tv Politics and Public Policy Today CSPAN September 20, 2016 5:00pm-7:01pm EDT
we've been able to take this and turn it into nationwide relief for consumers which the l.a. city attorneys office is unable to do under california law. and we and the occ going forward will be active and working to clean it up here and across the industry. let me say something specific here about whistleblower tips. we are getting a large and increasing number of whistleblower tips all the time. when a bank like wells fargo here does not come forward quickly with the problem they recognize as occurring at their bank, they should not assume that we're not hearing about it from employees or customers or others. we probably are. it makes sense for them to come forward more quickly and to self-report. that was not done here. it was the very late contact from wells fargo on this problem as i see it. >> thank you. senator brown. >> thank you, mr. chairman. thank you all for being here and public service all of you. following up on the self-report, mr. cordray, are banks required
to report to you when they uncover fraud against customers in their own banks? >> we think it is by far the best practice and i know the comptroller would agree, and we see eye to eye on this. we believe compliance at a bank starts with the bank. they shouldn't expect us to come along and make sure they're complying with the law. they have the requirement to do that themselves. our job is to make sure they're doing it. >> no legal requirement. >> no legal requirement for them to report a crime but they are in more trouble when they don't. >> for all three of you, mr. curry your testimony states your agency started to receive customer and employee complaints about improper sales practices in early 2012. mr. cordray, your letter says your agency first learned about the whistle blowers in mid-2013. you both heard mr. stumpf's
answer to my question about when he learned. what does that say about the bank's governance and priorities mr. curry, if you would start with that. >> sure. our supervisory activity really has focused historically and this goes back to 2012 really on the adequacy of operational risk and compliance risk management systems. there have been -- as our written testimony indicates there have been issues with sufficiency of those systems and those controls. this has been an ongoing issue. i think sales practice issues that have been under covered by agencies represented at this table are a manifestation of overall weaknesses in risk management, particularly in the compliance area. >> i remember a discussion we had soon, i believe, after you took this position about the importance of a risk officer in a bank and the role they should play. you pointed out some do it better than others.
mr. curry, as part of occ supervisory activities began in 2013, you would have been meeting with executives and my understanding, you would meet regularly with the bank's board. correct? >> our teams meet regularly with management and boards of doctors, particularly the independent members of the board. >> those, not mr. stumpf, those -- >> independent employees. >> we just checked, employee compensation, compensation of board members, ranges from high 290s up into the 400,000 a year, again, looking -- making the contrast of the 90% of the employees who lost their jobs through various reasons but acts they committed were not managers, were making under 35 or $40,000 a year. does it strain credibility that
neither the board nor mr. stumpf really knew this was going on as it sounded like from the testimony today? >> i don't know. i have personal knowledge what they knew or didn't know, but i think our focus is making sure they have structures in place that facilitate the flow of important information about deficiencies and complaint processing structure or in terms of escalating issues that arise in compliance function or ordinary business of the bank. >> i think i found it particularly telling, and mr. clark i'd like your comments on this whole area, telling that mr. stumpf said he met pretty much weekly, sometimes more often, with miss tolstedt and these issues apparently never came up until he learned about them in 2013, in part from three regulators. mr. clark, your thoughts? or three government agencies. mr. clark. >> we don't know precisely
senator brown what they knew and when they knew it. but i think as a longtime trial lawyer one can draw inferences like courts and lawyers do. it's difficult to believe based on the information we developed in our investigation both before and after we filed our complaint that their knowledge of this didn't extend far beyond the regional manager level. >> two more questions, mr. curry and cordray. your agencies have authority to make criminal referrals. have you done so in this case? is there anything you can tell us about your actions this way? both answer that and then i have another question. >> generally our position is to cooperate with criminal law enforcement. our focus now, at the conclusion of our supervisory duties, is to look at civil enforcement remedies we have at our disposal, personal cease and desist orders, civil money penalties against individuals or
removal or prohibition from banking which would prohibit someone from serving in any capacity at a bank. that process is ongoing now. >> mr. cordray. >> i've been told i should not publicly acknowledge whether we've made criminal referrals or not. i think about this question. there's something i think i can do without getting in trouble, which is quote our statute 12 usc 6566. it says, if the bureau obtains evidence that any person domestic or foreign is engaged in conduct that may violate federal criminal law shall transmit to federal attorney general of the united states. who may institute criminal proceedings under appropriate law. we follow that statute to the letter. >> mr. cordray, last question. i mentioned a group of wells fargo customers sought compensation for fraudulent accounts in 2013 even before the "l.a. times" series was published. rather than accepting responsibility, wells fargo forced them into arbitration effectively preventing them from
being made whole. how would cfpb's arbitration rule helped wells customers in that case? >> you know, i'm not familiar with all the lawsuits but my understanding is that these financial products typically did carry an arbitration clause. when that happens, as happened here, when there's massive wrongdoing on a wide scale but small amounts of harm to individual consumers, it would be very difficult to get any relief other than through a class action. yet i believe in arbitration clause here which might defeat a class action. i think that's going to be litigated here and courts will decide it. but they have often decided it bars relief on an individual scale through a class action mechanism. >> thank you. >> senator reid. >> thank you very much, mr. chairman. thank you, gentlemen. mr. clark, you and your colleague, looking back when you filed your complaint were you anticipating extended litigation
or was wellsing f fargo coopera in the very beginning without recognizing this problem and settling. >> it was interesting, senator, the initial response we filed, they said something to the effect we don't give our customers any accounts or services or products they don't need. they didn't say in response to our complaint we didn't give wells fargo customers anything they didn't ask for. it was pretty telling to us. we negotiated with wells over a period of time, ultimately joined by our partners here as far as negotiations were complete. but at the end i think they cooperated -- in the sense we ended up with what we believed to be a robust series of reforms. the largest penalty in the history of our office. and because of the cooperation and working together with the other agencies here, those reforms and practice changes are nationwide. >> with respect to the negotiations, would you -- is your view that the added weight of occ and cfpb made a decisive
difference in terms of the outcome as well as the speed? >> i can't be sure of that, senator, but i really believe that to be the case. >> thank you. there was one other aspect of your testimony. you said wells fargo made it difficult if not impossible for customers to receive accurate and clear information as to how accounts had been opened up and a consent which suggests to me at least it wasn't just the individual, quote, bad apple but it was larger than that. was it your sense there was some type of either deliberate or negligent sort of treatment of customers that contributed to this and is liable at the company level? >> yes, i do, senator, in this sense. customers go into wells fargo branches but ask about accounts, got their statements either electronically or in paper, couldn't figure out what was doing on and couldn't get clear answers. because the practices were improper in our view, most
employees in the experience of our witnesses were not willing to come forward and they didn't really give them honest answers. sometimes as i said in my oral testimony here, accounts were asked to be closed. they were supposed to be closed and they weren't closed. >> thank you. mr. curry, you point out that, you know, culture is key in any organization. i think that's obvious. it seems that for years the culture at wells fargo was profit rather than customer satisfaction and customer service. do you think that's changed, or is that an accurate view of what's happening recently? >> i think this episode indicates how important it is, in fact i think what we're looking for as a supervisor is to make sure that the institutions have a full understanding of the importance of culture, the reputational risks and financial
consequences that can flow when you lose that reputation or engage in activity that calls into question the culture of the institution. again, our focus is making sure that they have the appropriate oversight structure incentives, incentive programs, compensation programs are something we look at closely in our heightened standards program because it does guide and dictate the culture of the institution. >> one of the impressions that emerges, i think, not just myself but across a wide spectrum of opinion is that the company might have been whispering about ethical standards and treating the customer right but they were shouting about this is the way you make money, sell more of these. is that fair? >> possible, yes. >> director cordray, the cfpb has been engaged in this effort. again, with your partnership i
think done an outstanding job. production of consumer laws is something you are expert in. working with the comptroller, working with the city of los angeles, you brought special expertise. can you describe the special expertise you brought to the issue? >> yeah. i think we all bring a different expertise to this. the los angeles city attorneys office is working purely from an enforcement perspective. they brought a lawsuit. they are familiar with local conditions, which is tremendously valuable as we partner across the country off often with state attorneys general o state banking regulators, in some cases with local officials who are forward on consumer leaning issues like l.a. city attorneys office. the occ brings knowledge of safety and soundness regulations at the institution, and
under this comptroller i will say continuing focus on consumer appliance and how safety and soundness affects the individual consumer, which has been a point of collaboration with the bureau. i think what we bring is unique ability to engage in not only supervisory but also enforcement activity and we do both frequently. the fact we have separate laws we can enforce here including identifying abusive practices, which is a loan and authority granted to this agency. that we also bring a consumer-focusesed perspective and market analysis and expertise and the ability to use our cid power aggressively even outside the scope of a lawsuit in order to get information and process that information. i think we brought those tools to the table, each of these other teams brought their tools to the table. together it makes for a strong result. if you look back at enforcement
actions over five years, many of them have been done with partners. many of them, i can tell you almost all of them have been more effective for doing that. sometimes it takes a little longer because working back and forth with other offices takes certain procedures and other things to get into place, but it is always the best answer if we can do it well, and people did it well here. >> thank you very much. >> senator menendez. >> thank you all for your service and the work you've done here. director cordray, the subject of today's hearing is in my mind the ultimate affirmation of your agency and its employees. in the wake of the 2008/2009 financial crisis when unfair and abusive practices ran rampant in the industry, i know as a member of the committee at the time, one of the things i wanted to ensure we did in wall street reform legislation and to fight tooth and nail to get it is to empower a cop on the beat.
