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  • State, Federal Authorities Increase Scrutiny of Virtual Currencies, Emerging Payment Providers

    Fintech

    On August 12, New York Department of Financial Services (NY DFS) Superintendent Benjamin Lawsky issued a notice of inquiry about the “appropriate regulatory guidelines that [the NY DFS] should put in place for virtual currencies.”  The NY DFS notes the emergence of Bitcoin and other virtual currency as the catalyst for its inquiry, and the notice states that the NY DFS already has “conducted significant preliminary work.” That preliminary work includes 22 subpoenas the NY DFS reportedly issued last week to companies associated with Bitcoin.

    The NY DFS is concerned that virtual currency exchangers may be engaging in money transmission as defined in New York. Under existing New York law, and the laws of a majority of other states, companies engaged in money transmission must obtain a license, post collateral, submit to periodic examinations, and comply with anti-money laundering laws. However, the NY DFS also suggests that regulating virtual currency under existing money transmission rules may not be the most beneficial approach. Instead, it is considering “new guidelines that are tailored to the unique characteristics of virtual currencies.” The NY DFS notice does not provide any timeline for further action on these issues.

    Meanwhile, the U.S. Senate Committee on Homeland Security and Government Affairs is reviewing federal policy as it relates to virtual currencies. On August 12, the leaders of that committee, Senators Tom Carper (D-DE) and Tom Coburn (R-OK), sent a letter to Secretary of Homeland Security Janet Napolitano regarding federal virtual currency policy. The committee reportedly sent similar letters to the DOJ, the Federal Reserve Board, the Treasury Department, the SEC, the CFTC, and the OMB. Citing a federal court’s recent holding that Bitcoin is money or currency for the purpose of determining jurisdiction under the Securities Act of 1933, as well as other recent developments related to virtual currencies, the lawmakers seek information about (i) the agencies’ existing policies on virtual currencies, (ii) coordination among federal or state entities related to the treatment of virtual currencies, and (iii) “any plans,” “strategies,” or “ongoing initiatives” regarding virtual currencies. The letter specifically notes the importance of balancing the need to deal with “potential threats and risks . . . swiftly” with the goal of ensuring that “rash or uninformed actions don’t stifle a potentially valuable technology.”

    This recent scrutiny of virtual currencies follows regulatory and enforcement actions taken earlier this year, including guidance issued by FinCEN and federal criminal charges against a digital currency issuer and money transfer system. For a review of those actions and other state and federal regulatory challenges facing emerging payment providers, please see a recent article by BuckleySandler attorney and Ian Spear.

    Federal Reserve FinCEN SEC Department of Treasury DOJ U.S. Senate Virtual Currency NYDFS

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  • Federal Government, Illinois AG Team Up to Bring First TARP Criminal Charges

    Financial Crimes

    On August 6, the Special Inspector General for the Troubled Asset Relief Program (TARP), the FDIC Office of Inspector General, and Illinois Attorney General Lisa Madigan announced criminal charges against former members of the board of directors and senior executives at a bank that received funds under the TARP program. The authorities allege that the former directors and officers concealed the bank’s financial condition from state regulators, while the board chairman allegedly solicited and demanded bribes in exchange for business loans and lines of credit. The authorities charge that over a six year period, the officers submitted numerous fraudulent reports to their Illinois regulator and used money from third parties to make payments on several bank loans that were pasts due. During this period, the bank applied for and obtained TARP funds that were used to further the officers’ criminal scheme.

