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Financial Services Law Insights and Observations


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  • Treasury announces task force with South Africa on wildlife trafficking

    Financial Crimes

    On January 25, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced that Treasury and South Africa’s National Treasury recently formed the U.S. – South Africa Task Force on Combating the Financing of Wildlife Trafficking. According to the announcement, the Task Force will combat illicit finance connected to illegal wildlife trade in three key areas:

    • Prioritizing the sharing of financial red flags and indicators connected to wildlife trafficking cases. Specifically, the South African Anti-Money Laundering Integrated Task Force, a public private partnership, will play a key role working in coordination with FinCEN.
    • Increasing information sharing between financial intelligence units to support key law enforcement agencies from South Africa and the U.S. This is intended to “bolster law enforcement efforts to use financial investigations to pursue and recover the illicit proceeds of wildlife criminals, especially transnational criminal organizations (TCOs) fueling and benefiting from corruption and the trafficking of, among other things, abalone, rhino horns, pangolins, and elephant ivory.”
    • Bringing together government authorities, regulators, law enforcement, and the private sector to enhance controls to combat money laundering and the illicit proceeds connected to drug and wildlife trafficking.

    Treasury Secretary Janet L. Yellen emphasized that in order “[t]o protect wildlife populations from further poaching and disrupt the associated illicit trade, we must ‘follow the money’ in the same way we do with other serious crimes.”

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury South Africa Anti-Money Laundering Illicit Finance

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  • OFAC sanctions key Hizballah money exchanger

    Financial Crimes

    On January 24, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13224 against several individuals and associated entities, including a Lebanese money exchanger and a money service business, for facilitating financial activities for Hizballah. Commenting that Treasury “is taking action against a corrupt money exchanger, whose financial engineering actively supports and enables Hizballah and its interests at the expense of the Lebanese people and economy,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson issued a warning that the U.S. is committed to holding persons accountable should they “exploit their privileged positions for personal gain.” The sanctions follow designations imposed last month against several individuals and companies that manage and enable Hizballah’s financial operations throughout Lebanon, including Hizballah’s “quasi-financial institution” and its central finance unit. (Covered by InfoBytes here.) 

    As a result of the sanctions, all property, and interests in property of the designated persons, “and of any entities that are owned, directly or indirectly 50 percent or more by them, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons, must be blocked and reported to OFAC.” OFAC regulations generally prohibit all transactions by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of designated persons unless authorized by an OFAC general or specific license. OFAC further cautioned that “engaging in certain transactions with the individuals and entities designated today entails risk of secondary sanctions,” and noted that the designated persons are also subject to the Hizballah Financial Sanctions Regulations. Pursuant to these regulations, “OFAC can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that either knowingly conducted or facilitated any significant transaction on behalf of an SDGT or, among other things, knowingly facilitates a significant transaction for Hizballah or certain persons designated for their connection to Hizballah.”

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury OFAC Designations OFAC Sanctions Hizballah SDN List Lebanon

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  • SEC awards whistleblowers $28 million


    On January 24, the SEC announced awards totaling nearly $28 million to joint whistleblowers whose information and assistance led to successful SEC enforcement actions. According to the redacted order, the joint whistleblowers’ provided information that prompted the opening of the SEC staff’s investigation and significantly contributed to the success of the action through substantial analysis and ongoing assistance. The SEC also noted that the joint whistleblowers’ actions helped result in the return of millions of dollars to harmed investors.

    Securities SEC Enforcement Whistleblower Securities Act

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  • SEC commissioner discusses state of the crypto industry


    On January 20, SEC Commissioner Hester M. Peirce spoke before the Digital Assets at Duke Conference discussing cryptocurrency lessons for the future. In her remarks, Peirce discussed the current state of cryptocurrency, stating that “the crypto world is burning.” She encouraged the audience to “not wait for regulators to fix the problems that bubbled to the surface in 2022” within the crypto industry, and instead incentivize good behavior. She also emphasized “the point of crypto,” which she considers “is not driving up crypto prices so that you can dump your tokens on someone else. Digital assets need to trade, so centralized venues or decentralized exchange protocols are necessary, but trading markets are not the ultimate point.” Among other things related to crypto, she said lessons from traditional finance are equally applicable in crypto. For example, she noted that “[h]igher returns come with higher risks.”  She also suggested that the SEC should conduct some form of notice and comment process to resolve the thorniest crypto-related policy issues.