so that would be on the side of consumers, i must say you, as a director, and your bureau and agency have lived up to every bit of those expectations from my point of view. now, i hope to use this as a teaching moment for some of my colleagues that aren't aware of the bureau's latest list of accomplishments. i point out since 2011 the bureau has recovered and sent back nearly $12 billion to 27 million consumers harmed by illegal practices of credit card companies, banks, debt collectors, mortgage lenders and others. $12 billion to 27 million consumers. it's amazing despite all of those accomplishments my republican colleagues are hell bent on killing this agency, just three legislative days after the announcement of the settlement of wells fargo one of
my republican colleagues introduced and the majority leader, senator mcconnell fast tracked a bill that would fundamentally alter the funding mechanism for the bureau and subject it to the annual appropriation process. so in view of that, can you tell me, director, what would it mean for the bureau to be subject to annual appropriation process vis-a-vis the work you do. >> let me start in a general sense. what we can see here is a big job to be done, to change the culture and practices at the banks. it doesn't happen overnight, robo mortgage scandal, mortgage origination scandals that led to the financial crisis. it will take considerable time for us to root out all of these things in the financial institutions, banks as well as nonbanks. if we can remain on the job, if we can
continue to exert our authorities in matters like this, continue to work with our partners across the country we will continue to make progress. >> i appreciate that. >> the annual appropriation process. >> it would compromise our independence and make it harder for us to do our job. as it is for all the banked agencies. >> if the bill were to become law, and trust me when i tell you we won't let it, how might it undermine bureau's efforts to protect consumers from unfair and deceptive and abusive practices? >> again, anything attempting or seeking, and some of these efforts are, to compromise our independence will make it harder for us to do our job. >> let me ask all three of you, do any of you disagree -- and if so, please explain to me why -- that in essence at wells fargo what we had was a pressure cooker environment with perverse incentives and a culture that ultimately led to the type of wrongdoing that took place. does anybody disagree with that? >> not at all. >> no. >> in fact
they sent mixed messages at best if they counterveiled countered count countervaled that culture at all. >> mr. curry, let me ask you, do you believe that you, meaning the controllers office, should have been notified earlier than what you were notified by wells fargo? >> i think it's critically important that the open and frank disclosure of relevant information by a bank with our examiners, it's not entirely clear at what point that occurred here. >> is it fair to say this is a material -- what happened here is a material event as it relates to -- >> there's always difficulty when you try to define a term like "material," depending on the context. i would say from the occ standpoint on the facts of this particular case, the fact that 5,300 employees were terminated
was material, and that there were 2 million accounts involved, that would be material. >> let me ask you, did you -- go ahead. >> there was something in the earlier testimony that bothered me, which was appear acknowledgement that the bank alerted occ in 2013 but did not alert ofcb until 2013. we had known about these types of problems from our own sources. but if any institution feels they can divide and conquer among the regulators, they should know that is a mistake. >> let me ask you this, how widespread is cross-selling at least in the perverse way it took place at wells fargo? do you have a sense it's a one off, or an industrywide concern? >> i think our view is and i mentioned this in my testimony, what we generally look at incentive compensation at an institution in general with what we've seen here at wells fargo, i've directed to do horizontal
reviews, so we will be looking specifically at sales practices at our largest banks. and mid-sized banks. >> i'll look forward to it. >> i agree with the comptroller on that, doing action with that. incentive compensation we've seen a cross market, a broad issue. cross-selling wells fargo bank was the industry leader in aggressively cross-selling products which led in part to the extreme circumstances we find here. but to the extent others are engaged in it, we should are focused on customer satisfaction, not bare numbers. there are monitoring systems that can be put in place. i agree with something the comptroller said earlier, we're all going to go back on this to see what we can all do to make sure the cultures are changing at these banks. we need to do some rethinking ourselves and, as always, learn from new events. >> lastly to mr. curry and then
mr. clark, in reading the occ's consent order, i'm struck by the group of orders attempting to remedy what appears to be a longstanding gross deficiency in the bank's risk management governance structure and oversight protocols. for an institution with $1.85 trillion in total consolidated assets, i'm incredibly concerned about the bank's ability to identify and manage risk across its various lines of business. at what point do you think wells fargo executives should have been aware of these deficiencies and how far back do you think these risk management deficiencies go? and then separately for you, mr. clark, and i would like to hear both your answers and i'll rest there, i read with interest the complaint that your office filed, where you said -- the complaint says, managers consistently hounded, demeaned employees to reach these unreachable quotas.
