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Financial Services Law Insights and Observations


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  • Two Additional Businessmen Plead Guilty in Venezuelan Oil Company Scheme

    Federal Issues

    On January 10, it was announced that two additional defendants, owners of Florida and Texas-based energy companies, had pleaded guilty to foreign bribery charges related to a scheme to corruptly secure energy contracts from Venezuela’s state-owned oil company.

    According to admissions contained here and here, they conspired with other previously charged defendants from 2008 through 2012 to pay bribes and other things of value, including recreational travel, meals, and entertainment to the company’s officials to obtain energy contracts or receive payment for previously awarded contracts. Some of the bribes were paid to the company’s official’s relative to conceal the nature, source, and ownership of the bribe.

    In total, eight individuals have now pleaded guilty in cases related to the government’s investigation into bribery at the company. The government’s investigation is ongoing. Previous FCPA Scorecard coverage on the company’s investigations can be found here.

    Federal Issues FCPA International Bribery

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  • Four Individuals Face FCPA Charges Related to Vietnam Project

    Federal Issues

    On January 10, the DOJ announced the unsealing of an indictment charging four individuals, including the nephew and brother of former UN Secretary-General with violations of the FCPA and other offenses in connection with the attempted $800 million sale of a commercial building known as Landmark 72 in Hanoi, Vietnam. According to the government, the brother and nephew conspired to bribe a governmental official of an unnamed Middle Eastern country to get his country to purchase the building from a Korea-based company, where the brother was then a senior executive. To facilitate the sale of Landmark 72, the Korea-based company hired the nephew to secure an investor for the deal.

    According to the allegations, the brother and nephew agreed to pay the foreign official $500,000 initially, and $2 million upon completion of the sale, through the co-defendant, who had falsely held himself out as an agent of the foreign official; the fourth individual allegedly assisted in obtaining the initial $500,000. In a twist, according to the DOJ, the co-defendant then stole the money and used it for personal expenses instead of paying any bribes. After the Landmark 72 deal failed to go through, the nephew allegedly lied and provided forged emails from the foreign official and other documents to the Korea-based company regarding the status of the deal and stole approximately $225,000 that was advanced by the Korea-based company to cover brokerage expenses.

    Federal Issues FCPA International DOJ Bribery

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  • FTC Files Complaint Against Device Maker Concerning Alleged Failures to Reasonably Secure Routers and Internet Protocol (IP) Cameras


    On January 5, the FTC announced that it was initiating and enforcement action against a Taiwanese computer networking equipment manufacturer and its U.S. subsidiary. In a complaint filed with the Northern District of California, the FTC charged that the device-manufacturer failed to take reasonable steps to secure its routers and Internet Protocol (IP) cameras, potentially compromising sensitive consumer information, including live video and audio feeds from D-Link IP cameras. Specifically, the FTC alleged that hackers could exploit these vulnerabilities using any of several “simple methods.”

    According to its press release, the complaint filed today is part of broader FTC’s efforts to protect consumers’ privacy and security in the “Internet of Things” (IoT), which includes cases the agency has brought against a computer hardware manufacturer, and a marketer of video cameras. In a statement, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, explained “[h]ackers are increasingly targeting consumer routers and IP cameras -- and the consequences for consumers can include device compromise and exposure of their sensitive personal information.” Accordingly, Ms. Rich explained further, “[w]hen manufacturers tell consumers that their equipment is secure, it’s critical that they take the necessary steps to make sure that’s true.” The FTC has provided guidance to IoT companies on how to preserve privacy and security in their products while still innovating and growing IoT technology.

    Courts FTC International Privacy/Cyber Risk & Data Security

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  • OFAC Amends Executive Order Regarding Significant Malicious Cyber-Enabled Activities to Include Interfering With or Undermining Election Processes

    Consumer Finance

    On December 28, 2016, the President announced the issuance of an Executive Order Taking Additional Steps To Address The National Emergency With Respect To Significant Malicious Cyber-Enabled Activities thereby amending Executive Order 13694. Among other things, the new Executive Order allows for the imposition of sanctions on individuals and entities determined to be responsible for tampering, altering, or causing the misappropriation of information with the purpose or effect of interfering with or undermining election processes or institutions. Five entities and six individuals have been identified and will be added to OFAC’s SDN List, the latest version of which can be accessed here.

    Banking International Sanctions OFAC Miscellany President-Elect

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  • Joint Final Rules on Expanded Examination Cycle for Certain Small Insured Depository Institutions and U.S. Branches and Agencies of Foreign Banks

    Federal Issues

    On January 4, 2017, the FDIC and the other federal financial institution regulatory agencies announced that they had adopted final rules permitting Insured Depository Institutions (“IDIs”) with up to $1 billion in total assets (and that meet certain other criteria) to qualify for an 18-month on-site examination cycle. The rule modification is aimed at allowing banking regulators to better focus supervisory resources on IDIs that present capital, managerial, or other issues of supervisory concern while reducing regulatory burden on small, well-capitalized and well-managed institutions.

    Federal Issues Banking International Financial Institutions Foreign Banks

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  • Four Businessmen and Two Mexican Government Officials Plead Guilty in Aircraft Maintenance Bribery Scheme

    Federal Issues

    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.

    Federal Issues International Anti-Money Laundering DOJ Bribery

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  • Manufacturing Company Agrees to NPA, Will Pay More than $75 Million

    Federal Issues

    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.

    Federal Issues FCPA International Anti-Corruption SEC DOJ

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  • OFAC Release Further Updates to Iran Sanctions Rules

    Federal Issues

    On December 23, OFAC announced it has issued a final rule amending existing Iranian Transactions and Sanctions Regulations to expand the scope of medical devices and agricultural commodities generally authorized for export or re-export to Iran. The amendment also includes new or expanded authorizations relating to training, replacement parts, software and services for the operation, maintenance, and repair of medical devices, as well as certain items that are broken or subject to product recalls or other safety concerns. In addition, this amendment revises the definition of the terms “goods of Iranian origin” and “Iranian-origin goods.” OFAC concurrently published new and updated FAQs pertaining to the amendment.

    International Sanctions OFAC Miscellany

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  • House Terror Financing Task Force Releases Results of Two-Year Investigation

    Federal Issues

    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.


    Federal Issues International Department of Treasury U.S. House OFAC Anti-Money Laundering

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  • Fed Finalizes Debt-Minimum Rule to Help Banking System Weather Shocks

    Federal Issues

    On December 15, the Fed finalized a rule requiring the biggest global banks to guard against potential collapse by holding minimum amounts of long-term debt and regulatory capital. The rule applies to bank holding companies, U.S. global systemically important banks (GSIB), as well as U.S. branches of foreign banks, and aims to shift the costs of bank failure to shareholders rather than taxpayers by requiring lenders to maintain sufficient amounts of long-term debt, which can be converted to equity to keep a failing bank’s key operations afloat. Specifically, the measure will establish minimum required levels for long-term debt and total loss-absorbing capacity, as well as restrictions on certain short-term debt financing arrangements by parents of GSIB-designated financial institutions. In prepared opening remarks, Fed Chair Janet Yellen explained that “[t]he rule is guided by common sense principles: bank shareholders and debt investors should place their own money at risk so depositors and taxpayers are well protected, and the biggest banks must bear the costs that come with their size.”

    In a memorandum to the Board of Governors, the Fed’s staff noted that covered banks are currently about $70 billion short altogether of the new requirements. The Fed staff estimated that the aggregate increased funding of approximately $680 million to $2 billion annually would be required to make up the shortfall.

    Federal Issues Banking International Shareholders GSIBs Bank Holding Companies

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