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On February 13, the U.S. Attorney for the Eastern District of California announced a $3.67 million joint settlement with HUD and the Fair Housing Administration (FHA) to resolve allegations that a mortgage lender violated the False Claims Act by falsely certifying compliance with FHA mortgage insurance requirements. According to the settlement agreement, between 2007 and 2009, the mortgage lender, a participant in HUD’s Direct Endorsement Lender program, allegedly knowingly submitted false claims to the FHA loan insurance program by failing to ensure the loans qualified for FHA insurance when they were originated. The announcement notes that the settlement relates solely to allegations, and that there has been no determination of actual liability by the mortgage lender, which did not admit to liability in the settlement.
Hawaiian executive's bribery guilty plea leads to Micronesian official charged with money laundering conspiracy
On February 11, the Department of Justice (DOJ) unsealed conspiracy to commit money laundering charges against a Micronesian government official alleged to have taken bribes to secure engineering and project management contracts from the government of the Federated States of Micronesia (FSM). The charges follow the recent guilty plea by a Hawaiian executive to a charge of conspiracy to bribe the Micronesian official in violation of the FCPA.
According to the DOJ, a Micronesian citizen was a government official in the FSM Department of Transportation, Communications and Infrastructure who administered FSM’s aviation programs. Between 2006 and 2016, the Hawaiian executive’s Hawaii-based engineering and consulting company allegedly paid around $440,000 in bribes in the form of cash, vehicles, and entertainment to FSM officials, including the citizen, to obtain and retain contracts with the FSM government valued at nearly $8 million. The complaint unsealed on Monday contains specific examples of requests by the citizen to the executive for cash gifts and a 2014 Chevy Silverado. According to the executive’s guilty plea, he fulfilled the citizen’s requests and sent wire transfers and the automobile internationally for the citizen’s personal use.
On February 11, the DOJ announced a $2.5 million settlement with a South Carolina university to resolve allegations that the university violated the False Claims Act (FCA) by submitting false claims to the U.S. Department of Education. According to the announcement, between 2014 and 2016, the university hired a company, which was partially owned by the university, to recruit students to the university and paid the company based on the number of students who enrolled in university programs, in violation of the prohibition on paying incentive compensation in Title IV of the Higher Education Act. The co-owner of the company originally brought a qui tam lawsuit against the university and will receive $375,000 from the settlement.
On February 7, the DOJ announced a $750,000 settlement with a New Jersey-based mortgage company resolving allegations that the company violated the Servicemembers Civil Relief Act (SCRA) by foreclosing on homes owned by servicemembers without first obtaining the required court orders. The complaint, which was filed on the same day as the settlement, alleges that between 2010 and 2012 the company foreclosed on six homes of SCRA-protected servicemembers. Under the SCRA, lenders must obtain a court order before foreclosing on a servicemember’s home during, or within one year after, active military service, provided that the mortgage originated before the servicemember’s period of military service. The settlement requires the company to, among other things, (i) pay $125,000 to each affected servicemember; (ii) provide staff training to prevent unlawful foreclosures in the future; and (iii) notify the DOJ of future SCRA complaints.
On January 28, DOJ announced charges against the former chief executive and a former senior vice president of a Barbados-based insurance company. The indictment alleges that the the company's executives participated in a scheme to launder approximately $36,000 in bribes to the then-Minister of Industry of Barbados in exchange for his assistance in securing government contracts for the company. According to the indictment, the bribes were laundered through a United States bank account in the name of a dental company located in New York. The former Minister of Industry was arrested in August 2018 and the indictment against him referenced, but did not name, his alleged co-conspirators. The superseding indictment against the three co-defendants and another still unnamed former insurance executive was unsealed on January 18, 2019. Prior Scorecard coverage of the arrest and indictment of the former Minister of Industry can be found here.
The company voluntarily self-disclosed the case to DOJ and received a declination letter from DOJ for its cooperation pursuant to the FCPA Corporate Enforcement Policy. The declination letter required the company to disgorge $93,940.19 in profits received through the conduct at issue. The declination was based, in part, on the company’s termination of all executives and employees involved in the alleged misconduct and in helping DOJ identify the culpable individuals. Prior Scorecard coverage of the declination letter can be found here.
On January 14, the DOJ released an opinion broadening the application of the U.S. Wire Act’s prohibition on interstate gambling, concluding that the act also applies to non-sports-related betting. In a reconsideration of its 2011 opinion, which found the act only prohibited sports gambling, the DOJ’s opinion, dated November 2018, states that the act’s limitation “on any sporting event or contest” only applies to the prohibition against transmitting “information assisting in the placing of bets or wagers.” The other prohibitions under Section 1804(a) will now apply to interstate non-sports-related gambling so long as the other elements of the statute are satisfied. The DOJ acknowledged that the decision will likely be tested in the courts, and noted that if Congress finds it appropriate to protect contrary interests, “it retains ultimate authority over the scope of the statute and may amend the statute at any time, either to broaden or narrow its prohibitions.”
