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Federal Reserve orders Chinese bank to correct BSA/AML controls
On March 12, the Federal Reserve Board (Fed) entered into a consent order with a Chinese bank (bank) and its New York branch (branch) in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s order, a recent examination identified “significant deficiencies” in the branch’s BSA/AML compliance and risk management controls. The consent order requires, among other things, the bank and branch submit within 60 days: (i) a written governance plan to achieve compliance with BSA/AML requirements; (ii) a system to identify and assess risks associated with all products and customers, including “politically exposed persons”; (iii) an enhanced customer due diligence program plan; and (iv) a compliance program to ensure accurate suspicious activity monitoring and reporting. The bank and branch are further required to engage an independent third party acceptable to the Fed to review their dollar-clearing transaction activity in the second half of 2016 “to determine whether suspicious activity involving high-risk customers or transactions” was properly flagged. The order imposes no financial penalty.
Several companies report developments in FCPA investigations
In the second half of February, at least three unrelated companies have publicly disclosed the existence and/or status of various FCPA investigations in forms filed with the SEC:
- Data analytics company: On February 23, a data analytics company disclosed that the DOJ and SEC have both declined to pursue FCPA enforcement actions in connection with a subsidiary’s “questionable expenditures for travel, gifts and other expenses” in Turkey. As the Dayton, Ohio-based company previously disclosed on August 4, 2017, the company initiated an internal investigation after discovering the questionable expenditures, self-reported the issues to the DOJ and SEC, cooperated with the agencies, and undertook certain remedial actions.
- Dialysis provider: On February 27, a dialysis provider disclosed that the DOJ and SEC are investigating potential FCPA violations related to “certain conduct in the company’s products business in a number of countries,” and that it has reserved €200 million for a potential settlement with the agencies. After receiving “certain communications alleging conduct in countries outside the U.S. that might violate the FCPA or other anti-bribery laws” in 2012, the Bad Homburg, Germany-based company conducted an internal investigation, self-reported the issues to the DOJ and SEC, cooperated with the agencies, and undertook certain remedial actions.
- Energy company: On February 28, an energy company disclosed that the DOJ and SEC have both declined to pursue FCPA enforcement actions in connection with “self-reported [accounting] errors and possible irregularities” at an Italian subsidiary conducting business in the Middle East. In April 2016, the Houston-based company previously disclosed that it was restating its 2015 financial statements and conducting an internal investigation related to the accounting issues. Although “the SEC’s investigation related to the circumstances giving rise to the restatement is continuing,” the FCPA piece of the investigation has concluded.
- Data analytics company: On February 23, a data analytics company disclosed that the DOJ and SEC have both declined to pursue FCPA enforcement actions in connection with a subsidiary’s “questionable expenditures for travel, gifts and other expenses” in Turkey. As the Dayton, Ohio-based company previously disclosed on August 4, 2017, the company initiated an internal investigation after discovering the questionable expenditures, self-reported the issues to the DOJ and SEC, cooperated with the agencies, and undertook certain remedial actions.
French pharmaceutical company announces DOJ declination in FCPA investigation
As previously covered, a French pharmaceutical company announced in October 2014 that it was investigating whether certain payments made by company employees to healthcare professionals in the Middle East and Africa violated the FCPA. The company launched an investigation to review payments made from 2007 to 2012 as a result of anonymous whistleblower allegations, and self-reported the allegations to the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). On March 7, 2018, the company announced in its Form 20-F SEC filing that the DOJ notified the company in February 2018 that it was closing the inquiry into the self-reported whistleblower allegations. The company is continuing to cooperate with the SEC’s review of the allegations.
