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On July 11, four former bank officers and two of their former customers were indicted in the U.S. District Court for the Eastern District of Virginia on eighteen counts of fraud. Indictment, United States v. Woodard, No. 12-105 (E.D. Va.). The indictment alleges that in the run-up to the financial crisis, the bank more than doubled its assets primarily through brokered deposits, while the directors administered a lending program that violated industry standards and the bank’s internal controls. In connection with the financial crisis, the indictment states, the bank’s loan portfolio deteriorated and the directors conspired to conceal the institution’s financial condition. Ultimately, the bank failed, leaving the federal government insurance fund to cover approximately $260 million in deposits, the indictment claims. In addition to the criminal charges, the U.S. Attorney is seeking forfeiture of the defendants’ assets. Other bank officers, employees, and customers already have pled guilty to related charges.
On July 17, the Senate Homeland Security and Government Affairs Committee, Permanent Subcommittee on Investigations, held a hearing to review money laundering and terrorist financing vulnerabilities that can emerge from certain international banking activities. In connection with the hearing, the Subcommittee released a report about its investigation into past money laundering and terrorist financing compliance failures at one multinational financial institution. The report notes that despite congressional efforts to strengthen anti-money laundering laws (AML), and financial institutions’ diligence in bolstering AML controls, money laundering risks associated with correspondent banking persist. Using the investigation and its findings as a case study, the report reiterates that effective AML compliance programs at U.S. banks should include written standards, sufficient and knowledgeable staff, effective training, and a positive compliance culture. With regard to specific issues that U.S. banks might face with regard to correspondent banking, the report recommends that U.S. banks implement programs that effectively (i) screen high-risk affiliates, (ii) prevent circumvention of OFAC prohibitions, (iii) avoid providing U.S. correspondent services to banks with links to terrorism, (iv) ensure traveler check controls restrict acceptance of suspicious bulk travelers checks, and (v) eliminate bearer share accounts. The report also identifies regulatory gaps and recommends that the OCC (i) treat AML deficiencies as a safety and soundness matter, (ii) develop a policy to coordinate internal divisions conducting AML examinations, (iii) consider the use of formal or informal enforcement actions to address mounting AML failures, and (iv) strengthen AML examinations by citing violations and focusing on specific business units and a bank’s AML program as a whole.
On July 11, President Obama announced that the U.S. is easing sanctions on Burma to allow U.S. companies to responsibly conduct business in Burma. The revised sanctions permit the first new U.S. investment in Burma in nearly 15 years and broadly authorize the exportation of financial services to Burma. Any person that engages in new investment in Burma pursuant to the revised sanctions that exceeds $500,000 is subject to new reporting requirements.
On July 10, medical device manufacture Orthofix International N.V. became the latest in a string of companies in the medical device sector to resolve an FCPA matter with the U.S. government. The settlement adds Orthofix to the list of device manufacturers that have settled FCPA matters in 2012, along with Smith & Nephew and Biomet, who settled in February and March 2012, respectively. The Orthofix FCPA resolution calls for the company to pay a criminal fine to the DOJ of $2.22 million, and a civil monetary sanction (including disgorgement and interest) of $5.2 million to the SEC. The DOJ resolved the matter through a Deferred Prosecution Agreement, which was attached to the company’s 8-K of July 10, 2012, reporting the resolution. According to the allegations in the SEC’s Complaint, Promeca S.A. de C.V, a subsidiary based in Mexico, paid bribes to employees of the government-operated health care system, referring to the payments as “chocolates” and booking inaccurate reimbursement requests as meals, car tires or training expenses. The Mexico subsidiary made approximately $317,000 in improper payments over a 7-year period, according to the SEC. The FCPA resolution follows a June 7, 2012 guilty plea by the U.S. subsidiary, Orthofix Inc., on a False Claims Act-related matter, resulting in $7.8 million fine and payment of over $34 million to resolve a civil action.
