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FTC, DOJ participate in G-7 digital competition summit
On October 12, the DOJ and FTC announced their participation in a G7 Joint Competition Policy Makers & Enforcers Summit (Summit) as part of the 2022 G7 Digital and Technology Track. The Summit, hosted by the German Bundeskartellamt and Ministry for Economic Affairs and Climate Action, examined how G7 governments approach competition policy and enforcement in digital markets. According to the agencies, the Summit provided “a unique opportunity for competition officials to discuss common areas of interest and consider areas for increased cooperation and coordination to support competitive digital markets.” The participating delegates included G7 competition authorities and economic ministries in Canada, France, Germany, Italy, Japan, the U.K., and the U.S., in addition to the European Commission. The agencies also noted that to prepare for the Summit, the agencies “contributed to the Compendium of Approaches to Improving Competition in Digital Markets, with highlights from G7 competition authority’s work on digital markets," as well as the Policy Makers Inventory of legislative approaches to competition in digital markets within the G7. According to FTC Chair Lina Khan, “international cooperation is especially crucial as enforcers navigate the global challenges posed by dominant digital platforms and work to promote fair competition and the many benefits it delivers.”
OFAC announces Russian sanctions, REPO provides update
On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), together with the Departments of Commerce and State, announced sanctions against 14 persons in Russia’s military-industrial complex, including two international suppliers, three key leaders of Russia’s financial infrastructure, and immediate family members of certain senior Russian officials, as well as 278 members of Russia’s legislature, for enabling Russia’s referenda and effort to annex Ukraine. As a result of the sanctions, all property and interests in property belonging to the sanctioned targets that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned 50 percent or more by one or more designated persons” are blocked. U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license. Additionally, OFAC issued FAQ 1091 to provide new guidance warning of the heightened sanctions risk that international actors outside of Russia would face for providing political or economic support to Russia as a result of its illegal attempts to change the status of Ukrainian territory. According to OFAC, the FAQ emphasizes that the U.S. “is prepared to more aggressively use its existing sanctions authorities, including E.O. 13660, E.O. 14024, and E.O. 14065, to target persons—inside or outside Russia—whose activities may constitute material assistance, sponsorship, or provision of financial, material, or technological support for, or goods or services (together ‘material support’) to or in support of persons sanctioned pursuant to those Executive orders, or sanctionable activity related to Russia’s sham referenda, purported annexation, and continued occupation of the Kherson, Zaporizhzhya, Donetsk, and Luhansk regions of Ukraine.” OFAC noted, however, that it “will generally not impose sanctions on non-U.S. persons that engage in transactions that would be authorized for U.S. persons, such as certain energy-related transactions.”
The same day, Treasury and the DOJ announced that the Russian Elites, Proxies, and Oligarchs (REPO) Task Force Deputies convened to accelerate oligarch asset forfeiture efforts in response to Russia’s war in Ukraine. As previously covered by InfoBytes, REPO is a multilateral task force that was formed in February 2022 and is “committed to using their respective authorities in concert with other appropriate ministries to collect and share information to take concrete actions, including sanctions, asset freezing, and civil and criminal asset seizure, and criminal prosecution.” Representatives from Australia, Canada, Germany, France, Italy, Japan, the UK, the European Commission, and the U.S. discussed continuing initiatives “to tailor already robust asset forfeiture tools and maximize the impact of our joint work on Russian elites and their cronies” for their involvement with the war in Ukraine. REPO further noted that their steps “immobilized Russian assets as one of several means to induce Russia to come into compliance with its international law obligations, including the obligation to pay reparations.”
