise is real. we see, again, happening every day in my own state. see it every day in ben's state over here my neighbor to the east and the south. the u.s. cannot do it alone but we can provide leadership and somebody needs to do that and that should be us. since the current administration has taken a leadership role on this issue other countries have followed. china and brazil have changed their tune i think largely because we've acted and as someone born in coal company but spent most of his adult life in the lowest lying state in the nation i know this issue is complicated and i know compromises have to be made for all of us to survive in a low carbon world. however, let me conclude by
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saying i have confidence that this administration working in conjunction with 50 lant labors our states across america will find the right recipe. and so that together we can successfully meet the challenges facing our planet and ensure a brighter future for our grandchildren and for their grandchildren. thank you, madam chair. >> thank you, senator. and we will begin to hear testimony from our witnesses. i'm going to introduce everybody briefly and then we'll begin with mr. julian coo who is the maurice a. dean distinguished professor of constitutional law and faculty director of international programs that's one long title. at the maurice a. dean school of law at hofstra university. next we will hear from mr. oran cass who is a senior fellow at
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the manhattan institute for policy research incorporated and next mr. stevely ulich vice president of climate and technology u.s. chamber of commerce institute for 21st century energy and we have mr. david wasco director of international climate initiative world resources institute and then we have ms. lisa jacobson president business council for sustainable energy. thank you, all, we'll have five-minute statements and your full sumbits have been submitted to the record. >> thank you, madam chairman. i want to thank the chairman and the ranking member and the members of this committee for inviting me to participate in today's hearing. as you just noted, i'm a professor of law at hofstra university in new york and my academic research focuses on the relationship between international law and agreements and the u.s. constitution. my testimony today will consider the requirements and limitations under the constitution for an agreement relating to climate change. in my written testimony i review
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each -- the legal status of each kind of international agreement, a treaty, a congressional executive agreement, a sole executive agreement and i explained in my written testimony why i believe the paris agreement should be submitted to the senate for its approval if that agreement contains legally binding emission targets and timetables and i'm happy to take questions on that issue particularly if members of the committee are interested. but for the purposes of my oral remarks i want to focus on the possibility that the paris agreement will contain nonlegally binding political commitments. and so i think this is the direction that the administration is heading. in response to a letter from senator bob corker the state department has indicated the united states is not seeking an agreement in which the parties take on legally binding emissions targets. and this response means the heart of the paris agreement the emissions targets will not be legally binding if the united states gets its way in paris.
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now, i do not have any constitutional objection to the use of a political commitment in the manner described by the state department as long as all parties understand what a political commitment as opposed to a legally binding commitment is. by making a political commitment the united states would not owe any legal obligations to foreign countries under international law to reach any particular emissions reduction target. and as a political commitment no future president or congress would be bound under the u.s. law to reach these emission targets. so, as a matter of law a nonlegally binding paris agreement would be no different than the president giving a speech saying i promise to reduce emission or reach certain emission targets in future years. but, however, as madam chairman noted, press reports indicate that other countries in paris are not expect the agreement to
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be a legally binding agreement. and i'll quote the statements of president hollande if the agreement is not legally binding there won't be agreement because that would mean it would be impossible to verify or control the undertakings that are made. and so, you know, statements like this by our treaty partners or potential treaty partnersn will make it tempting for u.s. negotiators to call the paris agreement legally binding while they're in paris while at the same time assuring congress it's not legally binding. and i think this kind of deception or at least some confusion is troubling because it either results in misleading foreign governments as to what the united states is promising or it results in the united states -- the president violating the constitution by concluding an agreement on his own authority as the sole executive agreement. so, as i explained in my written testimony i don't believe the constitution allows the president to use a sole executive agreement without any
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approval of congress to legally bind the united states to particular greenhouse gas emission targets. and a lack of clarity on the legal nature of the paris agreement could spur future litigation where a plaintiff might sue, for instance, to demand u.s. compliance with a legally binding paris agreement. and so for this reason, if the paris agreement is finalized with political commitment as secretary kerry and the department of state seem to indicate i recommend the senate request the administration identify publicly which particular provisions of the paris agreement, if any, are legally binding and which particular provisions are just commit cal commitments. such an explanation ideally should take the form of a public statement by a senior member of the administration ideally secretary of state kerry himself that reviews each provision of the paris agreement saying what's binding and what's not. it would make clear if the paris
