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  • OFAC amends Ukraine-related General Licenses to extend expiration dates

    Financial Crimes

    On October 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the issuance of Ukraine-related General Licenses (GL) 13E, 14B, and 16B, which amend previous licenses and extend the expiration date of those licenses from November 12 to December 12 for wind-down transactions relating to a specific list of companies and subsidiaries that otherwise would be prohibited by Ukraine-Related Sanctions Regulations.

    GL 13E supersedes GL 13D and authorizes, among other things, (i) the divestiture of the holdings of specific blocked persons to a non-U.S. person; and (ii) the facilitation of transfers of debt, equity, or other holdings involving specified blocked persons to a non-U.S. person. GL 14B, which supersedes GL 14A, relates to specific wind-down activities involving a Russian aluminum producer sanctioned last April (see previous InfoBytes coverage here). Finally, GL 16B supersedes GL 16A and authorizes the maintenance or wind-down of operations, contracts, or other agreements that were in effect prior to April 6 and that involve a specific list of entities.

    Visit here for additional InfoBytes coverage on Ukraine sanctions.

    Financial Crimes OFAC Ukraine Sanctions

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  • FinCEN issues advisory on Iranian efforts to evade U.S. sanctions

    Financial Crimes

    On October 11, the Financial Crimes Enforcement Network (FinCEN) issued an advisory for financial institutions on ways to help better detect and report the Iranian regime's efforts to evade U.S. sanctions through potentially illicit transactions. The advisory outlines deceptive practices used by the Iranian regime to evade sanctions, including front companies, fraudulent documents, transactions involving exchange houses, falsified shipping documents, and the use of virtual currencies, and warns financial institutions that FinCEN expects Iran to expand use of these practices following the November 5 return of sanctions previously suspended as part of the Joint Comprehensive Plan of Action. (See previous InfoBytes coverage here on Executive Order 13846, issued last August reimposing sanctions against Iran.) The advisory also includes a series of red flags to help banks identify possible deceptive activity, and provides information for filing suspicious activity reports. FinCEN advises foreign financial institutions to consult the advisory to “better understand the obligations of their U.S. correspondents, to avoid exposure to U.S. sanctions, and to address the Anti-Money Laundering/Combating the Financing of Terrorism risks that Iranian activity poses to the international financial system.”

    See here for continuing InfoBytes coverage of actions related to Iran.

    Financial Crimes FinCEN Iran Anti-Money Laundering Combating the Financing of Terrorism Sanctions Executive Order

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  • Arizona’s fintech sandbox program accepts first participant


    On October 11, the Arizona Attorney General announced the state’s first fintech sandbox participant. The mobile payment platform company will test its product—a centralized wallet infrastructure designed to create “cheaper and faster payment transfers”—for two years by processing guest payments at a Tucson resort. Arizona resident-guests will receive a disclosure agreement outlining the company’s participation in the sandbox, an explanation of the test product, a privacy notice, and the ability to opt out of any information sharing with the resort. As previously covered by InfoBytes, the Arizona governor signed legislation in March creating the first state sandbox program for companies to test innovative financial products or services without certain regulatory requirements. 

    The Attorney General also announced the finalization of a Memorandum of Understanding (MOU) with Taiwan’s financial regulator, the Financial Supervisory Commission, to increase the reach of the state’s sandbox program. The MOU will establish an information sharing agreement “that may result in the opportunity for businesses to develop/test eligible [fintech] products in both markets,” the release stated.

    Fintech State Issues State Attorney General Regulatory Sandbox

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  • Financial Stability Board report: Crypto-assets not yet posing material risk to financial stability


    On October 10, the Financial Stability Board (FSB) published a report, which asserts that although “crypto-assets do not pose a material risk to global financial stability at this time,” there may be implications for financial stability in the future as market developments evolve. The newest report, “Crypto-asset markets: Potential channels for future financial stability implications,” follows a July report discussing the FSB’s framework for monitoring and assessing vulnerabilities in the financial system resulting from developments in the crypto-asset markets. (See previous InfoBytes coverage here.) According to the October report, the FSB conducted an assessment which considered the primary risks present in crypto-assets and their markets, such as “low liquidity, the use of leverage, market risks from volatility, and operational risks,” and determined that, “[b]ased on these features, crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value, or a mainstream unit of account.” However, the October report discussed challenges to assessing and monitoring potential risks and commented on the following implications that may arise from the evolving use of crypto-assets: (i) reputational risks to financial institutions and their regulators; (ii) risks from direct or indirect exposures of financial institutions; (iii) risks resulting from the use of crypto-assets in payments and settlements; and (iv) risks from market capitalization and wealth effects.

