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  • Federal Reserve issues enforcement actions against New York branch of Pakistani bank, former bank employee

    Federal Issues

    On July 12, the Federal Reserve Board released an enforcement action taken against a Pakistani bank’s New York branch concerning deficiencies in the branch’s Bank Secrecy Act/anti-money laundering (BSA/AML) compliance program. Under the terms of the written agreement, the branch is required to (i) submit a written governance plan to strengthen the board of director’s oversight of BSA/AML compliance; (ii) retain an independent third party to conduct a BSA/AML compliance review; (iii) submit a revised, written compliance program that complies with BSA/AML requirements; (iii) submit an enhanced, written customer due diligence program plan; and (iv) submit a revised program to ensure compliant suspicious activity monitoring and reporting. On a parallel basis, the Federal Reserve terminated an enforcement action taken against the branch in 2013.

    The Federal Reserve also issued a separate enforcement action against a former bank employee for engaging in unsafe or unsound banking practices by concealing an unreconciled balance using improper accounting practices. The consent order of prohibition prohibits the former employee from, among other things, participating in any manner in the conduct of the affairs of any insured depository institution, holding company, or subsidiary of an insured depository institution.

    Federal Issues Federal Reserve Enforcement Bank Secrecy Act Anti-Money Laundering Bank Compliance

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  • SEC and broker-dealer settle charges for allegedly failing to report suspicious transactions

    Financial Crimes

    On July 9, the SEC announced it had reached a settlement with a broker-dealer for allegedly failing to file suspicious activity reports (SARs), as required by the Bank Secrecy Act. According to the SEC’s complaint, the broker-dealer allegedly “knew, suspected, or had reason to suspect” that at least 47 advisors previously terminated by the broker-dealer had engaged in suspicious transactions. However, the broker-dealer filed SARs related to only 10 of the advisors—3 of which were filed after the SEC brought an enforcement action against the advisors. Suspicious transactions by the advisors involved (i) engaging in suspicious transfers of funds; (ii) engaging in “cherry-picking” patterns; (iii) charging excessive advisory fees; (iv) improperly accessing customer accounts to make trades; and (v) using the broker-dealer’s custodial platform despite registration lapses. The SEC asserted that the broker-dealer’s failure to file SARs for suspicious transactions violated the Securities Exchange Act. While neither admitting nor denying the allegations, the broker-dealer has agreed to the entry of a permanent injunction and will pay a $2.8 million civil penalty.

    Financial Crimes SARs SEC Securities Bank Secrecy Act

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  • NYDFS encourages New York state chartered financial institutions to establish relationships with medical marijuana businesses

    State Issues

    On July 3, the New York Department of Financial Services (NYDFS), at the direction of Governor Andrew Cuomo, released guidance encouraging New York state chartered banks and credit unions to consider establishing relationships with regulated and compliant medical marijuana and industrial hemp-related businesses operating in New York. According to the guidance, these businesses often rely solely on cash to conduct transactions, because of a lack of access to traditional financial services. The press release announcing the guidance cites to the New York Compassionate Care Act, enacted in 2014, which provides medical patients suffering from “debilitating symptoms and diseases” access to, under strict requirements, medical marijuana. NYDFS is encouraging New York financial institutions to form appropriate banking relationships with these business, because “[p]roviding access to regulated banking services is an essential part of taking the legal cannabis industry out of the shadows and establishing it as a transparent, regulated, tax-paying part of our economy, and a necessary part of fulfilling the goal of relieving the suffering of seriously ill patients.”

    NYDFS will not impose any regulatory action on a New York financial institution that establishes a business relationship with legal medical marijuana and industrial hemp-related businesses, as long as the institution also complies with other applicable guidance and regulations, such as the Financial Crimes Enforcement Network’s 2014 guidance—which clarifies expectations under the Bank Secrecy Act (BSA) for financial institutions providing services to these businesses. 

    State Issues NYDFS Compliance Bank Secrecy Act FinCEN Medical Marijuana

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  • OCC issues updates to Comptroller’s Handbook

    Federal Issues

    On June 28, the OCC issued Bulletin 2018-18, which revises and updates certain booklets of the Comptroller’s Handbook. Among other things, the revisions and updates (i) clarify the applicability of each booklet to community, midsize, and large banks: (ii) incorporate Uniform Interagency Consumer Compliance Rating System revisions; (iii) provide asset management and Bank Secrecy Act/Anti-Money Laundering/Office of Foreign Assets Control risk assessment examiner guidance to ensure consistency with the Federal Financial Institutions Examination Council BSA/AML Examination Manual’s appendixes J and M; (iv) incorporate relevant aspects of the Dodd-Frank Act; (v) clarify the roles of banks’ boards of directors and management; and (vi) “include revised concepts and references regarding third-party risk management; new, modified, or expanded bank products or services; and corporate and risk governance.” The revised booklets are: Bank Supervision Process, Community Bank Supervision, Compliance Management Systems, Federal Branches and Agencies Supervision, and Large Bank Supervision.