OFAC reissues North Korean Sanctions Regulations
On March 1, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) published a final rule in the Federal Register to amend and reissue the North Korea Sanctions Regulations in their entirety. The final rule implements Executive Orders 13687, 13722, and 13810, references the North Korea Sanctions and Policy Enhancement Act of 2016 and the Countering America’s Adversaries Through Sanctions Act of 2017, and provides the Treasury Secretary, “in consultation with the Secretary of State, additional tools to disrupt North Korea’s ability to fund its weapons of mass destruction and ballistic missile programs.” All property and interests in property of the Government of North Korea and the Workers’ Party of Korea are blocked, transactions by U.S. persons involving the sanctioned entities are generally prohibited, and “all transactions within the United States, including all financial transactions that transit the U.S. financial system, must comply with OFAC regulations.” Among other things, the final rule (i) incorporates several general licenses previously only available on OFAC’s North Korea Sanctions page; (ii) adds several new general licenses; (iii) adds and expands provisions to provide the public with a more comprehensive set of regulations; (iv) updates certain regulatory provisions; and (v) makes other technical and conforming changes. The final rule takes effect March 5, 2018. Also released the same day were updates to OFAC’s North Korea-related FAQs.
See here for previous InfoBytes coverage on North Korean sanctions.
OCC announces enforcement action against Washington-based bank citing BSA/AML compliance deficiencies
On February 28, the OCC issued a consent order against a Washington-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. The consent order requires the bank to, among other things, (i) maintain a Compliance Committee responsible for ensuring the bank adheres to the consent order’s provisions; (ii) appoint a BSA officer who will ensure compliance with the requirements of the BSA and the Office of Foreign Assets Control’s rules and regulations; (iii) implement an enhanced BSA/AML Risk Assessment Program, including the adoption of written policies to ensure the timely review of BSA/AML suspicious activity alerts and the implementation of an automated suspicious activity monitoring system; (iv) conduct a risk-based “Look-Back” to determine whether suspicious activity was timely identified and reported by the bank; (v) develop policies and procedures for enhanced customer due diligence to monitor information for risk; (vi) implement an independent BSA/AML audit program; and (vii) create a comprehensive training program for appropriate bank personnel. The bank did not admit to any wrongdoing in the consent order.
GAO studies effect of Southwest border banks "derisking" due to BSA/AML concerns
On February 26, the Government Accountability Office (GAO) released a report, which describes Bank Secrecy Act/anti-money laundering (BSA/AML) compliance challenges facing Southwest border banks, examines the impact “derisking” has had on banking services in this region, and evaluates responses by regulators to “derisking” concerns. “Derisking” is defined by GAO as “the practice of banks limiting certain services or ending their relationships with customers to, among other things, avoid perceived regulatory concerns about facilitating money laundering.” According to GAO, because the region has a high volume of cash and cross-border transactions, as well as a large number of foreign accountholders, banks are required to engage in more intensive and frequent monitoring and investigating to comply with BSA/AML requirements. Due to some Southwest border residents and businesses reporting challenges when trying to access banking services in the region, GAO was asked to undertake a review to determine if the access problems were due to “derisking” and branch closures.
Among other things, the report found that (i) the average number of suspicious activity reports filed in the region was two and a half times the number for high-risk counties outside the region; (ii) 80 percent of banks in the region terminated accounts due to risks related to BSA/AML; (iii) 80 percent limited or did not offer accounts to certain businesses considered high risk for money laundering and terrorist financing because those customers drew heightened BSA/AML regulatory oversight; and (iv) money-laundering risks were a more important driver of branch closures in the region than elsewhere. GAO discovered that BSA/AML regulatory concerns may be a factor in banks’ decisions to engage in “derisking” in the region, and that “the actions taken to address derisking by the federal bank regulators and the Financial Crimes Enforcement Network (FinCEN) and the retrospective reviews conducted on BSA/AML regulations have not fully considered or addressed these effects.” The account terminations and limitations, along with branch closures in the region, have raised concerns that the closures have “affected key businesses and local economies and . . . economic growth.”
GAO recommended that FinCEN, FDIC, Federal Reserve Board, and the OCC (the agencies) conduct a comprehensive review of their BSA/AML regulatory framework to assess how banks’ regulatory concerns may be affecting their decisions to provide banking services. It also recommended that the agencies jointly conduct a retrospective review of BSA/AML regulations and their implementation and revise BSA regulations as necessary to “ensure that BSA/AML regulatory objectives are being met in the most efficient and least burdensome way.”
