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Financial Services Law Insights and Observations


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  • Jury convicts former French power company executive of multiple FCPA, money laundering and conspiracy offenses

    Financial Crimes

    On November 8, the DOJ announced that a jury had returned a guilty verdict against a British national and former French power and transportation company executive who was accused of bribing Indonesian officials to secure a power contract. Following a two-week trial, the jury convicted the former executive on six counts of violating the FCPA, three counts of money laundering, and two counts of conspiracy. As previously covered by InfoBytes, while the French company pleaded guilty in 2014, and three other executives—each of whom worked for the French company’s U.S.-based subsidiary—entered guilty pleas, the trial for the former executive (originally indicted in 2013) was delayed as he challenged the reach of the FCPA. The U.S. Court of Appeals for the Second Circuit held in 2018 that a non-resident foreign national lacking sufficient ties to a U.S. entity could not be charged with conspiring or aiding and abetting something that he could not be directly charged with, because he was “not an agent, employee, officer, director, or shareholder of an American issuer or domestic concern” within the scope of the FCPA’s jurisdictional provision and had not himself committed a crime inside the U.S. The 2nd Circuit also determined, however, that the former executive could still be charged with FCPA offenses, as the DOJ had signaled its intention to prove he “was an agent of a domestic concern,” which would place him “squarely within the terms of the statute.”

    According to the DOJ’s press release, it presented evidence at the trial to show that the former executive violated the FCPA by overseeing and supporting the U.S.-based subsidiary’s efforts to win the contract with the bribery scheme, including pressing the U.S. subsidiary to structure the payment terms to a consultant used as an intermediary in the scheme to “get the right influence.” The former executive and his co-conspirators allegedly helped arrange the payment of bribes to Indonesian officials by assisting in the U.S. subsidiary’s retention of two consultants, purportedly to provide legitimate consulting services on behalf of the subsidiary but with the intention of employing them to pay and conceal the bribes. The DOJ observed in its release that the former executive and his co-conspirators were successful in securing the contract from Indonesia’s state-owned and state-controlled electricity company and “subsequently made payments to the consultants for the purpose of bribing the Indonesian officials.”

    Sentencing is scheduled for January 31, 2020 in the U.S. District Court for the District of Connecticut.

    Financial Crimes DOJ FCPA Bribery Of Interest to Non-US Persons

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  • CFPB argues private class action settlement interferes with its CFPA enforcement authority


    On November 6, the CFPB filed an amicus brief with the Court of Appeals of Maryland in a case challenging a private class action settlement against a structured settlement company, which purports to “release the Bureau’s claims in a pending federal action, to enjoin class members from receiving benefits from the Bureau’s lawsuit, and to assign any benefits the Bureau might obtain for class members to the class-action defendants.” As previously covered by InfoBytes, in 2017, the U.S. District Court for the District of Maryland allowed a UDAAP claim brought by the CFPB to move forward against the same structured settlement company, where the Bureau alleged the company employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. A similar action was also brought by the Maryland attorney general against the company. In addition to the state and federal enforcement actions, the plaintiffs filed a private class action against the company, and a trial court approved a settlement. The Court of Special Appeals reversed the lower court’s approval of the settlement, concluding that it “interferes with the [state’s] and Bureau’s enforcement authority.” The company appealed.

    In its brief to the Maryland Court of Appeals, the Bureau argues that the Court of Special Appeals decision should be affirmed because the settlement provisions “threaten to interfere with the Bureau’s authority under the [Consumer Financial Protection Act] in two significant ways.” Specifically, the Bureau argues that the settlement (i) could interfere with the Bureau’s statutory mandate to remediate consumers harmed through the Civil Penalty Fund; and (ii) would interfere with the Bureau’s authority to use restitution to remediate consumer harm. The Bureau states that “the risk of windfalls to such wrongdoers could force the Bureau to decline to award Fund payments to victims,” and would “threaten to offend basic principles of equity.”

    Courts CFPB CFPA Civil Money Penalties Enforcement Class Action Settlement State Attorney General UDAAP

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  • DOJ charges short sale negotiators with fraud

    Federal Issues

    On November 8, the DOJ announced that it charged the principals and co-founders (collectively, “defendants”) of a mortgage short sale assistance company with allegedly defrauding mortgage lenders and investors out of half a million in proceeds from short sale transactions. The DOJ also alleged the defendants’ actions defrauded Fannie Mae, Freddie Mac, and HUD. According to the announcement, from 2014 to 2017, the defendants negotiated with lenders for approval of short sales in lieu of foreclosure, and falsely claimed during settlement that the lenders had agreed to pay loss mitigation service fees from the proceeds of short sales. The defendants allegedly obtained around 3 percent of the short sale price from the settlement agent, which was separate from fees paid to real estate agents and closing attorneys, among others. In order to further deceive lenders, the defendants would then file fabricated documents to justify or conceal the additional fees being paid to the company. The defendants were charged with conspiracy to commit wire fraud, and one co-founder was also charged with aggravated identity theft.