FinCEN Announces Public Hearing on Customer Due Diligence Proposal, Releases First Report on Real Estate Title and Escrow Industry SARs
On July 10, FinCEN announced the first in a series of public hearings to collect information related to its proposed rule on customer due diligence requirements for financial institutions. The public hearing, to be held July 31, 2012 at the Treasury Department, is designed to obtain input from the law enforcement and regulatory communities, as well as industry representatives.
On July 11, FinCEN released its first targeted study analyzing Suspicious Activity Reports (SARs) involving the real estate and title escrow industry. As part of its efforts to better understand criminal risks impacting related those industries, FinCEN studied thousands of SARs involving title and escrow companies, often filed in connection with mortgage fraud. The FinCEN release notes that the agency does not currently require title and escrow companies themselves to file SARs, but many such companies have reported suspicious activities to FinCEN. The agency plans to use this and future studies to identify regulatory gaps and assess appropriate solutions to close those gaps and mitigate risk.
FinCEN Offers Guidance on Application of BSA Regulations to Daily Money Management Services and Prepaid Card Vendors
A major global financial company (“Company”) and a Hong Kong subsidiary (“Subsidiary”) agreed on November 17, 2016, to pay approximately $264 million to the DOJ, SEC, and the Federal Reserve, putting an end to a nearly three year, multi-agency investigation of the Subsidiary’s “Sons and Daughters” referral program through which the children of influential Chinese officials and executive decisions makers were allegedly given prestigious and lucrative jobs as a quid pro quo to retain and obtain business in Asia. The conduct occurred over a seven year period, included the hiring of approximately 100 interns and full-time employees at the request and referral of Chinese government officials, and resulted in more than $100 million in revenues to the Company and approximately $35 million in profit to the Subsidiary.
The Subsidiary entered into a non-prosecution agreement and agreed to pay a $72 million criminal penalty, as well as to continue cooperating with the ongoing investigation and/or prosecution of individuals involved in the conduct. Additionally, the Subsidiary agreed to enhance its compliance programs and report to DOJ on the implementation of those programs. DOJ asserts in its press release that the Subsidiary admitted that, beginning in 2006, senior Hong Kong-based investment bankers set up the referral program as a means to influence the decisions of Chinese officials to award business to the Subsidiary, going so far as to link and prioritize potential hires to upcoming business opportunities, as well as to create positions for unqualified candidates where no appropriate position existed. The Subsidiary also admitted that its bankers and compliance personnel worked together to paper over these arrangements and hide the true purpose of the hire.
DOJ acknowledged that while the Subsidiary did not voluntarily or timely disclose its conduct, in determining an appropriate resolution DOJ considered a number of actions taken by the Company, including the commencement of a thorough internal investigation, the navigation of foreign data privacy law to produce documents from foreign countries, and the provision of access to foreign-based employees for interviews in the US. Additionally, DOJ considered the employment actions taken by the Subsidiary, which resulted in the departure of 6 employees and the discipline of 23 employees.
In connection with the same conduct, the Company also settled allegations with the SEC and the Federal Reserve. In a cease and desist order filed today, the SEC found that the Company violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934. The SEC considered the Company’s remedial actions and cooperation with the ongoing investigation, ordering the Company to pay over $105 million in disgorgement and $25 million in interest. Finally, in a consent cease and desist order filed today, the Federal Reserve Board imposed an approximately $62 million civil monetary penalty on the Company for operating an improper referral hiring program and failing to maintain adequate enterprise-wide controls to ensure candidates were vetted and hired appropriately and in accordance with anti-bribery laws and company policies. This order, among other things, requires the Company to enhance its oversight and controls of referral hiring practices and anti-bribery policies, as well as to continue cooperating with the ongoing investigation.
