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  • State Law Update: Several States Alter Mortgage and Other Consumer Finance Laws

    Consumer Finance

    On August 31, 2015, the DOJ announced that Vadim Mikerin, the former president of TENAM Corporation and a director of the Pan American Department of JSC Techsnabexport (TENEX), pleaded guilty to conspiracy to commit money laundering in connection with arranging over $2 million in bribes for contracts with the Russian state-owned nuclear energy corporation.  TENEX, a subsidiary of Russia’s State Atomic Energy Corporation, is based in Moscow and acts as the sole supplier and exporter of Russian Federation uranium and uranium enrichment services to nuclear power companies worldwide.  Mr. Mikerin admitted to conspiring to transfer funds from the United States to offshore accounts with the intent to perpetuate a bribery scheme in violation of the FCPA.  These bribes were made to influence the award of contracts to transport down-blended uranium to US nuclear utility providers.   As part of Mr. Mikerin’s plea agreement, he agreed to forfeit over $2.1 million he received in bribes.  Mr. Mikerin is expected to be sentenced in December, and faces up to five years in prison and a $250,000 fine.

    In addition to Mr. Mikerin, two other individuals, Darren Condrey and Boris Rubizhevsky, have pleaded guilty for their respective involvement in the scheme, including conspiracy to violate the FCPA and commit wire fraud, and conspiracy to commit money laundering, respectively.

    Foreclosure Mortgage Licensing Nonbank Supervision Auto Finance

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  • Suit Challenging Charges for Minors' In-App iTunes Purchases Survives Motion to Dismiss

    Fintech

    On August 13, the U.S. District Court for the District of Connecticut held in the individual prosecution of Lawrence Hoskins, a former executive of the U.K. division of Alstom Power, S.A., a French power and transportation company, that the government cannot charge a non-resident foreign national with conspiracy to violate the FCPA if he is not subject to direct liability under the statute due to lack of jurisdiction.  United States v. Hoskins, No. 3:12-CR-238 (D. Conn. Aug. 13, 2015).

    Under the FCPA’s anti-bribery provisions, jurisdiction extends to three types of individuals and entities: (1) domestic concerns, defined as U.S. citizens, residents, or nationals, or any company organized under the laws of a U.S. territory or having its principal place of business in the U.S.; (2) a United States issuer of securities, or any officer, director, employee, or agent thereof; and (3) any person who while in United States territory commits an act in furtherance of an FCPA violation.  See 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3.  The government, however, has maintained a more expansive view of the FCPA’s jurisdiction.  As detailed in its FCPA Resource Guide, the government has argued that “[a] foreign national or company may also be liable under the FCPA if it aids and abets [or] conspires with . . . an issuer or domestic concern, regardless of whether the foreign national or company itself takes any action in the United States.”  This theory of liability was recently tested in Hoskins.

    In Hoskins, the government alleged that Hoskins approved and authorized payments to consultants retained for the sole purpose of paying bribes to Indonesian government officials to secure a contract to build power stations for Indonesia’s state-owned electric company.  Initially the indictment alleged that Hoskins was an agent of Alstom’s U.S. subsidiary, and thus an agent of a domestic concern.  That count of the indictment was later amended to allege that he conspired by acting “together with” a domestic concern to violate the FCPA.  Hoskins moved to dismiss the count, arguing that an individual cannot be prosecuted for conspiracy to violate the FCPA when he himself is not subject to the statute’s jurisdiction.

    The district court agreed and applied the doctrine set forth in Gebardi v. United States, 287 U.S. 112 (1932):  where Congress passes a criminal statute that excludes a certain class of individuals from liability, the government cannot evade congressional intent by charging those same individuals under a conspiracy or aiding and abetting theory of liability.  The court examined the FCPA’s text and legislative history and determined that Congress did not intend to extend accomplice liability to non-resident foreign nationals who are not otherwise subject to direct liability.  The court ultimately ruled that the government would have to prove at trial that Hoskins was acting as an agent of a domestic concern – and therefore subject to direct liability – in order to allege that he conspired to violate or aided and abetted a violation of the FCPA.

    Mobile Commerce

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  • Key Considerations in Drafting Mobile Disclosures

    Fintech

    Recent developments at the FTC and CFPB provide some guidance on how regulators may approach disclosures on smartphones and other mobile devices.

    The recent CFPB Remittance Rule on international remittance transfers indicates some flexibility in the provision of disclosures in the remittances context via a mobile device. Additionally, the FTC’s recent report on best practices in consumer data privacy notes the difficulty in providing privacy notices on the smaller screens of mobile devices and encourages shorter, more effective privacy policies as a result.