and where you talked about wells fargo gaming the practice of targeted individuals, i assume when you made those assertions, they are based upon factual evidence that you discovered in the course of your investigation. mr. curry, could you speak to what i asked you and mr. clark? >> i think our testimony, which discusses our supervisory history, demonstrates that there has been a significant period where we identified weaknesses in their operational risk and compliance risk management. what we've attempted to do with wells fargo is address those weaknesses that have been identified through our matters requiring attention. that was escalated after we conducted our heightened standards review to be a part 30 compliance plan, which is an enforceable requirement under our safety and soundness guidelines. and ultimately the weaknesses
that we saw in their safety and soundness program resulted in the enforcement audit that we had. and that is the significant major tool at our disposal for institutional weaknesses in their programs. >> senator, let me answer your second question first, and that is, we based our allegations on 16 months of work, interviews, former employees, everything source we could come to, lacking prefiling subpoena power. some of the documents we looked at were wrongful termination lawsuits. they described this kind of conduct, for example, in st. helena, in 2009. >> senator warren. >> thank you, mr. chairman. buried in the checking and credit card contracts ask a
forced arbitration clause. it says that if a customer has any dispute with the bank about anything related to that checking account or credit card, they cannot go to court and the cannot join with other customers who have the same problem. instead they have to go one by one through arbitration. now, a feature of arbitration that the banks particularly love is that it's nearly always all secret. filings and documents aren't available. even if the customer wins, there's no public record of it like there would be if we were in a court case. director cordray, do you think forced arbitration clauses make it easier for big banks to cover up patterns of abusive conduct, including the years of misconduct by wells fargo in this case? >> i do think so, yes. >> so in other words, these forced arbitration clauses make it easier for wells to get away
with scamming their customers, which is why it is good news for customers that the cfpb has proposed strong new rules that would ban forced arbitration clauses, that prevent customers from joining together to bring a public action in court. and i think this is just one more way. we're talking here about the cfpb's enforcement division, which i'm very glad that we're doing, and that's powerfully important. but you get better rules in place, and this kind of fraud against exposed much earlier. if we had class actions on this back in 2010, 2009, 2008, then the problem never would have gotten so out of hand. so i think that's really important. please. >> there's another sort of somewhat related indicator here that shows you the focus on these things. one of the first things that wells fargo did in the l.a. city action that was brought was
aggressively seek a protective order to keep the proceedings as much as possible from public view. >> that's right. trying to keep it all secret. and that's what the arbitration clause does that they put in these contracts. everything out of public view for as long as humanly possible. you know, i also want to hit another point about how you make structural change, because i think that's so important here. mr. clark, i want to thank you for your testimony today, and for the great work that your office has undertaken in this case. >> thank you, senator. >> one of the really powerful things that the cfpb has done is to create a new complaint hotline which allows customers to register complaints against any financial product. we'll just put in the record, you can go to cfpb.gov and file a complaint online. anyone can do this. since its inception, the agency has fielded nearly a million
complaints, is that right, director cordray? >> it's going to be a million later this week. >> we're almost there. we'll have to have -- we'll have to mark the occasion. >> i think thursday. >> one of the best parts of this is not just that you fielded the complaints, it's that you made them public and you made them searchable online. that allows everyone from researchers and academics to law enforcement authorities to the banks themselves to be able to spot growing problems and then to address them. so mr. clark, i wanted to ask, in the process of conducting your investigation into wells fargo, did you use the cfpb's complaint database? >> yes, we did. >> and it was helpful to you? >> very helpful, as was the fcc sent until database. >> excellent. i'm very glad to hear that. this is yet another way that the consumer agency is protecting customers and holding banks
accountable. it's bringing a lot more transparency to the market which helps identify banks that are consistently harming their customers. and just as important, it rewards the banks that are doing a good job for their customers. there must be a lot of community bank presidents who are standing by, watching this hearing, saying, we don't engage in this kind of behavior, you won't find those kinds of complaints against us in the cfpb database, move your accounts over where you can actually trust your banker. in light of all of the great cfpb work in investigating this case, and everyone working together on this, from the arbitration rule to the complaint database, to stop this kind of scam from happening again, because that's the part we really want to make sure we focus on, i think you're sending a very loud message to the banks, and a loud message to my republican colleagues who
continue to attack the agency. you know, wells fargo may wish that the cfpb would disappear, and some republicans may keep trying to leash up this watchdog. but that's not going to happen. thank you. thank you, mr. chairman. >> thank you. senator markley? >> thank you. earlier i mentioned several of the features that came out of interviews with employees of the high pressure environment, employees who were given daily quotas for, quote, daily solutions, that is, sales offed that they had to stay late or come in on weekends if they didn't meet them, high pressure sales meetings, bonuses that were tied to meeting those, the threats of being put on probation or being fired because they did not meet those quotas, in some cases managers conducting coaches sessions on how to meet quotas through
creating these accounts, regional sales meetings conducted on an hourly basis to keep checking in. in this whole structure that was established in the wells fargo culture of how to do intensive cross-sales, was this a high pressure sales culture for the people who were the personal bankers and the tellers? just each of your opinion on that. >> yes, i think that's really what we were addressing in our supervisory letter from june of 2015. those were all deficiencies. >> thank you. do both of you agree with that? >> yes. if i could just elaborate. it was excruciatingly high pressure in various settings. when you first start to hear about something like this, it takes some time to untangle conflicting accounts. there were different pieces on this, different angles on it. one issue was whether employees themselves were being abused, that was part of the complaints people were seeing. another issue was whether they
were pressuring consumers into opening accounts, getting their consent for improper or nonsuitable accountants, and the third, which emerged later, was potentially they were opening accounts without consumers even knowing about it. it's the third thing we're focusing on here. but it takes time to determine the focus when you conduct an investigation. >> thank you, mr. clark, director cordray, you described it as excruciating ly high pressure? >> i am a wells fargo customer, and the teller told me this, i found that extraordinary, senator. >> a few moments ago when i was asking the ceo of wells fargo about the establishment of this high pressure situation that left bank tellers and personal
bankers in a no-win, between a rock and a hard place position, he denied that there was any such structure. is that completely inconsistent with your complete understanding of the situation? >> senator, again, i would go back to our june 2015 supervisory letter which we found that the program was deficient. >> and mr. cordray, that's a nice way of saying yes? okay. >> it does differ from the situation we found in our investigation. >> so why after this extensive public review of the establishment of this high pressure culture, why would the ceo, after working with you all, having these various letters and so forth, paying a fine, come in here and say no such thing existed, these were just individual employees who had ethical lapses? why possibly did we hear that
testimony today? >> i don't know. >> i don't either, senator. >> any insight, mr. curry? >> it's inconsistent with our findings. >> it's inconsistent with everything. is it because the bank is trying to insulate itself from lawsuits? >> i would have to speculate. i don't know. >> is it possibly because the top executives who were in charge during this whole period want to have kind of no responsibility, claim no responsibility, and instead it's just those 5,000 low-level people, it had nothing to do with the system they set up to sell? >> i think there is responsibility here. we have a consent order with the occ, with the cfpb, and with the city of los angeles. >> i would like to enter into the record "banking on the hard sell" article from the national employment law project.
it lays out high pressure cultures that this has happened in many financial, retail, and banking groups. i think when the question was asked earlier, mr. curry, you noted that's something you'll horizontally be looking into. do any of you have some impression, based on what you've seen so far, that these practices, that at least maybe not to the sell degree, but these high sale practices, high pressure practices did result in similar creation of fake accounts or adding things to customers they didn't ask for? >> that really will be the focus of our horizontal review. banks are under enormous margin pressure, and that could be it. >> that could be the case? >> i'll just say that, for example, we started with our first deceptive marketing or credit card add-on enforcement action, many of which we took jointly with the occ.
that mushroomed into 12, eventually, across the country. it's worth millions of dollars. we'll follow up aggressively here. >> i've had an experience of opening an account in partnership with going to the bank with my daughter. it was very clearly, we went through -- this was a no-fee account for a student, right? right, right, right. then the paperwork comes and it's a fee account. i had another case where i opened an account and i said i don't want the overdraft protection or the fee that goes with that, i want the free account. yes, yes, absolutely. got the paperwork. funny thing, i had the fee account. and i just thought it was sloppy paperwork. i had no idea until now that there was a hard sell system of quotas that was causing folks to basically slam me with stuff that i had explicitly said i didn't want. and that was not at wells fargo, so i'll just say that i suspect you'll find lots of this activity elsewhere.
