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Missouri AG Announces "Robosigning" Indictment
On February 7, Missouri Attorney General Chris Koster announced that a grand jury had returned a 136-count indictment against DOCX, LLC, and its founder, for alleged “robosigning” by forgery and false declarations with regard to mortgage documents. The indictment alleges that the signatures on 68 notarized deeds of release submitted to one county recorder were forged and constituted false declarations. If convicted, the founder could face up to seven years in prison per count, and the company could be fined up $10,000 for each forgery and $2,000 for each false declaration.
Medical Device Manufacturer Resolves FCPA Enforcement Actions for $22.2 Million
On February 6, the U.S. Department of Justice and Securities and Exchange Commission announced resolved FCPA enforcement actions against a domestic medical device manufacturer and its UK-based parent company. The combined monetary sanction totals $22.226 million, and the UK parent must retain an independent compliance monitor for a period of eighteen months. The conduct in question, as alleged in the SEC Complaint, involved the use of three UK shell companies created by a distributor in Greece for use as conduits to make payments to physicians in Greece working “at publicly-owned hospitals [and who were] government employees, providing healthcare services in their official capacities.” The commercial relationship between the device manufacturer and the distributor ended in 2008. More details are available in an update from BuckleySandler’s FCPA Team. To remain current on FCPA and anti-corruption developments, please view BuckleySandler’s FCPA Score Card.
FinCEN Finalizes New Anti-Money Laundering Rules for Nonbank Mortgage Lenders and Originators
On February 7, the Financial Crimes Enforcement Network (FinCEN) released a final rule that subjects nonbank residential mortgage lenders and originators to certain anti-money laundering (AML) regulations already applicable to other types of financial institutions. Under the new regulations, nonbank lenders and originators will be required to establish anti-money laundering programs and file suspicious activity reports (SARs). This final rule follows a proposed rule issued in December 2010. FinCEN noted that this requirement will close a regulatory gap, as well as mitigate some of the money laundering risks and vulnerabilities that have been exploited in the nonbank residential mortgage sector.
The Bank Secrecy Act (BSA) requires FinCEN to promulgate AML rules for “financial institutions,” including “loan or finance companies.” While the BSA does not define “loan or finance company” and the legislative history is silent, FinCEN believes the term should be construed to extend to nonbanks. Based on that interpretation, the final rule, which is substantially similar to the definition included in the proposed rule, alters the existing regulatory definition of “financial institution” to include nonbank residential mortgage lenders and originators. The final rule is intended to cover initial purchase money loans and traditional refinancing transactions facilitated by nonbank lenders and originators. Mortgage servicers are not categorically excluded from the rule and may be covered if they engage in these types of transactions. Notably, this expanded definition is the first step in an incremental approach through which FinCEN eventually will extend the BSA-required AML regulations to other nonbank consumer and commercial loan finance companies.
Under this final rule, a covered nonbank will be required to develop an AML program that includes (i) internal policies, procedures, and controls; (ii) a designated compliance officer; (iii) ongoing employee training; and (iv) a process for independent audits. A covered firm also will have to file a SAR within thirty days of becoming aware of a transaction that (i) involves funds derived from illegal activity or are conducted to hide funds or assets derived from illegal activity; (ii) is designed to evade BSA requirements, (iii) has no business or apparent lawful purpose; or (iv) involves the use of the company to facilitate criminal activity. The rule does not require covered nonbanks to comply with certain other BSA requirements, including currency transaction reports.
The regulations take effect sixty days after being published in the Federal Register. Covered firms will have 180 days after publication to comply. FinCEN now will turn to finalizing a similar proposed rule applicable to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.
If you have questions about the final rule and its implications for your organization, or if you would like help implementing compliance programs to meet the new requirements, please contact a member of our Anti-Money Laundering & Bank Secrecy Act practice group.
D.C. Federal Judge Declares Mistrial For Three Remaining Defendants In Second FCPA Sting Case Trial
On January 31, Judge Richard Leon of the U.S. District Court for the District of Columbia declared a mistrial after a federal jury failed to reach a unanimous verdict on foreign bribery charges against John Mushriqui, Jeana Mushriqui, and Marc Morales, in one of the highest profile Foreign Corrupt Practices Act (FCPA) cases ever brought by the DOJ. BuckleySandler represented John Mushriqui at the nearly four-month jury trial. One day prior to the court declaring a mistrial, the jury acquitted two other defendants of the same charges. At the end of 2011, following the close of the prosecution's evidence, Judge Leon acquitted all defendants of related conspiracy charges, sending one defendant home entirely, and acquitted the Mushriquis of two of the five substantive FCPA charges pending against them. The defendants were charged with paying bribes to a purported government official from the country of Gabon, in connection with contracts to supply Gabon with military and law enforcement products. The Federal Bureau of Investigation's sting operation resulted in the arrests of twenty-two individuals at an industry trade show in Las Vegas in 2010. The first trial of four other defendants also ended in a mistrial in July 2011. Between the two trials regarding the Gabon deal sting, three defendants have been acquitted and seven have proceeded to a hung jury.
