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  • RMBS Working Group Announces Web Site, Formation of Coordination Team

    Securities

    On May 24, the Residential Mortgage-Backed Securities (RMBS) Working Group announced the launch of a new web site to facilitate the reporting of RMBS fraud, as well as the formation of a coordination team “to facilitate various investigations underway around the country.” For more information on the RMBS working group, see InfoBytes, Jan. 27, 2012.

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  • Fannie Mae Extends Temporary Repurchase Accommodation Period to December 31

    Lending

    On March 29, the UK Serious Fraud Office charged another Alstom S.A. employee, Terence Stuart Watson, in its ongoing corruption investigation of the beleaguered French power and transportation company.  The SFO has previously charged 6 other individuals in this investigation.

    The charges against Watson, the Alstom Country President for the UK and Managing Director of Alstom Transport UK & Ireland, are related to alleged bribery in Hungary concerning the company’s supply of trains to the Budapest Metro between 2003 and 2008.  The SFO’s prior charges have involved alleged corruption spanning Hungary, India, Poland, and Tunisia, and included charges against the former Senior Vice President of Ethics and Compliance related to alleged bribery in Hungary.

    In late 2014, the company pleaded guilty to FCPA charges brought by the US Department of Justice, and agreed to pay a record $772 million fine to resolve those charges.

    Fannie Mae

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  • Fannie Mae Postpones Effective Date for Servicer Insurance Requirements

    Consumer Finance

    On March 25, medical device manufacturer Biomet announced that the deferred prosecution agreement it entered into with the DOJ to settle FCPA charges in 2012 would be extended a second time.  The company reported that the DOJ and SEC’s investigation into alleged misconduct in Brazil and Mexico, and into the company’s compliance program, was still ongoing.

    Biomet settled FCPA charges with the DOJ and SEC in 2012 related to the company’s conduct in Argentina, Brazil and China.  As previously reported, Biomet disclosed in March 2015 that the deferred prosecution agreement it had agreed to as part of the settlement would be extended for one year because the company had discovered additional potential FCPA violations in Brazil and Mexico.

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  • CFPB Seeks Comments on GPR Prepaid Cards

    Consumer Finance

    On May 24, the CFPB made an advance notice of proposed rulemaking (ANPR) to solicit comments that it will use to evaluate general purpose reloadable (GPR) prepaid cards. According to the ANPR, the CFPB intends to issue a proposal to extend Regulation E requirements to GPR cards. This would mean that issuers of GPR cards would be subject to many of the requirements currently applicable to ATM transactions, POS terminal transfers, telephone bill-payment services, and other electronic fund transfer systems. Comments on the ANPR are due by July 23, 2012.

    CFPB Prepaid Cards

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  • CFPB Proposes Rule for Supervising Nonbanks Posing Risks to Consumers

    Consumer Finance

    On May 24, the CFPB announced a proposed rule outlining procedures for establishing supervisory authority over nonbanks that it has “reasonable cause” to believe pose risks to consumers. According to the proposed rule, the CFPB’s determination regarding whether and when to issue a “Notice of Reasonable Cause” will be based on complaints “collected by the Bureau” or on information from “other sources.” The proposed rule outlines the procedures by which the CFPB will notify nonbanks that they are being considered for supervision and how they can respond to the CFPB’s notice. Once a nonbank is subject to supervision, it can petition to end the supervision after two years and annually thereafter, unless the CFPB and the nonbank agree to a longer term. Once supervised, the nonbank is also subject to the CFPB’s authority to require reports and conduct examinations. The comment period will be open for 60 days after the proposed rule is published in the Federal Register.

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  • Spotlight on Auto Finance (Part 3 of 3): Expanded Coverage for Vehicle and Consumer Loans

    Consumer Finance

    Snack food company Mondelēz International announced in its 10-K on Friday that it had received a Wells notice from the SEC regarding potential violations of the FCPA at an Indian factory.  The Wells notice marks the latest development in a long-running FCPA investigation dating back to 2011, when Mondelēz first received a subpoena from the SEC.  The Indian operations were integrated into Mondelēz following its 2010 acquisition of Cadbury; the SEC’s allegations relate to interactions “with Indian governmental agencies and officials to obtain approvals related to the operation of that facility.”  The Wells notice indicated an intent by the SEC staff to recommend the filing of an enforcement action for violations of the FCPA’s books and records and internal controls provisions.  Mondelēz has noted that it is cooperating with both the U.S. and Indian governments in various investigations.

