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FinCEN Encourages Communication from Financial Institutions Affected by the California Wildfires; FDIC Offers Regulatory Relief; FHA Extends Foreclosure Moratorium
California Wildfire Relief. On October 19, FinCEN announced that financial institutions affected by the California wildfires should contact FinCEN and their functional regulator regarding any delays in their ability to file Bank Secrecy Act reports and to keep FinCEN and the regulators apprised of subsequent changes in their circumstances.
On October 20, the FDIC announced steps to provide regulatory relief to financial institutions and facilitate recovery in areas of California affected by recent wildfires. The FDIC is encouraging banks to work constructively with borrowers affected by the wildfires, including extending repayment terms, restructuring existing loans, or easing terms for new loans. The FDIC noted that financial institutions may receive favorable Community Reinvestment Act (CRA) consideration in support of disaster recovery and will consider regulatory relief from certain filing and publishing requirements.
Hurricane Relief. On October 20, HUD issued an additional 90-day extension of the initial disaster foreclosure moratorium for FHA mortgaged properties located in specified areas impacted by the recent hurricanes. The foreclosure moratorium applies to the initiation of foreclosures and foreclosures already in process. The new extended dates are as follows: February 21, 2018 for Hurricane Harvey, March 9, 2018 for Hurricane Irma, and March 19, 2018 for Hurricane Maria.
As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.
Federal Agencies Offer Regulatory Relief for Hurricane Victims
Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.
Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.
Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.
FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.
SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.
Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.
FinCEN Issues Advisory Regarding Venezuelan Government
On September 20, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions to warn of public corruption and money laundering related to Venezuelan government agencies and bodies. The advisory lists several red flags specific to the Venezuelan government to assist financial institutions with identifying and reporting suspicious activity to FinCEN, including, among other things, payments for government contracts made to personal accounts or to companies in a different line of business, payments made from shell corporations, and certain real estate purchases by Venezuelan government officials, primarily in south Florida and Houston, Texas.
As previously reported in InfoBytes, sanctions have recently been imposed on several Venezuelan political figures. (See previous InfoBytes coverage here and here.)
FinCEN Issues Advisory Regarding FATF-Identified Jurisdictions With AML/CFT Deficiencies
On September 15, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions based on June 23, 2017 updates to the Financial Action Task Force’s (FATF) list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering/combatting the financing of terrorism (AML/CFT) regimes. FinCEN urges financial institutions to consider this list when reviewing due diligence obligations and risk-based policies, procedures, and practices.
The current jurisdictions (as further described in the Improving Global AML/CFT Compliance: On-going Process) that have AML/CFT deficiencies for which they have developed an action plan are: Bosnia and Herzegovina; Ethiopia; Iraq; Syria; Uganda; Vanuatu; and Yemen. Notably, Afghanistan and Lao PDR have been removed from this list for making “significant technical progress in improving [their] AML/CFT regime[s] and . . . establish[ing] the legal and regulatory framework to meet [their] commitments in [their] action plan[s].” North Korea, officially known as the Democratic People’s Republic of Korea, and Iran remain the two jurisdictions subject to countermeasures and enhanced due diligence (or EDD) due to AML/CFT deficiencies.
GAO Issues Report on Combating Narcotics-Related Money Laundering in the Western Hemisphere
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.”
FinCEN Releases Advisory Alert for Financial Institutions, OFAC Issues Sanctions Against South Sudanese Government Officials
On September 6, the Treasury Department issued a press release announcing multiple actions taken in response to the “continued deterioration of the humanitarian situation in South Sudan.” Under Secretary for Terrorism and Financial Intelligence, Sigal Mandelker, stated, “These actions send a clear message to those enriching themselves at the expense of the South Sudanese people that we will not let them exploit the U.S. financial system to move and hide the proceeds of their corruption and malign behavior.”
Financial Crimes Enforcement Network (FinCEN). FinCEN issued an advisory (FIN-2017-A004) to financial institutions to address concerns that certain South Sudanese senior political figures may potentially move assets using the U.S. financial system. FinCEN projects that since 2013—when a new political conflict began in Sudan—certain senior political officials from both the government and opposition parties have “engaged in and profited from corrupt practices.” The advisory provides due diligence guidance for U.S. financial institutions, issues a reminder regarding suspicious activity report filing obligations, and warns financial institutions to “assess the risk for laundering of the proceeds of public corruption associated with specific particular customers and transactions.”
Office of Foreign Assets Control (OFAC). Pursuant to Executive Order 13664, which blocks the property of certain persons with respect to South Sudan and authorizes sanctions against persons who threaten the peace, security, or stability of South Sudan, OFAC issued sanctions against three government officials and three entities owned by one of the sanctioned individuals. The identified individuals’ actions include, among other things, (i) “actions or policies that threaten the peace, security, and stability of South Sudan”; (ii) “actions or policies that have the purpose or effect of expanding or extending the conflict in South Sudan or obstructing reconciliation or peace talks or processes”; and (iii) “obstruction of the activities of international peacekeeping, diplomatic, or humanitarian missions in South Sudan, or of the delivery or distribution of, or access to, humanitarian assistance.” The sanctions prohibit any U.S. individual from dealing with the designated entities and individuals, and further states that “all of these individuals’ and entities’ assets within U.S. jurisdiction are blocked.” Additionally, individuals designated under Executive Order 13664 are banned from entry into the U.S.
