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  • French bank agrees to $1.3 billion settlement to resolve U.S. sanctions investigations

    Financial Crimes

    On November 19, the Federal Reserve Board, Office of Foreign Assets Control (OFAC), DOJ, Manhattan District Attorney’s Office, and NYDFS announced that a French bank agreed to pay approximately $1.34 billion in total penalties to resolve federal and state investigations into the bank’s allegedly intentional violation of U.S. sanctions laws and other federal and New York state laws from approximately 2003 to 2013.

    The bank entered into a deferred prosecution agreement (DPA) with the U.S. Attorney’s Office for the Southern District of New York to settle charges of conspiring to violate U.S. sanctions against Cuba by “structuring, conducting, and concealing U.S. dollar transactions using the U.S. financial system.” The DPA requires the bank to forfeit more than $717 million. The bank also agreed to “accept responsibility for its conduct by stipulating to the accuracy of an extensive Statement of Facts, pay penalties totaling [$1.34 billion] to federal and state prosecutors and regulators, refrain from all future criminal conduct, and implement remedial measures as required by its regulators.” According to the DOJ, the bank “admitted its willful violations of U.S. sanctions laws—and longtime concealment of those violations—which resulted in billions of dollars of illicit funds flowing through the U.S. financial system.” As factors mitigating the penalty, the DPA acknowledges the bank’s efforts to collect and produce “voluminous evidence located in other countries to the full extent permitted under applicable laws and regulations, and its enhancement of its compliance program and sanctions-related internal controls both before and after it became the subject of a U.S. law enforcement investigation.” Among other factors, the bank’s willingness to enter into the terms of the DPA, outweighed its “failure to self-report all of its violations of [U.S.] sanctions laws in a timely manner.”

    The bank also entered into agreements to pay almost $163 million to the New York County District Attorney’s Office, nearly $54 million to OFAC, approximately $81 million to the Federal Reserve Board, and $325 million to NYDFS. Among other things, NYDFS noted that branch employees “responsible for originating USD transactions outside of the U.S. had a minimal understanding of U.S. sanctions laws and regulations as they related to Sudan, Iran, Cuba, North Korea, or other U.S. sanctions targets.”

    Separate from the resolution of alleged sanctions violations, NYDFS imposed an additional $95 million penalty to resolve findings that the bank’s New York branch allegedly failed to “implement and maintain an effective Bank Secrecy Act/Anti-Money Laundering Law  compliance program and transaction monitoring system.”

    According to a bank statement issued the same day, the bank acknowledges and regrets the identified shortcomings, and “has already taken a number of significant steps in recent years and dedicated substantial resources to enhance its sanctions and AML compliance programs.” 

    Financial Crimes Department of Treasury NYDFS DOJ Federal Reserve International Bank Secrecy Act Anti-Money Laundering Sanctions Settlement Bank Compliance

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  • DOJ sues international bank for RMBS fraud

    Courts

    On November 8, the DOJ announced it filed a complaint in the U.S. District Court for the Eastern District of New York against an international bank and several of its U.S. affiliates for allegedly defrauding investors in connection with the sale of residential mortgage-backed securities (RMBS) from 2006 through 2007. Specifically, the DOJ alleges the bank violated the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) based on mail fraud, wire fraud, bank fraud, and other misconduct by “knowingly and repeatedly” making false and fraudulent representations to investors about the quality of the loans backing 40 RMBS deals. The DOJ is seeking an unspecified amount of civil money penalties under five FIRREA claims.

    In response to the filing, the international bank issued a statement indicating that it intends to “contest the complaint vigorously,” arguing, among other things, that the risks of RMBS investments were clearly disclosed to investors and that the bank suffered its own losses from investing in the RMBS referred to in the DOJ complaint.

    Courts Federal Issues DOJ RMBS International FIRREA

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  • FFIEC issues joint statement on OFAC Cyber-Related Sanctions Program

    Financial Crimes

    On November 5, the Federal Financial Institutions Examination Council (FFIEC) members issued a joint statement alerting financial institutions to the potential impact that the U.S. Treasury Department’s Office of Foreign Assets Control’s (OFAC) recent actions under its Cyber-Related Sanctions Program may have on financial institutions’ risk management programs. OFAC implemented the Cyber-Related Sanctions Program in response to Executive Order 13694 to address individuals and entities that threaten national security, foreign policy, and the economy of the U.S. by malicious cyber-enabled activities. FFIEC’s press release announcing the joint statement references OFAC’s June action against five Russian entities and three Russian individuals who, through “malign and destabilizing cyber activities,” provided material and technological support to Russia’s Federal Security Service (previously covered by InfoBytes here), noting that these entities may offer services to financial institutions operating in the U.S.

