InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
SEC announces $6.3 million FCPA settlement with largest South Korean telecommunications company
On February 17, the SEC announced that South Korea’s largest telecommunications company agreed to pay $6.3 million to settle the SEC’s claims that the company violated the books and records and internal accounting controls provisions of the FCPA. According to the SEC, the company “lacked sufficient internal accounting controls over expenses, including executive bonuses and purchases of gift cards, which enabled managers and executives to generate slush funds.” This allegedly allowed company employees to provide improper benefits and payments to government officials in Korea and Vietnam and to seek business from government customers.
With respect to the company’s conduct in Korea, the SEC alleged that from “at least 2009 through 2017, high-level [company executives] maintained slush funds, comprised of both off-the-books accounts and physical stashes of cash, in order to provide items of value to government officials, among others.” These slush funds were then allegedly used for gifts and entertainment, as well as illegal political contributions to Korean government officials who had the ability to influence company business. The SEC also stated that between 2015 and 2016, the company allegedly made more than $1.6 million in payments to three organizations at the request of high-level government officials. All these payments were recorded as either charitable donations or sponsorships, and the company took no measures to determine whether the payments were legitimate donations, the SEC said.
Concerning the company’s conduct in Vietnam, the SEC alleged that between 2014 and 2018, company employees “internally discussed providing money to third parties connected to government officials in Vietnam in order to obtain contracts for two projects.” The company allegedly arranged with a construction company to pay roughly $95,000 to a high-level official in 2014 in order to obtain a contract, and then later allegedly falsely booked a $200,000 payment to the construction company as “[s]upport/consulting for performance of the business (completed).” During this time, the SEC claimed the company “lacked sufficient internal accounting controls regarding third parties and no relevant compliance policies regarding due diligence,” and allegedly “took no meaningful steps in response to allegations of improper payments in connection with the contracts.”
Without admitting or denying wrongdoing, the company consented to a cease and desist order, and agreed to pay approximately $3.5 million in civil penalties and $2.8 million in disgorgement and prejudgment interest. The company and 14 executives were indicted by South Korean authorities in November 2021 for criminal violations related to political contributions.
OFAC sanctions additional Mexican national linked to narcotics trafficking
On February 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 14059 against a Mexican national for his role in facilitating various illicit activities in Puerto Vallarta, Jalisco, Mexico on behalf of the Cartel de Jalisco Nueva Generacion (CJNG). CJNG “uses this renowned tourist destination as a strategic stronghold not only for drug trafficking but also money laundering, extortion, kidnappings, and assassinations,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson stated. “Treasury will continue working with U.S. partners and the Mexican government to expose and disrupt CJNG, from its leadership to its facilitators.” The designated individual joins other previously designated businesses and individuals linked to CJNG for playing “critical roles in CJNG’s drug trafficking activities, including money laundering.” As a result of the sanctions, the designated individual’s property located in the U.S. or held by U.S. persons is blocked and must be reported to OFAC. Additionally, OFAC regulations generally prohibit U.S. persons from participating in transactions with the designated individual.
FCC proposes record $45 million fine against robocaller
On February 18, the FCC released a proposed $45 million fine against a lead generator accused of conducting an illegal robocall campaign that made false claims about the Covid-19 pandemic to induce consumers into purchasing health insurance. This is the FCC’s largest ever proposed robocall fine to date. According to the FCC, the lead generator violated the TCPA by placing 514,467 robocalls to cellphones and landlines without subscribers’ prior express consent or an emergency purpose. The Florida-based lead generator allegedly purchased lists of phone numbers from third-party vendors and acquired phone numbers from consumers seeking health insurance quotes online, “without clearly disclosing that, by providing contact information, the consumers would be subject to robocalls.” It then left prerecorded voice messages marketing insurance plans sold by companies that had hired the lead generator. Many of these robocalls, the FTC claimed, were also unlawfully made to consumers on the Do Not Call Registry. FCC Chairwoman Jessica Rosenworcel issued a statement announcing that, in addition to the record fine, the Commission also established a new partnership with 16 state attorneys general in order to share information and resources to mitigate robocalls.