turning to sarbanes/oxley, where a ceo must sign off on the sufficiency of internal audits, clearly this was of material interest to the bank's investors, should the fcc launch an investigation of this in terms of those sarbanes/oxley reports? >> i'll leave that to the fcc. >> okay. and finally, in the settlement, wells fargo was allowed to neither admit nor deny wrongdoing. we heard today the result, the head of the bank comes in here and says, we didn't do anything, it's just a bunch of bad apples who were ethically misguided, and it bothers me. was that debated and wrestled with? why was wells fargo allowed to
not admit wrongdoing? >> so here's my point of view on that, senator. the order speaks for itself. it is very detailed. it tells the facts as we established them through our investigation. that is the story. people can quibble with it if they want. but that is the story. and it is the story that is forming vigorous public scrutiny going forward and potentially other investigations by other public officials, which we will be welcoming and assisting in any way we can. >> doesn't it make it harder, though, to hold the managers accountable to the board of directors of a company when they haven't admitted any wrongdoing? >> i think actions speak louder than words. the notion that nothing happened here but they fired 5,300 people, those things cannot possibly be squared. >> i also think, senator, we wanted to get relief to consumers as quickly as we could. it's very typical, i practice law, i've been at law for 35 years, for nonadmissions to be part of an agreement. it would have taken years to litigate this case, at least
from our perspective, and we wouldn't have gotten relief for consumers. he thought consumers needed to be -- needed to get relief, and the practices had to stop. and so that's one reason our perspective worked that way. >> i do applaud all of that. i've got to say, from the man and woman on the street perspective, it's enormously frustrating to see the people at the bottom be fired from their jobs, be threatened with firing, forced in an untenable situation and see the managers take no responsibility, they take their bonuses, they aren't clawed back, they keep their jobs. let me take -- and i'll just close with this, mr. chairman -- the manager of this unit, who worked to establish this very successful, i say "successful" from the cross-selling profitability system, that produced these fraudulent activities, is walking away, you can call it a bonus or you can call it a platinum parachute or you can call it money she's
already earned, which is what we've heard, but more than $100 million, not counting what came previously. it would take a bank worker earning $25,000 a year, and that's roughly in the ballpark, because a lot of these workers were made 11 or $12 an hour, it would take them 4,000 years to earn that $100 million. 4,000 years. or to put it differently, a hundred lifetimes working 40 years. it's a phenomenal distinction. and that managers are taking home those kinds of profits from developing a system that destroyed so many consumers and affected so many of their own employees by putting them in an impossible situation, it is wrong, it is ugly, it is criminal. there should be accountability
for the managers. thank you. >> thank you, senator markley. we appreciate your appearance here today. it's been a lengthy hearing. i think we've made this as a beginning of a lot of things. a lot of us are worried about that perhaps there's similar doings going on in other banks. we hope not. i've said from the beginning, banking should be based on integrity, on trust. i think you would agree with me on that. >> we do. >> and most banks do, but some don't. thank you. the committee is adjourned. [ room noise ]
earlier at a senate banking committee hearing, that lasted nearly four hours, the committee heard from wells fargo chair and ceo john stumpf. senator elizabeth warren of massachusetts called for him to resign, give back his earnings, and for him to be criminally investigated over alleged rampant fraud at wells fargo. let's watch. >> mr. stumpf, the wells fargo vision and values statement which you frequently cite says, quote, we believe in values lived, not phrases memorized. if you want to find out how strong a company's ethics are, don't listen to what it'll
peop its people say, watch what they do. let's do that. since this massive years-long campaign came to light, you have said repeatedly, quote, i am accountable. but what have you actually done to hold yourself accountable? have you resigned as ceo or chairman of wells fargo? >> the board -- >> have you resigned? >> no, i have not. >> all right. have you returned one nickel of the millions of dollars that you were paid while this scam was going on? >> well, first of all, this was by 1% of our people. >> that's not my question. it's about responsibility. have you returned one nickel of the millions of dollars that you were paid while this scam was going on? >> the board will take care of that. >> have you returned one nickel of the money you earned while this scam was going on? >> and the board will -- >> i will take that as a no, then. have you fired a single senior executive? and by that i don't mean a regional manager or branch
manager. i'm asking about the people who actually led your community banking division or your compliance division. >> we've made a change in our regional -- to lead our regional banks. >> i just said, i'm not asking about regional managers. i'm not asking about branch managers. i'm asking if you have fired senior management. the people who actually led community banking division, who oversaw this fraud, or the compliance division that was in charge of making sure that the bank complied with the law. >> carrie tolsted -- >> did you fire any of those people? >> no. >> okay. so you haven't resigned, you haven't returned a single nickel of your personal earnings. your definition of accountable is to push the blame to your low level employees who don't have the money for a fancy pr firm to defend themselves. it's gutless leadership. in your time as chairman and ceo, wells has been famous for
cross-selling, which is pushing existing customers to open more accounts. cross-selling is one of the main reasons that wells has become the most valuable bank in the world. wells measures cross-selling by the number of different accounts a customer has with wells. other big banks average fewer than three accounts per customer. but you set the target at eight accounts. every customer of wells should have eight accounts with the bank. and that's not because you ran the numbers and found that the average customer needed eight banking accounts. it is because, quote, eight rhymes with great. this was your rationale right there in your 2010 annual report. cross-selling isn't about helping customers get what they need. if it was, you wouldn't have to squeeze your employees so hard to make it happen. no, cross-selling is all about
pumping up wells' stock price, isn't it? >> no. cross-selling is shorthand for deepening relationships. we -- >> let me stop you right there. you say no? no? here are the transcripts of 12 quarterly earnings calls that you participated in from 2012 to 2014, the three full years in which we know this scam was going on. i would like to submit them for the record. if i may, mr. chairman. thank you. these are calls where you personally made your pitch to investors and analysts about why wells fargo is a great investment. and in all 12 of these calls, you personally cited wells fargo's success at cross-selling retail accounts as one of the main reasons to buy more stock in the company. let me read you a few quotes
that you had. april 2012. quote, we grew our retail banking cross-sell ratio to a record 5.98 products per household. a year later, april 2013, quote, we achieved record retail banking cross-self 6.1 products per household. april 2014, quote, we achieved record retail banking cross-self 6.17 products per household. the ratio kept going up and up. and it didn't matter whether customers used those accounts or not. and guess what? wall street loved it. here is just a sample of the reports from top analysts in those years. all recommending that people buy wells fargo stock in part because of the strong cross-sell
numbers. i would like to submit them for the record. >> without objection. >> thank you, mr. chair. so when investigators saw good cross-sell numbers, they did while this scam was going on. that was very good for you personally, wasn't it, mr. stumpf? do you know how much money, how much value your stock holdings in wells fargo gained while this scam was under way? >> first of all, it was not a scam. and cross-sell is a way of deepening relationships -- >> we've been through this, mr. stumpf. i asked you a very simple question. do you know how much the value of your stock went up while this scam was going on? >> it's all of my compensation is in our public -- >> do you know how much it was? >> it's all in the public filings. >> you're right, it is all in the public records, because i looked it up. while this scam was going on, you personally held an average of 6.75 million shares of wells'
stock. the share price during this period went up $30 which comes to more than $200 million in gains, all for you personally. and thanks in part to those cross-sell numbers that you talked about on every one of those calls. you know, here's what really gets me about this, mr. stumpf. if one of your tellers took a handful of $20 bills out of the cash drawer, they would probably be looking at criminal charges for theft. they could end up in prison. but you squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions of dollars in your own pocket. and when it all blew up, you kept your job, you kept your
multimillion-dollar bonuses, and you went on television to blame thousands of $12 an hour employees who were just trying to meet cross-sell quotas that made you rich. this is about accountability. you should resign. you should give back the money you took while this scam was going on and you should be criminally investigated by both the department of justice and the securities and exchange commission. this just isn't right. a cashier who steals a handful of 20s is held accountable. but wall street executives who almost never hold themselves accountable, not now, and not in 2008, when they crushed the worldwide economy, the only way that wall street will change is if executives face jail time when they preside over massive frauds.
we need tough new laws to hold corporate executives personally accountable. and we need tough prosecutors who have the courage to go after people at the top. until then, it will be business as usual. and at giant banks like wells fargo that seems to be cheating as many customers, investers, and employees as they can. we have live coverage here on c-span 3. in the meantime, a portion of today's "washington journal" looking at 2016 house races. >> he's editor of the national journals hotline. joins us with less than 50 days until election day to talk about 135 house seats that are up for
election on november 8th. can republicans lose control? can democrats win back the house? can they win the 30 seats necessary this cycle. >> if democrats won every seat, they really have a good chance of winning or had even a decent chance of winning. a perfect night for them is picking up 35 seats. i would say right now the house probably is not in play. i'd say they pick up at least a dozen seats though, so they're going to at least cut deeply into the republican majority. maybe cut it in half, and maybe even go past that. >> you can check it out online. if you get the national journal, get the hotline, you can see it there. the top four races that you have ranked in these power rankings, the ones that are most likely to
flip, all have the same connecting theme. it's redistricting. explain why we're talking about redistricting in 2016. >> well, three states were forced by a federal court or state court to redraw their lines, including florida, virginia, and north carolina. now north carolina redrew its lines, but it didn't affect the competitiveness of any of the races. in florida, at least three are going to change hands because of redistricting. florida second district, tenth district, and 13th district. the voters there passed a constitutional amendment. they had to redraw the lines, and that shifted the power in several seats. democrats and republicans are going to pick up like three seats. >> as we go through these house
races, want to hear your thoughts about the house races you're watching. tell us what you're seeing on your television and what you're hearing about in the races that you're watching. kyle trygstad is with us of the national journal's hotline. one of the races i want to focus on is florida's 13th district. that's congressman david jolly. part of the reason his seat could be at risk is he's not likely to get a whole lot of support from the party, which he has been very critical of this cycle. why is that and why does party support seem so important when we get to the general election? >> after the lines were drawn, jolly decided he had a better opportunity to run for senate. then the race got super crowded.
