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Senate passes NDAA with significant AML provisions
On December 11, the U.S. Senate passed the National Defense Authorization Act (NDAA) for Fiscal Year 2021 in a 84-13 vote, which was passed by the U.S. House of Representatives earlier in the week. As previously covered by InfoBytes, the NDAA includes a number of anti-money laundering provisions, such as (i) establishing federal disclosure requirements of beneficial ownership information, including a requirement that reporting companies submit, at the time of formation and within a year of any change, their beneficial owner(s) to a “secure, nonpublic database at FinCEN”; (ii) expanding the declaration of purpose of the Bank Secrecy Act (BSA) and establishing national examinations and supervision priorities; (iii) requiring streamlined, real-time reporting of Suspicious Activity Reports; (iv) expanding the definition of financial institution under the BSA to include dealers in antiquities; and (v) including digital currency in the AML-CFT enforcement regime by, among other things, expanding the definition of financial institution under the BSA to include businesses engaged in the transmission of “currency, funds or value that substitutes for currency or funds.” The NDAA has been sent to President Trump, who has publicly threatened to veto the measure; however, the legislation passed both the Senate and the House with majorities large enough to override a veto.
Bipartisan Covid-19 legislation includes new PPP funding
On December 14, congressional lawmakers released the details of bipartisan Covid-19 relief legislation (and accompanying memorandum), titled “the Emergency Coronavirus Relief Act of 2020,” which would provide $300 billion to the U.S. Small Business Administration to allow for second forgivable Paycheck Protection Program (PPP) loans to certain businesses after the program’s lending expired in August (covered by InfoBytes here). In addition to capping the maximum PPP loan amount at $2 million, the proposed legislation would limit eligibility of new PPP loans to (i) businesses with 300 or fewer employees that have sustained a 30 percent revenue loss in any quarter of 2020; and (ii) non-lobbying, tax-exempt organizations that have 150 employees or fewer. Additionally, the legislation clarifies that business expenses paid for with the proceeds of PPP loans are tax deductible, and simplifies the loan forgiveness process for loans $150,000 or less. Lastly, the legislation includes set-asides for (i) small businesses with 10 or fewer employees; (ii) loans made by small community lenders, including Community Development Financial Institutions, credit unions, Minority Depository Institutions; and (iii) the Minority Business Development Agency.
Senate Democrats question CFPB’s lack of restitution in VA ad settlements
On October 1, sixteen Democratic Senators sent a letter to CFPB Director Kathy Kraninger, expressing concern over the Bureau’s failure to obtain restitution in eight recent settlements with mortgage lenders for allegedly mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that contained misleading statements or lacked required disclosures (covered by InfoBytes here). The letter states that while the Bureau collected approximately $2.8 million in civil penalties over the eight settlements, it did not require any company to pay restitution to harmed consumers. The letter argues that the failure to obtain restitution in these matters was a departure from the Bureau’s practice in previous cases where it obtained restitution for consumers who enrolled in a service connected to allegedly deceptive advertising. The letter notes that, if the Bureau was not able to determine a restitution amount based on the “millions of advertisements” that were sent, it had the authority to seek disgorgement as a remedy. The letter requests the Bureau elaborate on, among other things, its decision not to seek restitution for consumers in the cited actions and to provide information about the standard the Bureau uses to determine when to provide restitution.
E-SIGN modernization bill passes Senate committee
On September 16, the U.S. Senate Committee on Commerce, Science, and Transportation voted 14-12 to approve S. 4159 (the “E-SIGN Modernization Act”), sponsored by Senator Thune, the majority whip. As previously covered by Infobytes, the E-SIGN Modernization Act would amend E-SIGN to remove the requirement that consumers reasonably demonstrate they can access documents electronically before they can receive an electronic version. Instead, consumers would be allowed to obtain documents electronically once they are provided with disclosure information and consent to receiving documents through such means. The E-SIGN Modernization Act was opposed by several consumer advocacy groups, including the National Consumer Law Center, which argued in a letter to the committee that the bill “would increase fraud and effectively prevent access to legally required information and records about the transactions to which consumers are bound.”