Buckley Sandler Continues Expansion With Addition of Andrew W. Schilling, Former Chief of the Civil Division of the U.S. Attorney's Office for the Southern District of New York
BuckleySandler LLP today announced the addition of Andrew W. Schilling, former Chief of the Civil Division of the U.S. Attorney's Office for the Southern District of New York. Mr. Schilling joins as a partner in the firm's New York office. The arrival of Schilling coincides with that of Thomas A. Sporkin, Chief of the Office of Market Intelligence (OMI) at the Securities and Exchange Commission. Mr. Schilling and Mr. Sporkin bring significant expertise to the firm, particularly with respect to federal civil and criminal enforcement and securities investigations, the False Claims Act, Dodd-Frank and other whistleblower qui tam actions.
As Chief of the Civil Division, Mr. Schilling supervised one of the largest Civil Divisions in the country, with 57 Assistant U.S. Attorneys in eight specialized units. In this role, Mr. Schilling established the Office's new Civil Frauds Unit, which investigates and prosecutes complex financial fraud cases, including mortgage fraud and health care fraud cases. Schilling directly supervised several nationally significant financial fraud lawsuits and investigations against major financial institutions and coordinated all parallel civil investigations with the Office's Criminal Division. An experienced trial attorney both in private practice and in his 12 years as an Assistant United States Attorney, Mr. Schilling has tried cases before juries and the bench in civil rights, organized crime, bankruptcy, employment discrimination, First Amendment and official misconduct cases, and represented the United States in more than a dozen appeals before the United States Court of Appeals for the Second Circuit.
"As financial services and other corporate entities continue to grapple with increased scrutiny and regulations, it is important for our clients to have a team with broad experience in defending against complex enforcement and criminal prosecutions working on their behalf," explained BuckleySandler Chairman and Executive Partner, Andrew L. Sandler. "Andrew and Tom have unique, in-depth knowledge and understanding of complex civil, criminal and enforcement matters and our clients will have the added benefit of access to the invaluable insights they both have to offer as former senior leaders in key government enforcement agencies."
"Joining BuckleySandler was a natural choice for me given its nationally recognized and highly regarded government enforcement practice," noted Schilling. "I look forward to joining the firm's New York office and using my 20 years of experience litigating in the federal and state courts of New York to help the firm's financial services and corporate clients navigate through sensitive investigations and complex litigations."
BuckleySandler LLP and eight of its partners have received top rankings in Chambers USA, which ranks leading firms and lawyers in a range of practice areas throughout the United States based on in-depth client and peer research. This year, Chambers USA recognized BuckleySandler as “one of the preeminent legal brands in the consumer finance market,” and ranked it highly in both Financial Services Regulation: Banking (Enforcement & Investigations) and Financial Services Regulation: Consumer Finance (Compliance). Chambers USA provided individual attorney recognition to seven partners in one or more of these Financial Services categories, recognized Andrew L. Sandler as a “Star Individual” in Financial Services Regulation: Consumer Finance (Litigation), and recognized David S. Krakoff in District of Columbia Litigation: White-Collar Crime & Government Investigations.
According to Chambers USA, BuckleySandler is noted for “its impressive enforcement and litigation talent, and represents some of the world's most high-profile financial institutions in a host of enforcement actions.” Chambers further highlights BuckleySandler’s regulatory work by saying “[the firm] was recently commissioned by a number of national banks to produce an exhaustive 50-state survey of all state and federal laws affecting lending businesses.”
“We are pleased that Chambers USA has once again ranked our firm and so many of our partners. This recognition is all the more meaningful because Chambers’ research methodology focuses on peer and client review and thereby validates our commitment to outstanding legal work and client service,” said BuckleySandler Chairman and Executive Partner, Andrew L. Sandler.
Specifically, their Chambers USA designations are as follows:
Financial Services Regulation: Banking (Enforcement & Investigations)
- Firm Ranked Band 2
- Andrew L. Sandler (Band 1)
- Benjamin B. Klubes (Band 3)
Financial Services Regulation: Consumer Finance (Compliance)
- Firm Ranked Band 1
- Jeremiah S. Buckley (Band 1)
- Joseph M. Kolar (Band 1)
- Andrew L. Sandler (Band 1)
- John P. Kromer (Band 3)
- Jeffrey P. Naimon (Band 3)
- Clinton Rockwell (Band U – Up and Coming)
District of Columbia
Litigation: White-Collar Crime & Government Investigations
- David S. Krakoff (Band 2)
Jeremiah S. Buckley is ranked as Band 1 in Financial Services Regulation: Consumer Finance (Compliance). Chambers says Mr. Buckley “is another example of the firm's astonishing bench strength in the mortgage space. He is praised as "a reliable, quality counsel who is straightforward, candid and energetic."