    Peirce noted that “sandboxing is coming.” She then explained that SEC Chair Gary Gensler has requested “‘staff to sort through how we might best allow investors to trade crypto security tokens versus or alongside crypto non-security tokens,’[] which is an area in which experimentation through no-action letters and exemptions would be possible.” She also strongly agrees with his sentiment that “‘[g]iven the nature of crypto investments . . . it may be appropriate to be flexible in applying existing disclosure requirements.’”

    She also expressed that “[r]egulation is not a silver bullet, but understanding whether, by whom, and how the company is regulated can help you calibrate your own due diligence.” Peirce said that the SEC “needs to conduct better, more precise, and more transparent legal analysis” in crypto. She noted that its continued use of the precedent from the 1946 U.S. Supreme Court case in SEC v. W.J. Howey Co. has “fleshed out the investment contract subcategory of securities, we repeat the mantra that all, or virtually all, tokens are securities,” calling the SEC’s application of the test to crypto tokens “askew.” She then noted that “an initial fundraising transaction involving a crypto token can create an investment contract, but the token itself is not necessarily the security even if it is sold on the secondary market.” Peirce also noted that the SEC often “refers to the crypto assets themselves as securities.”

    Securities Digital Assets SEC Cryptocurrency

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  • OFAC sanctions IRGC foundation and Iranian senior officials

    Financial Crimes

    On January 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13553 against Iran’s Islamic Revolutionary Guard Corps (IRGC) Cooperative Foundation, five of the foundation’s board members, the Deputy Minister of Intelligence and Security, and four senior IRGC commanders in Iran. According to OFAC, the sanctions—imposed in coordination with the UK and EU—target a key economic pillar of the IRGC.

    OFAC stressed that this “is the ninth round of OFAC designations targeting actors responsible for the crackdown on peaceful demonstrators and efforts to disrupt and cut Iran’s access to the global internet since nationwide protests began in 2022.” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the designated persons may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the persons designated today could be subject to U.S. sanctions.”

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC OFAC Sanctions OFAC Designations Iran SDN List

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  • NYDFS gives custodial guidance on crypto insolvency

    State Issues

    On January 23, NYDFS reiterated expectations for sound custody and disclosure practices for entities that are licensed or chartered to custody or temporarily hold, store, or maintain virtual currency assets on behalf of customers (virtual currency entities or “VCEs”). NYDFS explained that under the state’s virtual currency regulation (23 NYCRR Part 200), VCEs operating under the BitLicense and Limited Purpose Trust Charter are required to, among other things, “hold virtual currency in a manner that protects customer assets; maintain comprehensive books and records; properly disclose the material terms and conditions associated with their products and services, including custody services; and refrain from making any false, misleading or deceptive representations or omissions in their marketing materials.” 

    The regulatory guidance on insolvency clarifies standards and practices intended to ensure that VCEs are providing high levels of customer protection with respect to licensed asset custody. Specifically, the guidance addresses customer protection concerns regarding:

    • The segregation of and separate accounting for customer virtual currency. VCEs “should separately account for, and segregate a customer’s virtual currency from, the corporate assets of the VCE Custodian and its affiliated entities, both on-chain and on the VCE Custodian’s internal ledger accounts.”
    • VCEs limited interest in and use of customer virtual currency. VCEs that take possession of a customer’s assets should do so “only for the limited purpose of carrying out custody and safekeeping services” and must not “establish a debtor-creditor relationship with the customer.”
    • Sub-custody arrangements. VCEs may choose, after conducting appropriate due diligence, to safekeep a customer’s virtual currency through a third-party sub-custody arrangement provided the arrangement is consistent with regulatory guidance and approved by NYDFS.
    • Customer disclosures. VCEs are “expected to clearly disclose to each customer the general terms and conditions associated with its products, services and activities, including how the VCE Custodian segregates and accounts for the virtual currency held in custody, as well as the customer's retained property interest in the virtual currency.” Additionally, a customer agreement should be transparent about the parties’ intentions to enter into a custodial relationship as opposed to a debtor-creditor relationship.