Committee Ranking Member Senator Cantwell had offered, but later withdrew, an amendment that would have rejected all the changes introduced under the E-SIGN Modernization Act and, among other things, required the Secretary of Commerce and the Federal Trade Commission to evaluate and report to Congress, within a year after S. 4159’s enactment, the benefits and burdens of E-SIGN’s requirement for consumers to reasonably demonstrate that they can access documents electronically before receiving electronic versions.
The legislation is currently pending approval by the full Senate.
Senate committee revisits the need for federal data privacy legislation
On September 16, the U.S. Senate Committee on Commerce, Science, and Transportation announced it will convene a hearing on September 23 to “examine the current state of consumer data privacy and legislative efforts to provide baseline data protections for all Americans.” The hearing will also examine the lessons learned from the EU’s Global Data Protection Regulation and recently enacted state privacy laws, along with the data privacy impacts from Covid-19.
The current slate of key witnesses include a number of former chairmen and commissioners of the FTC.
Senate investigation finds that oligarchs use art industry to avoid sanctions
Last month, the U.S. Senate Permanent Subcommittee on Investigations issued a bipartisan report titled “The Art Industry and U.S. Policies that Undermine Sanctions,” which details findings from a two-year investigation related to how Russian oligarchs appear to have used the art industry to evade U.S. sanctions. According to the Subcommittee, the investigation—which focused on major auction houses, private New York art dealers, and seven financial institutions—revealed that the “secretive nature” of the art industry “allowed art intermediaries to purchase more than $18 million in high-value art in the United States through shell companies linked to Russian oligarchs after they were sanctioned by the United States in March 2014,” and that, moreover, “the shell companies linked to the Russian oligarchs were not limited to just art and engaged in a total of $91 million in post-sanctions transactions.” The report claims that the art industry is largely unregulated, and, unlike financial institutions, is not subject to the Bank Secrecy Act (BSA) and is not required to maintain anti-money laundering (AML) and anti-terrorism financing controls. However, the report notes that sanctions imposed by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) do apply to the industry, emphasizing that U.S. persons are not allowed to conduct business with sanctioned individuals or entities.
The Subcommittee’s key findings include that while four of the major auction houses have established voluntary AML controls, they treat an art agent or advisor as the principal purchaser of the art, which allows the auction house to perform due diligence on the art agent or advisor instead of identifying and evaluating a potentially undisclosed client. The auction houses also reportedly rely on financial institutions to identify the source of funds used to purchase the art. Because of these practices, the report concludes that these shell companies continue to have access to the U.S. financial system despite the imposition of sanctions.
The report makes several recommendations including: (i) the BSA should be amended to include businesses that handle transactions involving high-value art; (ii) Treasury should be required to collect beneficial ownership information for companies formed or registered to do business in the U.S., making the information available to law enforcement; (iii) Treasury should consider imposing sanctions on a sanctioned individual’s immediate family members; (iv) Treasury should announce and implement sanctions concurrently “to avoid creating a window of opportunity for individuals to avoid sanctions”; (v) the ownership threshold for blocking companies owned by sanctioned individuals should be lowered or removed; (vi) Treasury should maximize its use of suspicious activity reports filed by financial institutions to, among other things, alert other financial institutions of the risks of transacting with sanctioned entities; (vii) OFAC should issue comprehensive guidance for auction houses and art dealers on steps for determining “whether a person is the principal seller or purchaser of art or is acting on behalf of an undisclosed client, and which person should be subject to a due diligence review”; and (viii) OFAC should issue guidance on “the informational exception to the International Emergency Economic Powers Act related to ‘artworks.’”
Additionally, in June, a bipartisan group of senators introduced the Anti-Money Laundering Act of 2020 (AMLA) as an amendment (S.Amdt 2198 to S.4049) to the National Defense Authorization Act (NDAA), which would, among many other things, require federal agencies to study “the facilitation of money laundering and the financing of terrorism through the trade of works of art or antiquities” and, if appropriate, propose rulemaking to implement the study’s findings within 180 days of the AMLA’s enactment.
