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FFETF Director Departs; Senate Confirms DOJ Civil Division Assistant Attorney General
On July 31, the DOJ announced the departure of Financial Fraud Enforcement Task Force (FFETF) Executive Director Michael Bresnick, effective August 1, 2013. The DOJ describes the FFETF, which was created in 2009, as the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat financial fraud. Mr. Bresnick has led the FFETF since October 2011, and departed to join a private law practice. On the same day, the Senate voted to confirm Stuart Delery as Assistant Attorney General for DOJ’s Civil Division. Mr. Delery had been filling that position on an acting basis, prior to which time he held several other positions within the department. He joined the DOJ in January 2009 as Chief of Staff and Counselor to the Deputy Attorney General and later served as Associate Deputy Attorney General and Senior Counselor to the Attorney General.
New York Federal Court Holds Courts Possess Power to Accept or Reject DPA
On July 1, in the U.S. District Court for the Eastern District of New York held that it has the power to accept or reject a deferred prosecution agreement (DPA), and to retain supervisory power over the implementation of a DPA. U.S. v. HSBC Bank USA, N.A., No. 12-00763, 2013 WL 3306161 (E.D.N.Y. Jul, 1, 2013). In 2012, a major international bank holding company announced agreements with U.S. law enforcement authorities and federal bank regulators to end investigations into alleged inadequate compliance with anti-money laundering and sanctions laws by the holding company and its U.S. subsidiaries. As part of the resolution, the companies entered into a DPA, which the parties filed with the court and asked the court hold the case in abeyance to exclude part of the DPA from the federal Speedy Trial Act. In reviewing the request for abeyance, the court held that it has broader supervisory power to approve or reject the agreement in its entirety and that such power extends to implementation of the agreement. The court approved the DPA, but retained authority to monitor its execution and implementation. The court explained that “by placing a criminal matter on the docket of a federal court, the parties have subjected their DPA to the legitimate exercise of that court's authority.” Under its supervisory powers holding, which the court characterized as “novel,” the court could later move to modify the agreement. More broadly, the court’s assessment of its supervisory power potentially calls into question the certainty and finality of DPAs, which could impact the use of that prosecutorial tool.
Dealer Pleads Guilty to Criminal Violations of the SCRA
On June 27, the U.S. Attorney for the Northern District of Alabama announced that a used car dealer pleaded guilty to charges that he violated the Servicemembers Civil Relief Act (SCRA). United States v. Nuss, No. 13-102 (N.D. Ala. Plea entered Jun. 27, 2013). In March, a federal grand jury returned a two-count indictment charging the car dealer with failing to follow the SCRA when asked to do so by an Alabama National Guard member who had been called to active duty in Afghanistan. The guardsman allegedly had sent a letter from his deployed location, in which he asked that his interest rate be reduced to six percent as required by the SCRA. According to the indictment, the dealer refused to reduce the interest rate, and hired two individuals to repossess the guardsman’s vehicle without first obtaining a SCRA-required court order. Notably, the dealer entered his plea without a plea agreement with the government. He is scheduled for sentencing on September 12, 2013. The maximum penalty for each SCRA violation is one year in prison, and a $100,000 fine.
FinCEN Announces Functional Reorganization
On June 24, FinCEN announced its new organizational structure, effective immediately. The new structure organizes employees based on their job function, whereas previously employees were organized based on the stakeholder that they served. FinCEN believes the change will maximize its ability to efficiently further its anti-money laundering and counterterrorist financing efforts.
Federal Authorities Announce More Charges in Broker-Dealer Foreign Bribery Case
On June 12, the DOJ and the SEC announced additional charges in a previously announced case against employees of a U.S. broker-dealer related to an alleged “massive international bribery scheme.” The DOJ unsealed criminal charges against a third employee of the broker-dealer who allegedly arranged bribe payments to a Venezuela state economic development bank official in exchange for financial trading business for the broker-dealer. The SEC, whose routine compliance examination detected the allegedly illegal conduct, announced parallel civil charges.
