‘It’s Not Clear’: Patrick McHenry Grills Sec. Janet Yellen On Proposed Sanction Policy

2 months ago

On Tuesday, Rep. Patrick McHenry (R-NC) questioned Treasury Secretary Janet Yellen on proposed sanction legislation, during a House Financial Services Committee hearing.

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Transcript

00:00as myself for five minutes for an opening statement.

00:04Let's start with the notice of proposed rulemaking

00:07on outbound investment.

00:09We've talked a good bit about this.

00:12As I said in my opening statement, I think it's a step

00:16in the right direction, what the administration's done.

00:19I welcome it, but we have time-tested tools of sanctions

00:25that are clear, red light, green light, what's permissible,

00:29what's not permissible.

00:31So we have a notice of proposed rulemaking,

00:37and there is a line established that is

00:44about what is investment, investable technology.

00:48It's prohibited versus a reporting regime,

00:51and it's not clear.

00:53So I just want to have one question as an example.

00:58The difference between AI, artificial intelligence used

01:02for an MRI in a medical setting to identify cancer,

01:08and a drone operator using location targets imaging

01:15to target in a weapons setting, how do you draw the distinction

01:20between those two different AIs?

01:22Well, we recognize that in artificial intelligence,

01:30it's widely used for many different purposes,

01:34and the regime that we've proposed is really oriented

01:39toward those uses that are clearly national

01:44security risks.

01:46We want to make sure that China and other countries

01:51of concern don't gain access to technologies and products

01:57that are critical for narrowing.

02:00So why not just name names and say,

02:02don't invest in these companies?

02:04Isn't that the clearest route to stem the flow of capital going

02:08into Chinese technology?

02:10Let me give you another example.

02:12So the regulation says that AI that operates at either the 10

02:19to the 24th, 10 to the 25th,

02:22or 10 to the 26th computational operations would not be

02:28investable for Americans.

02:31What is the real world difference

02:32between these operational levels and the significance

02:35of one being used in a military capability setting?

02:41Well, we've tried to target technologies

02:46that are critical and can contribute

02:51to military intelligence or cyber capabilities

02:57in countries of concern.

02:59We want to make sure that what we're doing here is narrowly

03:05targeted at clear national security risks.

03:08Well, why not just use sanctions for that?

03:10Why not just use direct sanctions

03:13that say do not invest in these companies?

03:15Red light, green light, there's no complete clarity here.

03:19Why not just go with that approach?

03:21Well, sanctions usually are put in place

03:25after something has occurred that creates a problem,

03:32and these are very rapidly evolving areas.

03:36We know that there's a gap in our regulatory framework,

03:40and we want to make sure that American firms

03:44and persons are not contributing

03:47through their investment activities to enabling firms

03:53in China or other countries of concern.

03:56We're trying to get at the same thing.

03:58I'm saying clearly we have sanctions

04:01that we can proactively take on companies

04:03that are using this technology, and it's far clearer,

04:06and that is a far clearer way to stem the flow

04:09of U.S. investment capital into China.

04:11Let me switch to one additional topic,

04:14which is the beneficial ownership regime.

04:19As I said in my opening statement,

04:20we wanted clarity here.

04:22We didn't want redundancy.

04:24Why did the Treasury bifurcate the beneficial ownership rules

04:29and move forward without the third rule?

04:32And when can we expect Treasury

04:36to publish the customer due diligence

04:38or the CDD rescission rule?

04:40Right now you have two reporting regimes on small businesses.

04:44This is onerous.

04:45When are we going to clear the-what's the timeline

04:48to clear that up?

04:49So that's something we're working on revising

04:53to make sure it's consistent with the requirements

04:57of the Corporate Transparency Act.

04:59I believe that we're hoping to get something out this fall.

05:06We're engaging right now with other stakeholder agencies

05:11to discuss the substance of the proposal, but-and we want

05:17to have a notice that will enable the public to weigh

05:21in with their own comments.

05:23All right.

05:23Well, right now, because of Rules 1 and 2 going live,

05:28every small business in America has a new reporting requirement

05:33that they are most likely unaware of.

05:36And this needs to be clear.

‘It’s Not Clear’: Patrick McHenry Grills Sec. Janet Yellen On Proposed Sanction Policy

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