Senators question OCC on fair lending
On July 20, a group of eighteen senators wrote to the acting Comptroller of the OCC, Brian Brooks, regarding reports that senior officials at the agency “have undermined OCC examiners’ efforts to investigate and pursue violations of civil rights laws,” including the Fair Housing Act (FHA) and ECOA. The letter cites to reports of at least three instances where examiners allegedly found discriminatory lending patterns present, yet OCC leadership failed to pursue action against the institutions.
The senators argue that failing to pursue fair lending violations “not only harms borrowers and their communities, but also undermines meaningful bank evaluations under the Community Reinvestment Act (CRA).” The senators list a series of questions regarding the OCC’s supervision of the FHA and ECOA since 2017, including information covering the number of fair lending citations that the OCC has issued, as well the number of fair lending referrals the OCC has made to the DOJ. The letter sets a response deadline of July 31.
Senators introduce E-SIGN modernization bill
On July 2, three Republican senators introduced a bill that would make electronic transactions easier by simplifying how consumers signal their acceptance of them. Sens. John Thune, Jerry Moran, and Todd Young introduced S.4159, the “E-SIGN Modernization Act,” which would allow companies to use electronic documents instead of paper ones if they secure the consumer’s consent to the substitution. Under the original E-SIGN Act passed 20 years ago, consumers also had to demonstrate to the company that they could access the records in the electronic form.
“Computers, smart phones, and other devices are more reliable and accessible than ever before,” Thune said in a press release accompanying the bill. “This legislation makes necessary updates to E-Sign to reflect these advancements in technology and make it easier for consumers to receive documents electronically.”
The bill also would no longer require transaction parties to obtain new consents when hardware or software changes. Instead, the company would simply disclose the updated requirements and notify the consumer of their right to withdraw consent without penalty.
Senators say PPP loan forgiveness application is unnecessarily burdensome
On June 12, a bipartisan group of senators wrote to the U.S. Treasury Department and the Small Business Administration (SBA) urging revisions to the Paycheck Protection Program’s (PPP) loan forgiveness application. Specifically, the letter requests that the application be “no longer than one page for any loan under $250,000.” The senators note that the CARES Act only requires the forgiveness application to include three items: (i) documentation supporting payroll numbers and pay rates; (ii) documentation supporting mortgage, lease, and utility payments; and (iii) certification that the information is true and correct. While the SBA has the ability to require more documentation, the senators argue that the “11-page forgiveness application” is “beyond the program’s intent” and that it is not only difficult to complete, but it may require businesses to seek costly professional tax advice. The senators acknowledge that for loans above $2 million, intense scrutiny is “an appropriate oversight of taxpayer resources,” but for loans “worth a mere fraction of that,” the lengthy application is a “needless complication to our nation’s economic recovery.”
Details on the PPP loan forgiveness process can be found here.
Senators question CFPB on student loan servicer examinations
On May 20, several senators, including Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH), sent a letter to CFPB Director Kathy Kraninger requesting information regarding the Bureau’s examination of companies that service student loans guaranteed by the federal government. The senators noted that they are “encouraged to learn that the CFPB recently began its first examination of a servicer of federally-held student loans since 2017,” but they stated that, given the Department’s “record [of] obstructing CFPB oversight and enforcement, [they] are skeptical of the Department’s role in this joint examination and would strongly oppose limitations, restrictions, or other interference with the CFPB’s ability to conduct complete and thorough examinations.” Among other things, the senators also expressed concerns that the Bureau and the Department have not yet finalized the Supervisory Memorandum of Understanding (MOU), which would allow the Bureau to access student borrower loan data that the senators claim is necessary for the Bureau to conduct future examinations. As previously covered by InfoBytes, the agencies signed an MOU to share student loan complaint data last February. The senators requested clarification on measures the Bureau is taking to carry out its statutory mandate to oversee the federal student loan market, including (i) how many examinations the Bureau has planned for 2020; (ii) what progress, if any, has been made on reestablishing the supervisory MOU; (iii) how the Bureau is monitoring student loan servicers’ compliance with the CARES Act, including pausing payments, interest, and collection; and (iv) whether the Bureau has identified any trends in borrower complaints since the Covid-19 pandemic began. The senators asked that the Bureau respond to the questions by June 3.