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  • U.S. Eases Sanctions on Burma to Allow U.S. Investment and Export of Financial Services

    Financial Crimes

    On July 11, President Obama announced that the U.S. is easing sanctions on Burma to allow U.S. companies to responsibly conduct business in Burma. The revised sanctions permit the first new U.S. investment in Burma in nearly 15 years and broadly authorize the exportation of financial services to Burma. Any person that engages in new investment in Burma pursuant to the revised sanctions that exceeds $500,000 is subject to new reporting requirements.

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  • Medical Device Manufacturer Resolves FCPA Violations Related to Conduct in Mexico

    Financial Crimes

    On July 10, medical device manufacture Orthofix International N.V. became the latest in a string of companies in the medical device sector to resolve an FCPA matter with the U.S. government. The settlement adds Orthofix to the list of device manufacturers that have settled FCPA matters in 2012, along with Smith & Nephew and Biomet, who settled in February and March 2012, respectively. The Orthofix FCPA resolution calls for the company to pay a criminal fine to the DOJ of $2.22 million, and a civil monetary sanction (including disgorgement and interest) of $5.2 million to the SEC. The DOJ resolved the matter through a Deferred Prosecution Agreement, which was attached to the company’s 8-K of July 10, 2012, reporting the resolution. According to the allegations in the SEC’s Complaint, Promeca S.A. de C.V, a subsidiary based in Mexico, paid bribes to employees of the government-operated health care system, referring to the payments as “chocolates” and booking inaccurate reimbursement requests as meals, car tires or training expenses. The Mexico subsidiary made approximately $317,000 in improper payments over a 7-year period, according to the SEC. The FCPA resolution follows a June 7, 2012 guilty plea by the U.S. subsidiary, Orthofix Inc., on a False Claims Act-related matter, resulting in $7.8 million fine and payment of over $34 million to resolve a civil action.

    FCPA SEC False Claims Act / FIRREA

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  • FinCEN Announces Public Hearing on Customer Due Diligence Proposal, Releases First Report on Real Estate Title and Escrow Industry SARs

    Financial Crimes

    On July 10, FinCEN announced the first in a series of public hearings to collect information related to its proposed rule on customer due diligence requirements for financial institutions. The public hearing, to be held July 31, 2012 at the Treasury Department, is designed to obtain input from the law enforcement and regulatory communities, as well as industry representatives.

    On July 11, FinCEN released its first targeted study analyzing Suspicious Activity Reports (SARs) involving the real estate and title escrow industry. As part of its efforts to better understand criminal risks impacting related those industries, FinCEN studied thousands of SARs involving title and escrow companies, often filed in connection with mortgage fraud. The FinCEN release notes that the agency does not currently require title and escrow companies themselves to file SARs, but many such companies have reported suspicious activities to FinCEN. The agency plans to use this and future studies to identify regulatory gaps and assess appropriate solutions to close those gaps and mitigate risk.

    FinCEN SARs

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  • NIST Proposes Update To Mobile Device Security Guidelines


    On July 11, the National Institute of Standards and Technology released a proposed update to its guidelines for securing mobile devices. Originally published as Guidelines on Cell Phone and PDA Security, the proposed Guidelines for Managing and Securing Mobile Devices in the Enterprise offer new recommendations for devices used by the federal government. The draft guideline provide recommendations for developing centralized device management systems, with specific guidance related to (i) developing system threat models, (ii) establishing mobile device security policies, and (iii) implementing and testing prototype mobile device solutions, among other topics.

    NIST Privacy/Cyber Risk & Data Security

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  • Senate Committee Explores Framework for Mobile Payments


    On July 10, the Senate Banking Committee held the second hearing in a two-part series on developing a framework for safe and efficient mobile payment systems. A panel comprised of economic and legal experts in the area of mobile payments updated the Committee on the state of the market and provided ideas for establishing an appropriate regulatory framework that balances innovation and consumer protection. Among other topics, the panelists and Senators discussed information collection and use and the related privacy and data security risks to consumers, as well as to merchants taking mobile payments. At the first hearing in the series, held in March, the Committee received testimony from regulatory experts from the Federal Reserve System. During that hearing the Committee sought information about the current roles of regulators with regard to mobile payments, and potential gaps in the regulatory structure. The House Financial Services Committee recently concluded a similar series in which it explored the regulatory structure for mobile payments and assessed the market impacts of mobile payment advances.

    Mobile Payment Systems

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  • House Subcommittee Presses CFPB on White House Ties

    Consumer Finance

    On July 2, the Chairman of a House Oversight and Government Reform Subcommittee, Representative McHenry (R-NC), sent a letter to CFPB Director Richard Cordray seeking information and documents regarding the CFPB’s contacts with the executive branch. As an independent federal agency, the letter explains, the CFPB should operate “free from executive control.” The letter catalogues meetings and other interactions between CFPB staff and executive branch personnel that Mr. McHenry believes “raise concerns about the [CFPB’s] commitment to regulatory independence.” Representative McHenry asks that the CFPB produce documents and information in response to a series of questions by July 16, 2012. For example, the letter seeks (i) information about requested or suggested actions originating from the Executive Office of the President (EOP), (ii) CFPB internal guidelines and procedures to ensure independence from the executive branch, and (iii) all documents and communications between the CFPB and any employee of the EOP.