U.S.-UK Data Access Agreement now in effect
On October 3, the DOJ announced that the U.S.-UK Data Access Agreement (Agreement) is now in effect. According to the DOJ, the Agreement, authorized by the Clarifying Lawful Overseas Use of Data (CLOUD) Act, is the first of its kind and will allow investigators from each country to gain better access to vital data to combat serious crime in a manner “consistent with privacy and civil liberties standards.” Under the Agreement, “service providers in one country may respond to qualifying, lawful orders for electronic data issued by the other country, without fear of running afoul of restrictions on cross-border disclosures,” the DOJ said. The Agreement is intended to foster “more timely and efficient access to electronic data required in fast-moving investigations through the use of orders covered by the Agreement,” and will greatly improve the two countries’ ability “to prevent, detect, investigate, and prosecute serious crime, including terrorism, transnational organized crime, and child exploitation, among others.” U.S. and UK officials are required to meet numerous requirements in order to invoke the Agreement, such as orders must relate to a serious crime and may not target persons located in the country for which the order is submitted. Authorities in both countries must also follow agreed upon requirements, limitations, and conditions when obtaining and using data obtained under the Agreement. The DOJ’s Office of International Affairs has been selected as the designated authority responsible for implementing the Agreement in the U.S. and “has created a CLOUD team to review and certify orders that comply with the Agreement on behalf of federal, state, local, and territorial authorities located in the United States, transmit certified orders directly to UK service providers, and arrange for the return of responsive data to the requesting authorities.”
DOJ announces redlining settlement with New Jersey bank
On September 28, the DOJ announced a settlement with a New Jersey bank to resolve allegations that the bank engaged in a pattern or practice of lending discrimination by engaging in “redlining” in the Newark metropolitan area in violation of the Fair Housing Act and ECOA. The DOJ’s complaint alleges that from at least 2015 to 2021, the bank failed to provide mortgage lending services to Black and Hispanic neighborhoods in the Newark metropolitan area. The DOJ also alleges that all of the bank’s branches were located outside of majority-Black and Hispanic neighborhoods and that these neighborhoods were also largely excluded from the bank’s marketing and outreach efforts.
Under the proposed consent order, the bank will, among other things, (i) invest a minimum of $12 million in a loan subsidy fund for majority-Black and Hispanic census tracts in the Newark metropolitan area, of which at least $150,000 per year will go towards advertising, outreach, consumer education, and credit counseling, and $400,000 will be spent on services to increase access to residential mortgage credit; (ii) establish new branches in neighborhoods of color, including at least one in the city of Newark, that will provide a full range of mortgage products; (iii) assign at least four mortgage loan officers dedicated to serving all neighborhoods in and around Newark; (iv) employ a full-time community development officer to oversee the continued development of lending in neighborhoods of color in the Newark area; and (iii) provide ECOA and fair lending training to employees and officials. The announcement cited the bank’s cooperation with the DOJ to remedy the identified redlining concerns. According to the announcement, this settlement represents the third-largest redlining settlement in DOJ’s history.
DOJ amends SCRA settlement with auto loan provider
On September 28, the DOJ announced an amended settlement with an auto loan provider resolving allegations that it failed to fully provide qualified servicemembers with interest rate benefits afforded to them under the Servicemembers Civil Relief Act (SCRA). According to the DOJ, while monitoring the auto lender’s compliance with the original DOJ settlement, the DOJ found that the auto loan provider was failing to apply interest rate benefits back to the date orders were issued calling the servicemember to active duty, and that it had improperly delayed the approval of interest rate benefits to some servicemembers. Under this amended settlement agreement, the auto loan provider agreed to pay an additional $185,460 to 250 servicemembers who did not receive proper interest rate benefits. The DOJ also noted that each servicemember who did not receive interest rate benefits back to the date their orders were issued will receive a refund of any excess interest they paid, as well as an additional payment of three times the overpayment or $100, whichever is higher. The auto loan provider is required to pay an additional $40,000 civil penalty to the U.S. and must revise its SCRA policies and training regarding interest rate benefits for servicemembers.
Brazilian airline agrees to $41 million FCPA settlement
On September 15, a São Paulo-based domestic airline agreed to pay over $41 million to resolve parallel civil and criminal investigations by the SEC and DOJ. The investigations related to a bribery scheme executed by the airline to secure favorable payroll tax and fuel tax treatment through two pieces of new legislation. At the time of the conduct, the airline was the largest air transportation and travel services group in Brazil and its shares traded on the New York Stock Exchange. The favorable tax treatment provided the airline, along with all other Brazilian airlines, reduced taxes and expenses.
