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  • China Bans Commercial Trading of Initial Coin Offerings

    Securities

    On September 4, the People’s Bank of China and several Chinese regulators reportedly jointly announced plans to ban the commercial trading of bitcoin and other cryptocurrencies. This measure, announced in a statement issued by the Ministry of Industry and Information Technology of the People’s Republic of China, will outlaw all fundraising Initial Coin Offerings (ICOs), and declares ICOs and the sale of virtual currency as unauthorized illegal financing behavior, suspected of illegal sale tokens, illegal securities issuance, and illegal fund-raising, including financial fraud, pyramid schemes and other criminal activities. The statement reportedly stresses that virtual currency in China will not be recognized as a legal form of currency and must not be circulated as currency when financing activities. Furthermore, going forward, all cryptocurrency trading platforms are prohibited in China from acting as central counterparties to facilitate the exchange of tokens for virtual currencies. Additionally, one of China’s bitcoin exchanges reportedly published an announcement on its website saying it will close its bitcoin currency trading platform in the country on September 30.

    The SEC recently released an investor bulletin about ICO investment risks and offered fraud prevention guidance. (See previous InfoBytes summary here.) ICO sales are often used to raise capital, and the SEC is monitoring companies who use this method for fraudulent purposes.

    Securities Fintech ICO International Cryptocurrency Bitcoin Fraud Virtual Currency

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  • CFPB Announces September 28 Community Bank Advisory Council Meeting

    Consumer Finance

    On Thursday, September 28, the CFPB will hold its next Community Bank Advisory Council meeting in Washington, DC. According to the September 12 Federal Register publication providing notice of the meeting, the Council’s discussion topics will focus on “Know Before You Owe: Overdraft” services and other financial empowerment initiatives. As previously discussed in InfoBytes, on August 4 the CFPB announced the release of a study focused on the use of overdraft services by consumers, as well as four prototype overdraft disclosure templates currently under testing.

    Consumer Finance CFPB Community Banks Overdraft

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  • FTC Announces First EU-U.S. Privacy Shield Enforcement Actions Over False Certification Claims

    Privacy, Cyber Risk & Data Security

    On September 8, the FTC announced settlements with three companies over allegations that they falsely claimed certification to take part in the European Union-U.S. Privacy Shield (EU-U.S. Privacy Shield) framework. These settlements mark the FTC’s first EU-U.S. Privacy Shield enforcement actions. In July 2016, the EU finalized and adopted the EU-U.S. Privacy Shield Framework, which established a mechanism for companies to transfer consumer data between the EU and the U.S. in compliance with specified obligations. (See previous InfoBytes summary here.) In separate complaints, the FTC alleges that a human resources software company, a printing services company, and a company that manages real estate leases for wireless companies, violated the FTC Act by falsely claiming that they were certified to participate in the EU-US Privacy Shield without having completed the certification process. According to the terms of the settlements as summarized in the FTC press release, the companies are all banned from “misrepresenting the extent to which they participate in any privacy or data security program sponsored by the government or any self-regulatory or standard-setting organization and must comply with FTC reporting requirements.”

    Privacy/Cyber Risk & Data Security Enforcement FTC Settlement

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  • Legislators, State Attorneys General, and Consumers React to Credit Reporting Agency Data Breach

    Privacy, Cyber Risk & Data Security

    As previously reported in InfoBytes, a major credit reporting agency suffered a data breach from mid-May through the end of July that impacted approximately 143 million U.S. consumers. Shortly after the agency disclosed the breach, several Republican and Democratic lawmakers promised legislative action. Senator Brian Schatz (D-Haw.) reintroduced the Stop Errors in Credit Use and Reporting (SECURE) Act to address these issues. In addition, two committees—the House Financial Services Committee and the House Energy and Commerce Committee—both announced plans to hold hearings on the breach (dates still to be released). Separately, Representative Ted Lieu (D-Cal.) sent a letter to the House Judiciary Committee requesting a hearing to investigate how and why the data breach occurred, and what measures can be taken to prevent future incidents.

    At least two class action lawsuits have been filed—in Georgia and Oregon—as a result of the breach, and several state attorneys general, including New York Attorney General Eric T. Schneiderman, have launched investigations into the matter. The CFPB also released a blog post for consumers on ways to identify signs of fraud or identity theft.

    Notably, on September 11, the agency issued an update for consumers announcing that “in response to consumer inquiries,” the arbitration clause and class action waiver included in its terms of use will not “apply to this cybersecurity incident.” The CFPB’s final arbitration rule, which prohibits the use of mandatory pre-disputer arbitration clauses, has been a point of considerable debate this summer, with the House voting to repeal the proposed rule and the Senate introducing a similar measure (see InfoBytes post here), while a coalition of state attorneys general have issued support for the proposed rule (see InfoBytes post here).

    Privacy/Cyber Risk & Data Security Data Breach Class Action State AG

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  • President Trump Signs Government Funding Package, Temporarily Extends National Flood Insurance Program

    Federal Issues

    On September 8, President Trump signed a government-funding package (H.R. 601) that temporarily extends the National Flood Insurance Program (NFIP), which was set to expire September 30, through December 8. The extension provides Congress additional time to establish a long-term financial solution. (See previous InfoBytes coverage on the NFIP here.) The Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, also temporarily lifts the nation’s debt ceiling, funding the federal government through December 8, and delivers the first installment of emergency aid for victims of Hurricane Harvey.