    The joint statement reminds financial institutions to ensure that their compliance and risk management processes address possible interactions with an OFAC sanctioned entity. The statement notes that continued use of products or services from a sanctioned entity may cause the financial institution to violate the OFAC sanctions. Additionally, use of software or technical services from a sanctioned entity may increase a financial institution’s cybersecurity risk. The statement encourages financial institutions to take appropriate corrective action, as well as to ensure their third-party service providers comply with OFAC’s requirements.

    The OCC also released Bulletin 2018-40, which corresponds with the FFIEC’s joint statement.

    Financial Crimes OFAC Sanctions FFIEC OCC Russia International Third-Party Privacy/Cyber Risk & Data Security

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  • OFAC adds North Koreans to Specially Designated Nationals List

    Financial Crimes

    On September 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) made additions to the Specially Designated Nationals List pursuant to Executive Order (E.O.) 13722. OFAC’s additions to the designations identify one individual and one entity found to have “engaged in significant activities undermining cybersecurity through the use of computer networks or systems against targets outside of North Korea” on behalf of the Government of North Korea. OFAC cites to the individual’s participation in a 2016 cyber-enabled fraudulent transfer of $81 million, a 2017 ransomware attack, and the 2014 cyber-attack against a U.S. entertainment company. As a result, all assets belonging to the identified individual and entity subject to U.S. jurisdiction are blocked and must be reported to OFAC, and U.S. persons are generally prohibited from engaging in transactions with them.

    See here for previous InfoBytes coverage on North Korean sanctions.

    Financial Crimes OFAC Department of Treasury International North Korea Sanctions Executive Order

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  • 2nd Circuit rules that FCPA does not reach foreign individuals without their own ties to U.S.

    Financial Crimes

    On August 24, the 2nd Circuit rejected the government’s argument for a broad interpretation of personal jurisdiction in FCPA cases, ruling that a non-resident foreign national lacking sufficient ties to a U.S. entity cannot be charged with conspiracy to violate the FCPA or with aiding and abetting an FCPA violation. The three-judge panel upheld the lower court’s finding that a British national and former French multinational rail transportation company executive (defendant-appellee), could not be charged with conspiring or aiding and abetting something he could not be directly charged with because he was “not an agent, employee, officer, director or shareholder of an American issuer or domestic concern” within the scope of the FCPA’s jurisdictional provision and had not himself taken actions insider the U.S. 

    The defendant-appellee was an employee of the French company’s UK subsidiary and worked for a French subsidiary. The government alleged that he was “one of the people responsible for approving the selection of, and authorizing payments to,” consultants used by the French company’s U.S. subsidiary to bribe Indonesian officials related to a power contract. The government alleged numerous U.S. acts in furtherance of the bribery (including e-mails and calls by the defendant-appellee to the U.S.), although the defendant-appellee himself never traveled to the U.S. during the scheme. The defendant-appellee was one of four executives charged in 2013 in connection with the bribes; the other three executives—all of whom worked for the U.S.-based subsidiary—a power generation equipment manufacturer (which entered into a deferred prosecution agreement)—entered guilty pleas. The company pleaded guilty in December 2014 and paid a fine of $772 million.

    The charges against the defendant-appellee included a FCPA conspiracy count as well as substantive FCPA bribery violations and related money laundering charges. The District Court granted the defendant-appellee’s motion to dismiss part of the conspiracy count, ruling that if he was not alleged in that count to be a covered person under the FCPA, then the government could not impose accomplice liability either. Similarly, where the government had not alleged that the defendant-appellee ever traveled to the U.S. during the bribery scheme, then he could not be accused of conspiring to violate the provision proscribing acts by foreign nationals taken within the U.S. The District Court allowed the count to move forward where it separately alleged that the defendant-appellee was also an agent of the U.S. subsidiary, which would bring him within the FCPA’s defined reach.

    The 2nd Circuit agreed with the District Court that if the defendant-appellee was not an agent of the French company’s U.S. subsidiary (something the court assumed for the purpose of the appeal only), and therefore himself covered under the FCPA, then he could not be charged with conspiracy or complicity liability. The court relied primarily on the idea that Congress enacted an “affirmative legislative policy” in the FCPA that was intended to punish some categories of defendants, taking into account considerations of extraterritoriality, while intentionally omitting others. Secondarily, the court also held that there was no “‘clearly expressed congressional intent to’ allow conspiracy and complicity liability to broaden the extraterritorial reach of the statute.” The court summed up its ruling as requiring that the government demonstrate that the defendant-appellee “falls within [a category enumerated in the FCPA] or acted illegally on American soil.”

    The court did reverse the District Court’s second ruling that unless the defendant-appellee traveled to the U.S. during the bribery scheme, he could not be charged with conspiring to violate the FCPA provision covering acts by foreign nationals within the U.S. The government had indicated that it still intended, at trial on the other counts, to prove that he was an agent of the U.S. subsidiary, thereby bringing him back within the categories explicitly covered by the FCPA. (The substantive FCPA counts remaining did allege that the defendant-appellee was acting as an agent).