FOMC adopts investment and trading activity rules
On February 18, the Federal Reserve Board announced that the Federal Open Market Committee (FOMC) adopted new comprehensive rules for the investment and trading activity of senior officials that were first announced in October 2021. The rules aim to enhance public confidence in the impartiality and integrity of the Committee's work. The new rules prohibit senior Federal Reserve officials from: (i) purchasing individual stocks or sector funds; (ii) holding investments in individual bonds, agency securities, cryptocurrencies, commodities, or foreign currencies; (iii) entering into derivatives contracts; or (iv) engaging in short sales or purchasing securities on margin. The new rules also require senior Federal Reserve officials “to provide 45 days’ non-retractable notice for purchases and sales of securities, obtain prior approval for such transactions, and hold investments for at least one year.” Purchases and sales will be prohibited during periods of heightened financial market stress. The rules become effective on May 1, except that the requirements for advance notice and pre-clearance of transactions will take effect on July 1.
OCC releases enforcement actions
On February 17, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included in the release is a formal agreement between OCC and an Alabama-based bank on January 31 in connection with alleged unsafe or unsound practices relating to strategic planning, loan portfolio management, and internal audits. The agreement requires the bank to (i) establish a compliance committee to monitor the bank’s progress in complying with the agreement’s provisions; (ii) report such progress to the bank’s board on a quarterly basis; and (iii) develop, implement, and adhere to a written risk-based internal audit program.
CFPB revises Rules of Practice for Adjudication Proceedings
On February 22, the CFPB published a procedural rule and request for public comment in the Federal Register, to update its Rules of Practice for Adjudication Proceedings. Under Section 1053(e) of the Consumer Financial Protection Act, the Bureau has authority to conduct administrative proceedings. The CFPB indicated that the amendments would provide greater procedural flexibility, providing parties earlier access to relevant information, expanding deposition opportunities, and making various changes related to “timing and deadlines, the content of answers, the scheduling conference, bifurcation of proceedings, the process for deciding dispositive motions, and requirements for issue exhaustion, as well as other technical changes.” The proposed amendments also propose to simplify and clarify the computation of deadlines and would indicate that motions for extension of time are “generally disfavored” (a list of factors to be considered, however, would be retained). Comments must be received by April 8.
FTC publishes ANPR on bogus money-making opportunities
On February 17, the FTC announced an advanced notice of proposed rulemaking (ANPR), which “launched a proceeding to challenge bogus money-making claims used to lure consumers, workers, and prospective entrepreneurs into risky business ventures that often turn into dead-end debt traps.” According to the FTC, a rule in this area would permit “the Commission to recover redress for defrauded consumers, and seek steep penalties against the multilevel marketers, for-profit colleges, ‘gig economy’ platforms, and other bad actors who prey on people’s hopes for economic advancement.” The FTC summarized recent actions against “coaching or mentoring schemes, multi-level marketing companies, work-from-home, e-commerce, or other business opportunity scams, chain referral schemes, gig companies and employers, job scams, and businesses purporting to offer educational opportunities,” but noted that “the recent Supreme Court decision in the AMG Capital Management LLC v. FTC has hindered the FTC’s ability to seek monetary relief for consumers under the FTC Act.” (Covered by InfoBytes here). The ANPR gives notice of a new possibility of rulemaking for false, misleading, and unsubstantiated earnings claims, and, if adopted, the FTC will have the ability to return money to consumers injured by deceptive income claims, while holding bad actors accountable with civil penalties. The ANPR also solicits public comment on: (i) whether earnings claims are prevalent among all or only some industries; (ii) how a rule addressing earnings claims should be drafted; (iii) the benefits to consumers from such a rule and the costs to businesses; and (iv) whether the potential rule should address disclaimers, lifestyle claims, or liability for agents’ claims.
