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  • OFAC reaches settlement with U.S. cosmetics company for alleged North Korean sanctions violations

    Financial Crimes

    On January 31, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $996,080 settlement with a California-based cosmetics company for 156 alleged violations of the North Korean Sanctions Regulations. According to OFAC, the settlement resolves potential civil liability for the company’s alleged involvement in the importation of goods from two Chinese suppliers containing materials sourced from North Korea.

    In arriving at the settlement amount, OFAC considered the following as aggravating factors: (i) the alleged violations may have resulted in the North Korean government gaining control of U.S.-origin funds; (ii) the company is “large and commercially sophisticated [and] engages in a substantial volume of international trade”; and (iii) during the period of the alleged activity, the company’s compliance program, which was either non-existent or inadequate, failed to have “exercised sufficient supply chain due diligence” in its sourcing of products from a region posing a high risk to the effectiveness of the North Korean Sanctions Regulations.

    Visit here for additional InfoBytes coverage on North Korea sanctions.

    Financial Crimes OFAC Department of Treasury Sanctions Settlement North Korea Of Interest to Non-US Persons

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  • Former insurance executives charged with laundering bribes to Barbados Minister of Industry

    Financial Crimes

    On January 28, DOJ announced charges against the former chief executive and a former senior vice president of a Barbados-based insurance company. The indictment alleges that the the company's executives participated in a scheme to launder approximately $36,000 in bribes to the then-Minister of Industry of Barbados in exchange for his assistance in securing government contracts for the company. According to the indictment, the bribes were laundered through a United States bank account in the name of a dental company located in New York. The former Minister of Industry was arrested in August 2018 and the indictment against him referenced, but did not name, his alleged co-conspirators. The superseding indictment against the three co-defendants and another still unnamed former insurance executive was unsealed on January 18, 2019. Prior Scorecard coverage of the arrest and indictment of the former Minister of Industry can be found here.

    The company voluntarily self-disclosed the case to DOJ and received a declination letter from DOJ for its cooperation pursuant to the FCPA Corporate Enforcement Policy. The declination letter required the company to disgorge $93,940.19 in profits received through the conduct at issue. The declination was based, in part, on the company’s termination of all executives and employees involved in the alleged misconduct and in helping DOJ identify the culpable individuals. Prior Scorecard coverage of the declination letter can be found here.

    Financial Crimes DOJ Anti-Money Laundering Bribery FCPA Corporate Enforcement Policy Of Interest to Non-US Persons

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  • NYDFS fines London-based bank $40 million for alleged FX violations

    Securities

    On January 29, NYDFS announced a $40 million settlement with a London-based financial services company to resolve allegations the bank engaged in unsafe and unsound practices in its foreign exchange (FX) trading business. According to the consent order, the company did not implement and maintain sufficient controls to identify illegal tactics used by traders to maximize profits or minimize losses at the expense of the company’s customers, competitors, and the market as a whole. Among other things, the order states that between 2007 and 2013 the company’s FX traders (i) improperly coordinated trading through a chat room; (ii) improperly shared confidential consumer information; and (iii) engaged in “deliberate underfills” of consumer accounts. In addition to the fine, the company is required to improve its internal controls and programs to comply with applicable New York State and federal laws and regulations, submit a written plan to improve its compliance risk management program, and provide an enhanced written internal audit program. NYDFS acknowledged the company’s full cooperation with the investigation, in addition to taking disciplinary action against those identified as engaging in the misconduct.

    Securities NYDFS Enforcement Bank Compliance Foreign Exchange Trading Of Interest to Non-US Persons

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  • OFAC announces sanctions against Venezuela’s state-owned oil company

    Financial Crimes

    On January 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against Venezuela’s state-owned oil company, PDVSA. As a result, all assets belonging to the company subject to U.S. jurisdiction are blocked, and U.S. persons generally are prohibited from dealing with the company. However, OFAC concurrently issued a number of licenses in order to authorize certain transactions with the company and its subsidiaries, including those necessary to wind down operations or existing contracts.

    Visit here for additional InfoBytes coverage of Venezuela actions and E.O.s.

    Financial Crimes OFAC Department of Treasury Sanctions Venezuela Trump Executive Order Of Interest to Non-US Persons

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  • NYDFS issues whistleblowing program guidance and best practices

    State Issues

    On January 7, NYDFS issued guidance providing principles and best practices that all NYDFS-regulated institutions “regardless of industry, size, or number of employees” should consider when designing and implementing a robust whistleblowing program, which the department considers to be an essential component of an institution’s comprehensive compliance program. NYDSF-regulated institutions include New York state-charted branches of foreign banking organizations.

