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U.S. FCPA Guidance Expected Soon
The DOJ is expected to release soon guidance on compliance with the FCPA, which originally was promised in November 2011 by Assistant Attorney General for the Criminal Division Lanny Breuer. Recent FCPA settlements obtained by the DOJ set the stage for the guidance and provide companies with insight as to what the guidance likely will include. For example, as part of its recent $60 million FCPA settlement, Pfizer agreed to a detailed series of FCPA-specific compliance undertakings, augmenting the more general rendition of program elements. The Pfizer deferred prosecution agreement (i) details the structure of the company’s compliance program staffing and oversight, (ii) mandates the maintenance and content of certain anti-corruption policies and procedures, (iii) provides mechanisms and resources for internal compliance reporting, (iv) requires annual company-wide, corruption-related risk assessments and five market-specific proactive compliance reviews annually, (v) requires thorough corruption-risk diligence prior to acquisitions, (vi) describes a program of third-party diligence and control, and (vii) directs a program of biennial training for specific personnel and directors, and a three-year training rotation for certain third parties. The BuckleySandler FCPA Team has prepared a Client Update and a checklist of the entire list of “Enhanced Compliance Obligations”, allowing compliance counsel to conduct a quick cross-check of their company’s existing compliance program elements.
Federal Regulators Host Webinar on SCRA Compliance
On September 10, federal banking regulators, the CFPB, and the FHFA conducted a webinar on federal servicemember financial protections, recent changes to the Servicemembers' Civil Relief Act (SCRA), and recent changes to Fannie Mae and Freddie Mac short sale procedures for servicemembers and loan modification options for servicemembers. The event featured compliance and enforcement updates from the CFPB, the DOJ, and the OCC. Ann Thompson from the CFPB Office of Nonbank Supervision described recent joint agency guidance regarding servicemembers with Permanent Change of Station (PCS) Orders as an extension of the CFPB's mortgage servicing exam procedures. Ms. Thompson explained that the CFPB will look at bank and nonbank servicers' policies and procedures to determine their adequacy for handling servicemembers with PCS orders. If there are deficiencies, the CFPB may take supervisory or enforcement actions to support implementation of the guidance. Eric Halperin from the DOJ's fair lending unit provided an update on enforcement activity and described a recent SCRA enforcement action against a national bank that covered all aspects of SCRA, not just foreclosure protections, as the model for the DOJ moving forward. Finally, Kimberly Hebb from the OCC offered some considerations for institutions seeking to comply with SCRA. She explained that the SCRA compliance process need not stand alone. For example, with regard to the law's rate reduction requirements, compliance steps could be incorporated into existing processes for error resolution. Ms. Hebb also stressed documentation and record keeping, pointing out that while the law does not include a specific record retention requirement, examiners will want to see the full scope of compliance processes documented for use in determining compliance.
DOJ Settles Fair Housing Disparate Impact Suit
On August 27, the U.S. District Court for the Southern District of New York approved a settlement between the DOJ and GFI Mortgage Bankers, Inc., a nonbank mortgage lender, resolving allegations that certain of the lender’s pricing policies disproportionately impacted African-American and Hispanic borrowers in violation of the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA). The DOJ brought the case in part under the disparate impact theory of discrimination, by which it attempts to establish discrimination based solely on a statistical analysis of the outcomes of a neutral policy without having to show that the lender intentionally discriminated against certain borrowers. In the consent order, the lender acknowledged that a statistical analysis performed by the government indicated that the note interest rates and fees it charged on mortgage loans to qualified African-American and Hispanic borrowers were higher than those charged to non-Hispanic white borrowers. Prior to the settlement, the lender had filed a motion to dismiss the DOJ lawsuit, arguing that the DOJ’s disparate impact claims are not cognizable under the FHA or ECOA, and challenging the government’s statistical analysis. Under the agreement, the lender agreed to pay $3.5 million over five years in compensation to several hundred borrowers identified by the DOJ, as well as a $55,000 civil penalty. The lender also agreed to enhance certain of its lending policies and monitor and document loan prices and pricing decisions. Whether disparate impact claims are cognizable under the FHA remains unsettled, though the U.S. Supreme Court may have an opportunity to address the issue in the near future. BuckleySandler recently prepared a white paper examining the issue and explaining why the FHA does not permit disparate impact claims. A copy of DOJ’s announcement of the settlement may be found at http://www.justice.gov/opa/pr/2012/August/12-crt-1052.html.
DOJ and SEC End Investigations of Major Investment Bank's MBS Offerings
On August 9, the DOJ and the SEC reportedly halted their respective criminal and civil investigations of a major investment bank with regard to certain of the bank’s mortgage-backed securities offerings. The reports indicate that the DOJ will not pursue criminal charges against the bank or individual employees at this time. The DOJ had begun an inquiry into the bank’s activities at the prompting of the Senate Select Permanent Subcommittee on Investigations, which produced a report in 2011 that was critical of the bank’s MBS activities. According to reports, a separate SEC investigation concerning a $1.3 billion sale of mortgage-backed securities also appears to have been abandoned.
Pharmaceutical Companies Resolve DOJ and SEC FCPA Charges
On August 7, the DOJ and the SEC announced the resolution of FCPA allegations against Pfizer Inc. (Pfizer) and two of its subsidiaries, Pfizer H.C.P. and Wyeth LLC. The DOJ announced that it filed a criminal information in the U.S. District Court for the District of Columbia, as well as a deferred prosecution agreement pursuant to which Pfizer H.C.P. admitted to making improper payments to public officials in Russia and other eastern European countries in attempts to influence decisions to approve and register certain pharmaceutical products. Pfizer H.C.P. must pay a $15 million penalty, but the agreement acknowledges Pfizer’s efforts to investigate and self-report the matter, as well as the company’s “significant cooperation” and extensive remedial efforts. Civil charges brought by the SEC through separate complaints against Pfizer and Wyeth involve similar allegations regarding the companies’ conduct in numerous countries. While Wyeth neither admitted nor denied the SEC allegations, the two parties resolved the cases by agreeing to pay a combined $45 million, committing to certain remedial actions, and reporting to the SEC. Like the DOJ, the SEC notes Pfizer’s voluntary disclosure and cooperation. The SEC complaints and the DOJ deferred prosecution agreements are available on BuckleySandler’s FCPA Score Card.
OCC and DOJ Announce SCRA Enforcement Action Against a National Bank
On July 26, the OCC and the DOJ announced resolution of actions brought against a national bank for alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ filed a complaint and consent order in the U.S. District Court for the Eastern District of Virginia, simultaneously bringing and resolving allegations that over a roughly five year period the bank failed to provide sufficient protections to servicemembers (i) denying valid requests for interest rate reductions because the servicemembers’ military orders did not include specific end dates for the period of military service, (ii) foreclosing without a court order, (iii) repossessing motor vehicles without a court order, and (iv) obtaining default judgments without first filing accurate affidavits. Under the DOJ settlement, the bank must pay $12 million in damages to servicemembers. Concurrently, the OCC released consent orders resolving similar allegations. Under both the DOJ and OCC orders, the bank must take specific actions to enhance compliance with SCRA, including with regard to vendor management, training, and internal reporting. The OCC also is requiring that the bank report periodically to the OCC, and conduct a look-back review of its servicemember accounts. The DOJ notes that the bank already has adopted enhanced SCRA policies on its own initiative, including extending a four percent interest rate to qualifying servicemembers and giving an additional one-year grace period before de-enrolling servicemembers from the reduced interest rate program.