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On November 22, the DOJ announced that it entered into a deferred prosecution agreement with a South Korean engineering company, in which the company agreed to pay more than $75 million in criminal penalties to resolve an investigation into alleged violations of the FCPA’s anti-bribery provisions. Half of the penalty amount will be paid to the DOJ, and the remaining half will be paid either to Brazilian authorities or also to the United States. According to the DOJ announcement, between 2007 and 2013, the company allegedly paid approximately $20 million in commissions to a Brazilian intermediary, “knowing that portions of the money would be paid as bribes to officials” at Brazil’s state-owned and controlled oil and energy firm. The bribes were allegedly intended to ensure that the state-owned entity entered into a contract to charter a drill ship from a separate Houston-based offshore oil drilling company, which would then be able to purchase that vessel from the Korean company.
As part of the deferred prosecution agreement, the company agreed to cooperate with the DOJ’s ongoing investigations and prosecutions, to improve its compliance program, and to report to the DOJ on those improvements. The company received partial credit for cooperating with the investigation and taking remedial measures, including (i) enhancing its compliance program; (ii) hiring additional compliance staff; (iii) “implementing enhanced anti-corruption policies and heightened due diligence controls over third party vendors”; (iv) instituting mandatory anti-corruption training; and (v) improving its whistleblower policies.
On November 21, the DOJ updated its FCPA Corporate Enforcement Policy to clarify ways in which companies can voluntarily disclose information in an effort to receive leniency from the Department in foreign bribery situations. First, a company does not need to have a complete picture of a possible violation when it first shares information with the DOJ; rather, the company should “make clear that it is making its disclosure based upon a preliminary investigation.” Next, the agency expects a company to disclose “where the company is aware of relevant evidence not in the company’s possession,” simplifying the requirement which previously called for disclosure of “opportunities for the department to obtain relevant evidence not in the company’s possession.” Finally, in the course of a merger or acquisition “an acquiring company that discloses misconduct may be eligible for a declination, even if aggravating circumstances existed as to the acquired entity.”
As previously covered by InfoBytes, the policy was last amended in March (March 2019 version available here) to, among other things, clarify the Department’s position on the use of ephemeral messaging apps by companies seeking full cooperation credit under the policy.
Jury convicts former French power company executive of multiple FCPA, money laundering and conspiracy offenses
On November 8, the DOJ announced that a jury had returned a guilty verdict against a British national and former French power and transportation company executive who was accused of bribing Indonesian officials to secure a power contract. Following a two-week trial, the jury convicted the former executive on six counts of violating the FCPA, three counts of money laundering, and two counts of conspiracy. As previously covered by InfoBytes, while the French company pleaded guilty in 2014, and three other executives—each of whom worked for the French company’s U.S.-based subsidiary—entered guilty pleas, the trial for the former executive (originally indicted in 2013) was delayed as he challenged the reach of the FCPA. The U.S. Court of Appeals for the Second Circuit held in 2018 that a non-resident foreign national lacking sufficient ties to a U.S. entity could not be charged with conspiring or aiding and abetting something that he could not be directly charged with, because he was “not an agent, employee, officer, director, or shareholder of an American issuer or domestic concern” within the scope of the FCPA’s jurisdictional provision and had not himself committed a crime inside the U.S. The 2nd Circuit also determined, however, that the former executive could still be charged with FCPA offenses, as the DOJ had signaled its intention to prove he “was an agent of a domestic concern,” which would place him “squarely within the terms of the statute.”
According to the DOJ’s press release, it presented evidence at the trial to show that the former executive violated the FCPA by overseeing and supporting the U.S.-based subsidiary’s efforts to win the contract with the bribery scheme, including pressing the U.S. subsidiary to structure the payment terms to a consultant used as an intermediary in the scheme to “get the right influence.” The former executive and his co-conspirators allegedly helped arrange the payment of bribes to Indonesian officials by assisting in the U.S. subsidiary’s retention of two consultants, purportedly to provide legitimate consulting services on behalf of the subsidiary but with the intention of employing them to pay and conceal the bribes. The DOJ observed in its release that the former executive and his co-conspirators were successful in securing the contract from Indonesia’s state-owned and state-controlled electricity company and “subsequently made payments to the consultants for the purpose of bribing the Indonesian officials.”
Sentencing is scheduled for January 31, 2020 in the U.S. District Court for the District of Connecticut.
