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  • DOJ says CFPB structure is unconstitutional, but urges Supreme Court to deny writ since case is a “poor vehicle”

    Courts

    On December 10, the DOJ filed a brief in response to a Texas bank and two associations’ (petitioners) petition for writ of certiorari with the U.S. Supreme Court, challenging the constitutionality of the CFPB’s structure, with the DOJ arguing that the Bureau’s structure infringes on the president’s responsibility to ensure that federal laws are faithfully executed, but urging the court to deny the writ as the case is a “poor vehicle” for the constitutionality consideration. Specifically, the DOJ argues that the decision would warrant review by the full court, which would be unlikely due to newly appointed Judge Kavanaugh’s involvement in the January 2018 D.C. Circuit en banc decision in PHH v. CFPB (covered by a Buckley Sandler Special Alert). Additionally, the DOJ acknowledges that the petitioners’ standing to sue “is sufficiently questionable to present a significant vehicle problem,” as the Texas bank is supervised by the OCC and the two associations are not regulated by the Bureau. On the merits, however, the DOJ agrees with the petitioners that statutory restriction on the president’s authority to remove the Bureau’s director violates the constitution. Citing to Judge Kavanaugh’s dissent opinion in the PHH en banc decision, the DOJ asserts that not only does the for-cause removal restrict the president’s powers to ensure the laws are faithfully executed, a single-director lacks the attributes of a multi-member commission that would warrant a for-cause removal provision. The DOJ concludes that the proper remedy would be to sever the for-cause provision while leaving the remaining applicable portions of the Dodd-Frank Act intact. Lastly, the DOJ notes that since it would not argue in favor of constitutionality, it recommends that if the Court were to grant certiorari, it should wait until the Bureau’s new director, Kathy Kraninger, has an opportunity to decide if the Bureau would defend the judgment before appointing an amicus curiae.  

    As previously covered by InfoBytes, the petitioners asked the Court (i) whether the CFPB as an independent agency headed by a single director that can only be removed from office for cause violates the Constitution’s separation of powers; (ii) whether a 1935 Supreme Court case upholding removal restrictions on members of the FTC should be overturned; and (iii) whether the CFPB’s “perpetual, on-demand funding streams” are permitted under the Appropriations Clause. The petition for writ resulted from a June decision by the D.C. Circuit upholding summary judgment against the petitioners, based on the D.C. Circuit en banc decision in PHH v. CFPB, which concluded the Bureau’s single-director structure is constitutional.

    Courts DOJ PHH v. CFPB U.S. Supreme Court Single-Director Structure CFPB

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  • U.S.-based agriculture company discloses investigation

    Financial Crimes

    On November 30, a U.S.-based agriculture company disclosed in an SEC filing that it is cooperating with an investigation being conducted by the SEC and DOJ involving payments made to Mexican customs officials. The payments were made in connection with grain shipments crossing the U.S.-Mexican border by train. The company is a Fortune 100 company that is owned primarily by farmer and rancher cooperatives and has extensive operations in the energy sector in addition to agriculture. 

    The SEC filing states that the company voluntarily self-disclosed the potential violations and stressed the company’s full cooperation with the investigation, which includes “investigating other areas of potential interest to the government.” The DOJ has placed great emphasis on the importance of voluntary self-disclosure and cooperation in recent policy statements. See previous Scorecard coverage here. This investigation is noteworthy because while investigations in the energy sector are common, investigations in the agricultural sector are less so. The eventual resolution of this investigation may provide useful guidance for other agribusiness companies. 

    Financial Crimes DOJ SEC

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  • Foreclosure firm and affiliates agree to DOJ settlement resolving FCA allegations

    Federal Issues

    On December 4, the U.S. Attorney for the Southern District of New York announced that a New York foreclosure law firm and its wholly-owned affiliates—a process server and a title search company (defendants)—have agreed to pay $4.6 million to resolve False Claims Act allegations claiming that between 2009 and 2018 the defendants systematically generated false and inflated bills for foreclosure-related and eviction-related expenses and caused those expenses to be paid by Fannie Mae. The settlement also resolves claims arising from the same misconduct pertaining to eviction-related expenses that were submitted to and ultimately paid by the Department of Veterans Affairs (VA). The DOJ alleges that the process server and title search company both added “additional charges to the costs charged by independent contractors and otherwise took actions that increased costs and expenses,” which were then submitted by the law firm for reimbursement. According to the DOJ, “[l]awyers are not above the law. For years, the [law firm] submitted bills to Fannie Mae and the VA that contained inflated and unnecessary charges. This Office will continue to hold accountable those who seek to achieve profits by fraudulent conduct.” The DOJ states that Fannie Mae’s Servicing Guide requires “all foreclosure costs and expenses be ‘actual, reasonable, and necessary,’ and that foreclosure law firms ‘must make every effort to reduce foreclosure-related costs and expenses in a manner that is consistent with all applicable laws.’”

