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FinCEN outlines human trafficking red flags for financial institutions
On October 15, the Financial Crimes Enforcement Network (FinCEN) issued Advisory FIN-2020-A008 outlining new financial and behavioral indicators, as well as updated typologies, to help financial institutions identify human trafficking. The advisory highlights four specific typologies human traffickers may use to evade detection and launder illicit proceeds: (i) front companies that may appear to have legitimate registrations and licenses; (ii) exploitative employment practices; (iii) funnel accounts used to transfer funds between geographic areas, often in amounts below the cash reporting threshold; and (iv) alternative payment methods, including payments by “credit cards, prepaid cards, mobile payment applications, and convertible virtual currency.” The advisory includes examples for financial institutions to monitor, such as multiple employees receiving salaries in the same account, or payments that are immediately withdrawn or transferred into another account. FinCEN also notes that human traffickers use third-party payment processors to wire funds in order to conceal the true originator or beneficiary. While the advisory includes a specific list of red flag indicators, FinCEN warns financial institutions to consider additional behaviors, both behavioral indicators and financial indicators when determining whether a transaction may be associated with human trafficking. Financial institutions reporting human trafficking in a suspicious activity report should reference the advisory in the appropriate fields to indicate a connection between the activities involved in the SAR and those described in the advisory.
OFAC sanctions al-Qa’ida facilitator
On October 19, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated an al-Qa’ida facilitator based in Australia and the company he owns for “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” the terrorist organization, pursuant to Executive Order 13224. Specifically, OFAC alleges that the individual and his company are involved in gemstone dealings, which provide the ability to move funds internationally for the benefit of al-Qa’ida. As a result of the sanctions, all property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC further warned foreign financial institutions that knowingly facilitating significant transactions or providing significant financial services to the designated person or entity may subject them to U.S. correspondent account or payable-through sanctions.
OFAC reaches $4.1 million settlement with holding company to resolve Iranian Transactions and Sanctions Regulations violations
On October 20, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a more than $4.1 million settlement with a Nebraska-based multinational conglomerate holding company to resolve 144 apparent violations of the Iranian Transactions and Sanctions Regulations engaged in by its indirectly wholly owned Turkish subsidiary. According to OFAC’s web notice, the Turkish subsidiary, in violation of the company’s compliance policies, allegedly sold goods to two third-party Turkish distributors knowing that the goods “would be shipped to a distributor in Iran for resale to Iranian end-users, including several entities later identified as meeting the definition of the Government of Iran.” The Turkish subsidiary also purchased goods manufactured by other company subsidiaries, and allegedly took measures “to obfuscate its dealings with Iran” and conceal these activities from the company. Employees of certain other company subsidiaries also allegedly received communications revealing that these orders may have been intended for Iranian end users; however only one of these subsidiaries warned the Turkish subsidiary that such transactions were prohibited.
In arriving at the settlement amount, OFAC considered various aggravating factors, including that (i) the Turkish subsidiary’s management “willfully engaged” in prohibited transactions, and certain senior management “intentionally concealed its dealings with Iran”; (ii) certain company subsidiaries had knowledge, or reason to know, that some of the products sent to the Turkish subsidiary were intended for Iran; and (iii) the Turkish subsidiary “demonstrated a pattern of conduct by knowingly engaging in prohibited dealings for approximately three years.”
OFAC also considered various mitigating factors, such as (i) the company voluntarily self-disclosed the apparent violations, and cooperated with the investigation; (ii) the company and its subsidiaries and affiliates signed a tolling agreement; and (iii) the company has undertaken remedial measures, including enhancing its compliance procedures for foreign subsidiaries, to minimize the risk of similar violations from occurring in the future.
SEC issues $800,000 whistleblower award after reconsideration
On October 15, the SEC announced a more than $800,000 award to a whistleblower in connection with two successful agency enforcement actions, after a request for reconsideration. According to the redacted order, the whistleblower contested a preliminary denial and after review, the SEC determined the whistleblower satisfied the program requirements by “author[ing] information containing a detailed analysis that alerted Commission staff to the underlying securities violations.” The order notes that the whistleblower did not provide any further assistance beyond the initial tips.
The SEC has now paid a total of $562 million to 107 individuals since the inception of the program.
FATF adopts new proliferation financing standards, addresses Covid-19 cybercrime
On October 23, the U.S. Department of Treasury announced that the Financial Action Task Force (FATF) concluded its plenary meeting, in which it adopted new standards on proliferation financing. Specifically, FATF adopted amendments to Recommendation 1 and its Interpretive Note that require countries and the private sector to assess and mitigate risks related to “the potential breach, non-implementation or evasion of United Nations (UN) targeted financial sanctions related to proliferation financing.” Treasury notes that the enhanced standards will arm financial institutions and other covered entities with targeted information that can be used to detect shell companies and other entities acting on behalf of designated persons.”