    See previous FCPA Scorecard coverage here, here, and here.

    Financial Crimes DOJ International Bribery FCPA

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  • International bank agrees to pay $4.9 billion in civil penalties to settle allegations of RMBS misconduct

    Securities

    On August 14, the DOJ announced a settlement with an international bank to resolve federal civil claims of misconduct in the bank’s underwriting and issuing of residential mortgage-backed securities (RMBS) to investors in the lead-up to the 2008 financial crisis. According to the press release, the bank allegedly violated the Financial Institutions Reform, Recovery, and Enforcement Act by, among other things, failing to accurately disclose the risk of the RMBS investments when selling the securities. Under the terms of the settlement, the bank has agreed to pay a civil penalty of $4.9 billion. The bank disputes the allegations and does not admit to any liability or wrongdoing.

    Securities DOJ Settlement RMBS Mortgages International FIRREA

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  • OFAC targets shipping industry in expanded North Korea sanction

    Financial Crimes

    On August 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) imposed additional sanctions, pursuant to Executive Order 13810, designed to reinforce the U.S.’s ongoing commitment to prevent the financing of North Korea’s weapons of mass destruction programs and activities. The sanctions designate a Chinese-based trading company and its Singaporean-based affiliate, along with a Russian-based port service agency and its director general, for allegedly facilitating illicit shipments on behalf of North Korea. Pursuant to OFAC’s sanctions, all property and interests in property of the designated persons within U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from participating in transactions with these persons. 

    See here for previous InfoBytes coverage on North Korean sanctions.

    Financial Crimes OFAC Department of Treasury North Korea Sanctions International

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  • Regulators create Global Financial Innovation Network

    Fintech

    On August 7, the United Kingdom’s Financial Conduct Authority (FCA) announced the creation of the Global Financial Innovation Network (GFIN) in collaboration with 11 global financial regulators, including the CFPB. As set forth in the GFIN Consultation Document, the three major functions of the initiative are: (i) information sharing among regulators on topics including emerging technologies and business models; (ii) providing a forum for joint policy work; and (iii) instituting “cross-border trials” to create a testing environment for companies as they deal with global regulatory challenges. GFIN’s intention is to serve as an efficient way for innovative fintech firms to interact with regulators and promote transparency, and plans to explore the concept of a “global sandbox” to create opportunities for these firms to test new financial services and products such as artificial intelligence, distributed ledger technology, and initial coin offerings in multiple jurisdictions.

    In a press release issued the same day, the Bureau noted that the decision to join the group is a demonstration of its “commitment to promoting innovation by coordinating with state, federal and international regulators.” Acting Director Mick Mulvaney further commented, “We look forward to working closely with other regulatory authorities—whether in the United States or abroad—to facilitate innovation and promote regulatory best practices in consumer financial services.”

    The working group seeks multi-jurisdictional comments on the Consultation Document to assess feedback on its proposed mission, function, and priorities. U.S. persons can submit comments through the Bureau’s Office of Innovation or through the FCA and other regulators. Comments must be received by October 14.

    Fintech Financial Conduct Authority CFPB Regulatory Sandbox International

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  • OFAC issues Ukraine-/Russia-related General License to extend expiration date

    Financial Crimes

    On July 31, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it was issuing Ukraine-/Russia-related General License 13C (GL 13C) to replace and supersede General License 13B (GL 13B) in its entirety, and to extend the expiration date through October 23, 2018. (See previous InfoBytes coverage on GL 13B, which was set to expire August 5, here.) GL 13C, which permits the same conduct as GL 13B, authorizes activities that would otherwise be prohibited by the Ukraine-Related Sanctions Regulations. Permissible activities include authorizing certain divestiture transactions with specified blocked persons to a non-U.S. person, and allowing the facilitation of transfers of debt, equity, or other holdings involving listed blocked persons, including entities owned 50 percent or more and issued by the named persons. In accordance with the issuance of GL 13C, OFAC issued updates to relevant FAQs.

    Visit here for additional InfoBytes coverage on Ukraine/Russian sanctions.

    Financial Crimes Department of Treasury OFAC Russia Sanctions International Ukraine

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  • OFAC, France announce coordinated action against global procurement network supporting Syria’s chemical weapons program

    Financial Crimes

    On July 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added five entities and eight individuals to OFAC’s Specially Designated Nationals and Blocked Persons List for their ties to a procurement network providing support to Syria’s chemical weapons program. OFAC acted in coordination with the French government and pursuant to Executive Order 13382, which targets proliferators of weapons of mass destruction and their supporters. As a result, all assets belonging to the identified individuals and entities subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from entering into transactions with them.

    Visit here for continuing InfoBytes coverage on Syrian sanctions.

    Financial Crimes OFAC Department of Treasury Syria International Sanctions

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