According to the SEC and DOJ, a member of the airline’s Board of Directors (the “Director”) orchestrated the scheme, meeting and communicating with Brazilian officials and politicians and their close associates on numerous occasions. At one point, the Director communicated with a close associate of a Brazilian official who, “in turn, discussed the bribe schemes . . . with the Brazilian Official . . . via an ephemeral messaging application that uses end-to-end encrypted and content-expiring messages.” The servers of this messaging application were exclusively located in the United States (one the jurisdictional hooks relied on by the government).
The Director ultimately authorized and directed the bribe payments from the airline to officials, and payments were made both directly from the airline and from companies controlled by the Director to various companies controlled by Brazilian officials or their close associates. Some of the intermediary companies receiving the corrupt payments were based in the U.S. and some of the payments were transmitted through a U.S. correspondent bank. The payments made directly by the airline were authorized from the Director’s own “Cost Center,” which had been created under the airline’s legal department and over which the Director had full discretion with no clearly defined controls or limits. The payments were inaccurately recorded in the airline’s books and records as payments to various third-party vendors for services that were never actually rendered. The airline did not have an effective review process of the documentation submitted before or after the disbursement of funds to monitor whether the invoices were authentic or whether the payments were for bona fide expenditures.
As a result of this conduct, the SEC and DOJ determined that the airline violated the anti-bribery provisions, the books and records provisions, and the internal controls provisions of the FCPA.
To resolve the civil charges, the airline agreed to a cease-and-desist order, disgorgement and pre-judgment interest totaling $70 million, although all but $24.5 million was waived based upon the airline’s present financial condition.
To resolve the criminal charges, the airline entered into a deferred prosecution agreement (DPA). The original criminal penalty was calculated to be $87 million but was reduced to $17 million in light of the airline’s financial condition. In calculating the penalty, the DOJ acknowledged full credit for the airline’s cooperation, despite the fact that the airline did not self-report the violations. The DOJ also considered the airline’s remedial measures, which included terminating the Director at issue and relationships with all third-party vendors involved in the underlying misconduct, and a complete overhaul of its compliance program. However, the DPA did not require the appointment of a corporate compliance monitor.
The DOJ and SEC each agreed to offset $1.7 million in penalties the airline is expected to pay to resolve the parallel Brazilian proceedings against their respective resolutions.
White House presses regulators on framework for digital assets
On September 16, the White House published a comprehensive framework for the responsible development of digital assets, calling on federal regulators to “provide innovative U.S. firms developing new financial technologies with regulatory guidance, best-practices sharing, and technical assistance.” The framework follows an executive order (E.O.) issued by the Biden administration in March (covered by InfoBytes here), which outlined the first “whole-of-government” strategy for coordinating a comprehensive approach to ensuring responsible innovation in digital assets policy. Consistent with the E.O.’s deadline, nine reports have been submitted to President Biden to date that “call on agencies to promote innovation by kickstarting private-sector research and development and helping cutting-edge U.S. firms find footholds in global markets.” The reports also “call for measures to mitigate the downside risks, like increased enforcement of existing laws and the creation of commonsense efficiency standards for cryptocurrency mining.”
Among other things, the reports (i) direct the Federal Reserve Board to continue its research and experimentation on issuing a central bank digital currency, and request the creation of a U.S. Treasury Department-led interagency working group to support Fed efforts; (ii) encourage the SEC and CFTC to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space”; (iii) urge the CFPB and FTC to address consumer complaints related to unfair, deceptive, or abusive practices in the crypto space; (iv) encourage agencies to issue guidance and rules for addressing current and emergent risks in the digital asset ecosystem; (v) urge agencies and law enforcement to take joint measures to address digital asset risks impacting consumers, investors, and businesses; and (vi) encourage agencies to share data on consumers’ digital asset complaints. To promote access to safe and affordable financial services, the administration said it plans to explore how crypto-related technologies can bolster financial inclusion, and will encourage the adoption of instant payment systems, weigh recommendations for creating a federal framework for non-bank payment service oversight, and prioritize efforts to improve cross-border payment efficiency. Additionally, the administration said it is exploring the possibility of amending the Bank Secrecy Act and other related statutes to “explicitly” apply to digital asset exchanges and non-fungible token platforms, and is considering a legislative request to toughen penalties for unlicensed money transmitters and give the DOJ more jurisdictional digital asset prosecution authority.