    Federal Issues Federal Legislation National Flood Insurance Program Trump

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  • GAO Issues Report on Combating Narcotics-Related Money Laundering in the Western Hemisphere

    Financial Crimes

    On September 7, the U.S. Government Accountability Office (GAO) issued a report, Anti-Money Laundering: U.S. Efforts to Combat Narcotics-Related Money Laundering in the Western Hemisphere, detailing activities by the Treasury and State Departments to combat these illicit activities. In conducting the study, GAO reviewed laws, regulations, and budget data, and also conducted interviews with experts and U.S. officials, in order to examine anti-money laundering activities over the period of fiscal years 2011 through 2015. GAO also made site visits to Colombia, Mexico, and Panama, identified as “jurisdictions of primary concern for money laundering” by the State Department. Among other things, the report noted that “State and Treasury allocated about $63 million to support AML-related capacity-building and technical assistance” to fund training and equipment for financial intelligence units employed to detect illicit financial transactions in these countries. The report further provides that many entities are required to report suspicious activities to the Treasury’s Financial Crimes Enforcement Network, which was established to collect, analyze, and disseminate “financial intelligence information to combat money laundering.”

    Financial Crimes Anti-Money Laundering GAO Bank Secrecy Act Treasury Department Department of State FinCEN

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  • OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Flood Insurance Requirements

    Agency Rule-Making & Guidance

    On September 7, the OCC released OCC Bulletin 2017-35 announcing a replacement of its handbook titled “Flood Disaster Protection Act” (FDPA)—last issued in 1999—to reflect recent amendments to the FDPA and implement regulations that resulted from the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) and the Homeowner Flood Insurance Affordability Act of 2014. The booklet, which is part of the Comptroller’s Licensing Manual, clarifies the following changes, among other things:

    • flood insurance requirement exemptions for certain detached nonresidential structures;
    • a requirement that banks—or servicers acting on behalf of a bank—escrow flood insurance premiums and fees for “any loan secured by a residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016,” and also lists exemptions to the requirement;
    • a requirement that banks and servicers “subject to the escrow requirement” must provide borrowers the option to escrow flood insurance premiums and fees and are required to implement the escrow “as soon as reasonably practicable” after the request has been received;
    • FDPA provisions on force-placed insurance, including termination and refund requirements; and
    • “examination procedures for determining compliance with the detached structure, escrow, and force placement provisions.”

    Notably, the OCC stated that the Biggert-Waters Act provision, which requires the acceptance of private flood insurance policies that meets specified criteria to satisfy the mandatory purchase requirement, has not yet been adopted and will be addressed separately.

    Agency Rule-Making & Guidance OCC Flood Insurance Licensing Treasury Department Force-placed Insurance Escrow Mortgages

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  • Legislation Introduced to Make Bitcoin Purchases up to $600 Tax-Exempt

    FinTech

    On September 7, Representatives Jared Polis (D-Colo.) and David Schweikert (R-Ariz.)—co-chairs of the Congressional Blockchain Caucus—introduced the Cryptocurrency Tax Fairness Act of 2017 to allow for tax and IRS reporting requirements exemptions on cryptocurrency transactions of up to $600. The bill is in response to an IRS notice issued in 2014 that held that virtual currency, such as bitcoin and other forms of cryptocurrency, must be treated as property for U.S. federal tax purposes. According to a press release issued by Rep. Polis’ office, this “outdated guidance classifies even the smallest of cryptocurrency transactions the same as buying or selling stock, which dis-incentivizes consumers from using virtual currencies to pay for goods and services.” The bill proposes amending the Internal Revenue Code to exclude up to $600 of “gain from the sale or exchange of virtual currency for other than cash or cash equivalents” from gross income and ordering the Treasury Department to create “regulations providing for information returns on virtual currency transactions for which gain or loss is recognized.”

    Fintech Federal Issues Federal Legislation Bitcoin Cryptocurrency

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  • Second Circuit Cites Escobar, Vacates and Remands FCA Suit

    Courts

    On September 7, the Second Circuit Court of Appeals issued an order concerning a False Claims Act (FCA) case on remand from the United States Supreme Court. In its order, the three-judge panel determined that the FCA complaint should be reviewed under the higher court’s Escobar standard, which “set out a materiality standard for FCA claims that has not been applied in the present case.” See Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016). As previously discussed in InfoBytes, Escobar holds that a misrepresentation must be material to the government’s payment decision to be actionable under the FCA and that the implied false certification theory can be a basis for liability under the FCA.

    In issuing the order, the appellate court vacated the district court’s dismissal of the relators’ complaint (which it had affirmed the first time around) and remanded for further proceedings to determine whether the bank’s certification was materially false. At issue is a qui tam suit filed against a national bank, in which plaintiffs claimed the bank violated the FCA when it certified to the Federal Reserve that the bank and its predecessors were obeying the law in order to “borrow money at favorable rates” during the financial crisis. The decision originally relied upon two requirements cited in a case overturned by Escobar—“the express-designation requirement for implied false certification claims and the particularity requirement for express false certification claims.”

    Courts False Claims Act / FIRREA Second Circuit Federal Reserve U.S. Supreme Court

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  • Credit Reporting Agency Announces Widespread Consumer Data Breach

    Privacy, Cyber Risk & Data Security

    On September 7, a major credit reporting agency issued a press release announcing a data breach that impacts approximately 143 million U.S. consumers. An internal investigation revealed that from mid-May through the end of July 2017, hackers exploited a website application vulnerability to access names, Social Security numbers, birth dates, addresses, driver’s license numbers, as well as roughly 209,000 credit card numbers. The company discovered the breach on July 29 and “acted immediately to stop the intrusion.” A “leading, independent cybersecurity firm” has been hired to recommend security improvements, and the company is working with law enforcement authorities. Furthermore, the press release states that “the company has found no evidence of unauthorized activity on [its] core consumer or commercial credit reporting databases.” A website has been set up to assist consumers trying to determine if their information has been affected and offers credit file monitoring and identify theft protection.

    Privacy/Cyber Risk & Data Security Credit Reporting Agency Data Breach

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