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State AGs Urge Card Companies to Advance Consumer Protection by Implementing Chip and PIN Technology
On November 16, nine state attorneys general sent a letter urging leading card brands to expedite the implementation of chip and PIN technology in the United States. The letter summarizes research connected to recent data breaches, stating “individuals whose credit or debit cards were breached in the past year were nearly three times more likely to be an identity fraud victim.” Addressing concern that PIN technology would be burdensome or confusing to consumers, the AGs maintain that many consumers are accustomed to financial transactions that rely on PIN technology, such as transactions involving debit cards, and point to a November 2014 poll that indicated cardholders were supportive of chip and PIN technology. The AGs emphasize that PIN technology is “nothing new” and is considered the “gold standard” for payment card security, noting that countries around the world have seen a dramatic decrease in fraud since implementing the technology. Finally, while the letter stresses that chip and PIN technology would better protect both consumers and businesses from data breaches, it does not suggest that the technology be legally mandated at the federal or state level: “[T]his letter calls upon you as good corporate citizens to voluntarily expedite the implementation of existing technology that offers the most substantial security benefits, and to continue to adapt and improve security as quickly as possible as technology advances.”
SEC Reports on Dodd-Frank Whistleblower Program
On November 16, the SEC’s Office of the Whistleblower (OWB) issued its 2015 annual report to Congress on its Whistleblower Program established pursuant to Dodd-Frank. According to the report, in Fiscal Year 2015, the OWB received more than 3,900 whistleblower tips – a 30% increase since 2012, which the SEC attributes to increased public awareness of the program due to Dodd Frank’s implementing rule awarding tipsters 10 to 30 percent of a securities violation when the penalty is greater than $1 million. Additional items to note from the report include: (i) the SEC brought its first enforcement action against a company for using language in confidentiality agreements that impeded a whistleblower from reporting possible securities law violations; (ii) the SEC received whistleblower submissions from all 50 states and the District of Columbia, along with tips from individuals in 95 countries outside of the U.S.; and (iii) the most common complaint categories reported were Corporate Disclosures and Financials, followed by Offering Fraud and Manipulation.
FCC and FTC Issue MOU for Continued Cooperation on Consumer Protection Matters
On November 16, the FCC and the FTC executed a Memorandum of Understanding (MOU) on continued cooperative efforts to protect consumers from unfair or deceptive acts or practices involving telecommunications services. In an effort to formalize existing cooperation among the agencies, the MOU outlines the ways in which the two agencies will continue to work together, including: (i) coordinating agency initiatives where one agency’s action will significantly impact the other agency’s authority or programs; (ii) sharing investigative techniques and tools, intelligence, technical and legal expertise, as necessary, in addition to best practices in response to reasonable requests for such assistance; and (iii) collaborating on consumer and industry outreach and education efforts, as appropriate. Moreover, the MOU identifies the scope of each agency’s enforcement authority with respect to common carriers, and confirms that the 2003 MOU regarding Telemarketing Enforcement between the two agencies remains effective, stating that the most recent MOU should not “be construed as altering, amending, or invalidating that [2003] MOU.”
FDIC Issues Letter to Financial Institutions Regarding Applicability of Payday Lending Rules
On November 16, the FDIC issued FIL-52-2015 to advise financial institutions that it revised its 2005 guidance on payday lending, which established the FDIC’s expectations for prudent risk-management practices in the payday loan industry. The letter emphasizes that the 2005 payday lending guidance, as issued in FIL-14-2005, does not apply to depository institutions offering certain products and services, such as deposit accounts and extensions of credit, to non-bank payday lenders. Specifically, the letter states, “[f]inancial institutions that can properly manage customer relationships and effectively mitigate risks are neither prohibited nor discouraged from providing services to any category of business customers or individual customers operating in compliance with applicable state and federal laws.”
Deputy Attorney General Yates Expands on DOJ's White-Collar Prosecution Policy
On November 16, the DOJ’s Deputy AG Sally Yates delivered remarks at the American Bankers Association and American Bar Association Money Laundering Enforcement Conference. Yates focused her remarks on recent revisions – originally outlined in a September 9 policy memorandum – to the United States Attorney’s Manual (USAM), as follows: (i) updating the corporate criminal cases section, specifically the “Principles of Federal Prosecution of Business Organizations” chapter, or the “Filip factors”; (ii) implementing an entirely new section to the civil cases chapter on enforcing claims against individuals in corporate matters; and (iii) updating its policy on parallel proceedings. First, the DOJ updated the Filip factors and the written guidance accompanying the factors to emphasize individual accountability in corporate cases and company cooperation in the DOJ’s investigation of individual wrongdoing. Yates highlighted the following policy change: “In the past, cooperation credit was a sliding scale of sorts and companies could still receive at least some credit for cooperation, even if they failed to fully disclose all facts about individuals. That’s changed now… providing complete information about individuals’ involvement in wrongdoing is a threshold hurdle that must be crossed before [the DOJ will] consider any cooperation credit.” Yates further noted that the new policy does not change the meaning of attorney-client privilege, but requires companies to turn over all relevant non-privileged information with the expectation that the companies respect the boundaries of attorney-client privilege. The USAM’s new chapter on civil cases mimics the individual accountability policies outlined in the Filip factors revisions, with the DOJ instructing its civil attorneys to abide by the same principles that guide criminal prosecutors’ efforts. Finally, revisions to the USAM’s parallel proceedings policy stress the importance of routine communication between criminal prosecutors and civil attorneys handling white collar matters to ensure a “resolution for both the individual and the corporation that is in the best interest of the public.”