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agreement is or is not binding under domestic or international law and it would also make clear if it's not binding that no future president or u.s. congress is bound to fulfill the paris agreement and also shield a future president from litigation on this question. so, thank you. happy to take questions on the issues, other issues, if you are interested. >> thank you. mr. cass? >> thank you for inviting me today. my name is oran cass. i'm a senior fellow at the manhattan industry for policy research. my primary message to the committee is this climate negotiations no longer bear a substantial relationship to sharply reducing greenhouse gas emissions, rather the upcoming paris conference will focus on a commitment by developed nations including the united states to transfer enormous sums of wealth to poorer countries. this outcome is not surprising to those skeptical that u.s. so-called leadership on climate policy could persuade the
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developing world to forgo economic growth for the sake of emissions reductions. however, it differs dramatically from the popular narrative in which paris represents the historic culmination of a worldwide process to bring countries together and act on climate. my written testimony makes three points which i will summarize here. first, the negotiating process is specifically designed to produce an easy consensus and excuse inaction. it relies upon each country announcing an intended nationally determined contribution or imdc that represents its proposed actions and emissions reductions. however, the contents of the indc itself are entirely discretionary. there's no requirement that cuts achieve certain levels or that they even use consistent formats, metrics or baselines. there's also no consequence for missing a planned goal. boosters are highlighting the indc-driven structure and the parade of submitted plans as proof that the world can take
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meaningful action on climate. that is exactly backwards. negotiations have followed this course of discretionary unenforceable pledges only because of the positions of the countries are so irreconcilable that no substantive agreement is possible and that brings me to my second point which is that attempts at so-called leadership as senator carper described in his introduction have not spurred others to action. my written testimony details the various manipulations that have produced impressive estimates for indc impact. however, these use a centuries worth of escalating efforts and not the actual commit tomorrows made or they compare the actual commitments to plainly incorrect guidelines. and this is precisely the basis for positive-seeming estimates cited in mr. wasco's testimony as well. a more realistic interpretation suggest total impact is less than 2 degrees celsius and using
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the a-1-b baseline there is no improvement at all. country-by-country analysis tells the same story. china has committed to reaching peak emissions around 2030 but studies show they were already this trajectory. india's commitment manages to be even weaker. the most obvious reference point is in the indc itself. they report that energy efficiency improved more than 17% in that country between 2005 and 2012. india could improve only half as fast going forward and still meet the goal that it set for itself. now, such efforts have received loud applause from the white house, from the media and by ngos demanding climate action. but if the indc process relies on peer pressure and so-called naming and shaming those who drag their feet, then cheerleading for empty noncommitments destroys the premise of the entire enterprise. one might even conclude that
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political point scoring has taken precedence over actually addressing climate change which brings me to my third point. the paris negotiations are not about emissions reductions, they are about cash. the developing world expects developed countries to offer more than $100 billion per year in what is called climate finance. the rationale for the money, the source of the money and the use of the money are all unclear. developing nations believe they are owed a, quote, ecological debt for past developed world emissions and also owed, quote, rep pa rati reparati reparations. these are nonstarters for the united states but the developing world is also being asked to being reimbursed the cost of measures they take. india alone says it needs $2.3 trillion between now and 2030 but if the indcs represent business as usual funding is clearly inappropriate. realistically developed world
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leaders are pursuing a transaction in which having staked political capital and legacies on achieving an agreement, any agreement, they will now pay developing nations to sign on the dotted line. to conclude, we should worry that u.s. negotiators and their colleagues desperate to produce an agreement will commit dollars from taxpayers that they cannot actually deliver and get nothing in return. the senate should preempt any purchase of a piece of paper, a clear simple resolution rejecting enormous transfers of wealth from the united states to other countries would highlight the issue for the american public. it would tie negotiators' hands and it would ensure that any future climate change negotiations actually focus on cl climate change. thank you, again, for the opportunity to appear before the committee and i look forward to answering your questions. >> thank you. >> thank you, senator capito and senator carper and members of the committee. this hearing could not be
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timelier, as the meeting draws closer it's important for policymakers to take a clear-eyed view of what a new post-2020 agreement might hold. the main point i would like to make which are detailed in my written testimony are as follows -- the obama administration's commitment for paris is unrealistic and doesn't add up. we estimate 41% to 45% of the emission target remains unaccounted and for and that's assuming the epa power plant survives court scrutiny. selling an uncertain plan may prove difficult. second the emission goal nations have offered are hugely unequal and will not change appreciably the rising trajectory of rising emission. while some have offered large emission cuts all developing countries particularly the large emerging economies have offered little beyond business as usual. a recent work from the framework convention estimates even in the