On December 21, the DOJ announced a $4.25 million settlement with a Michigan-based servicer in connection with alleged violations of the False Claims Act related to the servicing of federally-insured home equity conversion mortgages (reverse mortgages). According to the DOJ, for the period between November 2011 and May 2016, the servicer allegedly failed to meet eligibility requirements for receiving FHA insurance payments on interest that accrued after reverse mortgages became due and payable, including meeting deadlines for obtaining property appraisals, commencing foreclosure proceedings, and/or prosecuting the foreclosure proceedings to completion. As a result, mortgagees on relevant reverse mortgage loans obtained additional interest payments they were not entitled to receive. The claims were resolved by the settlement without a determination of liability.
On December 26, 2018, an American communication technology company (the company) entered into an administrative order to settle claims by the SEC that the company violated the books and records and internal accounting controls provisions of the FCPA. The alleged conduct involved improper payments made through distributors and resellers its subsidiary in China (the subsidiary) to Chinese government officials from 2006 through 2014 in an effort to obtain business from public sector customers.
According to the administrative order, at the instruction of the Vice President of the subsidiary, sales personnel used a sales management system outside of the U.S.-based company-approved database to parallel-track sales to public sector customers in China. The scheme involved providing discounts to distributors and resellers that were used to cover the costs of payments to Chinese government officials. These discounts were not passed on to the end customer, and the purpose of those discounts was not tracked in the company-approved database. The subsidiary's sales personnel were also instructed by the VP to use non-company email addresses when discussing and arranging these deals.
Pursuant to the administrative order, the company will pay to the SEC approximately $10.7 million in disgorgement, $1.8 million in prejudgment interest, and a $3.8 million civil monetary penalty.
On the same day, DOJ released a December 20, 2018 declination letter settling its investigation of the same conduct. Pursuant to the declination letter, the company agreed to disgorge approximately $10.15 million to the U.S. Treasury Department and $10.15 to the U.S. Postal Inspection Service Consumer Fraud Fund.
In settling these matters, both the SEC and DOJ cited the company’s identification of the misconduct, thorough internal investigation conducted by outside counsel, prompt voluntary disclosure, full cooperation, and remediation efforts. The company’s lauded cooperative efforts included making certain employees available for interviews, as well as producing all requested documents and translating large volumes of those documents from Mandarin to English. The remedial efforts cited included termination of eight employees and discipline of eighteen others, termination or reorganization of certain channel partner relationships, enhancement of third party oversight, and improvements to anticorruption and related trainings provided to China-based employees (certain materials of which had previously not been translated into Mandarin, the first language of many of the subsidiary employees).
On December 19, the United States Attorney for the Southern District of New York announced it filed charges against a Kansas-based broker-dealer for allegedly willfully failing to file a suspicious activity report (SAR) in connection with the illegal activities of one of its customers in violation of the Bank Secrecy Act (BSA). According to the announcement, this is the first criminal BSA action ever brought against a U.S. broker-dealer. The allegations are connected to the actions of the broker-dealer’s customer, who was the owner of a Kansas-based payday lending scheme that was ordered to pay a $1.3 billion judgment for making false and misleading representations about loan costs and payments in violation of the FTC Act (previously covered by InfoBytes here). The U.S. Attorney alleges the broker-dealer, among other things, failed to follow its customer identification procedures, disregarded “red flags that were known prior to [the customer] opening the accounts,” and continued to ignore additional red flags that arose over time. Additionally, the U.S. Attorney alleges the broker-dealer failed to monitor transactions using its anti-money laundering (AML) tool, which led to numerous suspicious transactions going undetected and unreported until long after the customer was convicted at trial for his actions in the scheme.
Along with the announcement of the filing, the U.S. Attorney’s Office further stated it had entered into a deferred prosecution agreement with the broker-dealer in which it agreed to accept responsibility for its conduct, pay a $400,000 penalty, and enhance its BSA/AML compliance program.
The SEC also settled with the broker-dealer for the failure to file the SARs. The settlement requires the broker-dealer to hire an independent consultant to review its AML and customer identification program and implement any recommended changes. The independent consultant will monitor for compliance with the recommendations for two years.
On December 17 and 19, press reports indicate Malaysian prosecutors filed criminal charges against a New York-based financial institution and numerous individuals, including former executives of the financial institution, in connection with their alleged roles in a multi-billion bribery and money laundering scheme involving Malaysia sovereign wealth fund.
Malaysian prosecutors charged the financial institution with making false and misleading statements when raising money for the fund. Among individuals, a former participating managing director of the financial institution, and a former managing director, also were charged. These charges follow the U.S. government’s investigation and charges related to the same scheme.
As detailed in prior FCPA Scorecard coverage, the former participating managing director pleaded guilty in November to Conspiracy to Violate the FCPA and Conspiracy to Commit Money Laundering and agreed to forfeit $43.7 million. The DOJ charged the former managing director with similar offenses and, according to press reports, is fighting extradition to the United States.
According to press reports, in response to the filing of the criminal charges in Malaysia, the financial institution stated: “Under the Malaysian legal process, the firm was not afforded an opportunity to be heard prior to the filing of these charges against certain financial institution entities, which we intend to vigorously contest. These charges do not affect our ability to conduct our current business globally.”
The DOJ has not charged or reached a resolution with the financial institution, which previously announced that it was cooperating with the DOJ’s and all regulators’ investigations. The announcement of the Malaysian charges suggests that the U.S. DOJ and Malaysian prosecutors may not be coordinating efforts.
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program