    FDIC State Attorney General Department of Treasury TARP

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  • President Obama Announces Plan to Nominate Federal Reserve Board Governor For Deputy Treasury Secretary

    Consumer Finance

    On July 31, President Obama announced that he will nominate Federal Reserve Board Governor Sarah Bloom Raskin as Deputy Treasury Secretary. Ms. Raskin was appointed to her current position by President Obama in October 2010, and her term is not due to end until January 2016. Prior to joining the Federal Reserve Board, Ms. Raskin served as Maryland’s Commissioner of Financial Regulation and before that was Managing Director at the Promontory Financial Group. She is a lawyer and previously served as the Banking Counsel for the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

    Federal Reserve Department of Treasury

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  • Federal Authorities Announce Major Money Laundering Action Against Virtual Currency Service

    Financial Crimes

    On May 28, the DOJ announced the unsealing of an indictment against a global virtual currency service and seven of its principals and employees, alleging that the firm and its employees knowingly facilitated money laundering and operated an unlicensed money transmitting business. According to the DOJ, since 2001, the digital currency service allegedly facilitated an anonymous payment and value storage system that allowed more than one million users, including 200,000 Americans, to launder and store more than $6 billion in criminal proceeds and to facilitate approximately 55 million illicit transactions. The funds processed and stored by the system allegedly related to underlying criminal acts including identity theft, computer hacking, and child pornography. Federal law enforcement authorities also seized several Internet domain names involved in the scheme and effectively blocked access to any funds in the system. Concurrently, the Treasury Department for the first time exercised its powers under Section 311 of the USA Patriot Act against a virtual currency provider, declaring the provider to be a “prime money laundering concern,” which will prohibit covered U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign banks that are being used to process transactions through the virtual currency service.

    Anti-Money Laundering Department of Treasury DOJ Virtual Currency

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  • State Department Finalizes Burma Investment Reporting Requirements

    Federal Issues

    On May 23, the State Department announced that the Office of Management and Budget approved the final Burma Responsible Investment Reporting Requirements. Effective immediately, pursuant to General License No. 17, all U.S. persons with aggregate investment in Burma over $500,000 are subject to the reporting requirements, which generally cover a range of policies and procedures with respect to investments in Burma, including human rights, labor rights, land rights, community consultations and stakeholder engagement, environmental stewardship, anti-corruption, arrangements with security service providers, risk and impact assessment and mitigation, payments to the government, any investments with the Myanmar Oil and Gas Enterprise (MOGE), and contact with the military or non-state armed groups. The State Department will use the information collected to conduct to encourage U.S. businesses to develop robust policies and procedures to address a range of impacts resulting from their investments and operations in Burma.

    Department of Treasury

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  • Financial Stability Oversight Council Releases 2013 Annual Report

    Lending

    On April 25, the Financial Stability Oversight Council (FSOC) met in an open session to announce the release of its 2013 Annual Report to the Congress. The Annual Report outlines the FSOC’s views with regard to, among other things, (i) the need for housing finance reform to attract private capital to the housing finance system, (ii) increased awareness of operational risks, whether from cyberattack or acts of nature, and (iii) the importance of working with foreign counterparts to reform the governance and integrity of interest reference rates like LIBOR. FSOC Chairman and Treasury Secretary Lew also advised that the FSOC met in executive session to discuss its continuing analysis of non-bank financial companies and that he expects a vote on an initial set of systemically important designations of non-bank financial companies soon.

    FSOC Department of Treasury LIBOR

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  • Regulators, Lawmakers Scrutinize BSA/AML Compliance and Enforcement