    Federal Issues DOJ Mortgages Fraud Enforcement Fees

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  • 2nd Circuit denies three petitioners seeking whistleblower awards for SEC settlement


    On November 8, the U.S. Court of Appeals for the Second Circuit denied petitions from three whistleblowers seeking awards following a $55 million settlement between the SEC and a global financial institution, which the SEC previously denied. According to the opinion, multiple individuals disclosed information to the SEC during an investigation into the financial institution’s financial statements. In 2015, the SEC reached a settlement with the institution, and nine whistleblower claimants filed applications to receive awards based on the information they provided. The SEC granted the applications for two claimants and denied the rest. The three individuals involved in this action were denied the awards because the SEC concluded that the individuals “did not provide ‘original information that led to a successful enforcement action,’” as required by the Securities and Exchange Act’s whistleblower provisions. Specifically, for the two named individuals, the SEC determined that it had already received the information they provided through an individual known as “Claimant 2,” who had previously submitted an expert report prepared by the two individuals to the SEC. The appellate court agreed with the determination made by the SEC, concluding that “their [] submission did not significantly contribute to the success of the [] action; Claimant 2ʹs submissions did.” The appellate court noted that the individual’s expert report did not qualify for Rule 21F‐4’s “original source exception,” which was designed to treat information submitted to another federal agency as though it had been submitted to the SEC directly.

    As for the third, unnamed individual, the appellate court also denied the petition, concluding that the unnamed individual’s interpretation of the whistleblower program would “disincentivise whistleblowers from curating their submissions.” Specifically, the SEC asserted that the unnamed individual “‘appeared to be very disjointed and had difficulty articulating credible and coherent information concerning any potential violation of the federal securities laws’” and “‘brought with him to the meeting a wet brown paper bag containing what he claimed to be evidence.’” The SEC further noted that the documents were “jumbled and disorganized” and ultimately used similar information brought by a subsequent whistleblower. The appellate court noted that “[a] whistleblower might still be rewarded for being the first to bring incriminating information to the SECʹs attention, but only if that information is contained in a credible, and ultimately useful submission.”

    Courts SEC Whistleblower Second Circuit Appellate

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  • CFTC reaches $14 million settlement with bank over swap dealer standards


    On November 8, the CFTC announced a $14 million settlement with a national bank to resolve allegations that the bank violated swap dealer business conduct standards in its foreign exchange trading business. Among other things, the bank allegedly failed to properly price a $4 billion foreign exchange forward contract with a counterparty when it selected a rate it “believed would be in the range of the true weighted average and thus acceptable to the counterparty,” instead of calculating a “weighted average rate based on actual spot trades.” According to the CFTC, at the time the bank did not have a system in place to accurately track trades used to fill the counterparty’s order and ensure compliance with policies and procedures regarding communicating with counterparties in a fair and balanced manner. (The bank has since cured these deficiencies.) The bank, which has neither admitted nor denied the findings, agreed to pay a $10 million civil money penalty and $4.47 million in restitution (previously paid to the counterparty) under the terms of the settlement order.

    Securities CFTC Foreign Exchange Trading

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  • FinCEN renews GTOs covering 12 metropolitan areas, legal entities that are U.S. publicly-traded companies not required to report

    Financial Crimes

    On November 8, the Financial Crimes Enforcement Network (FinCEN) announced the renewal of its Geographic Targeting Order (GTO), which requires U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in 12 major metropolitan areas. While the purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the 12 covered areas, FinCEN modified the renewed GTO to note that it “will not require reporting for purchases made by legal entities that are U.S. publicly-traded companies. Real estate purchases by such entities are identifiable through other business filings.”

    The renewed GTO takes effect November 12 and covers certain counties within the following areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.

    FinCEN FAQs regarding GTOs are available here.

    Financial Crimes FinCEN GTO Of Interest to Non-US Persons

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  • OFAC announces settlement with aviation investment company for sanctions violations

    Financial Crimes

    On November 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $210,600 civil settlement with a U.S. aviation investment company to resolve 12 alleged violations of the Sudanese Sanctions Regulations (SSR), which prohibit U.S. persons from dealing in property and interests in property of the Government of Sudan. The settlement addressed allegations that the company leased three aircraft engines to a United Arab Emirates-incorporated entity, which then subleased the engines to a Ukrainian airline that had the engines installed on an aircraft that was “wet leased” to a Sudanese airline. According to OFAC, the company violated SSR regulations because OFAC’s List of Specially Designated Nationals and Blocked Persons identified the Sudanese airline as meeting the definition of “Government of Sudan” at the time of the alleged transactions.

    In arriving at the settlement amount, OFAC considered various mitigating factors, including that (i) company personnel were not aware of the conduct leading to the alleged violations; (ii) OFAC has not issued a violation against the company in the five years preceding the earliest date of the transactions at issue; and (iii) the company cooperated with the investigation. OFAC also noted that the company undertook several remedial measures in response to the alleged violations, including implementing additional compliance processes such as improving its “Know-Your-Customer screen procedures” and employee training, and obtaining “U.S. law export compliance certificates from lessees and sublessees.”