Additionally, FATF noted it will continue its work to identify and assess how cybercriminals are exploiting the Covid-19 pandemic, including the increase in counterfeiting and fraud related to stimulus measures. Lastly, among other things, Treasury notes that FATF adopted a new report on Trade Based Money Laundering (TBML), which has yet to be published, but reportedly “aims to assist both the public and private sectors to better identify and disrupt TBML activity using a risk-based approach.”
FHFA extends Covid-19 flexibilities until November 30
On October 19, the FHFA announced the extension of several loan origination guidelines put in place to assist borrowers during the Covid-19 pandemic. Specifically, FHFA extended until November 30 existing guidelines related to: (i) alternative appraisal requirements on purchase and rate term refinance loans; (ii) alternative methods for documenting income and verifying employment before loan closing; and (iii) expanding the use of power of attorney to assist with loan closings. The extensions are implemented in updates to Fannie Mae Lender Letters LL-2020-03, LL 2020-04, and Freddie Mac Guide Bulletin 2020-37.
FDIC encourages investment in MDIs and CDFIs
On October 16, the FDIC published a resource guide titled, “Investing in the Future of Mission-Driven Banks,” which promotes private and philanthropic investment partnerships with FDIC-insured Minority Depository Institutions (MDIs) and Community Development Financial Institution banks (CDFI banks). According to the guide, there are nearly 250 MDIs and CDFI banks insured by the FDIC, which provide services to “minority, low- or moderate-income (LMI), and rural communities at higher rates than mainstream banks,” and have combined capital of less than $40 billion. The resource guide notes that equity capital investments increase banks’ lending by “multiple[s] of the original investment,” and in some instances, between eight and ten times the original investment. Lastly, certain investments may also qualify for matching funds in existing support programs, and partnerships between banks, private companies, and philanthropic organizations can expand the support.
FTC temporarily halts unlawful debt collection operation
On October 15, the FTC announced that the U.S. District Court for the Northern District of Georgia granted a temporary restraining order against a debt collection operation for allegedly engaging in fraudulent debt collection practices. According to the FTC’s complaint, the operation violated the FTC Act and the FDCPA by, among other things, (i) posing as law enforcement officers, prosecutors, attorneys, mediators, investigators, or process servers when calling consumers to collect debts; (ii) using profane language and threatening consumers with arrest or serious legal consequences if debts were not immediately paid; (iii) threatening to garnish wages, suspend Social Security payments, revoke drivers’ licenses, or lower credit scores; (iv) attempting to collect debts that were either never owed or were no longer owed; (v) unlawfully contacting third parties, such as family members or employers; and (vi) adding unauthorized or impermissible charges or fees to consumers’ debts. The complaint asserts that the operation also refused to provide written verification about the alleged debts as required by the FDCPA. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, contract rescission or reformation, restitution, disgorgement, the appointment of a receiver, immediate access to business premises, an asset freeze, and other equitable relief.
The action is part of the FTC’s “Operation Corrupt Collector”—a nationwide enforcement and outreach effort established last month by the FTC, CFPB, and more than 50 federal and state law enforcement partners to address illegal debt collection practices. (Covered by InfoBytes here.)
FSB releases LIBOR transition roadmap
On October 16, the Financial Stability Board released a “Global Transition Roadmap for LIBOR,” which details the steps financial firms and their clients should take “in order to ensure a smooth LIBOR transition” from now through 2021. In addition to identifying actions that should already be complete, the roadmap details the following steps:
- ISDA Fallbacks Protocol Effective Date. Firms should adhere to the International Swaps and Derivatives Association’s (ISDA) IBOR Fallback Protocol and IBOR Fallback Supplement, which will be launched on October 23 and take effect on January 25, 2021 (covered by InfoBytes here).
- By the end of 2020. Lenders should be able to offer non-LIBOR products to customers.
- By mid-2021. Firms should have identified which contracts can be amended and make contact with other parties to prepare for the use of alternative rates. Firms should execute formalized plans to covert legacy LIBOR contracts to alternative rates.
- By the end of 2021. All new business should be conducted in, or capable of switching immediately to, alternative rates.
For continuing InfoBytes coverage on the LIBOR transition see here.
FHFA extends policy allowing GSEs to buy mortgages in forbearance
On October 21, FHFA announced an extension of a temporary policy related to the Covid-19 pandemic that allows Fannie Mae and Freddie Mac (GSEs) to purchase qualified single-family mortgages in forbearance that meet specific eligibility criteria. The policy is now extended for loans originated through November 30. As previously covered by InfoBytes, in an effort to provide liquidity to ensure continued lending during the Covid-19 pandemic, FHFA is allowing the GSEs to buy certain mortgages that enter forbearance within the first month after loan closing, prior to delivery to the GSEs.
The extensions are implemented in updates to Fannie Mae Lender Letter LL-2020-06, and Freddie Mac Guide Bulletin 2020-41.