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  • EU and U.S. release statement on Joint Financial Regulatory Forum

    Financial Crimes

    On September 29 and 30, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S. – EU Joint Financial Regulatory Forum to continue their ongoing financial regulatory dialogue. Matters discussed focused on six different themes: “(1) market developments and current assessment of financial stability risks, (2) sustainable finance, (3) multilateral and bilateral engagement in banking and insurance, (4) regulatory and supervisory cooperation in capital markets, (5) financial innovation, and (6) anti-money laundering and countering the financing of terrorism (AML/CFT).”

    While acknowledging that both the EU and U.S. are experiencing “robust economic recoveries,” participants cautioned that the uncertainty around the Covid-19 pandemic and the economic outlook has not dissipated. “[C]ooperative international engagement to mitigate financial stability risks remains essential,” participants warned. Participants also explored issues concerning climate-related challenges for the financial sector and mandates for addressing climate-related financial risks, and touched upon the EU’s strategy for financing its transition to a sustainable economy. Regarding financial innovation, participants discussed potential central bank digital currencies and exchanged views on topics such as new types of digital payments, crypto-assets, and stablecoins, with all participants recognizing the “benefits of greater international supervisory cooperation” and “promot[ing] responsible innovation globally.” In addition, participants discussed progress made in strengthening their respective AML/CFT frameworks, “exchanged views on the opportunities and challenges arising from financial innovation in the AML/CFT area and explored potential areas for enhanced cooperation to combat money laundering and terrorist financing bilaterally and in the framework of [the Financial Action Task Force].”

    Financial Crimes Department of Treasury EU OCC Federal Reserve Board CFTC SEC FDIC Fintech Of Interest to Non-US Persons Supervision Anti-Money Laundering Combating the Financing of Terrorism FATF Climate-Related Financial Risks

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  • CFTC announces more than $2.5 million in fines for swap data reporting violations

    Securities

    On September 29, the CFTC announced a $1.5 million settlement with a non-U.S. provisionally registered swap dealer headquartered in France to resolve claims that it failed to comply with certain swap dealer reporting requirements. Among other things, the swap dealer allegedly failed to meet mid-market mark disclosure requirements for numerous swaps, failed to accurately report certain swap valuation data to a swaps data repository, and did not diligently perform its supervisory obligations related to these disclosures. In addition to the civil monetary penalty, the swap dealer must cease and desist from further violations of the Commodity Exchange Act and CFTC regulations and must continue its remediation efforts.

    Earlier, on September 27, the CFTC announced a $1 million civil monetary penalty to resolve allegations that a global financial institution violated swap data legal entity identifier (LEI) reporting requirements as well as related supervision responsibilities. According to the CFTC, the alleged failures violated the cease and desist provision of a 2017 CFTC order, in which the CFTC found that the financial institution, among other things, failed to report LEI swap transaction data or establish systems and procedures to do so, did not correct errors in previously reported LEI data, and failed to diligently perform its supervisory duties when reporting LEI swap data. The 2017 order imposed a $550,000 civil monetary penalty and required the financial institution to cease and desist violating CFTC regulations. The CFTC’s September 27 order further found that the financial institution’s alleged continued reporting failures occurred, in part, from a failure to diligently supervise its swap dealer activities with respect to LEI swap data reporting.

    Securities CFTC Enforcement Swaps Of Interest to Non-US Persons Commodity Exchange Act

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  • Biden announces key FTC, CFTC nominations

    Federal Issues

    On September 13, President Biden nominated Alvaro Bedoya for Commissioner of the FTC. Bedoya would replace FTC Commissioner Rohit Chopra, who was nominated as the permanent director of the CFPB (covered by InfoBytes here). Chopra currently awaits a Senate confirmation vote on his nomination to serve as the Bureau’s director.

    Bedoya, a Georgetown University visiting professor of law, also founded the law school’s Center on Privacy & Technology. According to the administration’s announcement, Bedoya previously “co-led a coalition that successfully pressed an Internet giant to drop ads for online payday loans” and served as the first chief counsel to the Senate Judiciary Subcommittee on Privacy, Technology and the Law. FTC Chair Lina M. Khan issued a statement following Bedoya’s nomination praising his “expertise on surveillance and data security.”

    Additionally, Biden announced several CFTC Commissioner nominees: Kristin Johnson, Christy Goldsmith Romero, and Rostin Behnam, who currently serves as the agency’s acting chairman and has been nominated to be the permanent CFTC Chair. Behnam’s priorities include safeguarding customer protections, climate-related financial market risk, and diversity, equity, and inclusion in the financial markets.

    Federal Issues Biden FTC CFTC

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  • Agencies address nonfinancial corporations’ LIBOR transition concerns

    Federal Issues

    On August 23, the U.S. Treasury Department, Federal Reserve Board, SEC, Federal Reserve Bank of New York, and CFTC released a letter responding to nonfinancial corporate stakeholders’ concerns as they prepare to transition from LIBOR to another reference rate. The agencies acknowledged that LIBOR’s cessation “presents considerable operational, technological, accounting, tax, and legal challenges for Main Street companies,” and recognized that “a smooth transition will be best supported if financial institutions offer alternatives to USD LIBOR that meet borrower needs and if this is done in a timely fashion.” The agencies further acknowledged challenges some stakeholders have faced when obtaining loan agreements based on the Secured Overnight Financing Rate (SOFR)—“even after they indicated that loan agreements based on SOFR would be their preferred choice”—and expressed concerns that nonfinancial corporations are not being offered such alternatives despite the short period of time before LIBOR’s cessation. Stressing the importance of using “reference rates built on deep, liquid markets that are not susceptible to manipulation” while also reiterating that “the official sector is not positioned to adjudicate the selection of reference rates between banks and their commercial customers,” the agencies stressed that “borrower preferences and needs clearly have a significant role to play in the selection of such rates.”

    Find continuing InfoBytes coverage on LIBOR here.

     

    Federal Issues Department of Treasury Federal Reserve Board SEC CFTC LIBOR

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  • CFTC settles AML violations with cryptocurrency derivatives platform

    Securities

    On August 10, the CFTC announced that the U.S. District Court for the Southern District of New York entered a consent order against several companies (defendants) charged with operating an unregistered cryptocurrency derivatives trading platform. As previously covered by InfoBytes, in October 2020, the CFTC announced that it filed a complaint against five entities and three individuals for allegedly owning and operating an unregistered cryptocurrency derivatives platform and failing to implement required anti-money laundering procedures. The complaint alleged that the platform “illegally offer[ed] leveraged retail commodity transactions, futures, options, and swaps” on cryptocurrencies without implementing key safeguards required by the Commodity Exchange Act and several CFTC regulation compliance measures, such as know-your-customer procedures or actions designed to detect and prevent illicit activities. The CFTC also claimed that the exchange operated as an unregistered futures commission merchant and did not have CFTC approval to operate as a designated contract market or swap execution facility. In addition, the defendants are permanently “restrained, enjoined, and prohibited from directly or indirectly offering to enter into retail commodity transactions,” among other things. The order notes that the defendants engaged in remedial measures, such as developing an AML and user verification program. The companies were ordered to pay a $100 million civil monetary penalty, but up to $50 million of the penalty may be offset by payments made by, or amounts credited to, the defendants pursuant to the Assessment of Civil Money Penalty entered by the Financial Crimes Enforcement Network.

    Securities CFTC FinCEN Anti-Money Laundering Enforcement Commodity Exchange Act

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  • FinCEN issues first government-wide AML/CFT priorities

    Agency Rule-Making & Guidance

    On June 30, the Financial Crimes Enforcement Network (FinCEN) issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (AML/CFT Priorities) pursuant to the Anti-Money Laundering Act of 2020 (AML Act). The AML/CFT Priorities were established in consultation with the Treasury Department’s Office of Foreign Assets Control, SEC, CFTC, IRS, state financial regulators, law enforcement, and national security agencies, and highlight key threat trends as well as informational resources to assist covered institutions manage their risks and meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing. According to the AML/CFT Priorities, the most significant AML/CFT threats currently facing the U.S. (in no particular order) are corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organization activity, drug trafficking organization activity, human trafficking and human smuggling, and proliferation financing. FinCEN further noted it will update the AML/CFT Priorities to highlight new or evolving threats at least once every four years as required under the AML Act, and issued a separate statement providing additional clarification for covered institutions.

