EPA, Citibank, and Financial Agents

EPA's work with Citibank utilizes a long-standing, bipartisan tool for advancing public-private partnerships

Bottom Line Up Front (BLUF):

• Treasury has over a century of experience implementing financial agent agreements with private banks.

• These agreements have been implemented under Republican and Democratic administrations to manage trillions of dollars.

• EPA partnered with Treasury because this capability fits the needs of its program while enabling robust, overlapping levels of oversight to prevent fraud.

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On February 13, EPA Administrator Lee Zeldin called for termination of the federal government’s “financial agent arrangement” with Citibank, which holds the accounts for eight grantees under the agency’s Greenhouse Gas Reduction Fund. He stated, “This scheme was the first of its kind in EPA history and it was purposefully designed to obligate all of the money in a rush job with reduced oversight.” This post is intended to set the record straight about financial agents, which are both far more rigorous and far less salacious than the Administrator’s video implies.

The Department of the Treasury (“Treasury”) is authorized to use private banks as financial agents under statutes dating back to the National Bank Acts of 1863 and 1864. For over 100 years, this is precisely what the federal government has done through private sector partnerships that have helped power the economy, spurred innovation, and provide certain types of financial services. These Financial Agency Agreements (FAA) are partnerships with trusted financial institutions to administer select initiatives, manage and distribute federal funds, and provide other financial services that the government is not well-positioned to perform directly.

According to the Treasury, “The services provided by financial agents and depositaries include the collection of over $4.9 trillion in annual revenue, the support of payment programs government-wide and at embassies and military bases internationally, and the collection of receivables for federal agencies. Financial agent services support paper checks, electronic checks, ACH, wires, credit and debit cards, stored value cards, emerging payment technologies, and financial data management.”

At the same time, FAAs enable the federal government to maintain strict financial controls over the federal funds. These agreements improve efficiencies and deliver important programs and resources for the American people and American businesses. Since their creation, FAAs have proven to be efficient tools of economic growth and support systems for important programs and resources that benefit American people and businesses. That’s why both Republican and Democratic administrations have depended on FAAs to deliver federal funds and help manage federal programs.

The Trump Administration relied on FAAs to meet different financial needs during the first term. In 2020, for example, Treasury used FAAs to manage the distribution of loans to small businesses and streamline the distribution of federal financial assistance to the American airline industry, helping it avoid bankruptcy at the onset of the pandemic. (LINK).

The Trump administration’s use of FAAs followed the example of previous administrations’ public-private partnerships used to administer critical programs and services, including Social Security benefits, tax filing, retirement savings, and veterans’ benefits. Other instances where FAAs were used by both parties include:

• The Reagan Administration in 1984 used an FAA to launch a pilot program to modernize tax processing and collections. LINK

• During the Clinton Administration in 1996, this pilot program evolved into the Electronic Federal Tax Payment System, which remains the main platform for collecting electronic tax payments.

• The Clinton Administration in 1998 utilized an FAA to provide recipients of federal payments with low-cost accounts to receive electronic direct deposits. LINK

• The Bush Administration in 2008 used an FAA to launch Direct Express to offer debit cards to recipients of Social Security, Supplemental Security Income, and veterans’ benefits and provide a safe and affordable alternative to paper checks. Direct Express continues to be managed through an FAA. LINK

• The Obama Administration in 2015 used an FAA to launch a new retirement savings account – myRA – that would provide a safe and simple option for Americans who struggled to save. The federal government would not have been able to offer myRA without its financial institution partnership, given rules that bar the Treasury Department from directly managing retirement accounts. LINK

While Administrator Zeldin is accurate in stating that EPA had not previously used a financial agent, that is merely because EPA had not previously needed this type of financial service. When passing the Inflation Reduction Act (IRA), Congress charged EPA by statute with implementing a $20 billion Greenhouse Gas Reduction Fund program that “leverages private capital” to invest in clean energy projects and lower energy costs. In order for EPA’s grantees to work effectively with private partners these grantees needed to have their grants disbursed onto their books (i.e., you cannot leverage money that you do not have).

EPA worked extensively with the Treasury to identify the right solution for this program. The recommendation to move forward with an FAA was based on a lengthy process run by career staff in multiple offices at both agencies. At EPA that included the Office of the Greenhouse Gas Reduction Fund, the Office of the General Counsel, and Office of Grants and Debarment, and the Comptroller’s Office. EPA career staff also proactively briefed the agency’s Office of the Inspector General (OIG) and the Government Accountability Office (GAO) on the structure and approach.

Treasury selected Citibank after running a competitive selection process that drew on its extensive experience with setting up FAAs. After the Treasury contracted with Citibank, then the grantees opened up their accounts and the funds were disbursed to their accounts. The funds that now reside at Citibank are still subject to extensive management and oversight. Some of those controls include:

• Citibank conducts Know Your Customer compliance activities that are critical to preventing fraud;

• EPA has access to extensive transaction-level data from the Citibank accounts and can issue a “notice of exclusive control” instructing the bank to freeze accounts where there is evidence of fraud;

• Grantees’ use of funds is limited to expenses that are consistent with the terms and conditions, work plans, and budgets in their award agreements; and,

• All financial activities of the grantees are subject to multiple levels of oversight including independent audits, and audits and investigations by EPA program staff and the Office of the Inspector General.

In short, the Financial Agent Agreement for EPA’s program provides grantees with critical flexibility to deliver on their mission without compromising protections against waste, fraud, and abuse. It is consistent with a long track record of similar agreements made under multiple administrations including the first Trump Administration to ensure government services work efficiently and effectively.