    The DOJ further notes that the defendants agreed to pay an additional $1,518,000 to resolve separate False Claims Act claims pursued by the whistleblower.

    Federal Issues DOJ Fannie Mae Department of Veterans Affairs Foreclosure Mortgages FHFA False Claims Act / FIRREA Whistleblower

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  • Buckley Sandler Special Alert: DOJ announces new policy on pursuing individuals in corporate resolutions

    Financial Crimes

    U.S. Deputy Attorney General Rod Rosenstein said at a conference this morning that the U.S. Department of Justice has revised its guidelines relating to corporate resolutions with the DOJ, particularly as those guidelines relate to charging culpable individuals. The revised guidelines modify the 2015 Yates Memo, and affirmatively obligate companies seeking leniency from the DOJ to investigate and furnish information about culpable employees and agents substantially involved in wrongdoing.

    Corporations now will receive cooperation credit in criminal resolutions only if all employees substantially involved in the alleged wrongdoing are identified to the government. And in civil resolutions, corporations will receive cooperation credit only if the corporation reveals the involvement of senior management and board members in the alleged wrongdoing. The new policy highlights the DOJ’s ongoing focus on criminal and civil enforcement actions against individuals and emphasizes the importance of giving serious consideration to obtaining individual counsel very early in the process of an investigation.

    * * *

    Click here to read the full special alert.

    If you have questions about the DOJ’s new policy or other related issues, please visit our White Collar practice page or contact one of Buckley Sandler’s 15 partners in that practice.

    Financial Crimes DOJ FCPA Special Alerts

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  • SEC settles with Texas offshore drilling company for violations of FCPA internal controls provision

    Financial Crimes

    On November 19, the SEC announced a settlement with a Texas offshore drilling company based on the improper activities of the company’s predecessor in connection with a Brazilian oil company bribery scheme. The Administrative Order found that the offshore drilling company had “failed to devise a system of internal accounting controls with regard to [its] transactions with [its] former outside director, largest shareholder, and only supplier of drilling assets . . . and failed to properly implement internal accounting controls related to its use of third-party marketing agents,” noting the company’s “ineffective anticorruption compliance program.” According to the Order, these failures permitted payments that “created a risk that [it] was providing or reimbursing funds that [a director] intended to use to make improper payments to" the Brazilian company at the center of a massive FCPA scheme.

    The settlement with the SEC concludes the company’s involvement in the Brazilian company's investigations. According to the drilling company, they received a cooperation letter from the DOJ last year confirming the company’s full cooperation in the Brazilian company's investigation, and that the DOJ would not move forward with any actions against the drilling company.

    Further coverage of the Brazilian oil company matter is available here.

    Financial Crimes DOJ Bribery SEC

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  • Co-conspirators sentenced in Venezuelan bribery scheme involving Venezuelan TV mogul

    Financial Crimes

    Two co-conspirators of a billionaire news network owner were sentenced this week as part of the DOJ’s recently unsealed prosecution of a bribery scheme involving over $1 billion paid in bribes to members of the Venezuelan government. According to the DOJ, the owner was indicted under seal in August for conspiracy to violate the FCPA, conspiracy to commit money laundering, and nine counts of money laundering. Two co-conspirators, Florida resident and former Venezuelan National Treasurer, and Chicago resident and former owner of a Dominican Republic bank, each pleaded guilty under seal to one count of conspiracy to commit money laundering, and were sentenced in federal court earlier this week.

    According to the owner’s indictment, he allegedly bribed members of the Venezuelan government—including former Venezuelan National Treasurer—in exchange for the right to handle the government’s foreign currency exchange transactions, and then acquired a bank in order to launder the bribe money and other illicit proceeds. To do so, the owner allegedly moved money from Switzerland to accounts in Florida and New York and used it to purchase luxury items such as “jets, a yacht, multiple champion horses, and numerous high-end watches.”