    State Issues Digital Assets NYDFS State Regulators Virtual Currency Agency Rule-Making & Guidance Bank Regulatory New York 23 NYCRR Part 200

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  • 2nd Circuit affirms dismissal of FDCPA, FCRA, RICO action


    On January 19, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal of a debt collection action related to alleged violations of the FCRA, FDCPA, and the Racketeer and Influenced and Corrupt Organizations (RICO) Act. Plaintiff filed a complaint against a telecommunications company and related entities concerning a disputed past-due charge and subsequent debt collection proceeding. The district court dismissed the action and denied the plaintiff’s motion for sanctions. In affirming the dismissal, the appellate court concluded that the district court correctly determined that the plaintiff failed to state a claim under the FCRA on the basis that (i) the plaintiff failed to allege cognizable damages caused by the alleged violations; and (ii) the credit reporting agencies corrected the allegedly inaccurate information within 30 days of being notified. The 2nd Circuit held that the plaintiff’s FDCPA claims also failed, pointing to the U.S. Supreme Court’s decision in Henson v. Santander Consumer USA Inc., which found that “you have to attempt to collect debts owed another before you can ever qualify as a debt collector” under the FDCPA. According to the appellate court, the plaintiff claimed that the relevant defendants are or were creditors seeking to collect on debts owed to them, and that, as such, they do not qualify as debt collectors under the statute. Finally, the 2nd Circuit concluded that the district court correctly determined that the plaintiff failed to demonstrate how the communications he received from the defendant qualified as mail or wire fraud under RICO.

    Courts Appellate Second Circuit FDCPA FCRA Debt Collection Consumer Finance

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  • District Court grants motion to set aside default judgment in FDCPA, FCRA suit


    On January 19, the U.S. District Court for the District of South Dakota granted a defendant “buy now, pay later” service’s motion to set aside the default judgment in an FDCPA and FCRA suit originally entered in a small claims court. According to the order, the plaintiff filed suit in small claims court alleging violations of the FDCPA and FCRA, but the defendant did not receive notice of the suit and, as such, did not respond to the claim. A default was entered against the defendant thereafter. Upon receiving notice of the default, the defendant removed the case to federal court and moved to set aside the default. With respect to removal, the court held that removal was timely because it was made within 30 days of receiving the notice of default and held that removal was proper based on federal question jurisdiction. With respect to the motion to set aside, the court set aside the judgment, finding that there was no evidence of bad faith on the defendant’s part, that there was no prejudice to the plaintiff, and that the defendant did have “meritorious defenses” to the plaintiff’s claims.

    Courts FCRA FDCPA Debt Collection

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  • FCC announces July 20 as compliance date for amended TCPA rules

    Agency Rule-Making & Guidance

    On January 23, the FCC announced that July 20 is the compliance date for amended telephone consumer protection act rules on prerecorded calls. As previously covered by InfoBytes, President Trump signed S. 151, the Pallone-Thune Telephone Robocall Abuse Criminal Enforcement and Deterrence Act (TRACED Act), which granted the FCC authority to promulgate rules to combat illegal robocalls and requires voice service providers to develop call authentication technologies. On December 30, 2020, the Commission released the TCPA Exemptions Order to implement section 8 of the TRACED Act. In that rulemaking, the Commission amended the TCPA rules related to exemptions for non-commercial calls to residential numbers and commercial calls to residential numbers that do not include an advertisement or constitute telemarketing, among other things. Specifically, the Commission adopted numerical limits on exempted artificial or prerecorded voice calls to residential lines and also required callers making such exempt calls to allow consumers to opt out of any future calls that they do not wish to receive. The Commission explained in the TCPA Exemptions Order that it would publish in the Federal Register a compliance date for the amended rules, which would be six months after publication.

    Agency Rule-Making & Guidance FCC TRACED Act

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  • CFPB says servicers should suggest sales over foreclosures for some borrowers

    Federal Issues

    On January 20, the CFPB encouraged mortgage servicers to advise homeowners struggling to pay their mortgages that a traditional sale may be better than foreclosure. The Bureau reported that due to the Covid-19 pandemic many homeowners are facing foreclosure, especially consumers who were delinquent when the pandemic began. The Bureau pointed out that while foreclosure rates are relatively low compared to pre-pandemic levels, mortgage data from November 2022 shows an increase of 23,400 foreclosure starts. “Often, the mortgage servicer’s phone representatives are the first line of communication with homeowners,” the Bureau said, reminding servicers to provide training to their representatives so they are prepared to provide information to equity-positive homeowners about selling their home as a potential option. “Of course, conversations about selling the home cannot substitute for the Regulation X requirement that mortgage servicers present all available loss mitigation alternatives to borrowers,” the Bureau stated, explaining that Appendix MS-4(B) to Regulation X contains sample language that can be used to inform homeowners of the option to sell their home. Additionally, the Bureau advised servicers to refer homeowners to HUD-approved housing counseling agencies to discuss their options.

    Federal Issues CFPB Consumer Finance Mortgages Servicing Mortgages Foreclosure Covid-19 Regulation X

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