    The guidance notes that the design of a whistleblowing program should be based on factors such as the institution’s size, geographical reach and business. However, it outlines ten elements that institutions should, at a minimum, consider how to account for when designing their programs:

    • Independent, well-publicized, easy-to-access, and consistent reporting channels;
    • Strong protections for whistleblower anonymity;
    • Established procedures for identifying and managing the effects of possible conflicts of interest;
    • Adequately trained staff members responsible for receiving a whistleblowing complaints, determining a course of action, and competently managing any investigation, referral, or escalation;
    • Established procedures for appropriately investigating allegations of wrongdoing;
    • Established procedures for ensuring appropriate follow-up to valid complaints;
    • Protections against any form of retaliation;
    • Confidential treatment, including safeguards to protect the confidentiality of the whistleblower and the whistleblowing matters themselves;
    • Appropriate oversight by senior managers, internal and external auditors, and the Board of Directors; and
    • A top-down culture of support for the whistleblowing function.

    As previously covered by InfoBytes, last December NYDFS issued a consent order against an international bank and its New York branch to resolve allegations stemming from an investigation into the governance, controls, and corporate culture relating to the bank’s whistleblower program.

    State Issues Whistleblower Of Interest to Non-US Persons

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  • OFAC adds illicit foreign exchange operation participants to Specially Designated Nationals List; issues Venezuela-related General License and new FAQ

    Financial Crimes

    On January 8, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced additions to the Specially Designated Nationals List pursuant to Executive Order 13850. OFAC’s additions to the list include seven individuals—including former Venezuelan government officials—and 23 entities for their participation in a bribery scheme involving the Venezuelan Office of the National Treasury in order to conduct illicit foreign exchange operations in the country. According to OFAC, the designated persons engaged in transactions involving deceptive practices and corruption, including wiring payments that were “hidden behind a sophisticated network of U.S. and foreign companies that hid the individuals’ beneficial ownership.” As a result, all assets belonging to the identified individuals and entities subject to U.S. jurisdiction are blocked, and U.S. persons generally are prohibited from dealing.

    Visit here for additional InfoBytes coverage on Venezuela sanctions.

    Financial Crimes Sanctions OFAC Department of Treasury Venezuela International Of Interest to Non-US Persons

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  • U.S. government watchdog studies fintech lending trends, recommends need for clarity on use of alternative data

    Federal Issues

    In December, the Government Accountability Office (GAO) issued a report entitled “Financial Technology: Agencies Should Provide Clarification on Lenders’ Use of Alternative Data,” which addresses emerging issues in fintech lending due to rapid growth in loan volume and increasing partnerships between banks and fintech lenders. The report also addresses fintech lenders’ use of alternative data to supplement traditional data used in making credit decisions or to detect fraud. The report notes that many banks and fintech lenders would benefit from additional guidance to ease the regulatory uncertainty surrounding the use of alternative data, including compliance with fair lending and consumer protection laws. The report’s findings cover the following topics:

    • Growth of fintech lending. GAO’s analysis discusses the growth of fintech lending and several possible driving factors, such as financial innovation; consumer and business demand; lower interest rates on outstanding debt; increased investor base; and competitive advantages resulting from differences in regulatory requirements when compared to traditional state- or federally chartered banks.
    • Partnerships with federally regulated banks. The report addresses two broad categories of business models: bank partnership and direct lending. GAO reports that the most common structure is the bank partnership model, where fintech lenders evaluate loan applicants through technology-based credit models, which incorporate partner banks’ underwriting criteria and are originated using the bank’s charter as opposed to state lending licenses. The fintech lender may then purchase the loans from the banks and either hold the loan in portfolio, or sell in the secondary market.
    • Regulatory concerns. GAO reports that the most significant regulatory challenges facing fintech lenders relate to (i) compliance with varying state regulations; (ii) litigation-related concerns including the “valid when made” doctrine and “true lender” issues; (iii) ability to obtain industrial loan company charters; and (iv) emerging federal initiatives such as the Office of the Comptroller of the Currency’s (OCC) special-purpose national bank charter, fragmented coordination among federal regulators, and the Consumer Financial Protection Bureau's (CFPB) “no-action letter” policy.
    • Consumer protection issues. The report identifies several consumer protection concerns related to fintech lending, including issues related to transparency in small business lending; data accuracy and privacy, particularly with respect to the use of alternative data in underwriting; and the potential for high-cost loans due to lack of competitive pressure.
    • Use of alternative data. The report discusses fintech lenders’ practice of using alternative data, such as on-time rent payments or a borrower’s alma mater and degree, to supplement traditional data when making credit decisions. GAO notes that while there are potential benefits to using alternative data—including expansion of credit access, improved pricing of products, faster credit decisions, and fraud prevention—there are also a number of identified risks, such as fair lending issues, transparency, data reliability, performance during economic downturns, and cybersecurity concerns.

    The GAO concludes by recommending that U.S. federal financial regulators, including the CFPB, Federal Reserve Board of Governors, Federal Deposit Insurance Corporation, and the OCC communicate in writing with fintech lenders and their bank partners about the appropriate use of alternative data in the underwriting process. According to the report, all four agencies indicated their intent to take action to address the recommendations and outlined efforts to monitor the use of alternative data.

    Federal Issues GAO Fintech Alternative Data CFPB Federal Reserve FDIC OCC Of Interest to Non-US Persons

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