CFPB, Treasury, and FinCEN Release Memorandum Emphasizing Financial Institutions’ Role in Preventing Elder Financial Exploitation
On August 30, the CFPB, Treasury Department, and Financial Crimes Enforcement Network (the agencies) issued a joint memorandum concerning elder financial exploitation (EFE). The agencies note that EFE—which is defined as “the illegal or improper use of an older person’s funds, property or assets”—has become the most common form of elder abuse in the U.S. The Memorandum on Financial Institution and Law Enforcement Efforts to Combat Elder Financial Exploitation emphasizes that financial institutions can play a key role in detecting, responding to, and preventing EFE, encourages collaboration with law enforcement and local adult protective service agencies to facilitate the timely response to reports, and outlines guidance relating to the filing of suspicious activity reports (SARs). According to the memorandum, “SARs can play an important role in the fight against EFE by providing information and references to any supporting documentation that can trigger an investigation, support an ongoing investigation, or identify previously unknown subjects and entities.” The agencies cautioned, however, that “access to SARs and their use is restricted under federal law” and that law enforcement agencies should contact FinCEN for assistance in SAR-related inquiries.
FinCEN Updates GTOs for Title Insurance Companies in Several Major Metropolitan Areas, Issues Advisory to Financial Institutions and Real Estate Industry Regarding Associated Money Laundering Risks
On August 22, the Financial Crimes Enforcement Network (FinCEN) published an announcement releasing revised Geographic Targeting Orders (GTOs) that “require U.S. title insurance companies to identify the natural persons behind shell companies used to pay for high-end residential real estate in seven major metropolitan areas[,]” without the use of a bank loan or other type of external financing but, rather, with the use of—at least in part—cash or a cashier’s check or similar instrument. The GTOs have also been expanded to now include high-end real estate transactions conducted in the following places: (i) Manhattan ($3 million) and all other boroughs of New York city ($1.5 million); (ii) Miami-Dade, Broward, and Palm Beach counties ($1 million); (iii) Los Angeles, San Diego, San Francisco, San Mateo, and Santa Clara counties ($2 million); (iv) Bexar County, Texas, which includes San Antonio ($500,000); and (v) city and county of Honolulu, Hawaii ($3 million).
Through the revised GTOs, FinCEN seeks to capture a broader range of transactions, including those involving wire transfers. According to FinCEN’s analysis of data covering GTOs, nearly 30 percent of the targeted transactions ended up involving a beneficial owner or representative who is already the subject of a previous suspicious activity report. The results appear to corroborate concerns underlying FinCEN’s rationale for issuing GTOs in the first place, and will assist future efforts to “assess and combat the money laundering risks associated with luxury residential real estate purchases.” For additional information concerning GTO compliance, FAQs released by FinCEN in August 2017 are available here.
FinCEN also published an Advisory that same day to provide financial institutions and the real estate industry with information on the money laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted as “all-cash” transactions without traditional financing. The Advisory also provides an overview of anti-money laundering regulations affecting the real estate sector.
SEC Reaches Settlement with Broker-Dealer Over Alleged Sale of Unregistered Stocks and Failure to File SARs
On July 28, the SEC announced it had reached a settlement in an administrative proceeding against a broker-dealer firm for allegedly selling hundreds of millions of unregistered penny stock shares and failing to file Suspicious Activity Reports (SARs) for over $24.8 million in suspicious transactions with the Financial Crime Enforcement Network. Bank Secrecy Act regulations require a broker-dealer to file SARs if it “knows, suspects, or has reason to suspect that the transaction . . . involves funds derived from illegal activity or is intended . . . to hide or disguise funds” to evade anti-money laundering (AML) rules. A broker-deal must also file SARs if there is no apparent lawful purpose for the transaction or if the transaction is to facilitate criminal activity. According to the settlement, the firm’s actions violated the Securities Act and Exchange Act. In addition to being censured and agreeing pay a $200,000 penalty, the firm will no longer accept the deposit of stocks valued under $5.00 and will retain an independent consultant to assist with mandatory enhancements to the firm’s AML policies and procedures.
FinCEN, California U.S. Attorney Assess Civil Money Penalties Against Virtual Currency Transmitter and Operator for AML Violations
On July 27, the Financial Crimes Enforcement Network (FinCEN), in partnership with the U.S. Attorney’s Office for the Northern District of California, assessed a more than $110 million civil money penalty against an internet-based, foreign-located virtual currency transmitter for willfully violating the anti-money laundering (AML) provisions of the Bank Secrecy Act. A second, separate $12 million penalty was assessed against one of the company’s operators, a Russian national. Additionally, a California grand jury handed down a 21-count indictment against the currency transmitter and the Russian national. According to allegations, the company exchanged fiat currency in addition to virtual currencies such as bitcoin, and “facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.” The company also processed transactions using stolen funds.
Pursuant to the terms of the assessment, from November 2011 through the present, both the company and the operator allegedly failed to (i) meet money services business (MSB) registration requirements; (ii) implement an effective AML program; (iii) detect suspicious transactions or file suspicious activity reports; and (iv) obtain and retain records for transmitted funds of $3,000 or more. FinCEN warned that regardless of ownership or location, foreign-located MSBs are “required to comply with U.S. AML laws and regulations . . . including AML program, MSB registration, suspicious activity reporting, and recordkeeping requirements.”
This is the first action FinCEN has taken against a foreign-located MSB conducting business in the U.S.