Eleventh Circuit Holds Bank Accounts Containing Commingled Criminal, Non-Criminal Funds Are Not Subject to Forfeiture as "Proceeds" of the Crime
On June 12, the U.S. Court of Appeals for the Eleventh Circuit held that bank accounts in which funds traceable to the defendant’s criminal activity were commingled with funds unrelated to such activity were not subject to forfeiture as “proceeds” of the criminal activity. In re Rothstein, Rosenfeldt, Adler, P.A., 2013 WL 2494980, No. 11-10676 (11th Cir. June 12, 2013). The defendant pleaded guilty to violating the Racketeer Influenced and Corrupt Organizations Act by using his law firm to perpetrate a Ponzi scheme over a four-year period. Funds traceable to the criminal activity were deposited in the law firm’s bank accounts, where they were commingled with funds earned from the law firm’s substantial legitimate activities. The trustee of the law firm’s bankruptcy estate appealed a trial court order granting the government’s request that the firm’s bank accounts be forfeited as the “proceeds” of the criminal activity. The Eleventh Circuit reversed, noting that the government must establish the “requisite nexus between the property and the offense,” which requires that the tainted and untainted property be distinguishable “without difficulty.” The government was unable to clearly distinguish between the tainted and untainted funds, in part because of the size and number of transactions in the bank accounts. Because the government could not establish that the bank accounts were the proceeds of the criminal activity, the court remanded to allow the government to pursue forfeiture of “substitute assets.”
Florida Adjusts Consumer Loan Allowable Interest Rate Tiers
On June 10, Florida enacted SB 282, which amends the Florida Consumer Finance Act to increase by $1,000 the tiered principal amounts subject to maximum allowable interest rates. For loans entered after July 1, 2013, lenders can charge for certain consumer loans up to 30 percent interest on the first $3,000, up to 24 percent on $3,001 to $4,000, and up to 18 percent over $4,000. The bill also increases from $10 to $15 the maximum amount that lenders can charge for payments at least 10 days delinquent.
Federal Authorities Announce Major Money Laundering Action Against Virtual Currency Service
On May 28, the DOJ announced the unsealing of an indictment against a global virtual currency service and seven of its principals and employees, alleging that the firm and its employees knowingly facilitated money laundering and operated an unlicensed money transmitting business. According to the DOJ, since 2001, the digital currency service allegedly facilitated an anonymous payment and value storage system that allowed more than one million users, including 200,000 Americans, to launder and store more than $6 billion in criminal proceeds and to facilitate approximately 55 million illicit transactions. The funds processed and stored by the system allegedly related to underlying criminal acts including identity theft, computer hacking, and child pornography. Federal law enforcement authorities also seized several Internet domain names involved in the scheme and effectively blocked access to any funds in the system. Concurrently, the Treasury Department for the first time exercised its powers under Section 311 of the USA Patriot Act against a virtual currency provider, declaring the provider to be a “prime money laundering concern,” which will prohibit covered U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign banks that are being used to process transactions through the virtual currency service.
Federal Authorities Announce Major FCPA Settlement
On May 29, the DOJ and the SEC announced that a French oil and gas company will pay nearly $400 million to resolve allegations that the company made illegal payments through third parties to an Iranian official in exchange for oil and gas concessions. The penalty is the third largest FCPA penalty ever obtained by federal authorities. The company entered a deferred prosecution agreement to resolve one count each of (i) conspiracy to violate the anti-bribery provisions of the FCPA, (ii) violating the internal controls provision of the FCPA, and (iii) violating the books and records provision of the FCPA, as detailed in a criminal information filed in the Eastern District of Virginia. Pursuant to the DPA, the firm will pay a $245.2 million penalty, cooperate with the DOJ and foreign law enforcement to retain an independent corporate compliance monitor for a period of three years, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. A separate SEC Order resolves parallel civil charges and requires, among other things, that the company to disgorge $153 million in illicit profits.
Senator Warren Pushes Federal Authorities on Bank Prosecutions
On May 14, Senator Elizabeth Warren (D-MA) sent a letter to Federal Reserve Board Chairman Ben Bernanke, Attorney General Eric Holder, and SEC Chairman Mary Jo White seeking additional information about the agencies’ respective approach to enforcement actions. Specifically, the letter asks whether the agencies have conducted any internal research or analysis on trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation to obtain an admission. The letter notes that the OCC recently informed Ms. Warren that it does not have any such internal research or analysis and reiterates Ms. Warren’s concern that “if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial . . . the regulator has a lot less leverage in settlement negotiations.