OFAC sanctions target North Korea’s shipping and trading industry
On February 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) imposed additional sanctions targeting the North Korean shipping and trading industry. The sanctions include the designation of 27 entities, 28 vessels, and one individual consistent with the Countering America’s Adversaries Through Sanctions Act of 2017. Treasury Secretary Steven T. Mnuchin stated, “Treasury is aggressively targeting all illicit avenues used by North Korea to evade sanctions, including taking decisive action to block the vessels, shipping companies, and entities across the globe that work on North Korea’s behalf. This will significantly hinder the Kim regime’s capacity to conduct evasive maritime activities that facilitate illicit coal and fuel transports, and erode its abilities to ship goods through international waters.” All property or interests in property held by the sanctioned individual and entities within U.S. jurisdiction must be blocked, and transactions between the designated persons and Americans are also prohibited.
Separately, OCAC issued a global shipping advisory in conjunction with the U.S. Department of State and the U.S. Coast Guard to, among other things, (i) outline methods employed by North Korea to facilitate illicit transactions to evade sanctions; (ii) list due diligence steps companies should employ to monitor illicit North Korean activity and mitigate the risk of potentially engaging in prohibited activity or transactions; and (iii) provide an overview of penalties associated with violating U.S. or UN sanctions.
See here for previous InfoBytes coverage on North Korean sanctions.
Houston-based energy company sues former Venezuelan government officials for bribery related conduct related to national oil company
On February 16, 2018, a Houston-based energy corporation that formally dissolved in May 2017 filed suit in the Southern District of Texas against two former presidents of a Venezuelan national oil company and others who allegedly worked for them. According to the complaint filed by the energy company, Venezuela’s Ministerio del Poder Popular de Petroleo y Mineria twice refused to allow the company to sell energy assets co-owned with the oil company because the energy company refused to pay bribes requested by the defendants. According to the energy company, the denials forced the company to sell the same assets at a loss of $470 million. The energy company has sued the defendants alleging civil violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), the Sherman Act, the Robinson-Patman Act, and the Texas Free Enterprise and Antitrust Act.
This suit was filed days after the DOJ unsealed charges against five former Venezuelan government officials for their involvement in a money laundering scheme at the oil company. Previous FCPA Scorecard coverage of the ongoing DOJ and ICE-HIS investigation into bribery at the national oil company can be found here.
DOJ unseals charges against former Venezuelan government officials for money laundering and FCPA violations in state-owned energy company scheme
On February 12, the DOJ unsealed charges against five former Venezuelan government officials for their involvement in a money laundering scheme at Venezuela’s state-owned energy company. The five defendants are each charged with conspiracy to commit money laundering. Two defendants are also charged with conspiracy to violate the FCPA.
Four of the defendants were arrested in Spain in October 2017 on arrest warrants based on an indictment filed in the Southern District of Texas last August. One has been extradited from Spain, while the others are pending extradition.
The indictment alleges that the five defendants possessed significant influence within the company, which permitted them to solicit vendors for “bribes and kickbacks in exchange for providing assistance to those vendors in connection with their [company] business.” The company vendors included residents of the U.S. and vendors who owned U.S.-based businesses. According to the indictment, two company vendors transferred more than $27 million to accounts in Switzerland that were connected to two of the defendants. The two company vendors previously pleaded guilty in the Southern District of Texas to FCPA charges related to the bribery of company officials.
The charges are part of an ongoing investigation by the DOJ and ICE-HSI into bribery at the company, which has resulted in charges against fifteen individuals, ten of whom have pleaded guilty.
DOJ concludes FCPA investigation into network consulting company
A California-based network consulting company announced in a February 9 8K filing that the DOJ has concluded its investigation into possible FCPA violations without taking action against the company. The company disclosed the FCPA investigation by the DOJ and the SEC in August 2013, but has not publicly disclosed any further details about the possible FCPA violations. The recent filing stated that the DOJ’s letter acknowledged the company’s “cooperation in the investigation.” The filing also noted that the FCPA investigation by the SEC is still pending.