    Fintech Financial Stability Board Cryptocurrency

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  • CFPB solicits comments on proposed rule regarding civil penalty inflation adjustments

    Agency Rule-Making & Guidance

    On October 12, the CFPB published an amendment to its rule regarding inflation adjustments for the maximum amount of each civil penalty within its jurisdiction, pursuant to the 2015 Inflation Adjustment Act amendments. Under the Bureau’s amendment, adjusted penalty amounts would only apply to assessments with associated violations occurring on, or after, November 2, 2015. The Bureau noted that because the amendment “would limit the civil penalties covered persons may pay, the proposed rule would not impose any additional costs on them. Nor does the rule impose any new, affirmative duty on any small entity or change any existing requirements on small entities, and thus no small entity who is currently complying with the laws that the Bureau enforces will incur any expense from the amended rule.” Comments must be received by November 13.

    Agency Rule-Making & Guidance CFPB Civil Money Penalties

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  • Utah Supreme Court reverses foreclosure ruling, states OCC interpretation of “located” is reasonable


    On October 5, the Utah Supreme Court revisited a 2013 decision in which it held that federal law does not preempt Utah state law that limits the ability of national banks to foreclose on real property in the state. In a unanimous opinion, the court wrote that it was overruling its “clearly erroneous” decision in a case stemming from a borrower’s challenge to the validity of a nonjudicial foreclosure sale of her Utah home by a Texas-based national bank. According to the opinion, the borrower argued that the sale of her home at auction was invalid because Utah state law “does not permit a bank to act as a trustee on a trust need.” Fannie Mae, which won the auction, secured an eviction order and argued that under the National Bank Act (NBA), the bank had the authority to conduct the sale. The court, however, reversed the eviction order after deciding that the bank did not have the authority under Utah law to act as a trustee under a deed of trust.

    In overruling its 2013 decision, the court held that whether a national bank has the authority to act as a trustee to foreclose on property in Utah depends on the OCC’s regulation implementing the NBA, not on Utah state law. According to the OCC’s interpretation of Section 92a of the NBA, a bank is located in the state where it “accepts the fiduciary appointment, executes the documents that create the fiduciary relationship, and makes discretionary decisions regarding the investment or distribution of fiduciary assets.” Previously, the court had found this interpretation to be unreasonable and not entitled to Chevron deference. However, when reconsidering the issue, the court determined that the OCC had the authority to implement the NBA and that the agency’s interpretation of the word “located” was reasonable. “Whatever located means, Congress has instructed that a state has to permit a national bank to act as a fiduciary if institutions that compete with the national bank in the state where it is located can act as a fiduciary,” the court wrote. “This expresses a federal intent to clomp into an area of traditional state concern.” The question, however, remained whether the bank performed its actions in a fiduciary capacity in Texas—a point on which the two parties to the litigation disagreed. “Because the district court has not had the opportunity to address this issue and because of the potential need for factual findings, we remand for the district court to consider this argument,” the opinion stated.

    Courts State Issues OCC National Bank Act Foreclosure

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  • Consumer advocates testify before Senate Commerce Committee on need for federal consumer data privacy legislation

    Privacy, Cyber Risk & Data Security

    On October 10, the Senate Committee on Commerce, Science, and Transportation held the second in a series of hearings on the subject of consumer data privacy safeguards. The hearing entitled “Consumer Data Privacy: Examining Lessons From the European Union’s General Data Protection Regulation and the California Consumer Privacy Act” heard from consumer privacy advocates on lessons from the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) of 2018, and what types of consumer protections should be considered in future federal legislation. Committee Chairman, Senator John Thune, opened the hearing by emphasizing the importance of promoting privacy without stifling innovation. Senator Thune stated that, while understanding the experience of technology and telecommunications companies in this space is important, any new federal privacy law must also incorporate views from affected industry stakeholders and consumer advocates.

    The consumer privacy advocate witnesses agreed there is a need for heightened consumer protections and rights, and that the time is ripe to have a debate on what a consumer data privacy law at the federal level would look like and how it would work with state level laws. However, witnesses cautioned that federal legislation should create a floor and not a ceiling for privacy that will not prevent states from passing their own privacy laws. One of the witnesses who led the effort behind the California ballot initiative that resulted in the CCPA emphasized that federal legislation should contain a robust enforcement mechanism, while a witness from the Center for Democracy & Technology said that (i) lawmakers should give the FTC the ability to fine companies that violate consumers’ privacy and provide the agency with more resources; and (ii) a federal law should cover entities of all sizes and clarify what secondary and third-party uses of data are permissible.