marco rubio decided he was going to run for re-election instead. david jolly dropped out. while he was running for senate, he participated in a "60 minutes" interview in which he had a lot of criticism for how many hours they're expected to fundraise. republicans didn't really like that. it's highly unlikely they're going to help him, but the main reason they're not going to help him is they don't want to lose money. this district was drawn way too democratic, even for an incumbe incumbent. in a presidential race, the tv ads are so expensive it's hard for anyone to win unless they have a little bit of help. >> that's when the party can come in and make those ads and
buy that ad time. the republican national congressional committee, this is in iowa's first district, which is the sixth most likely to flip. the nrcc, its ad against democrat monica vernon, here's an example. >> you might want to sit down for this because monica vernon's record is shocking. io iowans have been stunned. bewildered that she wanted to raise the gas tax and amazed that vernon raised her own salary four times. monica vernon picked our pockets to pad her own, but we shouldn't be surprised because that's monica vernon. the nrcc is responsible for this adding. ad. >> the democrats do the same
thing here. want to show our viewers an example of the dccc. >> what does it say about eric paulson whose presidential candidate has a long history of racism and discrimination, degrades women, and mocks the disabled. >> i don't know what i said. i don't remember. >> paulson says -- >> i'm going to vote. >> donald trump has been called dangerous with a lack of character, values, and experience to be president. dccc is responsible for the content of this advertising. >> kyle trygstad, pick up on that last ad. how much of these house races are going to be tying individual candidates to their party's presidential nominees, which have historically low
favorability ratings these days? >> you're going to see that more on the democratic side. the reason for that is that republicans, thanks to redistricting in 2010, picked up so many seats they hold a lot of suburban seats where democrats think they have an opportunity to pick up those seats if they tie those to donald trump. eric paulson is a perfect example of that. that's in the western suburbs of minneapolis. democrats say, yes, he's a nice guy, but can we trust a guy that supports donald trump. >> are republicans not doing it as much? >> they're not doing it as much. there's one stark example in maine's second district. >> we'll get to it right now. here's an ad from the nrcc.
>> emily cain stands with hillary clinton. just like hillary, cain supports the nuclear deal with iran. just like hillary, cain supports a federal energy tax even though it could cost maine 10,000 jobs. just like hillary, cain voted for higher taxes. emily cain, she sides with hillary and not for us. that's why she's wrong for maine. >> as we show these ads, we're expecting our viewers to call in and tell us the ads you're seeing in your house district in the races that you're watching around the country. want to talk to you about democrat's efforts to take over the house, republicans efforts to keep control of the house. you can talk with kyle trygstad of the national journal's
hotline. before we get to calls, this idea of nationalizing races versus localizing races. talk about the strategy from an incumbe incumbent's perspective in the house versus a challenge. >> for a lot of republicans that are the most vulnerable, they're in districts that obama carried in 2012 and 2008 as well. you don't want voters going and just picking the person with the d next to their name. you highlight a lot of local issues you've been working on, constituent services. sometimes when you have moderated your record on immigration, if you're a republican. the republican party has not passed any immigration reform even though they have controlled congress. they' their hope is they pick up independent voters and maybe even some democrats. >> let's get to the phones.
elizabeth is waiting in michigan. line for democrats. good morning, you're on the washington journal. >> yes. i think as a general rule and to save this idea of having people in the house that are actually going to do something they need to reintroduce this idea of term limits. maybe make them a six-year term like the senators, but they cannot be re-elected. they cannot serve more than one term because they make careers out of it. they become millionaires when they finally leave. you read all these stories about lobbyists. it's just -- it's just not right and it doesn't work. it hasn't worked for years. >> elizabeth, thanks for the call. kyle trygstad, is there legislation to this effect? are there members out there pushing term limits? >> there's more members who run on term limits.
once they get here, sometimes they leave after three times, but sometimes they stay longer. the other counterargument to that is that it helps to have seniority and people who are experts on some of these issues. certainly national security is where you might want citizen legislators or people not involved in the political process to come in and help out, but on national security you may want someone who has been here for years. >> in the past, there have been groups that have pushed term limit pledges for those running for congress. did that happen much this cycle? >> i didn't see much in this cycle, but in 2010 it was fairly popular. >> emanuel's in washington, d.c. independent. go ahead. >> yes, good morning.
earlier, i tried to call in, but i couldn't get in. my reason for calling is a whole lot of lies is getting in politics. hillary clinton -- we should all understand too much strength, strength, strength brings a whole lot of trouble. he cannot do anything without the congress. this congress messed up the whole eight years because they did not have values with obama. look at paul ryan who said he could not bring up any immigration issue during the president of obama because he does not trust his president. please we should all think about
peace. peace has a lot to do with life. >> that's emanuel in washington, d.c. bringing up foreign policy, but also the issue of immigration. let's focus on immigration and what specific races that will be the key issue for, these ones that are these closely watched races for seats that might flip this november. >> well, you want to look at districts that have high hispanic populations. one of them is florida's 26th street district which is sort of south of miami and includes the florida keys. carbelo has come out and run ads about how he supports immigration reform. democrats are saying not so fast. we don't think the facts actually back up your rhetoric. another one is texas '23rd district which stretches on the texas-mexico border from el paso all the way over to san antonio.
that's will herd, another freshman republican congressman. >> we're taking your calls. want to hear the congressional races you're watching, the ads you're seeing on your television for the house races this cycle. al is in saint robert, missouri. al, good morning. >> good morning. let me tell the world something. do we want to go back to 1980, 1970, 2001? we lost a whole budget. what do y'all want? they gave us nothing, but broke us. you have veterans living on the streets every day.
we're not stupid. you don't want nothing you get trump. you want to save your life you better think about it because trump will kill us the first day. >> that's al in missouri. the issue of terrorism in 2016 house elections, especially in light of the attacks this past weekend. >> and we're going to break away from the rest of this. you can always watch our "washington journal" segments online. take you live to "the washington post." this event with james clapper just getting under way. >> especially after recent events in new york, new jersey, and minnesota. terrorist threats, cyber attacks, there's a lot to contend with here and abroad. we're honored tonight to welcome director of national intelligence, james clapper, to join us. we look forward to his insight
and his expertise during this important conversation led by david ignatius. david's column, as you know, is one of the most thoughtful and essential perspectives in foreign policy and national affairs, and tonight is his third interview in our "securing tomorrow" series. we'd like to invite you to join in the conversation by including your questions, so please tweet them, those in room and online, to #securingtomorrow. before we start the official program, i'd like to introduce rick hunt. he is vice president for u.s. business development for ratheon, and they're the presenting sponsor for today's program. rick, can you come up and say a few words? >> thank you, fred. thank you, everyone. thank you for joining us tonight. i know this will be a truly
insightful conversation about global intelligence between two highly respected leaders in the intelligence communities. as fred said, this is the third event in this series. the blending of emerging technologies and investments and capabilities ensures maximum flexibility, adaptability, and helps us analyze the changing conditions. ratheon will provide the very best technical, analytical, operational support to our intelligence community war fighters to make the world a safer place. it is the mission for all of us. it's a privilege to be here with you today and have the opportunity to listen to these two knowledgeable and insightful voices to discuss how we all play a role in leading innovations in national security, preparing us all for
the future. thank you, again. fred, back to you. >> thank you, rick. i'd also like to thank our supporting sponsor, the center for new american security. i'd pleased to introduce the honorable james clapper, who was sworn in as the fourth director of national intelligence in 2010. he leads the country's intelligence community and serves as the principal intelligence adviser to the president. he's a respected veteran of the intelligence community. prior to becoming dni, he served in two administrations as the undersecretary of defense for intelligence. please join me in welcoming director clapper with david ignatius. [ applause ] >> thank you. thank you very much. >> so thank you very much to rick hunt and to fred ryan, my boss. welcome to cocktails with the
director of national intelligence. [ laughter ] >> i apologize -- >> you're cutting into my martini hour. >> i know that, but it will go quickly. there's help on the other side, but we are very pleased to have director clapper here. just to expand on what fred ryan said in introducing director clapper, he is a rare person in our government. he has been an intelligence officer for 50 years. he has served -- he has run an intelligence agency. he's directed intelligence in the defense department, and now as dni he's basically the nation's top intelligence officer. i have had a chance over the last few years to come visit director clapper and talk with him on the record and ask him
questions, and he has been, as you know, if you've read some articles, direct, blunt, sometimes undiplomatic, but he either gives an honest answer, he says i just can't talk about that, so it's really a pleasure to have you here. thanks for doing this. there are a lot of issues obviously that are in the news, and i want to start off with some newsworthy subjects. there is a report that has been moving this afternoon on cnn that says that this really dreadful attack on the u.n. aid convey to the west of aleppo on monday may have been a result of a russian air strike or other russian attack. barbara starr is saying that's the preliminary conclusion.
i want to ask if there's anything you can share about this or just in general how you're looking at this kind of issue in this very complex fog of war battlefield. >> i think your last few phrases kind of characterize the challenge that we have. in a classical situation, there's always the fog of war. a classical combat situation, which this is not. it is unbelievably complex. to be specific and respond to your question, i have not myself gotten into the specifics of whatever evidence we may or may not have about who is responsible. that's being worked as we speak, but i can't speak to it here right now. >> the other issue that's in the news and in the headlines -- >> per your introduction.