FHA Submits Annual Report to Congress, Capital Reserves Exceed 2%
On November 16, HUD released FHA’s annual report to Congress on the financial condition of its Mutual Mortgage Insurance (MMI) Fund. For the first time since 2008, the report shows that FHA’s MMI fund’s capital ratio exceeds the congressionally required 2% threshold, standing at 2.07%. The report points to FHA policy changes and program improvements as the driving factors behind the improved MMI fund capital ratio. Notably, the report states that the agency’s decision to reduce annual mortgage insurance premiums by a half percent (i) marginally decreased the projected time to reach the 2% capital ratio; (ii) enabled over 75,000 new creditworthy borrowers to purchase homes; and (iii) compensated for the credit risk of the Forward mortgage loan program. Finally, the report highlights the agency’s efforts to reduce risk and improve loss mitigation by making substantial revisions to its credit guidelines, including strengthening its underwriting guidelines to discourage extreme risk layering and prohibiting seller-funded down-payment assistance.
DOJ Settles with For-Profit Education Company Over Alleged FCA Violations
On November 16, the DOJ announced a $95.5 million settlement with the country’s second-largest for-profit education company to resolve alleged federal and state violations of the False Claims Act (FCA). According to the DOJ’s complaint, the company’s admissions personnel received payment based on the number of students they enrolled, a violation of Title IV of the Higher Education Act’s (HEA) Incentive Compensation Ban (ICB) and the Regulatory Safe Harbor. The DOJ alleges that the company misrepresented its compliance with Title IV of the HEA to the Department of Education by certifying in Program Participation Agreements that it had not “paid to any persons or entities any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments, financial aid to students, or student retention.” The Department of Education calculated that, from July 1, 2003 through June 30, 2011, the company, having submitted “a variety of claims to the government for Title IV funding that it [knew] to be false based upon its non-compliance” with the ICB, received more than $11 billion in government funding. Under the terms of the settlement, the $95.5 million will be divided among the United States, the co-plaintiff states, and the whistleblowers and their counsel in the FCA cases filed separately in federal court in Pittsburgh, Pennsylvania and Nashville, Tennessee.
U.S. Department of the Treasury Senior Staff Deliver Remarks Regarding Enforcement Efforts
On November 16, FinCEN Director Jennifer Calvery and Treasury’s Acting Under Secretary Adam Szubin delivered remarks at the American Bankers Association and American Bar Association Money Laundering Enforcement Conference on continued AML enforcement efforts. Szubin focused on the topic of “de-risking,” which he described as “instances in which a financial institution seeks to avoid perceived regulatory risk by indiscriminately terminating, restricting, or denying services to broad classes of clients, without case-by-case analysis or consideration of mitigating options,” and addressed Treasury’s efforts to curtail the negative effects attributed to de-risking, such as preventing access to the dollar and pushing people out of the regulated financial system. Szubin emphasized, however, that the Treasury would not “dilute or roll back [its] AML/CFT standards,” but expects financial institutions to be vigilant when identifying potential risks and to implement AML/CFT programs that effectively address risks associated with illicit financing on a client-by-client basis. In a separate speech, Director Calvery addressed FinCEN’s reliance on Bank Secrecy Act (BSA) data to “uncover risks, vulnerabilities, and gaps in each financial sector,” noting that BSA data supports FinCEN’s ongoing AML enforcement efforts.
Claims Management Company Discloses Possible FCPA Violations
On November 9, an Atlanta-based claims management firm disclosed that it reported possible FCPA violations to DOJ and SEC. The company discovered the possible violations during an internal audit and has since launched an investigation, using outside counsel and external forensic accountants. The company stated that it intends to cooperate with the SEC and the DOJ in this matter, but the filing did not elaborate on the nature or location of the potential violations.
Developments in Uzbekistan Telecommunications FCPA Investigations: Dutch Telecommunications Company Makes Provision in Connection with Investigation; DOJ Names Russian Telecommunications Company in Civil Forfeiture Action
On November 3, a Dutch telecommunications company announced that, based on its assessment of ongoing FCPA investigations, it would make a provision in the amount of $900 million in its third quarter financial statements. The company previously disclosed that the SEC, the DOJ, and the Dutch Public Prosecution Service were conducting investigations related to its business in Uzbekistan and prior dealings with a Gibralter-registered company that negotiates mobile phone licenses on behalf of the Uzbek government.
On November 5, another company under investigation for its conduct in Uzbekistan disclosed that the DOJ referenced it in a civil forfeiture complaint. The DOJ’s complaint was directed at an unnamed Uzbek government official, but the complaint alleged that the company and certain other parties made corrupt payments to the unnamed official to gain access to the Uzbek telecommunications market.