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On March 1, Miami-based Olympus Latin America, Inc. (OLA) entered into a deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA and violating the FCPA in connection with improper payments and benefits to health care practitioners at government-owned facilities in Central and South America. OLA, which is a majority-owned subsidiary of the United States’ largest distributor of endoscopes and related medical equipment, Olympus Corporation of the Americas, agreed to pay a $22.8 million penalty and admitted its criminal conduct.
According to OLA’s admissions, from 2006 through August 2011, OLA “designed and implemented a plan to increase medical equipment sales in Central and South America by providing personal benefits, including cash, money transfers, [ ] travel, free or heavily discounted equipment, and other things of value to certain health care practitioners” employed at government-owned health care facilities. The improper payments totaled nearly $3 million, which resulted in the recognition of more than $7.5 million in profits.
Under the terms of the DPA, the DOJ will defer criminal prosecution for a period of three years and OLA will appoint a compliance monitor and implement numerous compliance measures. In reaching the resolution, the DOJ gave OLA a 20 percent reduction on its penalty as a result of its cooperation, which included “conducting an extensive internal investigation, translating documents, and collecting, analyzing, and organizing voluminous evidence and information.” However, in assessing the penalty, the DOJ noted that OLA did not voluntarily disclose the misconduct in a timely manner.
Following its December guilty plea in the UK, global building and infrastructure company Sweett Group on Friday was ordered by a UK court to pay £2.25 million (including a fine of £1.4 million) for violating Section 7 of the UK Bribery Act of 2010. This was the first-ever conviction and sentence for a company under Section 7, which in essence penalizes companies for failing to prevent bribes made on their behalf. The conduct at issue related to a three-year arrangement in the UAE to secure contracts related to large building contracts.
Prior FCPA Scorecard coverage is also available.
On May 9, the Consumer Financial Protection Bureau (CFPB) outlined in its outreach materials to small business representatives its proposals to implement the loan originator compensation provisions of the Truth in Lending Act (TILA). These proposals will amend the rules applicable to compensation in mortgage loan transactions, and they would also "help level the playing field" in connection with regulation of mortgage loan originators under the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The CFPB intends to finalize rules on these topics by January 21, 2013.
Under the Dodd-Frank Act, restrictions were placed on the ability of creditors and consumers to compensate mortgage loan originators (which includes employee loan officers, mortgage brokerages, and employees of mortgage brokerages). This restriction is similar to the restrictions implemented by the Federal Reserve Board (Board), effective April 2011, that prohibit a creditor from compensating a loan originator based on the terms and conditions of the transaction.
The Dodd-Frank Act generally provides that loan originators may be compensated only by consumers, unless two conditions are met: (i) the loan originator must not receive any compensation directly from a consumer; and (ii) the consumer must not make an upfront payment of discount points, origination points, or fees, other than bona fide third-party fees that are not retained by the creditor, the loan originator, or either company's affiliates.
The CFPB has the authority to create exemptions to the second "points and fees" provision if it finds that an exemption is "in the interest of consumers and in the public interest." In its proposal, the CFPB states that it is considering using this exemption authority to permit consumer payment of upfront points and fees under certain circumstances, and the CFPB is further considering whether to propose particular conditions for payments to affiliates. The CFPB is considering a number of proposals that would carry out this restriction:
- No-Discount-Point Loan Option: Under the CFPB's proposal, the loan originator would be required to offer a no-discount-point transaction. Offering this option, according to the CFPB, would enable the homebuyer to better compare competing offers from different lenders.
- Interest-Rate Reductions When Consumers Pay Discount Points: The CFPB's proposal would mandate that any "discount point" be a "bona fide" discount point that actually reduces the interest rate by at least a minimum amount.
- Origination Charges Must Not Vary with the Size of the Loan: The CFPB proposes that mortgage brokerage firms and creditors would be allowed to charge only flat origination fees instead of fees that vary with the size of the loan. The CFPB proposes that upfront fees may be paid to affiliates, provided that these fees are likewise flat and so do not vary with the size of the loan (except for title insurance payments).
In connection with these proposals, the CFPB indicates that it may allow (i) certain payments and bonuses to loan originator based on profitability, (i) certain payments to mortgage brokerage employees when the consumer pays the brokerage, and (iii) certain types of pricing concessions to be covered by the loan originator's compensation. The CFPB's proposal also considers whether to permit certain types of "point banks," and whether to impose record-retention requirements on loan originators directly. Further, the CFPB is considering whether to "sunset" any potential partial exemption from the statute that it implements.