    Federal Issues OCC Comptroller's Handbook Bank Secrecy Act Anti-Money Laundering Dodd-Frank Third-Party OFAC

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  • Native American tribes to forfeit $3 million in profits made from payday lending scheme

    Federal Issues

    On June 26, the Department of Justice (DOJ) filed two forfeiture complaints, which cover agreements with two Native American tribes to forfeit a combined $3 million in profits made from their involvement in an allegedly fraudulent payday lending scheme (see here and here). As previously covered by InfoBytes, in October 2016, the FTC required a Kansas-based operation and its owner to pay more than $1.3 billion for allegedly violating Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. The business owner and his attorney were subsequently found guilty in October 2017 of operating a criminal payday loan empire. As part of the agreements, the two tribes admit that representatives filed affidavits containing false statements in the legal actions against the payday loan scheme. If the tribes comply with agreement requirements, the DOJ will not pursue criminal action for the specified violations.

    In February, multiple federal agencies entered into a $613 million deferred prosecution agreement over Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program deficiencies with a national bank, which included allegations that the bank was on notice of the owner’s use of the bank to launder proceeds from his fraudulent payday lending scheme. (Previously covered by InfoBytes here.)

    Federal Issues DOJ Payday Lending FTC Consumer Finance Bank Secrecy Act Anti-Money Laundering FTC Act

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  • Comptroller Otting discusses regulatory priorities during congressional testimonies

    Federal Issues

    On June 13 and 14, Comptroller of Currency Joseph Otting appeared before the House Financial Services Committee and the Senate Committee on Banking, Housing, and Urban Affairs to discuss his priorities as Comptroller. As highlighted in the identical press releases for both House and Senate hearings, Otting testified about the OCC’s achievements and efforts since being sworn in as Comptroller in November 2017. Among other things, Otting discussed the agency’s efforts to (i) modernize the Community Reinvestment Act (CRA); (ii) promote compliance with the Bank Secrecy Act and anti-money laundering regulations (BSA/AML); and (iii) simplify the Volcker Rule, particularly for small and mid-size banks. Otting emphasized in his written testimony that his priority is to reduce the regulatory burden on financial institutions, specifying that the CRA requirements have become "too complex, outdated, cumbersome, and subjective." To that end, Otting stated that the OCC, in coordination with other federal agencies, is preparing an advance notice of proposed rulemaking to gather information on potential CRA updates, which, in Otting’s view, should include (i) expanding the types of activities that are eligible for CRA credit; (ii) changing assessment areas so they are not based solely on where the bank has a physical presence; and (iii) providing clearer metrics. As for BSA/AML, Otting noted this was his “number two issue” behind reforming the CRA and the working group—the OCC, FinCEN, the FDIC, the Federal Reserve, and NCUA— will likely address key issues like de-risking and improvement of transparency over the next three to six months. Otting noted his pleasure with the Volcker Rule changes in the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155/ P.L. 115-174) but cautioned that fine-tuning may be necessary as the OCC proceeds with implementation.

    Federal Issues OCC Bank Supervision Compliance Volcker Rule CRA Bank Secrecy Act Anti-Money Laundering

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  • OCC releases recent enforcement actions, issues $12.5 million penalty for BSA/AML compliance deficiencies

    Federal Issues

    On June 15, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include cease and desist orders, civil money penalty orders, and removal/prohibition orders. The consent order described below was among those in the OCC’s list:

    On April 14, the OCC issued a consent order and $12.5 million civil money penalty order against a New York-branch of an international bank for alleged deficiencies in the branch’s BSA/AML compliance program.  The alleged deficiencies included the failure to file timely Suspicious Activity Reports (SARs) as well as deficiencies in the branch’s compliance with Office of Foreign Asset Control (OFAC) requirements. Among other things, the consent order requires the branch to (i) develop and implement an ongoing BSA/AML and OFAC risk assessment program; (ii) adopt an independent audit program to conduct a review of the bank’s BSA/AML compliance program; and (iii) ensure the branch has a permanent and experienced BSA officer. The bank has neither admitted nor denied the OCC’s findings. 