    These developments raise a series of questions for corporate counsel to consider when advising on the drafting and delivery of mobile disclosures. Specifically, questions include:

    1. Is the length of the mobile disclosure document as brief and succinct as it can be? Does it use concrete, everyday words and the active voice? Do the disclosures avoid multiple negatives, technical jargon and ambiguous language?
    2. Are the mobile disclosures presented in a logical sequence? Are they laid out in clear, concise sentences, paragraphs and sections? Are they placed in equal prominence to each other, absent any other specific regulatory format or placement requirements? Is the content placed on a particular page appropriate for the sizing of the page on the mobile screen? If not, are textual or visual cues used to encourage scrolling?
    3. Does the mobile disclosure "call attention to itself?" Is it on a screen the mobile user must access or will likely access frequently? If not, is it behind a hyperlink on an introductory screen that is clearly labeled so as to convey the importance of the linked disclosure? Is it presented with a clear, visible heading and an easy-to-read typeface and typesize?
    4. Have various technical and other applicable industry standards been consulted in the process of designing, developing and displaying mobile disclosures?

     

    Payment Systems Mobile Banking Privacy/Cyber Risk & Data Security

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  • CFPB Puts Consumer Lenders on Notice Regarding Discriminatory Practices

    Consumer Finance

    The CFPB today put consumer lenders on notice that it “will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers.” The CFPB intends to employ disparate impact when examining auto lenders, credit card issuers , student lenders, mortgage lenders, and other providers of consumer credit, allowing the CFPB to claim an institution has engaged in discriminatory lending based on the effects and not the intent of the lending practices. In remarks to the National Community Reinvestment Coalition today, CFPB Director Richard Cordray stated that “[t]he consequences of ‘disparate impact’ discrimination are very real and they affect consumers just as significantly as other forms of discrimination.” To help consumers identify and avoid credit discrimination, the CFPB also compiled and released new lending discrimination “tips and warning signs.”

    Concurrent with the announcement, the CFPB published Bulletin 2012-04 to specifically reaffirm its commitment to applying  disparate impact when conducting supervision and examination under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. In support of this application, the CFPB cites what it refers to as the “consensus approach” outlined by a 1994 interagency Policy Statement on Discrimination in Lending, which notes court findings that discriminatory lending in violation of ECOA can be established through (i) overt evidence of discrimination, (ii) evidence of disparate treatment, and (iii) evidence of disparate impact. The CFPB also argues that the ECOA legislative history, as characterized in the original Regulation B adopted by the Federal Reserve Board, supports application of the disparate impact doctrine.

    Credit Cards CFPB Nonbank Supervision Auto Finance Fair Lending

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  • How to Respond to a Subpoena: 10 Things You Should Do Immediately

    Financial Crimes

    On July 28, NCR Corporation, a leading global provider of ATM machines, announced that the SEC had decided not to pursue an enforcement action following an investigation of the company’s FCPA compliance.  In 2013, the company disclosed that an anonymous whistleblower had alleged various FCPA and other violations in China, the Middle East (including Syrian sanctions issues), and Africa.  The company stated that it had investigated internally and determined the allegations to be without merit.  The company then disclosed the matter to the SEC and the DOJ, both of whom requested additional information.  The company did not provide an update regarding the status of the DOJ’s inquiries.

    Enforcement State Attorney General

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  • CFPB Previews Mortgage Servicing Rules

    Lending

    On April 9, the CFPB previewed its upcoming mortgage servicing rules, which likely will be proposed this summer and finalized in January 2013. The key aspects of the proposal relate broadly to (i) monthly mortgage statements, (ii) ARM adjustment disclosures, (iii) force-placed insurance, (iv) payment crediting, (v) error resolution and borrower inquiries, and (vi) borrower outreach and borrower information. The majority of the details were provided in an outline prepared for a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel, which will consider the potential impact of the planned rules on small businesses. The outline includes model forms related to periodic statements, ARM reset notices, and force-placed insurance notices, which the CFPB has been testing in recent months. The CFPB release also included questions directed to the small entity representatives in order to assist the SBREFA panel in understanding the potential economic impacts of the particular proposals under consideration by the CFPB. Generally, the servicing proposals incorporate statutory changes imposed by the Dodd-Frank Act, which would go into effect in January 2013 unless final rules are issued on or before that date. The concepts in the proposal that do not address specific Dodd-Frank requirements are consistent with servicing requirements imposed by recent mortgage servicing consent orders and/or recent requirements for servicing delinquent loans owned by or serviced on behalf of Fannie Mae or Freddie Mac (see, e.g., Federal Reserve Board Consent Orders and Fannie Mae Ann. SVC 2011-08R).