    OFAC also considered various aggravating factors, including that the violations harmed U.S. sanctions program objectives, and that the company failed to properly monitor the precise whereabouts of the engines during the life of the leases.

    Financial Crimes Department of Treasury OFAC Settlement Of Interest to Non-US Persons Sanctions

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  • Government says CFPB should have authority to continue enforcement actions even with an unconstitutional ruling


    On November 6, the CFPB and the DOJ filed a brief with the U.S. Supreme Court arguing that the Bureau should still “have the authority to commence or continue enforcement proceedings” in the event that the Court declares the Bureau’s structure unconstitutional. The brief was filed in response to a petition for writ of certiorari by two Mississippi-based payday loan and check cashing companies (collectively, “petitioners”) urging the Court to grant certiorari before the U.S. Court of Appeals for the Fifth Circuit renders a decision on a challenge to the Bureau’s single-director structure. The petitioners are not only challenging the Bureau’s structure but also arguing that the asserted constitutional violation requires the dismissal of the underlying lawsuit brought by the Bureau.

    The government argues that dismissal of the underlying enforcement action is not the way to remedy a constitutional structure violation, at least in a situation where “an official fully accountable to the President determines that it should go forward.” The brief notes that, in this case, then-Acting Director Mulvaney, to whom the Bureau has argued the limitation to for-cause removal did not apply, had ratified the enforcement action against petitioners at issue. While the Bureau and the DOJ acknowledge that lower courts “have not yet addressed the particular issue here,” they make the case that “the few reasoned decisions that address related issues are in accord: A separation-of-powers problem with an agency does not compel invalidation of the agency’s actions if those actions are subsequently approved in compliance with separation-of-powers requirements.”

    In its brief, the Bureau and the DOJ also argue that questions presented to the Court do not warrant review of the case before the 5th Circuit has an opportunity to rule. The government emphasizes that the Court has already agreed to hear a different case, Seila Law LLC v. CFPB, to answer the question of whether an independent agency led by a single director violates the Constitution’s separation of powers under Article II (covered by InfoBytes here). In doing so the Court also directed the parties to that action to brief and argue whether 12 U.S.C. §5491(c)(3), which established removal of the Bureau’s single director only for cause, is severable from the rest of the Dodd-Frank Act, should it be found to be unconstitutional.

    Courts CFPB Single-Director Structure U.S. Supreme Court Fifth Circuit Appellate

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  • Federal Reserve proposes compliance extension for final rule setting foreign banks’ single-counterparty credit limit

    Agency Rule-Making & Guidance

    On November 8, the Federal Reserve Board announced a proposal to extend the initial compliance dates for foreign banks subject to its single-counterparty credit limit rule by 18 months, which would require the largest foreign banks to comply by July 1, 2021 and smaller foreign banks to comply by January 1, 2022.

    As previously covered by InfoBytes, in June 2018, the Federal Reserve Board approved a rule to establish single-counterparty credit limits for U.S. bank holding companies with at least $250 billion in total consolidated assets, foreign banking organizations operating in the U.S. with at least $250 billion in total global consolidated assets (as well as their intermediate holding companies with $50 billion or more in total U.S. consolidated assets), and global systemically important bank holding companies (GSIBs). The rule, which implements section 165(e) of the Dodd-Frank Act, requires the Board to limit a bank holding company’s or foreign banking organization’s credit exposure to an unaffiliated company. Under the rule, a GSIB’s credit exposure is limited to 15 percent of its tier 1 capital to another systemically important firm. A U.S. bank holding company and other applicable foreign institution is limited to a credit exposure of 25 percent of its tier 1 capital to a counterparty.

    Comments on the proposal to extend the compliance dates will be accepted for 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve GSIBs Dodd-Frank Of Interest to Non-US Persons

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  • FDIC, bank reach settlement over RESPA violations

    Federal Issues

    On November 6, the FDIC announced that a Washington-based bank agreed to settle allegations that it violated RESPA by paying fees to real estate brokers and homebuilders in exchange for mortgage business referrals. Section 8(a) of RESPA “prohibits giving or accepting a thing of value for the referral of settlement service involving a federally related mortgage loan.” According to the FDIC, the bank’s discontinued mortgage banking line allegedly entered into arrangements with real estate brokers and homebuilders to co-market services through online platforms. The FDIC also alleged that the bank’s mortgage banking business rented desk space in brokers’ and homebuilders’ offices, which resulted in the payment of fees by the bank for referrals of mortgage loan business. The FDIC further stated, “While co-marketing arrangements and desk rental agreements are permissible where the fees paid bear a reasonable relationship to the fair market value of marketing or rental costs, such arrangements and agreements violate RESPA when the amounts paid exceed fair market value and the excess is for referrals of mortgage business.” The bank, which has neither admitted nor denied the charges, has agreed to pay a $1.35 million civil money penalty under the terms of the settlement order, and has terminated all of its co-marketing and desk rental agreements.

    Federal Issues FDIC RESPA Enforcement Mortgages

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