>> exactly -- is the terrorist attacks in the new york city area by ahmad. i think we're all looking at that and asking a couple questions. and the first one i'd put to you is whether there's any evidence that you've found of connections that he had to terror networks, direction or inspiration, anything like that that would connect him more broadly to isis or any other group? >> again, this is obviously a very fast breaking situation. the fbi is all over this. this is under active investigation. i spoke with senior fbi officer just before i came down here, and i think there's probably more to come, but again -- i can't say one way or the other. i don't think we've found any definitive evidence of any
connection yet. there's a lot of evidence to look at i but i can't point to an external direction at this point to look at. >> one thing that's surfaced today is the possibility that his father might have notified law enforcement who then in turn notified the fbi that he was concerned about his son. i want to ask whether that report is a credible one and more generally ask you about this question of getting muslim communities, other communities from which extremists might come, to talk about people in those communities who are concerning them. >> well, a couple issues here that this brings up. regrettably, this will not be the last such instance in this country. it's regrettable, but i think that's just the situation we're
in. and we will undoubtedly do when this is over with, as we always do, a critique, lessons learned, and that sort of thing. in the six years i've been in this job and we've had previous cases like this, boston marathon case and point, that it's then decided after the fact we should have been more invasive. we, i'm speaking broadly. the ic and the law enforcement community. this pendulum swings back and forth. this is an issue that i think is something that requires some discussion and debate in this country, this line that we're supposed to thread between keeping the nation safe and secure and not invading anyone's privacy and civil liberties. that is something we agonize over with a lot and i'm sure
we're going to have a reprise of that discussion after all the information on this incident is in. >> when people ask you -- >> by the way, one more thing. i do regularly engage with muslim community leadership, and i personally learn a lot when i listen to them because a lot of phraseology that we use in the intelligence community and law enforcement community is great sensitivity on their part. it is a dilemma for them, and most of them are loyal patriotic americans. this is a bad time for them. they're under siege right now. have to be mindful of that as well. >> since you raised this sense in the muslim community of being under siege, i need to ask you
there is out there in the political campaign some polarizing rhetoric about muslims, and it's sometimes argued that that makes the job of our intelligence, law enforcement, fbi officers harder because it may close precisely the doors that we need to have open. >> right. >> strictly from an intelligence standpoint, not a political question, is that true? does that tend to close up? >> i think in general some of this heated rhetoric is not helpful either in this country -- and i've been doing some traveling overseas lately. it is striking to me how people overseas hang on every word that is uttered in the course of this rather hyper-heated campaign. and there are many countries around the world, at least my
interlo interlocteurs, are very concerned about it. does it help? nope. it doesn't encourage freedom of dialogue, at least that we have. i worry about it inhibiting that and the concerns that people have about commitments that we've made overseas and that sort of thing. >> so you mentioned earlier that there's a difficult tradeoff here if the country wants to be more secure in a time of lone wolf attacks and a lot of these things that are very hard to track. our intelligence law enforcement agencies would have to be more intrusive. if people asked you as director of national intelligence whether you think that would be wise, what would your answer be? >> to be more intrusive? >> yes.
>> well, i think we have to be very careful about that. the ic is very sensitive about infringing on privacies. we can clamp down very hard on this country, in this country, if we want to, but i just don't think there's a political will, a societal will, to want to live like that, so there is a compromise that we have to strike. a couple years ago, i spoke -- i meant it only half jokingly -- about the expectations for intelligence. do it in such a way there is to risk. do it in such a way no one will get bad. do it in such a way no foreign government will get upset with
us. we call that immaculate collection. [ laughter ] >> so you're not confident that you're going to be able to make -- >> it was taken humorously, but it does illustrate, i think, the dilemma, the challenge, that we have. i care about my civil liberties and privacy just like anyone else, as does everyone else in the intelligence community. we're mindful of that. >> let me ask you about a series of issues that are going to confront the next president, whoever he or she is. there are issues that i'm sure you in your waning days -- and i should ask you, how many -- >> 122. >> i happen to know director clapper keeps on his desk a clock. does it also count off the
number of hours? >> minutes and seconds. i don't have that with me right now. >> you'll be asked by the next president-elect about an issue that has caused deep concern, which is the appearance of attempts to interfere in our political process from outside. >> yeah. >> it's been widely reported that the fbi and the department of homeland security are conducting an investigation of russian hacking, not simply the collection of information by russians, but the dissemination of that information, the weaponization of it, if you will, for direct action purposes to destabilize. and i'd ask you to speak about that problem and help all of us get a sense of what we know, how we should think about it, what the dangers are, and what we
should do about it. >> well, first of all, there's actually a long history of the russians trying to interfere or influence elections going back to the 60s in the heyday of the cold war. there have been several documented cases of previous elections where it appeared that they were trying to somehow influence the election. >> in the u.s. >> in the u.s. in the united states. of course, there's a history there -- there's a tradition in russia of interfering with elections, their own and others. it shouldn't come as a big shock to people. i think it's more dramatic maybe because now they have cyber tools they can bring to bear in this same effort. it's still going on, but i will say that it's probably not real, real clear whether there's
influence in terms of outcome or -- what i worry about more frankly is sewing seeds of doubt, where doubt is cast on the whole process. what are we doing about it? certainly at dhs, secretary jay johnson has been active with state officials to secure where appropriate, particularly if there's any dependence on the internet in the course of conduct of an election. we have a strength here in that we don't have a centralized electoral system. it is very decentralized among the states, so that works to our advantage. that's a real monumental
undertaking to affect the election nationally. the more likely objective would be to try to sow seeds of doubt about the efficacy and viability, if i can use that wo wo word, of the world system. >> you mentioned past instances with russia, or the soviet union, tried to interfere with the election process. i probably should know what those are, but i don't know. what comes to mind in terms of past history of this? >> where they have fed money to opposition candidates or tried to feed disinformation. again in the way it was done during the cold war, which preceded the cyber era, of
course which is replete with records in east europe by today's standards more primitive methods, but they have a history of that. >> in terms of what we should do about this, what the united states should do about it, there is an official dod cyber strategy that talks about deterrence. but as you look at that set of options, response, denial, resilience are the three words used in this strategy, it's hard to know exactly how they would help us now in establishing the rules of this game. >> right. >> so i want to ask you to think with us, director clapper, about ways that we could send a message.