Benjamin B. Klubes is ranked as Band 3 in Financial Services Regulation: Banking (Enforcement & Investigations). Clients say Mr. Klubes is a "very talented litigation and enforcement expert” and "one of the real leaders in this space."
Joseph M. Kolar is ranked as Band 1 in Financial Services Regulation: Consumer Finance (Compliance). Clients say that he “is singled out as one of the leading mortgage banking lawyers in the country, and noted for his strategic advice and encyclopedic knowledge of federal regulations. He assists mortgage lenders, servicers and insurers, and is ‘extraordinarily good at research and analysis.’"
David S. Krakoff is ranked as Band 2 in DC Litigation: White-Collar Crime & Government Investigations. According to Chambers, “clients describe him as ‘a superb lawyer who is very dedicated.’”
John P. Kromer is ranked as Band 3 in Financial Services Regulation: Consumer Finance (Compliance). Clients report that "he is a joy to work with," with one hailing him as "a true expert in the industry."
Jeffrey P. Naimon is ranked as Band 3 in Financial Services Regulation: Consumer Finance (Compliance). Chambers quotes sources as saying Mr. Naimon is "certainly a thought leader" in the mortgage servicing space, with "his finger on the pulse of what is going on in the mortgage industry.”
Clinton R. Rockwell is ranked as “Up and Coming” in Financial Services Regulation: Consumer Finance (Compliance). Sources are quoted as saying, "it is one thing to provide strict legal advice but it is another to provide practical solutions, and [Mr. Rockwell] does a great job of that."
Andrew L. Sandler is ranked as a Band 1 lawyer in Financial Services Regulation: Consumer Finance (Compliance), as a Band 1 lawyer in Financial Services Regulation: Banking (Enforcement & Investigations), and as a “Star Individual” in Financial Services Regulation: Consumer Finance (Litigation). Chambers says that he “has consolidated his position as one of the leading financial services attorneys in the USA. His broad practice covers enforcement, litigation and compliance, with a focus on consumer finance and the mortgage industry. Sources consider him to be ‘probably the best fair lending lawyer in the country.’"
On April 23, the Financial Crimes Enforcement Network (FinCEN) released an update on mortgage loan fraud suspicious activity reports (SARs) for 2011. The report indicates that mortgage fraud SARs increased 31 percent in 2011 compared to 2010, a spike that FinCEN states is directly attributable to mortgage repurchase demands and special filings generated by several institutions. Based on a sample analysis, FinCEN found that in 40 percent of cases resulting in a SAR, the institution turned down the subject’s loan application, short sale request, or debt elimination because of the suspected fraud, indicating improvement in mortgage lending due diligence. Among other things, the report highlights short sales, appraisals, and identity theft as new fraud patterns in 2011 SARs.
On July 28, NCR Corporation, a leading global provider of ATM machines, announced that the SEC had decided not to pursue an enforcement action following an investigation of the company’s FCPA compliance. In 2013, the company disclosed that an anonymous whistleblower had alleged various FCPA and other violations in China, the Middle East (including Syrian sanctions issues), and Africa. The company stated that it had investigated internally and determined the allegations to be without merit. The company then disclosed the matter to the SEC and the DOJ, both of whom requested additional information. The company did not provide an update regarding the status of the DOJ’s inquiries.
- Daniel R. Alonso to discuss "The international compliance situation and new challenges" at the World Compliance Association Covid Compliance Conference
- Benjamin W. Hutten to discuss "Understanding OFAC sanctions" at a NAFCU webinar
- Garylene D. Javier to discuss "Navigating workplace culture in 2020" at the DC Bar Conference