Significantly, the CFPB's proposal would restrict the ability of a lender to charge its own up-front origination fees, except for a fixed fee that does not vary based on loan size. Under the Board's rules, compensation to loan originators is restricted, but lenders may charge origination fees and discount points without restriction. This proposal, if implemented, would require lenders to make significant adjustments to their fee schedules. Further, the CFPB interprets the Dodd-Frank Act's amendments as imposing a ban on loan originator compensation that varies based on loan terms (except principal balance) even in transactions in which the consumer pays compensation directly.
Although the Dodd-Frank Act requires the CFPB to draft rules related to the anti-steering provisions of the loan originator compensation rules, the CFPB indicates that it will address those provisions at a later date.
In a second major aspect of the outline, the CFPB indicates its intention to carry out its authority under TILA to ensure that loan originators be "qualified." Currently, the SAFE Act imposes registration or licensing requirements on loan originators, but these requirements vary widely based on whether the loan originator is an employee of a depository institution or of a non-bank institution.
Under the CFPB's proposal, loan originators-regardless of employer-would be subject to certain qualifications:
- All loan originators would be subject to the same standards for character, fitness,
and financial responsibility;
- Loan originators would be subject to a criminal background check; and
- Loan originators would be required to undertake training commensurate with the size and mortgage lending activities of the employer. This training would be analogous to the continuing education requirement that applies to individuals who are subject to SAFE Act licensing.
As a result of these proposals, registered mortgage loan originators would be subject to some of the same requirements as licensed loan originators.
The CFPB proposal was created in connection with the CFPB's compliance with the Small Business Regulatory Enforcement Fairness Act (SBREFA), which mandates that the CFPB convene a Small Business Review Panel anytime a proposed rule may have a significant impact on a substantial number of small entities. This panel meets with selected representatives of small businesses, and these representatives provide feedback to the panel on the potential economic impact of the proposal. In addition to the outline, the CFPB also issued a press release, a fact sheet, and a set of discussion questions for the panel.
On May 8, the FTC announced that it had joined the CFPB and the DOJ to file a brief supporting the constitutionality of the Fair Credit Reporting Act (FCRA). The brief was filed in a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania in which a consumer alleged that a consumer reporting agency (CRA) violated FCRA by reporting on arrest records that were more than seven years’ old. Responding to these allegations, the CRA argued that the Supreme Court’s decision in Sorell v. IMS Health, Inc., 131 S. Ct. 2653 (2011), rendered FCRA’s seven-year limitation unconstitutional under the First Amendment. The federal entities’ brief counters that Sorell does not alter the test for commercial speech restrictions established in Central Hudson Gas and Electric Corp. v. Public Service Commission of New York, 447 U.S. 557 (1980). It goes on to argue that, under this test, the government has a substantial interest in protecting individuals’ privacy and that FCRA protects this interest while accommodating businesses’ competing interest in obtaining complete information about potential borrowers.
On February 4, 2016, the SEC settled FCPA allegations with California-based SciClone Pharmaceuticals with a cease and desist order finding that SciClone violated the FCPA’s anti-bribery, books and records, and internal controls provisions related to activities in China. The SEC found that from at least 2007 to 2012, employees of SciClone subsidiaries gave money and gifts to Chinese officials (including employees of state-owned hospitals) in order to boost sales. The SEC further found that SciClone failed to devise and implement a sufficient system of internal accounting controls and lacked an effective anti-corruption compliance program.
SciClone consented to the SEC’s order without admitting or denying the charges and agreed to pay $12.8 million to resolve the charges, including a $2.5 million penalty, the disgorgement of $9.426 million in profits, and $900,000 in prejudgment interest. SciClone will also provide status reports to the SEC for the next three years regarding remediation efforts and new anti-corruption compliance measures. SciClone simultaneously announced that the DOJ had declined to pursue any additional action.
Traditionally, non-bank lenders looked to the states and the FTC for industry regulations. But, this has changed with the introduction of the CFPB. Recent reports show that the federal government is stepping up efforts to regulate and review auto finance companies, many of whom have never been subject to bank-style examinations.
“The CFPB has created a new layer of regulation,” according to John Redding, Counsel in the Southern California office of BuckleySandler. “Auto lenders have to be alert and aware of their fair and responsible lending risks.”
Redding says one of the ways to minimize these risks is to be proactive when reviewing a company’s policies, procedures, discretionary underwriting and pricing practices. The CFPB is likely to conduct statistical reviews for loans that the company has made or purchased to ensure there is no unexplained or improper disparity between protected and non-protected classes , so companies should consider performing such analyses in advance of the regulator conducting such an analysis.
“This will help mitigate risks for the companies by identifying areas that may present risk and allowing them to proactively take steps to modify policies and practices. When the regulators are conducting an exam, companies will have to explain why the business is conducted as it is, including steps taken to ensure fair and responsible lending to all consumers, regardless of status, and address any issues that may arise,” says Redding.
