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On February 14, the SEC announced a settlement with a real estate investment manager based in Arizona over allegations that he defrauded investors. According to the complaint, the investment manager allegedly told investors he would make personal investments in real estate projects which he failed to do, instructed some investors to “falsely state that they were ‘accredited investors’” to avoid registration requirements for the offerings, and falsely represented that he would personally manage the projects when, instead, he entrusted management to a real estate broker who was later imprisoned for other crimes. The settlement requires the investment manager to disgorge $51,358 plus interest of $4,893.98 and pay a penalty of $450,000.
Federal Judge Sentences Hacker to Eight Years for Cyber Heists that Caused More than $55 Million in Losses
On February 10, the United States Attorney for the Eastern District of New York announced that the Honorable Kiyo A. Matsumoto levied an eight year prison sentence against a Turkish citizen charged with organizing and carrying out three cyber-attacks on global financial institutions between 2011 and 2013 which resulted in more than $55 million in losses. Last March, the defendant pleaded guilty to “computer intrusion conspiracy, access device fraud conspiracy, and effecting transactions with unauthorized access devices.” Specifically, the defendant and his associates were alleged to have repeatedly hacked into debit card processing systems, manipulated account balances, stole customers’ PINs, and transferred that information to associates who then encoded debit cards with the stolen data in order to make fraudulent ATM withdrawals. The DOJ further alleged that the hackers targeted databases companies maintained for prepaid debit cards and effectively eliminated the card accounts’ withdrawal limits in what are called “unlimited operations.” The defendant was also ordered to pay $55,080,226.14 in restitution as part of his sentence.
On February 8, authorities in Panama raided the offices of a law firm at the center of the sprawling Panama Papers scandal, and arrested the firm’s founders. Reuters reports that Panama’s Attorney General announced on Twitter that the raid and arrests were tied to the investigation of the Brazilian construction company that in December reached a $3.5 billion combined global settlement with U.S., Brazilian, and Swiss authorities to resolve FCPA allegations. Until now, the investigations spawned by the 2016 release of millions of documents stolen from the law firm were focused on money laundering and tax evasion. The tie to the company’s investigation brings anti-bribery investigations into the mix.
Less than a month ago, as previously reported on FCPA Scorecard, a UK-based manufacturer and global distributor for the civil aerospace, defense aerospace, marine, and energy sectors, entered into deferred prosecution agreements with the DOJ and UK SFO to resolve allegations that the company conspired to violate anti-bribery laws around the world. Now, Reuters reports that the company’s CEO has been questioned by the SFO regarding bribery allegations. According to the article, the SFO refused to comment on the report, citing concerns about an ongoing investigation.
Both the DOJ and SFO have repeatedly stated that they intend to pursue bribery cases against individuals. But there is so far no indication that the DOJ is also investigating the company’s CEO. Although DOJ could pursue such an investigation in the future, the agency may also defer to the SFO to handle the matter.
On February 8th, a former executive of a Hungarian telecommunications company settled a 2011 civil complaint filed by the SEC. The trial of the remaining co-defendants is scheduled for May 8. As part of the settlement, the former executive agreed to pay a $60,000 civil penalty and did not admit or deny the SEC’s allegations. The former executive also admitted that U.S. courts had jurisdiction over the case. The issue of jurisdiction had been contested; in 2013, the court denied the defendants’ motion to dismiss for lack of personal jurisdiction.
The SEC’s complaint alleged that the former executive, along with two other co-defendants, authorized bribes to Macedonian government officials and others. In 2014, the SEC dropped allegations regarding payments to government officials in Montenegro, substantially narrowing the allegations in the case. The company and its parent settled allegations regarding payments to government officials in Macedonia and Montenegro with the SEC and DOJ in 2011. Prior Scorecard coverage of the company’s investigation can be found here.
This outcome of this lengthy case illustrates that individual defendants can still achieve relatively favorable outcomes when they choose to litigate FCPA cases, even after the corporate defendants have reached a resolution.
On January 30, the New York Department of Financial Services (NYDFS) announced that it had assessed a $425 million fine against a German bank as part of a consent order addressing allegations that the bank allowed $10 billion in “mirror trades” involving Russian investors by failing to properly enforce protections against money laundering. According to the press release, the bank and several of its senior managers allegedly “missed key opportunities to detect, intercept and investigate a long-running mirror-trading scheme facilitated by its Moscow branch and involving New York and London branches.” Specifically, the consent order claims the bank (i) conducted its business in an unsafe and unsound matter; (ii) implemented weak “Know Your Customer” processes; (iii) failed to accurately rate its country and client risks for money laundering throughout the relevant time period and lacked a global policy benchmarking its risk appetite; (iv) maintained ineffective, understaffed anti-financial crime, AML, and compliance units; and (v) had a flawed corporate structure and organization.
In addition to the $425 million monetary penalty, the bank must, within 60 days of the consent order, engage an independent monitor to “conduct a comprehensive review of the [b]ank’s existing BSA/AML compliance programs, policies and procedures.” Furthermore, the bank must submit in writing for NYDFS review an action plan outlining enhancements to its current BSA/AML compliance programs.
On January 27, the Federal Reserve publically released a cease-and-desist order against a regional bank concerning its anti-money laundering (AML) program. The order, which is dated January 25, requires the bank to address certain deficiencies identified in a review of the bank’s AML compliance program by the Federal Reserve Bank of Richmond and develop a firm-wide compliance risk management program addressing the AML requirements. The order follows a recent Stipulated Order with the FDIC against the same bank concerning similar allegations and calling for, among other things, corrective actions and enhancements to address certain internal control deficiencies.
On October 18, OFAC granted General License No. 2B renewing the authorization regarding nine Belarusian entities to enter into transactions otherwise prohibited by Executive Order 13405. General License No. 2B replaces and supersedes in its entirety General License No. 2A, which was set to expire later this month, and authorizes transactions with any entities that are owned 50 percent or more by the nine named entities. All property and interests in property of these entities, if blocked, remain blocked. U.S. persons must report authorized transactions or any series of transactions exceeding $50,000 to the U.S. Department of State no later than 30 days after execution. The authorization expires on April 30, 2017, unless otherwise extended or revoked.
On February 19, FinCEN withdrew three findings and proposed rulemakings under Section 311 of the USA PATRIOT Act. FinCEN determined that the three entities subject to the proposed rulemakings “no longer pose a money laundering threat to the U.S. financial system.” FinCEN withdrew its findings and proposed rulemakings against (i) a Costa Rica-based financial institution; (ii) a Belarus-based financial institution; and (iii) an Andorra-based financial institution. Regarding the Costa Rica-based institution, FinCEN noted that the DOJ “seized [its] accounts and Internet domain names and charged seven of its principals and employees with money laundering;” the institution stopped functioning after such actions were taken. According to FinCEN, the Belarus-based entity, along with its successor, no longer operates as a foreign financial institution and does not operate in a way that poses a threat to the U.S. financial system. Finally, concerning the third entity, FinCEN noted that Andorran authorities assumed control of the management and operations of the entity, arrested its chief executive officer on money laundering charges, and “are in the final stages of implementing a resolution plan that is isolating the assets, liabilities, and clients of [the entity] that raise money laundering concerns.”
District Court Denies Motion to Dismiss, Rules Compliance Officers Responsible for AML Program Failures
On January 8, the U.S. District Court of Minnesota ruled that individual officers of financial institutions may be held responsible for ensuring compliance with anti-money laundering laws under the Bank Secrecy Act (BSA). U.S. Dep’t of Treasury v. Haider, No. 15-cv-01518, WL 107940 (Dist. Ct. Minn. Jan. 8, 2016). In May 2015, the defendant filed a motion to dismiss the U.S. Department of the Treasury’s December 2014 complaint against him. The Treasury’s complaint alleged that the defendant failed in his responsibility as the Chief Compliance Officer for an international money transfer company to ensure that “the Company implemented and maintained an effective AML program and complied with its SAR-filing obligations.” The complaint sought a $1 million judgment against the defendant and enjoined him from working for, either directly or indirectly, any “financial institution” as defined in the BSA. In his motion to dismiss, the defendant contended that the Treasury’s complaint should be dismissed because, among other reasons, 31 U.S.C. § 5318(a) permits the imposition of a penalty for AML program failures against an entity, not an individual. However, the District Court of Minnesota dismissed the motion, ruling that the BSA’s more general civil penalty provision, § 5321(a)(1), could subject a partner, director, officer, or employee of a domestic financial institution to civil penalties for violations “of any provision of the BSA or its regulations, excluding the specifically excepted provisions.” Judge David Doty further opined, “Because § 5318(h) is not listed as one of those exceptions, the plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like [the defendant], who was responsible for designing and overseeing [the company's] AML program.” The defendant also challenged the Treasury’s complaint on the bases that (i) the request for injunctive relief was time barred by the applicable statute of limitations; (ii) FinCEN should not have been permitted to receive and publicly use grand jury information; and (iii) FinCEN violated his due process rights. For various reasons, the District Court declined to decide on such issues or to dismiss materials based on the arguments presented.
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Buckley Webcast: Government lending update
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Consenting views: Achieving positive outcomes from consent order recovery" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Daniel P. Stipano to discuss "AML developments: The latest trends, challenges and opportunities" at the American Conference Institute Financial Crime Executive Roundtable
- Marshall T. Bell and Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Amanda R. Lawrence and Michael A. Rome to discuss "California Consumer Privacy Act compliance" at the Capital Area Compliance Roundtable
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Daniel P. Stipano to discuss "Customer identification program/customer due diligence/enhanced due diligence" at a National Association of Federal Credit Unions webinar
- Jonice Gray Tucker to discuss "MCCA's blueprint for selling & buying - A pitch workshop for outside counsel" at the Minority Corporate Counsel Association Creating Pathways to Diversity Conference
- Kathryn L. Ryan and Moorari K. Shah to discuss "Today's regulatory environment - Are you in the know?" at the Equipment Leasing and Finance Association Annual Convention
- Kathryn L. Ryan and Tim Lange to discuss "Temporary authority to operate - Are you prepared? Hear what the states are doing" at the RegList Annual Workshop
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference