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Australian AML Regulator Fines Company For Failing to Register Affiliates
On January 21, the Australian Transaction Reports and Analysis Centre (AUSTRAC) announced a $122,400 penalty (Australian dollars) against a large financial services company for failing to register six affiliate businesses as remittance services providers. AUSTRAC serves as Australia’s regulator of anti-money laundering and counter-terrorism financing activities. AUSTRAC noted the company’s voluntary disclosure was taken into consideration when determining its enforcement approach.
Treasury Eases Cuba Regulations
On January 15, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced a final rule amending its Cuban Assets Control Regulations (CACR) to reflect policy changes previously announced by President Obama on December 17. The amendments (i) allow U.S. financial institutions to maintain correspondent accounts at Cuban financial institutions; (ii) allow U.S. financial institutions to enroll merchants and process credit and debit card transactions for travel-related and other transactions consistent with the CACR; (iii) increase the limit of remittances to $2,000 from $500 per quarter; and (iv) under an expanded license, allow U.S. registered brokers or dealers in securities and registered money transmitters to process authorized remittances without having to apply for a specific license. In addition, OFAC released a FAQ sheet to help explain the new amendments, which are effective January 16.
SEC Issues Report on Examination Findings of Credit Rating Agencies
On December 23, the SEC released its annual staff report on the findings of examinations of credit rating agencies registered as nationally recognized statistical rating organizations (NRSROs). As required by the Dodd-Frank Act, the SEC must examine each NRSRO at least once per year and provide a report summarizing its findings. As a result of the examinations, the staff recommended NRSROs improve a number of areas, including (i) the use of affiliates or third-party contractors in the credit rating process, (ii) management of conflicts of interest related to the rating business operations, and (iii) adherence to policies and procedures for determining or reviewing credit ratings. In addition, the agency issued a separate report to Congress on the state of competition, transparency, and conflicts of interest among NRSROs.
President Obama Signs Law Allowing Authority To Implement Ukraine-Russian Sanctions
On December 18, President Obama signed into law H.R. 5859, the “Ukraine Freedom Support Act of 2014.” First introduced in the House on December 11, the bill gives the President the authority to impose sanctions against countries, entities, and individual persons that pose potential threats to financial stability through excessive risk-taking with the Russian market. The bill provides authority for sanctions against foreign persons, including executive officers of an entity, relating to (i) banking transactions; (ii) investing in or purchasing equity or debt instruments; (iii) U.S. property transactions; and (iv) Export-Import Bank of the United States assistance. Finally, the bill directs the President to “use U.S. influence to encourage the World Bank Group, the European Bank for Reconstruction and Development, and other international financial institutions to invest in and stimulate private investment in such projects.”
OFAC Settles with Independent Manufacturer for Alleged Violations of the Cuban Assets Control Regulations
Recently, OFAC settled with a Portland, Oregon based manufacturer for allegedly violating the Cuban Assets Control Regulations, 31 C.F.R. part 515. The manufacturer agreed to pay $2,057,540 for the actions of its subsidiary, which “purchased nickel briquettes made or derived from Cuban-origin nickel between on or about November 7, 2007, and on or about June 11, 2011.” OFAC concluded that the manufacturer self-disclosed the supposed violations and such violations “constitute a non-egregious case.” Under the Economic Sanctions Enforcement Guidelines, OFAC noted that the manufacturer “acted with reckless disregard for Cuba sanctions program,” and caused “significant harm to…its policy objectives by conducting large-volume and high-value transactions in products made or derived from Cuban-nickel.”
Financial Conduct Authority Announces Fines Against Banks For Foreign Exchange Practices
On November 12, the FCA announced that it was fining five banks for their foreign exchange practices. Specifically, ineffective controls at the banks allegedly allowed traders to strategize and manipulate exchange rates for their benefit. Additionally, confidential bank information was compromised in online chat rooms, including “the disclosure of information regarding customer order flows and proprietary Bank information, such as [foreign exchange] rate spreads.” The combined amount of civil money penalties against the banks is $1.7 billion.
Financial Stability Board Issues Proposed TLAC Rule For Global Systemically Important Banks
On November 10, the Financial Stability Board issued policy proposals in response to G20 Leaders’ request at the 2013 St. Petersburg Summit to develop proposals by the end of 2014. The proposals consist of “a set of principles and a detailed term sheet on the adequacy of loss-absorbing and recapitalization capacity of global systemically important banks (G-SIBs).” The proposals will establish a new minimum standard for total loss-absorbing capacity (TLAC). The new TLAC standard should (i) ensure home and host authorities that G-SIBs have adequate capacity to absorb losses; (ii) allow resolution authorities “to implement a resolution strategy that minimi[zes] any impact on financial stability and ensures the continuity of critical economic functions;” and (iii) help achieve an equal playing field internationally. Comments and responses to the proposals are due by February 2, 2015.
Medical Company Settles FCPA Claims With SEC and DOJ
On November 3, a medical company agreed to pay a total of $55 million to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. According to the SEC’s cease-and-desist order, subsidiaries of the bio-medical instrument manufacturer paid $7.5 million in bribes in Russia, Thailand, and Vietnam from 2005 to 2010 in order to win business in violation of Section 30A of the FCPA, which resulted in $35 million in improper profits for the company. Some of the payments were disguised as commissions to foreign agents, in situations where the “agents had no employees and no capacity to perform the purported services for [a medical company].” The company also allegedly had an “atmosphere of secrecy.” The company self-disclosed the violations to the government in 2010.
As part of the resolution, the company reached a Non-Prosecution Agreement with the DOJ regarding activities in Russia and agreed to a $14.35 million criminal penalty related to books and records and internal controls violations. The resolution with the SEC involved the payment of $40.7 million in disgorgement and pre-judgment interest regarding anti-bribery, books and records, and internal controls violations related to Russia, Thailand, and Vietnam.
Of note, and continuing the trend of cross-border cooperation, the SEC in its press release disclosed that numerous international entities had assisted its investigation, including the “Bank of Lithuania, Financial and Capital Market Commission of Latvia, and British Virgin Islands Financial Services Commission.” Underscoring the issue, following public disclosure of the company’s settlement with the SEC regarding alleged payments in Vietnam, news reports indicate that Vietnam’s Ministry of Health has ordered a review of hospital purchases from the company, and asked for information and assistance from US authorities.
Cable Company Announces FCPA Internal Investigation Near Completion
Just a month after announcing its internal investigation of possible FCPA violations, news reports indicate that a major cable company's review will be completed or substantially completed by the first quarter of 2015. The company also announced that it “plans to exit all of its Asia Pacific and African manufacturing operations,” although it did not link the exit – which affects nine plants in Asia and five plants in Africa, and approximately 17% of its total sales – to its FCPA investigation.
In September, the Kentucky-based cable manufacturer announced that it was investigating its payment practices with respect to employees of public utility companies in Angola, Thailand, India and Portugal due to possible FCPA concerns. News reports indicate that, to date, the company has spent millions on the review, which has included a review of over 450,000 documents and interviews of over 20 individuals. The company also disclosed that it was cooperating with investigations by the DOJ and SEC.
Financial Stability Board Updates List of Global Systemically Important Banks
On November 6, the Financial Stability Board published its annual update of global systemically important banks (G-SIBs). Included in its annual update is the addition of one international bank bringing the total number of institutions on the list to 30. Eight U.S. G-SIBs remain on the list. Coinciding with the updated list, the Basel Committee on Banking Supervision also published updated information regarding denominators and capital thresholds used to calculate bank scores and allocate capital requirements of G-SIBs.