The Treasury released three reports addressing the future of money and payment systems, consumer and investor protection, and illicit finance risks in response to the E.O. The reports, The Future of Money and Payments, Crypto-Assets: Implications for Consumers, Investors, and Businesses, and Action Plan to Address Illicit Financing Risks of Digital Assets call on regulators to mitigate crypto-related risks to consumers, investors, and businesses. “Innovation is one of the hallmarks of a vibrant financial system and economy,” Treasury Secretary Janet Yellen said. “But as we have learned painfully from the past, innovation without appropriately addressing the impact of these developments can result in significant disruptions and harm to the financial system and individuals, especially our more vulnerable populations.” The reports examine the future of digital assets and offer recommendations to address consumer and investor protection concerns, combat illicit finance risks, and improve the payments system to support a more competitive, efficient, and inclusive landscape.
The same day, the DOJ also released a report in response to the E.O. The Role Of Law Enforcement In Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets examines ways illicit actors exploit digital asset technologies and addresses challenges posed by digital assets to criminal investigations. The report provides recommendations to further enhance law enforcement’s ability to address digital asset crimes, such as strengthening criminal penalties and extending the statutes of limitations for crimes involving digital assets from five to ten years, and identifies three priorities: (i) “expanding to virtual asset service providers the laws preventing employees of financial institutions from tipping off suspects to ongoing investigations”; (ii) “strengthening the law criminalizing the operation of unlicensed money transmitting businesses”; and (iii) “extending the statute of limitations of certain statutes to account for the complexities of digital assets investigations.” The DOJ also launched the Digital Asset Coordinator Network, which will serve as the agency’s primary source for obtaining and disseminating information related to digital assets crimes.
DOJ fines bank in "first-ever" FCA settlement over PPP loan
On September 13, the U.S. Attorney’s Office for the Southern District of Texas announced an agreement with a bank to pay approximately $18,600 to resolve allegations that it violated the False Claims Act (FCA). This “is believed to be the nation’s first settlement with a Paycheck Protection Program (PPP) lender pursuant to the [FCA],” the announcement said. As previously covered by a Buckley Special Alert, in March 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act, which provided a host of relief measures for small businesses, including $349 billion for Small Business Administration loan forgiveness, guarantees, and subsidies. According to the announcement, the bank approved and processed a $213,400 PPP loan for a clinic, despite knowing that the sole owner of the clinic was facing criminal charges arising from his practice of prescribing opioids and was therefore ineligible to apply for the PPP loan. The announcement noted that “the bank processed the application anyway and falsely granted the money to [the sole owner].” The bank received a 5 percent processing fee from the government, including $10,670 to which it was not entitled. The owner of the clinic entered a $523,000 settlement in November 2021, resolving allegations that he used false statements on his PPP application and allegedly submitted false claims for the placement of electroacupuncture devices. In 2022, the owner also repaid the PPP loan in full. According to the announcement, the settlement reflects the bank’s “efforts to cooperate with the government’s investigation and provide relevant facts along with its implementation of additional compliance measures.”