Obama Administration Announces New Mortgage-Related and Financial Fraud Programs
On January 27, the U.S. Attorney General officially introduced a special unit that will coordinate federal and state government investigations into residential mortgage-backed securities (RMBS). The unit is being co-chaired by multiple senior officials from the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), as well as New York Attorney General Eric Schneiderman. It will consist of at least fifty-five DOJ attorneys and other investigative staff, and will include the active participation by numerous additional federal and state entities, including the Consumer Financial Protection Bureau. According to a memorandum issued by Attorney General Holder, the working group will focus on, among other things, (i) alleged misrepresentations concerning the quality of mortgages backing the RMBS; (ii) alleged failures by trustees to manage adequately the assets within securitized pools of loans; and (iii) alleged failures by RMBS sponsors to repurchase problematic loans or remit loan proceeds to RMBS trusts. In his remarks introducing the new unit, Attorney General Holder noted that civil subpoenas recently have been issued to eleven financial institutions in connection with this new group's efforts.
The announcement follows President Obama's January 24 State of the Union Address during which he announced this and other mortgage-related and financial fraud initiatives. In his speech, the President publicly asked the U.S. Attorney General to create a special investigative unit comprised of federal prosecutors and state attorneys general to expand existing government investigations of “the abusive lending and packaging of risky mortgages that led to the housing crisis.” The President also outlined a plan he will submit to Congress to expand government support for mortgage refinancing. The costs of the program would be covered by a fee imposed on large financial institutions. Finally, the President announced his intention to establish a “Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud,” and called for Congress to enhance statutory penalties for financial fraud. Previously, Securities and Exchange Commission (SEC) Chairman Mary Shapiro wrote to Congress seeking higher fraud penalties (see InfoBytes, December 2, 2011)
CFPB, DOD, FTC, and State AGs Partner to Develop Enforcement Action Database
On January 25, the CFPB, the Department of Defense, the FTC, and the New York Attorney General announced a partnership to develop the Repeat Offenders Against Military (ROAM) Database to track enforcement actions against entities or individuals engaged in consumer financial frauds against military personnel, veterans, and their families. The database, which should be available by mid-February, will compile publicly available information about completed civil and criminal legal actions and will be accessible and searchable by state attorneys general, U.S. Attorneys, and Judge Advocates from all branches of the armed services. The Consumer Protection Committee of the National Association of Attorneys General already has sent a letter to state attorneys general asking them to populate the new database with their enforcement action information. The FTC noted that the ROAM database will complement its Consumer Sentinel Network, which collects and provides wide access to consumer complaints, including those related to the frauds against servicemembers and their families.
U.S. Sentencing Commission Proposes Harsher Sentences for Securities and Mortgage Fraud
On January 19, the U.S. Sentencing Commission proposed more severe sentencing guidelines for certain securities and mortgage fraud violations. The proposal implements two directives of the Dodd-Frank Act, which require the Commission to re-evaluate penalties in cases involving (i) securities fraud and similar offenses, and (ii) mortgage fraud and financial institution fraud. Generally, the Commission seeks comment on whether the current guidelines appropriately account for potential and actual harm to the public and financial markets from securities, mortgage, and financial institution fraud. With regard to securities fraud, the Commission proposes amendments to address sophisticated insider trading and frauds conducted by individuals holding certain positions of trust. In addressing the mortgage fraud directive, the Commission proposes changes to the calculation of loss in cases of a fraud involving a mortgage loan, including that (i) the loss should be determined by the amount recovered from the foreclosure sale where the collateral has been disposed of at a foreclosure sale; and (ii) reasonably foreseeable administrative costs to the lending institution associated with foreclosing on the mortgaged property may be included as reasonably foreseeable pecuniary harm provided that the lending institution exercised due diligence in the initiation, processing, and monitoring of the loan and the disposal of the collateral. Finally, with regard to more general financial institution fraud, the proposal seeks to provide an enhancement for offenses involving specific financial harms, such as jeopardizing the financial institution. The deadline for written public comments regarding the proposed amendments is March 19, 2012.
DOJ Obtains Settlement of FCPA Charges Against Japanese Trading Company, Loses Trial on FCPA Charges Related to Mexican Electricity Contract
On January 17, the Department of Justice (DOJ) announced the settlement of Foreign Corrupt Practices Act (FCPA) charges against a Japanese trading company for a bribery scheme involving Nigerian government officials in connection with a liquid natural gas project. The company agreed to pay a $54.6 million criminal penalty to resolve the charges. Concurrently, the DOJ filed a deferred prosecution agreement (DPA), as well as a criminal information that will be dismissed if the company abides by the terms of the DPA for two years.
On the same day, following a four-day jury trial, the U.S. District Court for the Southern District of Texas acquitted a former power company executive of multiple FCPA charges related to alleged bribes paid to Mexican officials in connection with an electrical equipment and services contract. The defendant still faces non-FCPA criminal charges, which previously were severed. In 2010, the company settled related charges it faced.
Final FCPA Enforcement Action for 2011 Provides Useful Benchmarks for Anti-corruption Compliance Program Reviews
On December 29, Deutsche Telecom and Magyar Telekom settled FCPA enforcement matters with the US DOJ and SEC for a combined sanction exceeding $95 million. Part of the resolution recited specified minimum compliance program elements that Magyar Telekom is required to institute. BuckleySandler's most recent FCPA Update describes the settlement fully and links to a list of these anti-corruption program elements, which are useful for counsel structuring a corruption risk assessment or compliance program review.