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  • CFTC, SEC Approve Final Rules To Define "Swap"; CFTC Exempts Small Banks From Clearing Requirements


    This week the CFTC and the SEC approved jointly written rules and guidance to further define “swap”, “security-based swap,” and other related terms for use in regulating over-the-counter (OTC) derivatives.  The Dodd-Frank Act defines these terms but also requires both the SEC and CFTC to jointly define the terms further and jointly establish regulations regarding “mixed swaps” as may be necessary to carry out the purposes of swap and security-based swap regulation under the Act. The SEC and CFTC final rules and guidance identify specific products and services that do and do not fall within the further-defined terms. The approved rules will take effect 60 days after being published in the Federal Register. The approval of the definitions also triggers the period for swap dealers to comply with other Dodd-Frank Act rules put in place to regulate the OTC derivatives markets. The CFTC also approved a final rule that implements an exemption to the clearing requirement for non-financial entities and financial institutions with total assets of $10 billion or less that hedge or mitigate business risk through swaps.

    Dodd-Frank SEC CFTC

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  • OCC Identifies Risks Facing National Banks, Federal Savings Associations

    Consumer Finance

    On July 5, the OCC’s National Risk Committee issued its Semiannual Risk Perspective, which identifies issues that pose threats to the safety and soundness of banks. According to the report, the three major risks facing national banks and federal savings associations are (i) the lingering effects of a weak housing market, (ii) revenue challenges related to slow economic growth and market volatility, and (iii) the potential that banks may take excessive risks in an effort to improve profitability. Within each of the three major risk areas, the report identifies “key risk themes.” For example, with regard to the aftereffects of the housing market bust, the report observes as themes: (i) flaws in foreclosure processing that are exacting large remediation costs, record penalties, and reputational damage for mortgage servicers, (ii) continued above average rates of delinquency and charge-off for housing-related loans, and (iii) persistently high commercial real estate vacancy rates and high levels of problem assets. This is the first semiannual risk report published by the OCC; it is based on data as of December 31, 2011.

    OCC Semiannual Risk Report

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  • FFIEC Issues Statement on Cloud Computing Vendors


    On July 10, the federal banking regulators, through the Federal Financial Institutions Examination Council (FFIEC), published a statement on outsourcing of cloud computing services by financial institutions. The statement explains that the regulators consider cloud computing to be another form of outsourcing with the same basic risk characteristics and risk management requirements as traditional forms of outsourcing. The statement goes on to outline the key risks of outsourced cloud computing, focusing on due diligence, vendor management, information security, audits, legal and regulatory compliance, and business continuity planning. The statement concludes that “[c]loud computing may require more robust controls due to the nature of the service. When evaluating the feasibility of outsourcing to a cloud-computing service provider, it is important to look beyond potential benefits and to perform a thorough due diligence and risk assessment of elements specific to that service.”

    FFIEC Cloud Computing

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  • DOJ Finalizes Settlement Over Bank's Mortgage Lending Practices


    On July 12, the DOJ announced a settlement with a national bank to resolve allegations that the bank engaged in a pattern or practice of discrimination against qualified African-American and Hispanic borrowers in its mortgage lending from 2004 through 2009. Pursuant to a consent decree awaiting approval by the U.S. District Court for the District of Columbia, the bank will pay $125 million in compensation to wholesale borrowers who, the DOJ alleges, were steered into subprime mortgages or who paid higher fees and rates because of their race or national origin, and $50 million in direct down payment assistance to borrowers in communities identified by the DOJ as having large numbers of discrimination victims. In addition to the combined $175 million payment, the bank also agreed to separately compensate individual African-American and Hispanic borrowers identified through an internal review of its retail mortgage lending operations. Finally, the agreement will subject the bank to other compliance, training, recordkeeping, and monitoring requirements. In addition to resolving the federal allegations, the consent decree resolves a fair lending suit based on similar allegations brought by the Illinois Attorney General. The DOJ’s Fair Lending Unit in the Civil Rights Division’s Housing and Civil Enforcement Section worked with the U.S. Attorney’s Office for the District of Columbia and the Illinois Attorney General to obtain this agreement. The Fair Lending unit was established in 2010, and since that time has filed a complaint in or resolved 19 matters, a pace far surpassing that of previous years. This matter also is the most recent to be concluded under President Obama’s Financial Fraud Enforcement Task Force, an interagency effort to investigate and prosecute financial crimes.

    Fraud State AG Wholesale Lending

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