    CFPB Auto Finance John Redding

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  • Two Largest U.S. Cities Adopt Responsible Banking Ordinances

    Consumer Finance

    On May 15, the cities of New York and Los Angeles adopted ordinances that will require banks doing business with those cities to report certain information about their banking and lending activities. In New York, the City Council adopted a Local Law that, once approved by the mayor or passed over the mayor’s veto, will establish a community investment advisory board comprised of city officials, banking industry representatives, community development or consumer protection groups, and small business owners. The board will assess the banking needs of the city and evaluate the performance of the city’s depository banks in meeting those needs. To conduct the assessment and evaluation, the board will collect from depository banks information regarding each institution’s efforts to, among other things, (i) meet small business credit needs, (ii) conduct consumer outreach and other steps to provide mortgage assistance and foreclosure prevention, and (iii) offer financial products for low and moderate income individuals throughout the city. The board will be required to publish the information collected and prepare an annual report, which city officials can consider in deciding with which institutions the city will place its deposits. The ordinance adopted by the Los Angeles City Council establishes a monitoring program headed by the City Treasurer. Under the program, a depository bank doing business with the city or wishing to do so will be required to report each year information regarding its small business, mortgage, and community development lending, as well as information about its participation in foreclosure prevention and principal reduction programs. Investment banks will be required to file a statement describing their corporate citizenship in areas such as participation in charitable programs or scholarships and internal policies regarding the utilization of subcontractors designated as women-owned, minority-owned, or disadvantaged businesses. The disclosures will be posted online for public viewing within 30 days of the beginning of each new fiscal year. The cities of Cleveland, Pittsburgh, Philadelphia, and San Diego already have laws in place designed for the same general purposes, and other cities are considering similar laws.

    Bank Compliance CRA Responsible Banking

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  • Federal Prudential Regulators Issue Final Stress Test Guidance

    Consumer Finance

    On May 14, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation issued guidance on stress tests for banks with more than $10 billion in total consolidated assets. The final guidance provides, in a manner largely consistent with the proposed guidance, principles for banks to follow when conducting stress tests, including: (i) a stress testing framework, (ii) general stress testing principles, (iii) stress testing approaches and applications, (iv) the importance of stress testing in assessing the adequacy of capital and liquidity, and (v) the need for internal governance and controls over the stress testing framework. The regulators amended the final guidance to clarify certain issues raised during the comment period, including changes to (i) incorporate an additional principle for stress testing, (ii) clarify application of the guidance to U.S. branches and agencies of foreign banking organizations, (iii) clarify the role of a bank’s liabilities and operational risk in conducting a stress test, (iv) explain that senior management should have the primary responsibility for stress testing implementation and technical design, and (v) clarify that a banking organization’s minimum annual review and assessment should ensure that stress testing coverage is comprehensive, tests are relevant and current, methodologies are sound, and results are properly considered. In a separate announcement, the banking regulators explicitly addressed concerns raised by community bankers by explaining that community banks are neither required nor expected to conduct the stress tests described above. However, the statement stresses that all banking organizations, regardless of size, should have the capacity to analyze the potential impact of adverse outcomes on their financial condition.

    FDIC Dodd-Frank OCC Bank Compliance

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  • Nationwide Class Certified in Overdraft Litigation

    Consumer Finance

    On May 16, the U.S. District Court for the Southern District of Florida certified a nationwide class of plaintiffs alleging breach of contract, breach of the duty of good faith and fair dealing, unconscionability, unjust enrichment, and violations of state consumer protection statutes with regard to the overdraft practices of a national bank. In re Checking Account Overdraft Litigation, MDL No. 2036, slip op. (S.D. Fla. May 16, 2012). The plaintiffs claim that the bank created a scheme in which it manipulated debit card transactions to increase the number of overdraft fees charged to customers by re-ordering daily transactions from highest to lowest dollar amount, resulting in a higher number of individual overdraft transactions. After a year of class discovery, the court held that the class meets the four prerequisites for certification under Rule 23(a)–numerosity, commonality, typicality, and adequacy. The defendant argued that the claims made by the plaintiffs were similar to questions raised in the Supreme Court’s decision in Walmart v. Dukes, 131 S. Ct. 2541 (2011), where the Court rejected class certification in an employment discrimination suit due to insufficient commonality. The district court disagreed, holding that because the plaintiffs all were subject to the same uniform corporate policy, the reason why each class member was harmed is not at issue, as it was in Dukes. Other bank defendants have faced and continue to face similar allegations in several other suits, including some that have been consolidated with the above action. Several of those defendants have settled, including most recently a $62 million agreement announced on May 11, 2012.

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  • UK Upper Tribunal Finds Bank Executive's Compliance Actions Reasonable, Overturns FSA Decision

    Federal Issues

    The relatively sparse judicial caselaw on the FCPA expanded last week with a new opinion interpreting the “public international organization” language in the statute. In an opinion denying the defense’s Motion to Dismiss an indictment originally brought in 2015, Judge Paul Diamond of the United States District Court for the Eastern District of Pennsylvania found that the FCPA “plainly” applies to public international organizations.  United States v. Dmitrij Harder, No. 2:15-cr-00001 (E.D. Pa. Mar. 2, 2016).  Combined with the Eleventh Circuit’s 2014 opinion in Esquenazi, the contours of the types of foreign government entities subjecting defendants to FCPA sanctions are beginning to be fleshed out.  (Previous FCPA Scorecard coverage of the Esquenazi case can be found here.)