    In December 2017, the former Venezuelan National Treasurer pleaded guilty to one count of conspiracy to commit money laundering, admitting to taking bribes in exchange for helping his co-conspirators—including the owner—by choosing them to conduct currency exchanges at favorable rates to the Venezuelan government. As part of his plea, the former Venezuelan National Treasurer agreed to cooperate and pay a forfeiture money judgment of $1 billion through the forfeiture of “real estate, vehicles, horses, watches, aircraft, and bank accounts.” On November 27, 2018, U.S. Southern District of Florida Judge Robin L. Rosenberg sentenced the former Venezuelan National Treasurer to 10 years in prison, the maximum under his plea deal.

    In March 2018, Chicago resident and former owner of a Dominican Republic bank took a similar plea deal, pleading guilty to one count of conspiracy to commit money laundering, admitting to helping the owner and others acquire and then launder money through the bank. On November 29, 2018, he was sentenced to 3 years in prison.

    The Miami Herald has also reported that the owner's personal banker was sentenced last month for his role in another money laundering scheme involving a Venezuelan state-owned oil company. Coverage of the company's prosecutions is available here.

    Financial Crimes DOJ Anti-Money Laundering Bribery

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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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  • 9th Circuit hears oral arguments on overturning FCPA whistleblower retaliation award

    Financial Crimes

    On November 14, 2018, a three judge panel for the United States Court of Appeals for the 9th Circuit heard oral arguments for a life science research and diagnostics company hoping to overturn a February 2017 jury verdict ordering the company to pay its former General Counsel and Secretary $11 million in punitive and compensatory damages. The former employee’s complaint alleged that the company had fired him for being an FCPA whistleblower. As detailed in a previous FCPA Scorecard post, the company paid $55 million in November 2014 to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. The former employee’s report to the Audit Committee had involved separate allegations that the company violated the FCPA in China, allegations that did not result in additional penalties against the company.

    The company appealed the former employee's award on the grounds that the jury was erroneously instructed that the SEC’s rules or regulations forbid bribery of a foreign official; that the company’s alleged FCPA violations were the result of the former employee’s lack of due diligence; that the trial court wrongly excluded certain impeachment testimony and evidence related to the timing of his pursuit and hiring of a whistleblower attorney; and that he did not qualify as a “whistleblower” under Dodd-Frank in light of his reporting only internally and not to the SEC (pursuant to the U.S. Supreme Court’s decision in another case). During the argument, one member of the circuit panel reportedly expressed doubt concerning the company’s jury instruction argument, and another told counsel for the company, “I don’t see how this can be reversed on the theory you’re offering.”

    For prior coverage of the company's matter, please see here and here.

    Financial Crimes DOJ SEC FCPA Whistleblower

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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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  • Money services business agrees to extend DOJ deferred prosecution agreement; settles FTC order breach

    Financial Crimes

    On November 8, the DOJ announced that a money services business has agreed to forfeit $125 million and extend its deferred prosecution agreement (DPA) due to deficiencies in its anti-fraud and anti-money laundering (AML) programs. The global settlement also resolves contempt allegations brought by the FTC related to the violation of a 2009 FTC order, which mandated that the company implement a comprehensive fraud prevention program.

    The DOJ filed charges against the company in 2012 for allegedly “willfully failing to maintain an effective AML program and aiding and abetting wire fraud,” including scams targeting the elderly and other vulnerable groups that involved victims sending funds through the company’s money transfer system.  In connection with the DOJ’s and company’s joint motion to extend and amend the DPA, the DOJ announced that the company: (i) experienced significant weaknesses in its AML and anti-fraud program; (ii) inadequately disclosed these weaknesses to the government; and (iii) failed to complete all of the DPA’s required enhanced compliance undertakings, resulting in the processing of at least $125 million additional consumer fraud transactions between April 2015 and October 2016. Under the amendment to and extension of the DPA—in effect until May 2021—the company has agreed to, among other things, comply with additional enhanced anti-fraud and AML compliance obligations.

    In a related matter, the FTC filed a motion for compensatory relief and modified order for permanent injunction, which alleges that the company failed to adopt and implement a comprehensive fraud prevention program mandated by the 2009 order.  The motion indicates that the company has agreed to the entry of an order modifying the 2009 Order to include a broader range of relief, including a requirement to interdict (or block) the transfers of known fraudsters and provide refunds for non-compliance with certain policies or procedures.

     

    Financial Crimes DOJ FTC Anti-Money Laundering Settlement

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