    CFPB Fannie Mae Federal Reserve Mortgage Servicing

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  • CFPB Issues Bulletin Regarding Supervision of Vendors

    Consumer Finance

    On April 13, the CFPB issued Bulletin 2012-3, which states the CFPB's expectation that supervised banks and nonbanks have an effective process for managing the risks of service provider relationships. In a press release announcing the Bulletin, the CFPB promised to “take a close look at service providers’ interactions with consumers” and “hold all appropriate companies accountable when legal violations occur.” According to the Bulletin, the CFPB expects supervised institutions to (i) conduct thorough due diligence to verify that a service provider understands and is capable of complying with the law, (ii) request and review a service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities, (iii) include in the contract with a service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities; (iv) establish internal controls and on-going monitoring to determine whether a service provider is complying with the law, and (v) take prompt action to address fully any problems identified through the monitoring process.

    CFPB Nonbank Supervision

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  • CFPB Proposes Narrowing Application of Credit Card Fee Limit

    Consumer Finance

    Although not yet confirmed by the SEC, media reports suggest that the SEC has opened several investigations of publicly traded companies who contracted with FIFA. Indictments in the FIFA cases have alleged that certain companies paid kickbacks to officials of FIFA and related organizations in order to win marketing and apparel contracts.  The specific companies targeted in the SEC’s new probe have not yet been named.  Without the apparent involvement of a foreign official in the FIFA cases, presumably the SEC will be focusing on the books and records and internal controls provisions of the FCPA, along with other potential violations.

    Previous FCPA Scorecard coverage of this investigation can be found here.

    Credit Cards CFPB TILA Federal Reserve

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  • Fourth Circuit Holds State Debt Collection Law Not Preempted by National Banking Act

    Consumer Finance

    On July 17, the DOJ announced that Louis Berger International Inc. (“LBI”) had agreed to enter into a Deferred Prosecution Agreement to resolve the DOJ’s FCPA investigation into the New Jersey-based construction management company’s operations in India, Indonesia, Vietnam, and Kuwait.  LBI also agreed to pay a $17.1 criminal penalty.  LBI admitted that it bribed foreign officials to secure government construction management contracts around the world.  According to the company’s admissions regarding a conspiracy to violate the anti-bribery provisions of the FCPA, from 1998 to 2010, LBI concealed $3.9 million in corrupt payments through various methods, including (i) using inflated and fictitious invoices that were used for the payments of bribes through intermediaries, and (ii) paying fictitious “commitment fees,” “counterpart per diems,” “marketing fees,” and “field operation expenses.”

    Under the terms of the DPA, the DOJ will defer criminal prosecution of LBI for a period of three years and the company will retain an independent compliance monitor for three years.  In addition, Richard Hirsch of the Philippines and James McClung of the United Arab Emirates, both former executives of LBI, each pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA.  They are scheduled to be sentenced on Nov. 5, 2015.

    Continuing its recent trend, the DOJ emphasized the company’s self-disclosure and cooperation, as well as remediation efforts.

    Auto Finance Debt Collection

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  • Florida Appeals Court Holds Servicer's Verified Allegation Insufficient to Establish Standing in Foreclosure Suit

    Lending

    On April 4, the District Court of Appeal for the Fourth District of Florida reversed a trial court decision requiring a commercial borrower to make payments to the servicer of a securitized trust pending a foreclosure action because the servicer did not properly plead standing. Elston/Leetsdale, LLC v. CWCapital Asset Management LLC, No. 4D11-3151, 2012 WL 1108531 (Fla. 4th DCA Apr. 4, 2012). In this case, the borrower executed a promissory note as evidence of a loan, and secured payment by executing a mortgage, security agreement, and an assignment of lease and rents. The lender assigned its rights to a trust company, which in turn assigned the rights to another trust, who is now the owner and holder of all the loan documents. The servicer for the trust filed a foreclosure action in its own name, alleging in the verified complaint that it was duly authorized by the trust to take all action to protect the interests of the trust. The servicer also sought continued payment pending the foreclosure action, which the trial court granted. The borrower challenged the servicer’s standing to bring suit on behalf of the trust, which the trial court rejected. The appeals court found that the servicer’s evidence in support of its standing, which was nothing more than its own allegations and affidavit, was insufficient.  Instead the court noted that in other cases in which courts found that a servicer had established standing, the trustee joined the action or ratified the servicer’s commencement of the lawsuit through an affidavit. The appellate court reversed the trial court payment order and remanded for further proceedings.

    Foreclosure

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