    Among other things, the hearing also discussed topics addressing: (i) GDPR open investigations; (ii) support for state Attorney General enforcement rights; (iii) privacy protections for children, including the strengths and weaknesses of the Children’s Online Privacy Protection Act, particularly with respect to children ages 13 and older; and (iv) consumers’ rights to control their personal data.

    Privacy/Cyber Risk & Data Security Data Breach U.S. Senate GDPR State Attorney General State Legislation Enforcement

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  • Coalition of state Attorneys General encourages FCC to create rules to block illegal robocalls

    State Issues

    On October 8, a collation of 35 state Attorneys General submitted reply comments in response to a public notice seeking ways the FCC could create rules that will enable telephone service providers to block illegal robocalls. In their comments to the FCC, the coalition encourages the FCC to implement rules and additional reforms that go beyond the agency’s 2017 call-blocking order, which allows phone companies to proactively block illegal robocalls originating from certain types of phone numbers. (See previous InfoBytes coverage here.) “Many illegal robocallers, however, simply do not care about the law and have a more insidious agenda — casting a net of illegal robocalls to ensnare vulnerable victims in scams to steal money or sensitive, personal information,” the coalition stated. “[C]riminals are estimated to have stolen 9.5 billion dollars from consumers through phone scams in 2017.” The coalition encourages collaboration between states, federal counterparts, and the domestic and international telecommunications industry, and applauds recent progress on the implementation of frameworks such as the “Secure Telephone Identity Revisited” and “Secure Handling of Asserted information using toKENs” protocols that assist service providers in identifying illegally spoofed calls.

    State Issues State Attorney General FCC Robocalls Privacy/Cyber Risk & Data Security

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  • New Jersey appeals court says choice-of-law exception may apply in interest rate class action suit


    On October 9, the Superior Court of New Jersey Appellate Division reversed a trial court’s decision to revive a proposed class action that challenged, among other things, interest rates of over 30 percent on car title loans. According to the appellate court, the trial court dismissed the case because Delaware, not New Jersey, had a more substantial relationship with the parties’ dispute. While the plaintiff’s contract with the Delaware-based title loan company stipulated that Delaware law applied even though she resided in New Jersey, the appellate court said that under the second exception of the test established by Instructional Systems Inc. v. Computer Curriculum Corp., New Jersey courts will uphold the contractual choice unless the “application of the law of the chosen state would be contrary to the fundamental policy of the state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of an effective choice of law by the parties.”

    “In her certification, plaintiff asserted that she applied for the title loan from her home in New Jersey and that defendant advised her that the loan had been approved by calling and advising her that all she had to do to pick up the money was to come to Delaware and sign the contract.” The appellate court stated that these additional facts may be sufficient to satisfy the second exception’s prerequisites, and that from a procedural standpoint, the trial court should have either converted the title loan company’s motion to dismiss to a motion for summary judgment in order to consider the new information or granted the plaintiff’s motion to file a second amended complaint.

    Courts State Issues Class Action Interest Auto Finance Usury

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  • OFAC reaches settlement with national bank to resolve alleged non-egregious sanctions violations

    Financial Crimes

    On October 5, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced an approximate $5.3 million settlement with a national bank for alleged violations of the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Weapons of Mass Destruction Proliferators Sanctions Regulations. According to OFAC, the settlement resolves the bank’s potential civil liability for, among other things, allegedly processing net settlement payments for bank clients between January 2008 and February 2012, for which only 0.14 percent were attributable to interests of non-U.S. person entity members that were at various times identified on OFAC’s Specially Designated Nationals List, sanctioned, or located in countries subject to OFAC’s sanctions programs.

    In arriving at the settlement amount, OFAC considered factors such as (i) prior to January 2012, the bank did not appear to have in place a process to independently assess participating member entities of the non-U.S. person entity for OFAC sanctions risk, despite allegedly receiving red flag notifications regarding OFAC-sanctioned members; (ii) staff members processing the net settlement transactions may have had actual knowledge of the members; and (iii) the bank is a large, commercially sophisticated financial institution.

    OFAC also considered numerous mitigating factors, including (i) managers and supervisors were not aware of the conduct; (ii) the total harm caused was “significantly less than the total value of the transactions”; (iii) the bank cooperated with the investigation and entered into a retroactive agreement to toll the statutes of limitations; and (iv) the bank has implemented several steps as part of its risk-based compliance program to prevent future violations. OFAC also noted that the bank voluntary disclosed the violations, and that the violations constitute a non-egregious case.

    Financial Crimes OFAC Sanctions Iran Settlement

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