DOJ weighs in on FDIC chair’s powers
Recently, the assistant attorney general for the DOJ’s Office of Legal Counsel opined that the chairperson of the FDIC cannot prevent a majority of the agency’s Board of Directors from presenting items for a vote and decision. The DOJ’s opinion follows a December 2021 conflict among members of the FDIC Board of Directors related to a joint request for information seeking public comment on revisions to the FDIC’s framework for vetting proposed bank mergers. Shortly after the announcement was issued, the FDIC released a statement disputing that any action had been approved. FDIC board member, and CFPB Director, Rohit Chopra released a follow-up statement challenging the view that only the FDIC chairperson has the right to raise matters for discussion in Board meetings, and called for “immediate[]” resolution of the conflict, stating that “[a]bsent a return to legal reality and constructive engagement, board members will need to take further steps to exercise independence from management and to ensure sound governance of the [FDIC].” (Covered by InfoBytes here.)
The DOJ wrote in the opinion that “[t]here is no general or specific source of authority in the [Federal Deposit Insurance Act (FDIA)] that can be read as permitting the Chairperson to prevent a majority of the Board from exercising its statutory responsibilities or otherwise making decisions for the FDIC.” The opinion stated that the FDIA gives the Board “broad governance and decision-making authority” and clarified that while the “power to present matters for Board vote and decision is not explicitly addressed by the Act[,] . . . the Board, not the Chairperson, has the authority to determine how the FDIC should exercise its substantive powers.” Furthermore, the opinion emphasized that the FDIA authorizes the Board to “prescribe bylaws ‘regulating the manner in which its general business may be conducted’ and to prescribe ‘such rules and regulations as it may deem necessary.’” According to the opinion, nothing in the FDIA “can be read as authorizing the Chairperson to prevent a majority of the Board from presenting items to the Board for a vote and decision, and, as far as we are aware, no one has ever taken the position that the [FDIA] authorizes the Chairperson to do so.”
While the opinion emphasized that it does not have the authority “to provide more than a general response,” it stated that the FDIC Bylaws mirror the FDIA in providing that “[t]he management of the [FDIC] shall be vested in the Board of Directors, which shall have all powers specifically granted by the provisions of the [FDIA] and other laws of the United States and such incidental powers as shall be necessary to carry out the powers so granted.” The opinion agreed with the current Board majority’s interpretation “that the delegations of authority to the Chairperson in the Bylaws are best understood as preserving the power of a Board majority to present items for Board decision and vote.” The DOJ noted, however, “that the current Board majority’s understanding of its Bylaws may not be the only possible interpretation,” and pointed out that the FDIC Bylaws can be amended “to eliminate any uncertainty about questions such as the one at issue here.”
The DOJ’s opinion prompted a critical response from House Financial Services Committee Ranking Member Patrick McHenry (R-NC), who said that the “newly released opinion from the Office of Legal Counsel does not change the fact that Democrats’ power grab at the FDIC upended an 88-year tradition of considering the Chair’s agenda on a collegial basis” and pledged that “House Republicans will not be deterred from our investigations into the lawless tactics of rogue Democrat regulators.”
DOJ resolves SCRA violations with landlords
On August 8, the DOJ announced a settlement with two landlords resolving allegations that they violated the Servicemembers Civil Relief Act (SCRA) by obtaining unlawful court judgments against military tenants. The DOJ explained that, under the SCRA, if a landlord files a civil lawsuit against a tenant and the tenant does not appear in court, the landlord must file an affidavit with the court stating whether the tenant is in the military before seeking a judgment. The DOJ further noted that if the affidavit states that the tenant is in military service, the court cannot enter judgment until an attorney is appointed to represent the servicemember. The court must also postpone the case for at least 90 days. According to the DOJ’s complaint, which was filed in the U.S. District Court for the Eastern District of Virginia, the property owners allegedly filed false affidavits stating that the servicemembers were “not in military service” and failed to file affidavits of military service, as required by the SCRA, prior to obtaining default judgments against numerous servicemembers. The DOJ further alleged that the property owners had information in their files that would have allowed them to easily verify their tenants’ military status.
The consent decree requires the property owners to pay $162,971 to affected servicemembers and a $62,029 civil penalty to the U.S. The order also requires the property owners to, among other things, vacate the eviction judgments, repair the servicemembers’ credit, and provide SCRA training to their employees. The property owners must also reimburse affected servicemembers for any amounts collected pursuant to an unlawful judgment.