    Separately, the Federal Reserve Board, FDIC, NCUA, OCC, state bank and credit union regulators, and FinCEN also issued a joint statement providing clarity for banks on the AML/CFT Priorities. The statement emphasized that the publication of the AML/CFT Priorities “does not create an immediate change to Bank Secrecy Act (BSA) requirements or supervisory expectations for banks.” Rather, within 180 days of the establishment of the AML/CFT Priorities, FinCEN will promulgate regulations, as appropriate, in consultation with the federal functional regulators and relevant state financial regulators. The federal banking agencies noted that they intend to revise their BSA regulations as needed to address how the AML/CFT priorities will be incorporated into BSA requirements for banks, adding that banks will not be required to incorporate the AML/CFT Priorities into their risk-based BSA compliance programs until the effective date of the final revised regulations. However, banks may choose to begin considering how they intend to incorporate the AML/CFT Priorities, “such as by assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.” Moreover, the statement confirmed that federal and state examiners will not examine banks for the incorporation of the AML/CFT Priorities into their risk-based BSA programs until the final revised regulations take effect.

    Agency Rule-Making & Guidance FinCEN Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Financial Crimes OFAC Department of Treasury SEC CFTC IRS State Regulators State Issues Anti-Money Laundering Act of 2020 Bank Secrecy Act

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  • Digital asset company to pay $6.5 million to settle CFTC allegations

    Securities

    On March 19, the CFTC announced a $6.5 million settlement with a California-based digital asset company to resolve allegations of false, misleading, or inaccurate reporting concerning its digital asset transactions that violated the Commodity Exchange Act or CFTC regulations. According to the CFTC, from January 2015 to September 2018, the company allegedly operated at least two trading programs that generated orders that, at times, matched each other. The CFTC claimed, among other things, that the transactional information provided on the company’s website and given to reporting services resulted “in a perceived volume and level of liquidity of digital assets. . .that was false, misleading or inaccurate.” Additionally, the CFTC alleged that the company was vicariously liable for a former employee’s use of “a manipulative or deceptive device” to intentionally place buy and sell orders that matched each other, creating a misleading appearance of interest in certain cryptocurrencies. The company did not admit or deny the CFTC’s findings and agreed to pay a $6.5 million civil penalty.

    Securities CFTC Enforcement Virtual Currency Commodity Exchange Act Cryptocurrency

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  • Multi-national bank settles FCPA and commodities fraud charges for $130 million

    Financial Crimes

    On January 8, the DOJ announced it had entered into a deferred prosecution agreement with a German-based multi-national financial services company (company), in which the company agreed to pay more than $130 million to resolve an investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme.

    According to the DOJ, between 2009 and 2016, the company admitted to knowingly and willfully conspiring to conceal payments to business development consultants (BDC) which were actually bribes to foreign officials in order to obtain business. The company admitted that employees agreed to “misrepresent the purpose of payments to BDCs and falsely characterize[d] payments to others as payments to BDCs” in violation of the FCPA’s books, records, and accounts provisions. Additionally, company employees failed to implement adequate internal accounting controls in violation of the FCPA by, among other things, (i) failing to conduct meaningful due diligence regarding the BDCs; (ii) paying BDCs who were not under contract with the company at the time; and (iii) paying BDCs without adequate documentation of the services purportedly performed.

    Additionally, the DOJ stated that between 2008 and 2013, the company’s precious metal traders engaged in a scheme to defraud other traders on the New York Mercantile Exchange Inc. and Commodity Exchange Inc. by placing orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution. The company previously settled with the CFTC in January 2018 for substantially the same conduct (covered by InfoBytes here).

    Of the total $130 million penalty, the company will pay a criminal penalty of nearly $80 million to the DOJ in relation to the FCPA violations, and will pay $43 million in disgorgement and prejudgment interest to the SEC to settle allegations that the company violated the FCPA’s books and records and internal accounting controls provisions. The company will pay over $7.5 million in relation to the commodities scheme, for criminal disgorgement, victim compensation, and a criminal penalty. The DOJ noted that the company received full credit for cooperation with the investigations and for significant remediation.

    Financial Crimes FCPA DOJ CFTC SEC Enforcement Bribery

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  • Federal and state authorities target income scams

    Federal Issues

    On December 14, the FTC, along with 19 federal, state, and local law enforcement partners, announced “Operation Income Illusion,” which encompasses more than 50 enforcement actions against scams targeting consumers with false promises of income and financial independence. According to an analysis of complaint data by the FTC, consumers have reported that they lost more than $610 million to income scams since 2016—with more than $150 million of losses reported in the first nine months of 2020—which the FTC attributes to the increase in scams related to the Covid-19 pandemic.

