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The Fed, FDIC, and OCC, as members of the FFIEC, recently announced that the implementation of a streamlined Call Report Form (FFIEC 051) for eligible small institutions—financial institutions with only domestic offices and less than $1 billion in total assets—which is proposed to take effect March 31, 2017. The FFIEC’s action is the result of an ongoing initiative to reduce the burden associated with Call Report requirements for community banks. Among other things, the streamlined Call Report reduces the existing Call Report from 85 to 61 pages, resulting from the removal of approximately 950 (or about 40 percent) of the nearly 2,400 data items in the Call Report. Because the OMB must approve the revisions before they can be implemented, the above-referenced banking agencies have also issued a joint notice reflecting that they have submitted the information collection to OMB for review.
Last week, on December 28, 2016, the OCC announced the release of its final rule to prohibit national banks and federal savings associations from dealing or investing in industrial or commercial metals. Under the new restrictions, banks will no longer be permitted to deal or invest in metals and alloys in forms primarily suited for industrial or commercial purposes, such as copper cathodes, aluminum T-bars and gold jewelry. The final rule is effective as of April 1, 2017, and includes a divestiture period, which provides for institutions that previously acquired industrial or commercial metal through dealing or investing to unwind their investments as soon as practicable, but not later than April 1, 2018. The OCC may also—on a case-by-case basis—grant up to four separate one-year extensions of the divestiture period if the bank has made a good faith effort to dispose of its existing investments and the bank’s retention of the metal is not inconsistent with safe and sound operation.
On January 5, the CFPB announced the release of a report, entitled Snapshot of Older Consumers and Student Loan Debt, which examines the “increasing student loan debt that older consumers are carrying, as well as how the increased debt burden is impacting borrowers’ later life financial security.” Among other things, the Report notes that the number of older student loan borrowers has quadrupled over the last decade, and that the amount of debt per older borrower has roughly doubled over that same time period, particularly as many borrowers take out loans for children or grandchildren. The Report notes further that, in 2015, nearly 40 percent of federal student loan borrowers age 65 and older were in default.
The Report also examines complaints from older consumers with private and federal student loans and highlights common problems that appear to arise, including, among other things, co-signing private student loans and difficulties accessing protections guaranteed under federal law for many federal student loan borrowers.
On January 3, the CFPB announced the release of its annual report to the Senate and House Committees on Appropriations for 2016. The report—which covers October 1, 2015 through September 30, 2016—identifies the specific responsibilities that the Dodd-Frank Act tasked to the CFPB and explains how the Bureau has attempted to meet those responsibilities. Among other things, the report describes Bureau regulations and guidance related to the Dodd-Frank Act including, but not limited to: (i) a proposed rule on arbitration; (ii) a proposed rule related to payday loans, vehicle title loans, and other similar credit products; (iii) a final rule to amend various provisions of the mortgage servicing rules implementing the Real Estate Settlement Procedures Act and the Truth in Lending Act; and (iv) a final rule amending Regulation C, implementing the Home Mortgage Disclosure Act. The report also includes descriptions of the Bureau’s supervisory activities and enforcement actions undertaken by in the 2016 fiscal year.
Four Businessmen and Two Mexican Government Officials Plead Guilty in Aircraft Maintenance Bribery Scheme
On December 27, the DOJ announced the unsealing of charges against four businessmen and two Mexican officials involved in a scheme to secure aircraft maintenance and repair contracts with Mexican government-owned companies. The four businessmen all pleaded guilty to conspiracy to violate the FCPA, with two of the businessmen separately pleading guilty to conspiracy to commit wire fraud. Additionally, both former officials with Mexican state-owned companies each pleaded guilty to one count of conspiracy to commit money laundering.
According to the DOJ, the defendants admitted that between 2006 and 2016, millions of dollars were paid to numerous Mexican government officials to secure aircraft parts and servicing contracts with Mexican government-owned companies. The defendants also admitted to laundering the proceeds of the bribery scheme. In total, the four businessmen paid more than $2 million in bribes to Mexican officials, including the two former officials.
