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  • Criminal charges unsealed against former American hedge fund firm executive

    Financial Crimes

    The DOJ recently unsealed criminal charges against former hedge fund executive. This indictment follows a civil suit filed in January 2017 against him and others by the SEC regarding FCPA violations. In 2016, the DOJ and SEC also pursued a joint FCPA enforcement action against his former employer, alleging various bribes, self-dealing, and other malfeasance relating to the procurement of mineral, oil, and other natural resource contracts in African counties.

    While the SEC’s initial January 2017 civil matter against him alleged FCPA violations, the recently announced criminal indictment does not directly charge him with violating the FCPA. He is alleged to have obstructed the DOJ and SEC’s investigations of his former company and made false statements, but also to have committed investment advisor fraud.

    Financial Crimes FCPA DOJ SEC

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  • Judge denies bail to former Hong Kong official, who pleads not guilty to alleged African bribery

    Financial Crimes

    A former Hong Kong official, reportedly entered a not guilty plea and was denied bail in federal district court in New York related to a number of FCPA, conspiracy, and money laundering counts. He was charged in late 2017, along with his co-defendant, the former Foreign Minister of Senegal, with offering $2 million in bribes to the President of Chad. The former official is also alleged to have paid a half-million dollar bribe to the foreign affairs minister of Uganda. The DOJ alleges that he sought to direct bribe money through an NGO that he ran, which is funded by a Chinese-based oil and gas company.

    The prosecution of the former official is noteworthy because the DOJ is seeking to prosecute a non-U.S. citizen for alleged bribery between Chinese and African interests.

    Financial Crimes FCPA Anti-Money Laundering

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  • DOJ unseals 11-count FCPA indictment against Maryland executive

    Financial Crimes

    In an indictment unsealed on January 5, the DOJ charged a former executive of a Maryland company with 11 criminal counts, including seven counts of violating the FCPA and one count of conspiracy to violate the FCPA. The allegations relate to an alleged scheme to bribe an official at a Maryland-based Russian energy company that is a subsidiary of a large Russian corporation, as well as the sole supplier and exporter of Russian Federation uranium and uranium enrichment services. The former executive alleged sought to improperly obtain awards of nuclear transportation contracts from the Maryland based company to his company. Several other key players in the case already have pleaded guilty, including his former business associate as well as the official. Although sentencing for a number of the parties is forthcoming, the official already has been ordered to forfeit $2.1 million following his guilty plea. The initial investigation began in 2007 as part of a joint DOE-OIG and FBI probe into the official for laundering the funds derived from the scheme into offshore accounts.

    Financial Crimes DOJ FCPA

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  • Federal Reserve fines Taiwanese bank $29 million for anti-money laundering compliance deficiencies

    Financial Crimes

    On January 17, the Federal Reserve Board (Fed) ordered a Taiwanese bank to pay a $29 million penalty in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s Order, examinations conducted in 2016 identified “significant deficiencies” in three of the bank’s U.S. branches’ BSA/AML compliance and risk management controls. In addition to assessing a penalty, the Order required the bank and its New York, Chicago, and San Jose branches to, among other things, (i) submit a written plan from the board of directors for improving senior management oversight, including building a sustainable governance framework for BSA/AML compliance; (ii) submit compliance plans for enhanced internal controls, independent testing, risk assessment, and employee training; (iii) submit a revised program designed to conduct customer due diligence; (iv) ensure timely, accurate, and complete suspicious activity monitoring and reporting; (v) engage an independent third-party to review the identification and reporting of suspicious activity “involving high risk customers or transactions”; (vi) comply with Office of Foreign Assets Control regulations; and (vii) submit periodic progress reports to the branches’ applicable Federal Reserve Banks detailing actions taken to comply with the provisions of the order.

    Financial Crimes Federal Reserve Anti-Money Laundering Bank Secrecy Act Bank Compliance International OFAC SARs

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  • Senate Banking Committee: the impact of cryptocurrency in AML/BSA enforcement

    Financial Crimes

    On January 17, the Senate Committee on Banking, Housing, and Urban Affairs held a second hearing with witnesses from the Treasury and Justice departments to further address the need to modernize and reform the Bank Secrecy Act and anti-money laundering (BSA/AML) regime. The hearing, entitled “Combating Money Laundering and Other Forms of Illicit Finance: Administration Perspectives on Reforming and Strengthening BSA Enforcement,” follows a January 9 hearing before the same Committee on related issues (see previous InfoBytes coverage here). Committee Chairman Mike Crapo, R-Idaho, opened the hearing by stating the need to understand the government’s position on “strengthening enforcement and protecting the integrity of the U.S. financial system in a new technological era,” while also recognizing the challenges technology creates for law enforcement. A primary topic of interest to the Committee was “the rise of cryptocurrencies and their potential to facilitate sanctions evasion and perhaps, other crimes.”

    The first witness, Treasury’s undersecretary for terrorism and financial crimes, Sigal Mandelker (testimony), noted that money laundering related to cryptocurrencies is “an area of high focus” for Treasury, and highlighted actions taken by Treasury’s Financial Crimes Enforcement Network (FinCEN), such as the release of guidance announcing that “virtual currency exchangers and administrators” are subject to regulations under the BSA. Regulated entities, Mandelker stated, are required to file suspicious activity reports (SARs) and are subject to FinCEN and IRS examinations and enforcement actions. Mandelker further commented that Treasury is “aggressively tackling” illicit financing entering the U.S. system and elsewhere, and stressed that other countries face consequences if they fail to have an AML/Combating the Financing of Terrorism regime that meets Treasury standards.

    The second witness, DOJ acting deputy assistant attorney general M. Kendall Day (testimony), informed the Committee of the recent hiring of a digital currency counsel who is responsible for ensuring prosecutors are up-to-date on the latest money-laundering threats in the digital currency field. Day also commented on recent DOJ prosecutions in this space, and emphasized the need for enhanced information sharing for law enforcement, including the benefit of deriving information from SARs.

    Financial Crimes Senate Banking Committee Department of Treasury DOJ Anti-Money Laundering Bank Secrecy Act Fintech Cryptocurrency Virtual Currency FinCEN SARs Enforcement

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  • State AGs file protective petition to stop rollback of net neutrality rules; Senate Democrats announce plans to reverse FCC rule

    Privacy, Cyber Risk & Data Security

    On January 16, a coalition of 22 state attorneys general filed a protective petition for review in the D.C. Circuit Court of Appeals against the Federal Communications Commission (FCC) and the United States to block the FCC’s Declaratory Ruling, Report and Order, and Order released last December to rollback the 2015 Open Internet Order rules (known as “Net Neutrality” rules). As previously covered in InfoBytes, the rollback removes the restrictions barring providers from slowing down or speeding up web traffic based on business relationships, and places the enforcement authority of the new regulatory framework with the Federal Trade Commission (FTC).

    In the petition, the states allege violations of the Administrative Procedure Act’s notice-and-comment rulemaking requirements, and claim that the FCC's actions with respect to Net Neutrality were “arbitrary, capricious, and an abuse of discretion.” According to a press release issued by New York Attorney General Eric T. Schneiderman:

    The FCC’s new rule fails to justify the Commission’s departure from its long-standing policy and practice of defending net neutrality, while misinterpreting and disregarding critical record evidence on industry practices and harm to consumers and businesses. . . Moreover, the rule wrongly reclassifies broadband internet as a Title I information service, rather than a Title II telecommunications service, based on an erroneous and unreasonable interpretation of the Telecommunications Act. Finally, the rule improperly and unlawfully includes sweeping preemption of state and local laws.

    Separately that same day, Senate Democrats announced plans to formally introduce a resolution of disapproval under the Congressional Review Act to reverse the FCC’s vote and restore the Net Neutrality rules. Once the rule is submitted to both houses of Congress, the resolution will be formally introduced, published in the Federal Register, and voted upon within 60 legislative days.

    Privacy/Cyber Risk & Data Security State Issues State AG FCC FTC Net Neutrality Congressional Review Act

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  • FTC report highlights 2017 privacy and data security enforcement work

    Privacy, Cyber Risk & Data Security

    On January 18, the FTC released its annual report on the agency’s privacy and data security work performed in 2017. Among other items, the report highlights consumer-related enforcement activities in 2017, including:

    • a settlement with a ride-sharing company over allegations that it violated the FTC Act by making deceptive claims about its privacy and data practices (previously covered by InfoBytes here);
    • the first EU-U.S. Privacy Shield action resulting in settlements with three companies over allegations that they falsely claimed they were certified to take part in the framework (previously covered by InfoBytes here); and
    • a joint settlement with the New Jersey Attorney General against a “smart” television manufacturer for claims that it secretly gathered users’ viewing data and sold it to third parties who used the data for targeted advertising (previously covered by InfoBytes here).

    The report also covers the FTC’s approval of TRUSTe’s proposed modifications to its safe harbor program under the Children’s Online Privacy Protection Act of 1998 (COPPA), previously covered by Infobytes here; and the agency’s actions related to the national “Do Not Call” Registry.

    Privacy/Cyber Risk & Data Security FTC Compliance Enforcement State AG

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  • Servicemember and bank settle SCRA issue, dismiss Supreme Court request

    Courts

    On January 5, the Supreme Court dismissed a servicemember’s petition for a writ of certiorari after receiving a Stipulation of Dismissal from both parties who agreed to settle the dispute. As previously covered by InfoBytes, the servicemember filed the petition after the U.S. Court of Appeals for the Fourth Circuit affirmed the lower court’s decision that the servicemember was not entitled to the protections against non-judicial foreclosures under the Servicemembers Civil Relief Act (SCRA). The lower court concluded that because the servicemember “incurred his mortgage obligation during his service in the Navy, the obligation was not subject to SCRA protection” even through the servicemember, after a discharge period, later re-enlisted with the Army.

    Courts U.S. Supreme Court SCRA Foreclosure Settlement Fourth Circuit Appellate

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  • OCC highlights supervisory priorities in fall 2017 semiannual risk report

    Federal Issues

    On January 18, the OCC announced the release of its Semiannual Risk Perspective for Fall 2017, identifying key risk areas for national banks and federal savings associations. Top supervisory priorities will focus on credit, operational, and compliance risk. As previously discussed in the spring 2017 semiannual report, compliance risk continues to be an ongoing concern, particularly as banks continue to adopt new technologies to help them comply with anti-money laundering rules and the Bank Secrecy Act (BSA), in addition to addressing increased cybersecurity challenges and new consumer protection laws. (See previous InfoBytes coverage here.) The OCC commented that these types of risks can be mitigated by banks with “appropriate due diligence and ongoing oversight.”

    Specific areas of particular concern include the following:

    • easing of commercial credit underwriting practices;
    • increasing complexity and severity of cybersecurity threats, including phishing scams that are the primary method of breaching bank data systems;
    • using limited third-party service providers for critical operations, which can create “concentrated points of failure resulting in systemic risk to the financial services sector”;
    • compliance challenges under the BSA; and
    • challenges in risk management involving consumer compliance regulations.

    The report also raises concerns about new requirements under the Military Lending Act along with pending changes to data collection under the Home Mortgage Disclosure Act, which could pose compliance challenges. It further discusses a new standard taking effect in 2020 for measuring expected credit losses, which “may pose operational and strategic risk to some banks when measuring and assessing the collectability of financial assets.”

    The data relied on in the report was effective as of June 30, 2017.

    Federal Issues Agency Rule-Making & Guidance OCC Risk Management Bank Regulatory Third-Party Bank Secrecy Act HMDA Military Lending Act Vendor Management Anti-Money Laundering Privacy/Cyber Risk & Data Security

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  • CFPB succession update: CFPB requests zero funding; seeks public comment regarding Bureau’s activities; & more

    Federal Issues

    On January 17, in a letter to Federal Reserve Chair Janet Yellen, acting CFPB Director Mick Mulvaney requested zero dollars for the Bureau’s quarterly operating funds. Each fiscal quarter, as required by law, the CFPB formally requests that the Federal Reserve transfer a specified amount of money to the Bureau so it can perform the functions outlined in its budget. In his letter, Mulvaney stated that the prior Director maintained a “reserve fund” for the CFPB, and the money in this fund is sufficient to cover the CFPB’s expenses for the second quarter. This will be the first time in the history of the CFPB that its Director has requested no additional amount to fund quarterly operations. The CFPB also announced its plan to publish a series of Requests for Information (RFIs) in the Federal Register seeking public input on the way the Bureau is performing its statutory obligations. These RFIs will request “comment on enforcement, supervision, rulemaking, market monitoring, and education activities.” The first RFI will seek information regarding the Bureau’s Civil Investigative Demand processes and procedures.

    On January 18, the CFPB voluntarily dismissed its case against four online installment lenders for allegedly deceiving customers by collecting debts that were not legally owed, previously covered by InfoBytes here. The complaint, filed in the United States District Court for the Northern District of Illinois, alleged, among other things, that the lenders engaged in unfair, abusive, and deceptive acts—a violation of the Dodd-Frank Act—by collecting on installment loans that are partially or wholly void under state law. In September 2017, the case was transferred to Kansas, where the Bureau’s notice of dismissal was filed. The notice does not specify a reason for the dismissal.

    Federal Issues CFPB Succession CFPB Enforcement CIDs Federal Reserve Federal Register UDAAP Installment Loans Debt Collection

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