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering SARs OFAC

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  • FDIC releases April enforcement actions, including flood insurance and BSA/AML violations

    Federal Issues

    On May 25, the FDIC released a list of 35 administrative enforcement actions taken against banks and individuals in April. Civil money penalties were assessed against several individuals and one bank. The FDIC assessed a $5,000 civil money penalty against a New Jersey-based bank, citing violations of the Flood Disaster Protection Act for allegedly failing to ensure 20 properties were adequately covered by flood insurance for the term of the loan. Additionally, the FDIC issued two consent orders, one against a South Dakota-based bank for unsafe or unsound banking practices or violations of law or regulation. The FDIC ordered the bank to, among other things, (i) retain qualified management; (ii) develop an independent external loan review program; and (iii) develop a plan to address the weaknesses in the bank’s audit and internal controls. The second consent order alleges violations of the Bank Secrecy Act and anti-money laundering (BSA/AML) rules by a Maryland-based bank. The bank is ordered to, among other things, (i) perform an enhanced risk assessment of the bank’s operations; (ii) revise and implement internal controls for BSA/AML compliance; and (iii) take necessary steps to correct or eliminate all cited violations.

    Also on the list are 11 Section 19 orders, which allow applicants to participate in the affairs of an insured depository institution after having demonstrated “satisfactory evidence of rehabilitation,” and four terminations of consent orders.

    There are no administrative hearings scheduled for June 2018. The FDIC database containing all 35 enforcement decisions and orders may be accessed here.

    Federal Issues FDIC Enforcement Bank Secrecy Act Anti-Money Laundering Flood Insurance Civil Money Penalties Flood Disaster Protection Act

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  • OCC highlights key risks affecting the federal banking system in spring 2018 semiannual risk report

    Federal Issues

    On May 24, the OCC released its Semiannual Risk Perspective for Spring 2018, identifying and reiterating key risk areas that pose a threat to the safety and soundness of national banks and federal savings associations. Priorities focus on credit, operational, compliance, and interest risk, and while the OCC commented on the improved financial performance of banks from 2016 to early 2018, in addition to the “incremental improvement in banks’ overall risk management practices,” the agency also noted that risks previously highlighted in its Fall 2017 report have “changed only modestly.” (See previous InfoBytes coverage here.)

    Specific areas of concern noted by the OCC include: (i) easing of commercial credit underwriting practices; (ii) increasing complexity and severity of cybersecurity threats; (iii) use of third-party service providers for critical operations; (iv) compliance challenges under the Bank Secrecy Act; (v) challenges in risk management involving consumer compliance regulations; and (vi) rising market interest rates, including certain risks associated with the “potential effects of rising interest rates, increasing competition for retail and commercial deposits, and post-crisis liquidity regulations for banks with total assets of $250 billion or more, on the mix and cost of deposits.” Additionally, concerns related to integrated mortgage disclosure requirements under TILA and RESPA previously considered a key risk have been downgraded to an issue to be monitored.

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

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  • Federal Reserve Governor discusses potential impact of digital innovations on the financial system

    Fintech

    On May 15, Federal Reserve Board Governor Lael Brainard spoke at a digital currency conference sponsored by the Federal Reserve Bank of San Francisco to discuss how digital innovations may impact the financial system, specifically in the areas of payments, clearing, and settlement. Brainard discussed, among other things, the importance of understanding the impact these innovations may have on (i) investor and consumer protection issues, and (ii) cryptocurrency and distributed ledger technology governance, particularly with respect to Bank Secrecy Act/anti-money laundering concerns. In addition, Brainard commented on the inherent risks and challenges surrounding the concept of a central bank digital currency, and noted that at this time, “there is no compelling demonstrated need for a Fed-issued digital currency [because] [m]ost consumers and businesses in the U.S. already make retail payments electronically using debit and credit cards, payment applications, and the automated clearinghouse network. Moreover, people are finding easy ways to make digital payments directly to other people through a variety of mobile apps.” Brainard noted, however, that the Federal Reserve is monitoring these technological developments as “digital tokens for wholesale payments and some aspects of distributed ledger technology—the key technologies underlying cryptocurrencies—may hold promise for strengthening traditional financial instruments and markets” in the coming years.

    Fintech Federal Reserve Cryptocurrency Distributed Ledger Bank Secrecy Act Anti-Money Laundering

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