The bottom line: Recognize that there are new regulators and more scrutiny on the industry and begin taking steps to perform these important reviews now.
Redding suggests the following steps auto finance companies can take to prepare for the CFPB:
- Evaluate the institution’s risk profile and prepare an operations and compliance strategy
- Update policies and procedures (review CFPB exam guidelines)
- Monitor, address, and retain records regarding consumer complaints
- Monitor third-party sources of complaints
- Appoint an ombudsman
- Conduct internal audits
- Consider patterns and practices that emerge regarding operations
- Focus on areas that may lead to consumer harm, as well as technical violations
- Include the compliance team to monitor, analyze and advise on specific proposals
On May 3, BuckleySandler filed an amicus brief on behalf of three industry trade groups in a Tenth Circuit case addressing the right to rescind a mortgage under the Truth in Lending Act. The CFPB previously filed an amicus brief in Rosenfield v. HSBC Bank, No. 10-1442 (10th Cir.), in which it argued that borrowers who do not receive certain TILA-required disclosures should be permitted to rescind so long as they notify their lenders within three years—even if they did not file suit within TILA’s three-year repose period. The industry amicus brief, filed on behalf of the American Bankers Association, Consumer Bankers Association, and Consumer Mortgage Coalition, urges the Tenth Circuit to hold that TILA’s statute of repose requires that any right of rescission expire three years after origination even if the consumer previously notified the lender. The industry amicus brief argues that holding otherwise contravenes the purpose of TILA's statute of repose and creates unnecessary uncertainty that will negatively affect the industry and consumers alike.
On May 2, Republican members of the House Financial Services Committee sent a letter to CPFB Director Cordray following up on their initial request and the CFPB’s response, seeking additional details regarding the CFPB’s budget and plans. Although Congress does not appropriate funds to the CFPB, the members argue that the CFPB still must provide the committee with detailed budget information. The CFPB, according to the letter, cannot act as other non-appropriated federal banking regulators because the CFPB budget impacts the national debt while the others do not. In an attempt to exercise some oversight over CFPB spending, the members seek (i) a financial operating plan for the agency; (ii) a detailed fiscal year 2013 budget justification, (iii) performance measures, (iv) a commitment to notify Congress prior to seeking funds from the Federal Reserve Board, (v) information about the CFPB headquarters design and renovation, and (vi) the process for determining employment needs.
In a quarterly securities filing made on December 9, Analogic Corp. (Analogic), a Massachusetts-based manufacturer of airport security equipment, disclosed that the SEC and DOJ have made separate proposals to end their FCPA investigations into the company (see pages 26-27) that would include payments totaling approximately $15 million. The company had previously announced in a September 2015 press release that it had offered the SEC $1.6 million to settle the SEC’s FCPA investigation of the company. Analogic’s 10-Q disclosed that the SEC rejected that offer. The company stated that it remains in discussion with the SEC and DOJ about settlement and is also discussing a settlement with the Danish government concerning a resolution of these matters.
As described in a prior FCPA Scorecard post, Analogic previously reported that the DOJ and SEC had “substantially” completed their investigations of potential bribery involving transactions by the company’s Danish subsidiary, BK Medical ApS. The transactions at issue involved distributors paying BK Medical more than was owed, and BK Medical then allegedly transferring the excess money to third parties identified by the distributors. At the time of its 2011 disclosure of the potentially problematic transactions, the company stated that it had not ascertained the ultimate beneficiaries or purpose of the transfers.
On April 17, the FDIC issued Financial Institution Letter 2012-02 to apply the recent CFPB guidance on compensation for mortgage originators to FDIC-regulated institutions. The statement directs covered institutions to ensure that their policies and practices are consistent with the compensation rules as interpreted by the CFPB.
- Jeffrey P. Naimon to provide a "Washington update" at the Mortgage Bankers Association Live: Legal Issues and Regulatory Compliance Conference
- Brandy A. Hood to discuss "Ongoing challenges of TRID compliance" at the Mortgage Bankers Association Live: Legal Issues and Regulatory Compliance Conference
- Daniel R. Alonso to discuss "Resisting temptation in a crisis: How to make sure ethics and compliance don't get diluted under financial strain" at a New York City Bar webcast
- Daniel P. Stipano to discuss "BSA for BSA seasoned officers" at an NAFCU webinar
- Jon David D. Langlois to discuss "LIBOR transition: Preparations for legal professionals" at a Mortgage Bankers Association webinar
- Garylene D. Javier to discuss "Navigating workplace culture in 2020" at the DC Bar Conference