some people in the government have argued we really need a high level message from somebody, you, the president, just to say publicly this is basically what we know and it's not acceptable. is that a good idea, do you think? >> certainly, it's a good idea. of course, you're getting into the policy realm now. i don't do policy. i'm just down in the engine room shoveling intelligence coal. people on a cruise do that. i think in the context of how do you generate deterrence, deterrence has both a substance and psychology about it. if you think about deterrence in a nuclear sense, which works because there are physical things you can see, mushroom clouds twice, 1945, hasn't been
seen since, very difficult in the cyber domain because you can't render it physically. so there is, i think, the challenge despite our issuance of policies and strategies of how do you actually generate both the substance and the psychology of deterrence. nuclear deterrence focused principally on nation states, and nation states are easier to deter than non-nation states and individuals, which is what we're confronted with here. the other thing is deterrence is hard in the absence of international norms. at some point in order to make the rule of law and as a part of that deterrence work in the cyber domain there has to be international understanding of what is acceptable behavior and what isn't. then you'll be in a much better
position to generate deterrence. >> in the real world that we all grew up in, on the playground, what have, one rule we learn is if somebody bumps you hard, you probably better bump him back or you're going to get picked on. does that kind of trial and error process of establishing how people are going to behave, does that apply in this intelligence world, in the cyber world? >> it could. if you think the way to respond to a cyber front or a cyber assault is by cyber means. what we have actually done is to react in other ways. so again this is why deterrence is hard to conjure up when in fact the exchange may be in a
completely different mode. so cyber attack of some sort, a sanction of some sort. that's why it's very hard to develop deterrence and why we need to develop what i would call a body of law here for where we have an experietial base of what works and what doesn't. we have to have more breaches or hacks until we reach that point. there's been some work done at the u.n., very preliminary, on trying to develop cyber norms, but i think before they're actually recognized and more importantly adhered to we're a ways away from hearing that. >> officials in the obama administration, political officials, have pointed to china
as an example of successful messaging, action that has the effect of changing behavior, and they argue that after our threat of sanction and our naming some chinese pla actors and the enumeration of four rules at the summit that chinese behavior has changed. i want to ask you as our top intelligence officer is that true. do you see a change in chinese behavior? >> there has been a decrease -- and we hear this from industry as well, what has been detected. we always have to be the skeptics in skepti skeptics in the crowd in intel.
is it they have actually reduced or gotten more secure? not enough time has elapsed or not enough experience has elapsed to actually make that call. the other thing is what we agreed to or what they agreed to is not to use what they trade for economic gain. well, that turns out to be a hard bar -- a high bar from an evidentiary standpoint to make that relationship, so i think there's some room for cautious optimism because there has been overall a decline in at least what we have detected. i have to caveat that, so we'll have to see. >> let me turn to another issue that i'm sure is going to be high in the inbox of the next president and that's north korea and north korea's ability soon, based on the reporting that we
have in the public media, to have a nuclear warhead that it can put on top of a missile that has sufficient range to strike at targets in japan, conceivably the u.s. territory, not the u.s. mainland, but the u.s. territory in the pacific. and i want to ask you about the intelligence officers' side of this question. not the policy issue, but what you can tell us as you look at the evidence of north korean intentions. is the leader of north korea as volatile, as much of a risk taker, as he seems or is that for public consumption and do you see a different picture? >> first of all, we have long assessed that the north koreans
have the capability to fit a nuclear weapon and a warhead on a missile. they've fielded what's called a kn08, which is in the icbm range, which would include alaska, hawaii, and part of the west coast depending on a lot of factors. now having said that, neither the north koreans or we know if these will actually work because they've never actually tested a full missile system with an rv and all that. but in our business we kind of have to assume the worst. based on my brief exposure to north korea when i went there in november '14, it's interesting to sit and try to talk to them
because from their vantage they're under siege from everywhere, even their erstwhile brother china is probably frustrated and mystified by the north koreans as we are. for them, this is their ticket to survival. they go to school on gaddafi and that sort of thing. they are definitely afraid of our capabilities. if it came up once, it came up five or six times about b-52s. they don't like b-52s. for them, this is all about face, about their ticket to survival. i think even kim jong-un realizes if he were to launch one, that would be the end of north korea. so i think it is more of a
psychological thing rather than them actually using them. can't predict. can't read his mind. although some people suspect we can, but i just don't think that's logical at all. >> just a slightly different way to ask this is whether kim jong-un can be deterred, whether he's a rational actor that can be -- >> i believe he can be and has been. one of the great vulnerabilities of north korea, which i don't think we exploit as much as we might, is information. they are deathly afraid of information -- and they're fighting a losing battle trying to keep outside information from coming into their people. that, to me, is their great vulnerability. their reaction to leaflets that are dropped over north korea by
non-governmental groups, their reaction to loud speakers along the dmz and then actually turning them on, i think says a lot about what they're really concerned about and where they are most vulnerable. >> want to ask you briefly about china. so many questions, but i'll just focus on one, director, and that's the south china sea and chinese behavior after this very strong arbitration ruling in the hague in the case involving the philippines. initially, the chinese seemed to be fairly cautious. they didn't announce an air defense identification zone as some people had feared. they seemed to have stepped up their activity in the east china sea, which is where the japanese claim islands, but there have been reports in the last couple
weeks that the chinese may be active again in trying to reclaim the area of the shoal near the philippines, which would be a very worrying sign that they're resuming the very activity that the arbitration panel said was contrary to international law. so i want to ask you how does that evidence look to you and how do you in general see this south china sea situation? >> the chinese embarked on a very reckless campaign in the south china sea to erect military facilities, runways, hangars, and other military equipment that, you know, that in their mind sticks out their claim. by the way, it always makes me
wonder why there isn't more of an outcry from environmentalists because of tremendous damage they're doing to the environment in the south china sea by virtue of these projects. tribunal ruling did take the chinese aback. i don't think they realized how far reaching it would be. the crucial thing to me frankly -- and i'm getting out of my lane here a little bit -- but to the extent there's consensus among countries and to the extent they're willing to speak in a single voice to push back, i think, would have a great impact on the chinese. but the chinese have talked
themselves into believing that this is a legitimate claim on their part. that's why it's important, i think, that the u.s. continue what we've been doing, which is to reaffirm freedom of navigation both maritime and air. >> so i want to turn now as any discussion of intelligence, foreign policy, inevitably does to the middle east. and i thought i might start by remembering a conversation that you and i had after the isis, isil, break out when they initially took mosul. we had a conversation in which you said on the record that you thought the united states had underestimated the will of the -- the fighting will of this adversary and had overestimated the will of our allies in the iraqi security forces.
it was a wonderful moment i thought for speaking basically truth to power. this is just saying it the way it was. so i want to ask you two years later do you see any significant sign of change on either side. the united states' allies have been going hard at the islamic state, pounding it? and what sign do you see, if any, will be affected by that? we put a lot of effort into work and training to try and create a stronger iraqi security force. how is that going? on each side of that, compared to where we were two years ago, how would you estimate things are now? >> well, we're in a better place. by we, specifically the iraqi security forces with our train,
advise, and assist mission. so they've made headway. there's been a significant reduction in the territory that is held by isil. the territory is shrinking. we've taken literally thousands, the coalition has, thousands of fighters off the battlefield, and that is starting to show in the form of stress for isil. we're seeing desertion rates going up. they're having to move forces around from place to place more. attrition is affecting them. their revenue streams are not what they were. the foreign fighter flow has declined for lots of reasons. so that all is great except that i think what this will do is -- if isil is anything else, it is
resilient and adaptable, so it will revert -- it can revert to its roots, what it was as aqi, al qaeda in iraq, in the early 2000 period. and they'll revert to that. personally, i think there has been improvement in the iraqi security forces, although they still have many endemic, systemic problems in terms of morale, attrition, logistics, command, control, et cetera. but if you look at the map, it's better. >> i might add, david, that this issue of will to fight has always been a challenge for us in intelligence to gauge. it's a very subjective thing. my war in southeast asia, i did
a couple tours there. that was always an issue there, how to gauge the will to fight of the army of the republican of vietnam, and we have gained a lot of hard won experience here on how to try to train -- raise and train a military while it is under attack. that is a sort of common theme with vietnam, with afghanistan, and with iraq. i was the chief of air force intelligence during desert storm, and we didn't do a very good job then. we way overestimated the iraqis will to fight. that's why the war ended so quickly. >> so just to close this question out, what the country would want to ask its top intelligence officer and i have the chance to ask you is whether the u.s. strategy for dealing with isis is working.