On November 8, the DOJ announced that it charged the principals and co-founders (collectively, “defendants”) of a mortgage short sale assistance company with allegedly defrauding mortgage lenders and investors out of half a million in proceeds from short sale transactions. The DOJ also alleged the defendants’ actions defrauded Fannie Mae, Freddie Mac, and HUD. According to the announcement, from 2014 to 2017, the defendants negotiated with lenders for approval of short sales in lieu of foreclosure, and falsely claimed during settlement that the lenders had agreed to pay loss mitigation service fees from the proceeds of short sales. The defendants allegedly obtained around 3 percent of the short sale price from the settlement agent, which was separate from fees paid to real estate agents and closing attorneys, among others. In order to further deceive lenders, the defendants would then file fabricated documents to justify or conceal the additional fees being paid to the company. The defendants were charged with conspiracy to commit wire fraud, and one co-founder was also charged with aggravated identity theft.
On October 28, HUD and DOJ announced a long-awaited Memorandum of Understanding (MOU), which provides prudential guidance concerning the application of the False Claims Act to matters involving alleged noncompliance with FHA guidelines. The announcement was made by HUD Secretary Dr. Benjamin S. Carson at the Mortgage Bankers Association’s Annual Conference, and both agencies issued releases shortly after Carson’s comments. The intention, HUD noted, is to bring greater clarity to regulatory expectations within the FHA program and ease banks’ worries about facing future penalties for mortgage-lending errors.
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Click here to read the full special alert.
If you have any questions about the HUD/DOJ Memorandum of Understanding or other related issues, please visit our Mortgages or False Claims Act & FIRREA practice pages, or contact a Buckley attorney with whom you have worked in the past.
On October 15, the DOJ announced charges against a Turkish bank alleging fraud, money laundering, and sanctions offenses related to the bank’s alleged participation in a scheme to evade U.S. sanctions on Iran. According to the indictment, the bank used money service businesses and front companies to evade U.S. sanctions against Iran and “avoid prohibitions against Iran’s access to the U.S. financial system.” The bank allegedly lied to U.S. regulators and foreign banks about its participation in the fraudulent transactions. The concealed funds, the DOJ claimed, “were used to make international payments on behalf of the Government of Iran and Iranian banks, including transfers in U.S. dollars that passed through the U.S. financial system in violation of U.S. sanctions laws.” Additionally, the DOJ asserted that the conduct—which allowed Iran access to “billions of dollars’ worth of Iranian oil revenue”—was protected by high ranking government officials in Iran and Turkey, some of whom received millions of dollars in bribes to promote and protect the scheme from U.S. scrutiny.
On September 30, the DOJ announced it filed a lawsuit in the U.S. District Court for the District of Maryland alleging that a Maryland used car dealership and its owner and manager violated ECOA by offering different terms of credit based on race to consumers seeking to finance cars. According to the complaint, between September 2017 and April 2018, compliance testing done by the DOJ concluded that the defendants’ “actions, policies, and practices discriminate against applicants on the basis of race with respect to credit transactions…by offering more favorable terms to white testers than to African American testers with similar credit characteristics.” Specifically, the complaint alleged that African American testers were, among other things, (i) told they needed higher down payment amounts than white testers for the same car; (ii) quoted higher bi-weekly payments for “buy here, pay here” financing than white testers for the same car; and (iii) not offered to fund down payments in two installments, as compared to white testers. The DOJ also alleges that the conduct was “intentional, willful, and taken in disregard of the rights of others” and seeks injunctive relief and monetary relief.
On September 18, the CFPB issued letters in pending litigation to inform the courts that it was changing its position regarding the constitutionality of the for-cause removal provision of the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the DOJ and the CFPB filed a brief with the U.S. Supreme Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers. The brief was filed in response to a petition for a writ of certiorari by a law firm contesting the May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that, among other things, the Bureau’s single-director structure is constitutional. The brief noted that, since the appellate opinion was issued, “the Director has reconsidered that position and now agrees that the removal restriction is unconstitutional.” The Bureau has now issued letters (available here and here) to the 9th Circuit in two cases noting that the Bureau will no longer defend the constitutionality of the for-cause removal restriction. The Bureau also submitted a similar letter with the U.S. District Court for the District of Utah. In each letter, the Bureau argues that, while it now believes the for-cause removal provision is unconstitutional, this does not change its position with regard to the judgments made in any of the cases, noting that the provision should be severed from the rest of the CFPA.
