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FINRA Releases Revisions to Its Sanction Guidelines
On April 10, FINRA issued a notice revising its Sanction Guidelines to reflect recent developments in its disciplinary process, revisions to certain rules, and amendments to the levels of sanctions imposed during proceedings. FINRA Regulatory Notice 17-13 states that the revisions: (i) establish a new factor that requires “the exercise of undue influence over a customer be considered for all violations”; (ii) introduces new guidelines concerning systemic supervisory failures, short interest reporting, and borrowing and lending arrangements with customers; (iii) provides guidance on a new factor related to the mitigating effect of sanctions imposed by other regulators or firms; (iv) describes amendments made to twelve sections that revise sanctions for more serious rule violations; and (v) harmonizes “the Sanction Guidelines to the relevant precedent, prior amendments to the Sanction Guidelines and FINRA’s rulebook consolidation process.” FINRA further states that the purpose of the Sanction Guidelines is not to “prescribe fixed sanctions for particular violations . . . [but to] provide direction for Adjudicators in imposing sanctions consistently and fairly. The guidelines recommend ranges for sanctions and suggest factors that Adjudicators may consider in determining, for each case, where within the range the sanctions should fall or whether sanctions should be above or below the recommended range.” The revised guidelines are effective immediately.
OCC Issues Consent Order to U.S. Branch of International Bank, Requires Development of BSA/AML Program
As previously reported in InfoBytes, on March 17 the OCC released its list of enforcement actions taken in February against national banks, federal savings associations, and current and former affiliated individuals. Among those actions is a consent order issued on February 13 against a U.S. branch of a Curacao-based subsidiary of a United Arab Emirates bank for allegedly failing to comply with the Bank Secrecy Act’s anti-money laundering (BSA/AML) rules and requirements, failing to timely file suspicious activity reports (SARs), and failing to conduct adequate due diligence on foreign correspondent accounts. The consent order, among other things, requires the U.S. branch to: (i) create and submit a comprehensive BSA/AML compliance action plan; (ii) appoint a BSA officer who will “ensure compliance with the requirements of the BSA and the Office of Foreign Assets Control (OFAC)”; (iii) review, update, and implement an enhanced written ongoing BSA/AML Risk Assessment and a separate OFAC Risk Assessment process to timely identify and analyze risk categories; (iv) acquire an independent third-party consultant to conduct a “Look Back” plan to determine whether suspicious activity was timely identified and reported by the branch; (v) develop and implement a written program to ensure the timely review of BSA/AML suspicious activity alerts and filing of SARs; and (vi) create a comprehensive training program for “appropriate operational and supervisory personnel.”
FinCEN Seeks Comments on Proposed Renewal of its AML, Due Diligence Program Requirements for Correspondent Banks
The Financial Crimes Enforcement Network (FinCen) published a notice and request for comments in the March 30 Federal Register. The notice sought public comment on its proposed renewal, without change, of the regulation implementing Section 5318(i)(1) & (2) of the Bank Secrecy Act (found at 31 CFR 1010.610). The regulation generally requires covered financial institutions (as defined in 31 CFR 1010.605(e)(1)) to establish due diligence policies, procedures, and controls reasonably designed to detect and report money laundering through correspondent accounts that covered U.S. financial institutions establish or maintain for certain foreign financial institutions. Written comments must be received on or before May 30.
SEC’S FCPA Chief to Leave Agency Later in April
On April 4, the SEC announced that FCPA Unit Chief Kara Brockmeyer will leave the agency later this month. Ms. Brockmeyer joined the SEC in 2000 and has led the FCPA Unit since September 2011. Under her supervision of the unit, the SEC brought 72 FCPA enforcement actions resulting in judgments and orders totaling more than $2 billion in disgorgement, prejudgment interest, and penalties.
FDIC Fines Two California Bank Employees for BSA/AML Violations
On March 31, the FDIC released a list of enforcement actions taken against banks and individuals in February 2017. Among those listed was a February 14 stipulated order imposing a $70,000 civil money penalty against an employee of a California bank (Respondent) for allegedly engaging or participating in actions that caused the bank to violate the Bank Secrecy Act, thus resulting in financial loss or damage. According to the FDIC, the violations reflected a “continuing disregard for the safety or soundness of the bank” and were evidence of the Respondent’s “unfitness to serve as a . . . person participating in the conduct of the affairs, or as an institution-affiliated party of the bank [or] any other insured depository institution.” In addition to the civil money penalty, the Respondent is prohibited from further participation “in any manner in the conduct of the affairs of any financial institution or agency.”
The FDIC also imposed a $30,000 civil money penalty against the bank’s executive vice president of corporate and international banking for breaching his fiduciary duty during the period of 2011 – 2012 by failing to ensure his staff fully complied with the Bank Secrecy Act and its implementing regulations. And, as previously reported in InfoBytes, in July 2015 the bank was fined $140 million by the FDIC and the Commissioner of the California Department of Business Oversight for allegedly failing to implement and maintain a satisfactory BSA/AML compliance program.
OFAC Sanctions a Coal Company and 11 “Agents” Linked to North Korea’s WMD Proliferation and Financial Networks
On March 31, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it was imposing sanctions on eleven North Koreans and one associated entity involved in that country’s efforts to develop weapons of mass destruction. The sanctions prohibit any U.S. individual from dealing with the designated North Koreans, and further states that “any property or interests in property of the designated persons in the possession or control of U.S. persons or within the United States must be blocked.” Treasury Secretary Steven Mnuchin explained that the “sanctions are aimed at disrupting the networks and methods that the Government of North Korea employs to fund its unlawful nuclear, ballistic missile, and proliferation programs.”
Debt Collection Company President Fined $2 Million for FDCPA Violations
On March 21, a U.S. district judge in the Eastern District of Texas ordered the president of a Texas-based third-party debt collector company (Defendant) to pay a $2 million civil penalty for FDCPA violations by company employees. U.S. v. Commercial Recovery Systems, Inc., No. 4:15-CV-00036, 2017 WL 1065137 (E.D. Tex. Mar. 21, 2017). The complaint, filed in 2015, alleges that Defendant had the authority to direct and control the employees’ actions and had personal knowledge that employees were “impersonating attorneys, attorneys’ staff and judicial employees; falsely threatening litigation; falsely threatening wage garnishments and asset seizures; and misrepresenting the character or legal status of debts under collection.” In his order, the judge notes that Defendant “admitted to hiring abusive collection managers and refused to fire them if they were effective,” acknowledged that the company had no formal FDCPA training program, and testified that the company had been driven into bankruptcy largely by FDCPA suits brought by private litigants. Such conduct, the judge reasoned, evidences a “lack of good faith.” The Court noted that theoretically the Defendant could have faced a civil penalty exceeding $4 billion if the estimated 109,643 violations were penalized at $40,000 each—the maximum penalty amount authorized by the FTC Act for “each instance of conduct that violates the FDCPA with actual or implied knowledge of the FDCPA.” In additional to the penalty, the Defendant must cease all debt collection activity.
Former Thailand Tourism Chief Sentenced to 50 Years for Accepting Bribes
On March 29, the former governor of the Tourism Authority of Thailand was reportedly sentenced in Thailand to 50 years in prison for accepting $1.8 million in bribes from 2002 to 2007 from two U.S. filmmakers in exchange for rights to organize the Bangkok International Film Festival. The former tourism chief was also ordered to forfeit the bribe money. Her daughter received a 44-year prison sentence for her own involvement. In 2009, the U.S. filmmakers, who paid the bribes, were convicted in the U.S. on charges of FCPA violations. A U.S. federal court sentenced the filmmakers to six months incarceration, three years of supervised release, and $250,000 in restitution.
The former tourism chief and her daughter were also indicted in the U.S. in January 2009 for the same underlying conduct. The indictment raised interesting questions about the United States pursuing corruption on the “demand side,” in light of the fact that the FCPA does not criminalize the receipt of bribes. The indictment instead alleged money laundering violations and related charges. The former tourism chief moved to dismiss the U.S. indictment based on the double jeopardy provision of the Thai-US extradition treaty. The decision on her motion was stayed, pending the outcome of the Thai prosecution.
Netherlands-Based Financial Services Company Under Investigation by Dutch and U.S. Authorities for Activities Relating to a Russian Telecom Company
In an annual report filed with the SEC on March 20, 2017, a Netherlands-based financial services company, stated that it is under criminal investigation by Dutch authorities “regarding various requirements related to the on-boarding of clients, money laundering, and corrupt practices,” and that it has also received “related information requests” from U.S. authorities. A spokesperson for the Dutch prosecutor reportedly expressed suspicion that the company failed to report irregular transactions and may have enabled international corruption, including unusual payments made by a Russian telecom company to a government official in Uzbekistan through a shell company. The russian company settled bribery charges with the U.S. and Dutch governments in February 2016, admitting to paying bribes amounting over $114 million to an Uzbek official and agreeing to pay over $397 million in penalties to the DOJ and SEC for violations of the FCPA. The financial services comapny stated that it is cooperating with the ongoing investigations and requests of Dutch and U.S. authorities.
International Trade Organizations Release “Trade Finance Principles”; Quarterly Analysis of Global Financial Market
On January 24, the Banking Commission of the International Chamber of Commerce (“ICC”) and the Bankers Association for Finance and Trade (“BAFT”) jointly announced the publication of The Wolfsberg Group, ICC and BAFT Trade Finance Principles (“Trade Finance Principles”), a replacement to the 2011 Wolfsberg Group Trade Finance Principles paper, which now addresses “due diligence required by global and regional financial institutions of all sizes in the financing of international trade.” The Trade Finance Principles outline the standard for controlling the risks of financial crime, including but not limited to “tax evasion, fraud, human trafficking, bribery and corruption, terrorist financing, the financing of proliferation of weapons of mass destruction, and other related threats to the integrity of the international financial system.” In addition, the Trade Finance Principles require the management processes undertaken by financial institutions to “address the risks of financial crime associated with Trade Finance activities.”
Separately, on March 6, the Bank for International Settlements released its Quarterly Review—an analysis that examines current global financial market trends and the uncertainty regarding potential fiscal and monetary policy changes in the changing political environment.