>> well, it is working in the sense of those things that metricable. territory held, number of fighters reduced. we have taken a lot of their key leadership off the battlefield. we're reducing their sources of revenue. foreign fighter flow has reduced. so i think there's been great progress made there. what's been more of a challenge for us frankly is the ideology and the appeal to people around the world. and they are sophisticated, very slick, at the use of social media whether it is for recruiting or command and control. that's been more problematic.
pr >> to look more broadly about the middle east, i was asking about your judgment of dealing with isis and other aspects of policy whether we're going to see a turning of the corner with these problems of instability and you basically said, no, that we shouldn't expect that. and the words you used is we can't fix this. meaning it is not in our power to reorder this. >> i always liked tom friedman's line. he writes for "the new york times." >> is he a columnist? >> too important to ignore, and too expensive to fix. one-liner bumper sticker. that's why we're going to be, i think, in this business as we are now of suppressing information these extremist movements whether it's al qaeda
or isil or something else is spawned. so we in the intelligence business and the military are going to be in the business of suppressing these groups for sometime to come. by the time where you think when we get involved, it's too late. because the fundamental issue that is give rise to these movements, you know, economies that are strained, ungoverned areas, places awash with weapons, a large population of frustrated males, et cetera, until those conditions are addressed, people in my business, my profession, and in the military are going to be doing this suppression for sometime to come. >> so when we think about this, we should think about this in generational terms and not look
for an instate that is like the endings of most wars they've we fought. this just ain't like that, if i understand you. >> no, it isn't the ease of looking at the daily line of contact, the foreign line of troops kind of thing that you're used to in a conventional set piece. it's not like that. this is a very amorphous thing. it's a global challenge. that's why engaging with our partners is so important. i will say at least from an intelligence perspective i don't know of a time in my experience where we've -- where we share more with friends and allies who are similarly confronted with the same threat. it has a way of bonding people, and i expect that will continue as well. >> there's a younger generation of leaders that's beginning to
emerge. the deputy crown prince in saudi arabia is 30 years old. there are other younger leaders who are beginning to surface after so many decades, as i remember, of basically frozen leadership. do you think that could make a difference as you do your assessments of the region? >> i do. there's a lot of controversy, but i think he is, you know -- has a vision for the future of saudi arabia, and i think he's committed to reforming its economy, so it's not so dependent on one source of revenue. i think he has in mind a lot of other reforms he'd like to make in saudi -- and he's an example of this younger generation
that's not without controversy. there's controversy about him certainly in saudi arabia, but the last time i met with him i was genuinely impressed with his vision and his commitment to it. >> if anyone in the audience doesn't know who director clapper is talking about, this is the deputy crown prince, this 30-year-old. so we invited people to submit questions online. there's still to do it. the hashtag is securing tomorrow. i just want to turn to one or two of these, mr. director, and ask you. here's an interesting question. it's one i've puzzled about over the years. i'll just read it out. why doesn't the u.s. and its allies use their intelligence to
expose more corruption around the world? it's a good question because corruption is increasingly kind of strangling both governance and the ability to trade freely. why don't we do more about that? >> first of all, i think we look at that as an individual country issue, getting into people's internal business and their own sovereignty. there are ways to do this kind of sub-rosa rather than making a public display of it in the hopes that the country in question, if that's what it is, will take that on itself, but the other thing is frankly, you know, to the extent to which corruption or crime poses a national security threat to this country, i think that has a lot of influence on how much time, attention, and resource we pay
to this as opposed to all the other requirements that are levied on us. >> there's an interesting question here that raises another issue that i'll the que. twitter version says given the intelligence committees reliance on private sector technology and the tech communities suspicion, the u.s. government post snow n snowden, what can you do to repair that relationship and then i have to ask you, because it's now a public issue that is getting a lot of debate, what your view is about pardoning edward snowden. >> first, we do need to repair the relationship with them and we are working on that.
there are many commercial firms wanting to work with the government. that's a case where time wounds all heals. over time it will get better. i think in the dialogue i have had with this industry, there's still -- there is generally support for, you know, the safety and security of the country and those elements of the government that try to do that. as far as edward snowden is concerned, you know, i could understand what he did if it were limited to so-called domestic surveillance. i use air quotes intentionally. but, he exposed so much else that had absolutely nothing to
do with domestic surveillance where he has damaged our capability against foreign threats. he has taken away capabilities that were used to protect our troops in afghanistan. so, questions never been posed to me officially, but if it were, i don't think i would concur is offering him a pardon. >> what about if you were asked as the director of national intelligence about some sort of negotiated plea agreement? not a pardon, but an agreement in which snowden undertook to tell us more about what he knows about what he may have taken we might not know about on your inventory, can tacts he may have had over the last couple years
in moscow. does that sort of negotiated settlement of this through our legal system, does that make sense to you? >> no. >> and why not? >> i just don't think that -- first of all, the damage he's done, which we are dealing with, ages off over time. it's like all previous spies that have done damage to us. over time, we recover, technology changes. especially at the rate of change of today. so, the more time that goes on, there's actually in my mind less and less incentive for a negotiated agreement. so, at least as far as the intelligence community is concerned, we are not in that camp. ultimately, that won't be a determination we would make.
that's up to the department of justice. >> understood. i'm sure you would be asked for a recommendation. you have touched on this question earlier in our conversation but it's been asked in an interesting way so i'll throw this one at you. russia spends millions of rubles on misinformation campaigns online and on tv in the u.s. and europe. if you look at russian tv, you do see an account of what's going on in the world that's a variance from what's on u.s. networks or u.s. wire services so the questioner asked, is this effort working? are they getting their money's worth? >> you would have to ask them. i tell you, that is a big feature, a big aspect of their approach and when ever i travel, particularly in europe, i like to surf the tv channel and turn
on rt. it is pretty slick stuff that the angle th, the perspective t take to paint the united states always in a bad light and russia always in a good light. they are very aggressive about that. they tailor these information operations, these campaigns, particularly in europe. seeking to drive wedges between the european nations and between europe and us. i worry sometimes we are not keeping pace. >> we are going to turn back to my own question list. we have only five minutes remaining. i know that you were hoping to do this for another hour, but it's not possible. so, i want to ask you in your
remaining 122 days and however many minutes, what you worry about in terms of the future and the intelligence community, the system that you are going to hand on to your successor, whoever that person is. in particular, i'm going to ask about areas where you have concern about weakness, things you think aren't working the way they need to. threats we may not see but they bother you. >> so, what we try to do in the intelligence community and certainly i have in the last six years is make investments and those capabilities that give us the greatest agility and adaptability. there's no way to predict all of the potential threats that we face. if you contemplate on russia technology as it always has in our history.
it has double edged swords. artificial intelligence, some people are concerned about that if it's abused. it is a tremendous tool for us. genetic research and genetic manipulation with ethical and moral considerations. russians and the chinese are doing research in this area. the next great leap in how we compute, which has huge implications for cryptology. all these challenges we will face always as we always have, as i look back on my 50 plus years in the intelbusiness. one constant. lots has changed. we are better today. we have more capability. we have many more accesses. we can move data around much quicker than when i first came in this business.
my first tour in vietnam, automated intelligence was -- two corporals. we were a far cry from that. so, with all the change, the one constant i will tell you, this may sound risky, but i believe it is the quality of the people that for whatever reason we continue to be able to attract to service and the intelligence community. it is a constant and going to stand in the future. >> why, to focus on that, why would a smart young person put up with all the intrusion, control, all the limitations that go along with getting your security clearances and being in the ic. do you worry about that? people are going to say the heck with that. >> i have an unusual experience. i have a grandchild in the business. so it's about a 52-53 year age
difference. he works at cia. we have a lot of interesting discussions about that very thing. the millenial generation and what appeals to them and what doesn't and what he finds frustrating. what i find with him, and i think he's representative of young people today that are in the intelligence committee is they are very interested in their patriotic, they are dedicated. they are not, however, as committed to an institution as i was when i was his age, 22. that was when i was first commissioned in the air force. that's a big difference. we, in the intelligence committee need to be sensitive to that, meaning, we need to be able to promote mobility for our young people so they are able to move around, not only within the
intelligence committee, but move out and come back to us. we need to build our systems in such a way to accommodate that. >> so, with that, it's a wonderful way, i think, to end our conversation. i want to offer my personal thanks to director clapper for taking time at the end of a long day to do this. the name of the series is securing tomorrow. in a lot of ways we are going to secure tomorrow, but one of the most important, obviously, is to have a good intelligence agency that operates within the law and have good oversight and experienced people running them. i think we all want to thank you very much for coming and sharing this time with us. [ applause ] >> thank you. thank you very much. [ applause ]