On September 17, the DOJ and the CFPB filed a brief with the U.S. Supreme Court arguing that the for-cause restriction on the president’s authority to remove the Bureau’s single Director violates the Constitution’s separation of powers. The brief was filed in response to a petition for a writ of certiorari by a law firm, contesting the May decision by the U.S. Court of Appeals for the Ninth Circuit, which held that (i) the Bureau’s single-director structure is constitutional, and that (ii) the district court did not err when it granted the Bureau’s petition to enforce a law firm’s compliance with a 2017 civil investigative demand (CID) (previously covered by InfoBytes here). The brief cites to a DOJ filing in opposition to a 2018 cert petition, which also concluded that the Bureau’s structure is unconstitutional by infringing on the president’s responsibility to ensure that federal laws are faithfully executed, but urged the Court to deny that writ as the case was a “poor vehicle” for the constitutionality consideration (previously covered by InfoBytes here).
In contrast to the December brief, the DOJ now asserts that the present case is a “suitable vehicle for resolving the important question,” noting that only the constitutional question was presented to the Court and the 9th Circuit has stayed its CID mandate until final disposition of the case with the Court. Moreover, the government argues that until the Court resolves the constitutionality question of the Bureau’s structure, “those subject to the agency’s regulation or enforcement can (and often will) raise the issue as a defense to the Bureau’s efforts to implement and enforce federal consumer financial law.” While the Bureau previously defended the single-director structure to the 9th Circuit, the brief notes that since the May decision was issued, “the Director has reconsidered that position and now agrees that the removal restriction is unconstitutional.”
On the same day, Director Kraninger sent letters (here and here) to House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Mitch McConnell (R-Ky.) supporting the argument that the for-cause restriction on the president’s authority to remove the Bureau’s single Director, violates the Constitution’s separation of powers. Kraninger notes that while she is urging the Court to grant the pending petition for certiorari to resolve the constitutionality question, her position on the matter “does not affect [her] commitment to fulfilling the Bureau’s statutory responsibilities” and that should the Court find the structure unconstitutional, “the [Consumer Financial Protection Act] should remain ‘fully operative,’ and the Bureau would ‘continue to function as before,’ just with a Director who “may be removed at will by the [President.]’”
U.S. enforcement authorities seize $3.7 million, arrest 281 for involvement in Business Email Compromise schemes
On September 10, the DOJ announced a coordinated effort with the U.S. Department of Homeland Security, the U.S. Department of the Treasury, the U.S. Postal Inspection Service, and the U.S. Department of State, against a series of Business Email Compromise (BEC) scams. The effort was conducted over a four-month period, resulting in the seizure of nearly $3.7 million and the arrest of 281 individuals in the U.S. and overseas, including 167 in Nigeria, 18 in Turkey and 15 in Ghana, along with arrests in France, Italy, Japan, Kenya, Malaysia, and the U.K. According to the DOJ, “BEC, also known as ‘cyber-enabled financial fraud,’ is a sophisticated scam often targeting employees with access to company finances and businesses working with foreign suppliers and/or businesses that regularly perform wire transfer payments.” BEC scams can involve requests for paper checks and may not actually “compromise” an email account or computer network. The DOJ notes that many BEC scams are perpetrated by foreign citizens, who are often members of transnational criminal organizations.
As previously covered by InfoBytes, the Financial Crimes Enforcement Network (FinCEN), in July, discussed efforts designed to restrict and impede Business Email Compromise (BEC) scammers and other illicit actors who profit from email compromise fraud schemes and issued an updated advisory, providing general trends in BEC schemes, information concerning the targeting of non-business entities, and risks associated with the targeting of vulnerable business processes.
- Daniel P. Stipano to discuss “Beneficial Ownership: You have questions – We have quick answers” at the ABA/ABA Financial Crimes Enforcement Conference
- Moorari K. Shah to discuss "Legal & regulatory issues – Next wave of regulatory policy" at the Marketplace Lending & Alternative Financing Summit
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at an American Bar Association webinar
- Kari K. Hall and Christopher M. Walczyszyn to speak on the "Understanding updates to Regulation CC to ensure effective check processing" at a National Association of Federal Credit Unions webinar
- Daniel P. Stipano to discuss "ACAMS Moneylaundering.com Year-End Compliance Review and 2020 Outlook" at an ACAMS webinar
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- Daniel P. Stipano to discuss "A 20/20 view on 2020’s legislative and regulatory outlook" at the ACAMS Anti-Financial Crime and Public Policy Conference