    Financial Crimes

    On March 7, the Senate Banking Committee held a hearing entitled “Patterns of Abuse: Assessing Bank Secrecy Act Compliance and Enforcement,” which featured testimony from representatives of the Treasury Department, the Comptroller of the Currency; and the Federal Reserve Board. During the hearing, Senators challenged the regulators on what they view as insufficient civil and criminal enforcement of the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) rules, and pressed them to act more aggressively in bringing criminal actions against banks. Senators also pressed lawmakers on comments made by Attorney General Holder at a hearing the day before where he expressed concern that some of the world’s biggest banks have become “too big to jail” because a potential punishment could negatively impact the broader economy. With regard to possible regulatory and legislative changes, Comptroller of the Currency Thomas Curry stated that the OCC is drafting guidance for banks on BSA/AML compliance, in part, to make it easier for the OCC to remove bank officers who violate federal anti-money laundering laws. Curry said the OCC also would support expanded safe harbors for banks submitting and sharing Suspicious Activity Reports. Comptroller Curry’s comments at the hearing follow remarks he made earlier in the week when he called on banks to devote more resources to BSA/AML compliance. Mr. Curry stressed that controls with regard to international activities – e.g., foreign correspondent banking and remote deposit capture – need to be commensurate with risk. He also directed banks to focus on third-party relationships and payment processors. Finally, the Comptroller cautioned banks to understand risks presented by deployment of new technologies and payment activities, including prepaid access cards, mobile banking, and mobile wallets.

    Federal Reserve OCC Anti-Money Laundering Bank Secrecy Act Department of Treasury U.S. Senate

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  • Senate Confirms Jack Lew as Treasury Secretary

    Consumer Finance

    On February 27, the U.S. Senate confirmed President Obama’s nominee for Treasury Secretary, Jack Lew, by a vote of 71-26. Mr. Lew most recently served as President Obama’s Chief of Staff, but also twice served as Director of the OMB, and held executive positions at Citigroup and New York University.

    Department of Treasury

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  • Senate Confirms FHA Commissioner and Other Key Agency Nominees

    Consumer Finance

    On December 30, the Senate confirmed Carol Galante as Assistant Secretary of Housing and Urban Development and Federal Housing Administration Commissioner. Ms. Galante, who was nominated for the position in October 2011, has been serving in an acting role. Her confirmation was made possible after certain Senators, including Bob Corker (R-TN), who had expressed concerns about the pace of reforms at the FHA, secured a commitment from Ms. Galante to (i) place a moratorium on the full drawdown reverse mortgage program, (ii) substantially increase underwriting criteria for borrowers with FICO scores between 580 and 620 by establishing a meaningful maximum debt-to-income ratio, (iii) increase the down payment requirement and the insurance pricing for loans between $625,000 and $729,000, and (iv) increase underwriting requirements for borrowers who have been foreclosed upon within the last seven years. On January 1, as described in media reports, the Senate confirmed Joshua Wright as FTC Commissioner and Mignon Clyburn as FCC Commissioner, and also confirmed Richard Berner for the new position of Director of the Treasury Department’s Office of Financial Research.

    FTC HUD FCC Department of Treasury FHA

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  • AML Regulatory Initiatives Highlighted at ABA/ABA Money Laundering Enforcement Conference

    Financial Crimes

    Last week, Treasury Under Secretary for Terrorism and Financial Intelligence, David Cohen, and new FinCEN Director Jennifer Shasky Calvery addressed the American Bankers Association/American Bar Association Money Laundering Enforcement Conference. Ms. Calvery and Mr. Cohen announced the formation of an interagency anti-money laundering (AML) task force comprised of Treasury officials, federal banking regulators, and enforcement agencies charged with conducting a comprehensive review of the AML regulatory and enforcement structure to address any gaps, redundancies or inefficiencies in the framework. Ms. Calvery further explained that the Bank Secrecy Act Advisory Group is exploring ways to reduce the variance between compliance risk and illicit financing risk. Ms. Calvery also stressed the importance of electronic filings, and urged financial institutions to adopt the new FinCEN reports before the April 1, 2013 deadline. Mr. Cohen discussed a proposed customer due diligence regulation, which would extend customer due diligence obligations by requiring institutions to collect information on an account’s beneficial owner. In connection with that rulemaking, FinCEN this week announced the last in a series of roundtable discussions to gather information from stakeholders and discuss key issues relating to the proposed rule. This final roundtable will be held on December 3, 2012, at the Miami Branch of the Federal Reserve Bank of Atlanta.

    Anti-Money Laundering FinCEN Bank Secrecy Act Department of Treasury

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