    Dmitrij Harder – a Russian national, German citizen, and U.S. permanent resident – owned and operated two consulting companies that, in 2007 and 2009, assisted two different independent energy companies in obtaining financing from the European Bank for Regional Development (the “EBRD”).  The EBRD is a multilateral development bank founded in 1991 to foster the growth of businesses operating in the former Soviet Union.  Today it invests throughout Europe and is jointly owned by sixty-four countries.

    The DOJ charged Harder in 2015 with 14 counts of violating the FCPA, the Travel Act, and money laundering.  The government alleged that the energy companies entered into agreements with Harder whereby they agreed to pay him success fees upon receiving financing from the EBRD.  After both companies obtained sizable investments from the EBRD – one company received an $85 million investment; the other a $40 million investment and $60 million loan – they allegedly paid Harder success fees totaling almost $8 million.  Shortly after the success fees were paid, Harder allegedly wired payments totaling almost $3.5 million to the sister of an EBRD official.  The government alleged that the sister of the EBRD official entered into sham consulting agreements with Harder’s companies, making it appear that the payments were made for services rendered under the agreements, but no such services were actually performed.

    In arguing for dismissal of the FCPA counts of the indictment, Harder challenged the sufficiency of the Indictment on several bases, including a failure to plead the involvement of a “foreign official,” and that the Indictment impermissibly substituted the phrase “foreign government or instrumentality thereof” with “public international organization” in reciting the fourth of the FCPA’s proscribed corrupt purposes:  “inducing such foreign official []to use his []influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality.”  15 USC 78dd-2(a)(3)(B). 

    On the first challenge, Judge Diamond rejected the idea that officials of EBRD could not qualify as “foreign official[s]” within the FCPA’s prohibitions.  Op. at 6; see also Op. at 8 (noting that “whether EBRD falls within the FCPA’s ambit is necessarily a ‘fact-bound question[]’ properly decided by a jury”).  On the second challenged, Harder had maintained that permitting the government to substitute “public international organization” into the statute would create an entirely new offense with no basis in the statute.  Rejecting this argument, Judge Diamond pointed out that public international organizations are themselves “an association of foreign governments.”  Op. at 7.  He reasoned that refusing to allow this substitution in the language of indictments where a public international organization, rather than a foreign government, is involved would “make it impossible to prosecute any public international organization employee who unlawfully used his position,” calling this “an absurd result” in light of Congress’ decision to include public international organizations within the scope of the FCPA.  Op. at 7.

    Harder also raised two challenges to the constitutionality of the FCPA’s inclusion of the EBRD.  In 1998, the FCPA was amended to include employees of public international organizations within the scope of the Act’s prohibition on certain corrupt payments.  The 1998 amendments brought employees of two groups of public international organizations within the scope of the FCPA; (1) those organizations that the President declares by Executive order are covered by the FCPA, and (2) those organizations identified pursuant to the International Organization Immunities Act  (“the IOIA”), 22 USC 288.   The IOIA allows the President, acting by executive order, to provide public international organizations in which the US participates with legal capacity, certain immunities, and privileges under US law.  In 1991, the EBRD was designated a public international organization under the IOIA, and so it became subject to the FCPA after the 1998 amendments.

    First, Harder argued that the FCPA’s inclusion of the EBRD and other public international organizations violates the non-delegation doctrine, which provides that where Congress delegates legislative authority it must do so with “an intelligible principle” to guide the exercise of the delegated authority.  United States v. Cooper, 750 F.3d 263, 270 (3d Cir. 2014).  Harder argued that Congress, by allowing the President to expand the list of public international organizations covered by the FCPA by executive order, impermissibly delegated its legislative function to the executive branch.  Judge Diamond rejected this argument, finding that the legislative scheme enacted by Congress constrains the President’s ability to add public international organizations to the scope of the FCPA, and that the clearly stated purposes of the FCPA provide sufficient guidance.  Op. at 9-11.

    Second, Harder argued that the FCPA’s inclusion of the EBRD violates the void-for-vagueness doctrine, which provides that a criminal law is void if it fails to define the offense in a way that “ordinary people can understand what conduct is prohibited” and in a way that does not encourage “arbitrary and discriminatory enforcement.”  Skilling v. United States, 561 U.S. 358, 402-403 (2010).  Harder argued that the somewhat circuitous route by which the EBRD was made subject to the FCPA renders the law unconstitutionally vague because it would require individuals to monitor whether a particular public international organization has been the subject of an executive order that subjects it to the FCPA.  Judge Diamond rejected this argument also, finding that an ordinary person could research the status of a public international organization. Judge Diamond also pointed out that there is a publicly available list of all public international organizations subject to the FCPA, and that the FCPA’s knowledge requirement alleviated any concern that a defendant might unwittingly violate the FCPA. Op. at 13.

     

    Financial Services Authority Bank Compliance

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