    The announcement also includes four new enforcement actions and one settlement that are part of Operation Income Illusion, (i) an action and temporary restraining order against a Florida-based operation, which sold expensive memberships to programs by promoting earnings between $500 and $12,500 per sale; (ii) an action against a company with Spanish-language ads targeting Latina consumers with false promises of large profits reselling luxury products; (iii) an action and temporary restraining order against a company marketing investment-related services claiming they would enable consumers to make consistent profits off the market; (iv) an action and temporary restraining order against companies perpetuating a telemarketing scheme claiming false affiliation with Amazon.com to get consumers to purchase business opportunity programs; and (v) settlements (available here and here) with ten defendants involved in a scam targeting older adults while selling various money-making opportunities.

    The other agencies reporting actions as part of the sweep include: the SEC, CFTC, the U.S. Attorney’s Office for the Eastern District of Arkansas; and state and county agencies in Arizona, Arkansas, California, Florida, Indiana, Maryland, New Hampshire, Oregon, and Pennsylvania.

    Federal Issues FTC Enforcement State Issues CFTC SEC Fraud

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  • Energy firm's U.S. affiliate agrees to pay $135 million to settle FCPA violations with CFTC and DOJ

    Financial Crimes

    On December 3, the DOJ announced it had entered into a deferred prosecution agreement with the U.S. affiliate of one of the largest energy trading firms in the world, in which the company agreed to pay a combined $135 million in criminal penalties related to two counts of conspiracy to violate the anti-bribery provisions of the FCPA. The agreement also resolves a parallel investigation in Brazil. According to the DOJ, between 2005 and 2014, the company paid millions of dollars in bribes to public officials in Brazil, Ecuador, and Mexico “‘to obtain improper competitive advantages that resulted in significant illicit profits for the company.’” Specifically, the company and its co-conspirators paid more than $8 million in bribes to at least four officials at Brazil’s state-owned and controlled oil company, Petróleo Brasileiro S.A. – Petrobras (Petrobras), “in exchange for receiving confidential Petrobras pricing and competitor information.” The company concealed the bribery scheme “through the use of intermediaries and a fictitious company that facilitated the payments to offshore accounts and, ultimately, to the Petrobras officials.” In another instance, the company bribed at least five additional Petrobras officials in order to receive confidential pricing information used to win fuel oil contracts, whereby “a consultant acting on behalf of [the company] engaged in back-channel negotiations with a Houston-based Petrobras official,” and “ultimately settl[ed] on the pre-arranged price that allowed for bribes to be paid from [the company] to the Petrobras officials.”

    Between 2015 and July 2020, the company also engaged in a second bribery conspiracy by offering and paying government officials in Ecuador and Mexico more than $2 million in exchange for business opportunities connected to the purchase and sale of oil products. The company and its co-conspirators—who knew the funds, at least in part, were going towards the bribes—“entered into sham consulting agreements, set up shell companies, created fake invoices for purported consulting services and used alias email accounts to transfer funds to offshore companies involved in the conspiracy.”

    DOJ is crediting $45 million of the total criminal penalty against the amount the company will pay to resolve the Brazilian Ministério Público Federal’s investigation into conduct related to the company’s bribery scheme in Brazil. The company and another entity within its group of energy trading firms have also agreed to continue to cooperate with the DOJ in ongoing criminal investigations and prosecutions, and will make enhancements to their compliance programs and report on their implementation for a three-year period.

    In a related matter, the company also agreed to disgorge more than $12.7 million and pay an $83 million civil money penalty related to manipulative and deceptive trading activity not covered by the DOJ’s deferred prosecution agreement. Under the order, the civil money penalty will be recognized and offset up to $67 million by the amount paid to the DOJ as part of the deferred prosecution agreement. The CFTC noted that the company’s “fraudulent and manipulative conduct—including conduct relating to foreign corruption—defrauded its counterparties, harmed other market participants, and undermined the integrity of the U.S. and global physical and derivatives oil markets.” This case is the first foreign corruption action brought by the CFTC.

    Financial Crimes FCPA DOJ CFTC Bribery Of Interest to Non-US Persons

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