CFPB scrutinizes student loan servicers’ PSLF compliance
On February 18, the CFPB released a compliance bulletin warning student loan servicers to make sure they provide complete and accurate information to eligible borrowers about Public Service Loan Forgiveness (PSLF) benefits. The Bureau indicated that it will be paying close attention to servicers’ compliance with Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. Last October, the Department of Education changed its PSLF program to now provide qualifying borrowers with a time-limited PSLF waiver that allows all payments to count towards PSLF regardless of loan program or payment plan. The waiver covers payments made on loans under the Federal Family Education Loan Program or Perkins Loan Program. (Covered by InfoBytes here.) However, Bureau supervisory findings revealed unfair or deceptive practices taken by servicers that have prevented many borrowers from making progress towards forgiveness. The Bureau emphasized that it expects servicers to comply with federal consumer financial protection laws when administering the new PSLF waiver and providing assistance to borrowers. The Bureau “will pay particular attention” to whether (i) servicers of any federal loan type provide complete and accurate information about the PSLF waiver in communications related to PSLF or loan consolidation; (ii) servicers have adequate policies and procedures to recognize when borrowers express interest in PSLF or the PSLF waiver (or where borrowers’ files otherwise demonstrate their eligibility), in order to direct borrowers to appropriate resources; and (iii) servicers take measures “to promote the benefits of the PSLF Waiver to borrowers who express interest or whose files otherwise demonstrate their eligibility.” The Bureau advised servicers to consider enhancing their compliance management systems to ensure borrowers receive accurate and complete information about the PSLF waiver and that their enrollment is facilitated.
Financial Stability Board informs G20 of 2022 priorities
On February 14, the Financial Stability Board (FSB) sent a letter to the G20 finance ministers and central bank governors outlining several priorities for 2022 and setting the groundwork for promoting global financial resilience during the upcoming year. The FSB stated that the “transition path to a post-pandemic economy remains highly uncertain,” and warned that Covid-19 continues to weigh on the global economy with “[n]ew waves of infections … contribut[ing] to an uneven recovery across regions, higher inflation, and record-high debt levels globally.” The FSB also observed that, while banks and financial market infrastructures were able to absorb the macroeconomic shock of the pandemic, the nonbank financial intermediation sector (NBFI), which currently represents nearly half of global financial assets, experienced acute stress and needs to be strengthened. A resilient NBFI sector would reduce the need for extraordinary central bank intervention, the FSB stated. The FSB’s plans include prioritizing its work in this space in coordination with other standard-setting bodies to address any shortcomings and develop a systemic approach to the NBFI sector. Another priority is addressing potential financial stability risks associated with rapidly developing crypto-assets and digital innovation. The FSB observed that “[c]rypto-asset markets are fast-evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system.” Financial risks resulting from climate change are another critical area of concern for the FSB. The FSB’s work this year will include ensuring these risks are properly reflected in all financial decisions related to disclosures, data, vulnerabilities analysis, and regulatory and supervisory approaches.
FIO joins global green initiative
On February 17, the U.S. Treasury Department’s Federal Insurance Office (FIO) announced that it joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). As previously covered by InfoBytes, Treasury announced in August 2021 a request for information seeking public comments on the FIO’s future work related to the insurance sector and climate-related financial risks. This was in response to an executive order issued by President Biden instructing financial regulators to mitigate climate-related risk related to the financial system (covered by InfoBytes here). According to the recent announcement, the FIO “intends to publish a climate report by the year’s end focusing on insurance supervision and regulation, with an assessment of climate-related issues or gaps in the supervision and regulation of insurers, including their potential impacts on U.S. financial stability.” The same day, the Federal Advisory Committee on Insurance (FACI), which provides advice and recommendations to assist the FIO in carrying out its statutory authorities, launched the Climate Related Financial Risk Subcommittee to support the FACI provision of information relevant to the FIO’s work on climate-related risks in the insurance sector.