One of the former officials was sentenced in May to 15 months in prison; the remaining defendants have yet to be sentenced.
On December 29, a Kentucky-based manufacturer and distributor of cable and wire, entered into a non-prosecution agreement with the DOJ regarding improper payments to government officials in Angola, Bangladesh, China, Indonesia, and Thailand. The company agreed to pay the DOJ a $20.5 million criminal penalty. The company simultaneously resolved an investigation by the SEC over the same conduct, and agreed to disgorge approximately $55.3 million, along with a $6.5 million penalty regarding accounting violations at its Brazilian subsidiary.
According to the DOJ, beginning in 2002, the company’s employees became aware that the company’s foreign subsidiaries were using third party agents and distributors to make corrupt payments to foreign officials in various countries to secure business. In 2011, employees from the company’s subsidiary expressed concerns to regional and parent-level executives that commission payments were being used for improper purposes but the company failed to investigate the payments or implement a system of internal controls to detect and prevent the abuse. In total, the subsidiaries paid approximately $13 million to third party agents and distributors from 2002 to 2013, a portion of which was used to make unlawful payments to foreign government officials. According to the DOJ, the payments and resulting contracts netted the company more than $51 million in profits on sales to state-owned enterprises around the world. The SEC separately found that due to weak internal controls, the company failed to detect improper inventory accounting at its Brazilian subsidiary, causing the company to materially misstate its financial statements from 2008 to the second quarter of 2012.
Simultaneous with its resolution with the company, SEC also resolved charges against the company’s then-senior vice president and the individual responsible for sales in Angola. The former senior vice president agreed to pay the SEC a $20,000 penalty without admitting or denying that he knowingly circumvented internal accounting controls and caused FCPA violations when he approved over $340,000 in payments to an agent in Angola. The SEC separately noted that while the company’s former CEO and CFO had now returned millions of dollars in compensation they had received during the period of the violations, the SEC had found no personal misconduct by either former officer.
The company’s $20.5 million criminal penalty represented a 50 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range based on the DOJ’s conclusion that the company “voluntarily and timely disclosed the conduct at issue, fully cooperated in the investigation and fully remediated. The benefits the company received from the DOJ are similar to those companies can receive for participating in the Fraud Section’s FCPA Pilot Program for the self-reporting of FCPA violations. Prior coverage of the Fraud Section’s FCPA Pilot Program can be found here.
On December 23, the CFPB announced that it is amending the official commentary interpreting Regulation Z (Truth in Lending) to reflect a change in the asset size exemption thresholds required to establish an escrow account for higher-priced mortgages under Reg. Z. Under the amended commentary, the exemption threshold is adjusted to increase to $2.069 billion from $2.052 billion.
On December 20, the House Financial Services Committee’s Task Force to Investigate Terrorism Financing announced the release of a report detailing the results of its two-year investigation into terror financing. The report, entitled Stopping Terror Finance: Securing the U.S. Financial Sector, is intended to “serve as a useful summary of the key points illuminated by Task Force hearings regarding the terrorist financing threat, the necessary components of an effective strategy to address such financing activity, and current efforts to combat it.
Among other things, the Task Force took a more granular look at some less well-publicized terrorist financing methodologies, including: (i) the use of trade-based money laundering; (ii) the use of individual and corporate charitable foundations; (iii) the plundering of arts and antiquities by terrorists, especially by Islamic State of Iraq and Syria (ISIS); and even (iv) drug trafficking.
Moreover, as explained by Task Force Chairman Mike Fitzpatrick (R-Penn), the task force “discovered highly critical vulnerabilities” for which it presented several recommendations and called for further Congressional attention. Among other things, the report highlighted a need for:
- Better interagency coordination and resource allocation;
- Better use of and access to information that can identify illicit finance;
- Adding more overseas Treasury attachés;
- Continued attention to helping developing countries fight illicit finance;
- A greater domestic and international focus on stopping trade-based money laundering;
- Development of a harmonized regulatory and examination procedure for nonbank financial institutions – primarily money service businesses (MSB) but also emerging value transfer technologies – to squeeze out illicit finance and provide banks the comfort necessary for them to again widely offer MSB retail account services;
- Development of a whole-of-government strategy to combat terror finance and other forms of financial crimes; Beneficial ownership of corporate entities; and
- Re-animation of the interagency Terrorist Financing Working Group.
Notably, members of the Task Force have already introduced several bipartisan bills aimed at addressing some of the concerns identified in the report, including:
- H.R. 5594, the “National Strategy for Combating Terrorists, Underground, and Other Illicit Financing Act,” which passed the House on July 11, 2016 by voice vote, and requires the President, acting through the Treasury Secretary, to develop and publish an annual whole-of-government strategy to combat money laundering and terrorist financing.
- H.R. 5602, which passed the House on July 11, 2016 by a vote of 356-47, requiring more detailed information to be reported to the Treasury regarding certain types of transactions in a specific area for a limited amount of time.
- H.R. 5607, the “Enhancing Treasury’s Anti-Terror Tools Act,” which passed the House on July 11, 2016 by a vote of 362-45, enhancing Treasury’s anti-illicit finance tools by addressing issues that came up repeatedly in Task Force Hearings.
- H.R. 5603, the “Kleptocracy Asset Recovery Act,” which is sponsored by Ranking Member Stephen Lynch (D-MA), and seeks to establish a reward program aimed at helping the U.S. identify, freeze, and, if appropriate, repatriate assets linked to foreign government corruption, which is often an enabler of terrorism.
- H.R. 5606, the “Anti-Terrorism Information Sharing Is Truth Act,” which is sponsored by Task Force Vice Chairman Pittenger (R-NC) and which seeks to refine “safe harbors” for the sharing of anti-terror information, reaffirming Congressional intent in existing statute to encourage government sharing of terror methodologies with banks to help them better recognize such activity.
On December 16, the Director of the Office of Fair Lending and Equal Opportunity at the CFPB announced the Bureau’s fair lending priorities for 2017. According to Ms. Ficklin’s blog post, the CFPB will increase its efforts to prevent credit discrimination and improve credit access by focusing on redlining, mortgage and student loan servicing, and small business lending. Specifically, the Bureau will increase its focus on evaluating: (i) whether lenders are intentionally avoiding lending in minority neighborhoods; (ii) if delinquent borrowers face more difficulty in working out payment arrangements with mortgage or student loan servicers because of their race or ethnicity; and (iii) whether women-owned and minority-owned small businesses experience discrimination when applying for credit.
On December 19, the FHFA published a final rule modifying, reorganizing and relocating the current regulation governing the Federal Home Loan Banks’ (FHLBs) Acquired Member Asset (AMA) programs. As required by the Dodd-Frank Act, the final rule removes and replaces references in the current regulation to ratings issued by a Nationally Recognized Statistical Ratings Organization. The rule also provides the FHLBs with greater flexibility in choosing a model for estimating the credit enhancement required for AMA loans. The final rule adds a provision allowing an FHLB to authorize the transfer of mortgage servicing rights on AMA loans to any institution, including a non-member of the FHLB System. The new rule also allows FHLBs to acquire mortgage loans that exceed the conforming loan limits where such loans are guaranteed or insured by a department or agency of the U.S. government. The final rule excludes a proposed provision that would have eliminated the use of private, loan-level, supplemental mortgage insurance in the member credit enhancement structure required for the AMA programs, but the final version does require FHLBs to establish financial and operational standards that insurers must meet before offering insurance on AMA loans. The new final rule goes into effect on January 18, 2017.
Also on December 19, FHFA issued another final rule (i) limiting the scope of “business activities” that would trigger an FHLB’s obligation to file a “new business activity” notice, (ii) modifying the submission requirements, and (iii) establishing new timelines for agency review and approval of such notices. The rule “narrows the scope of the [new business activity] regulation in two ways: (1) By limiting it to activities that introduce new material risks to the [FHLB]; and (2) By eliminating the need to file an NBA notice prior to accepting new types of collateral.” This new rule similarly goes into effect on January 18, 2017.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable