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  • Fed Proposes Restrictions on Financial Holding Companies' Physical Commodities Activities

    Federal Issues

    On September 23, the Federal Reserve released a proposed rule outlining new risk-based capital and other regulatory requirements for banks that transact in physical commodities. Among other things, the proposed rule would require financial holding companies to retain additional capital if the company is engaged in activities involving commodities for which existing laws impose certain environmental liability. The rule also looks to accomplish the following: (i) to restrict the amount of physical commodity trading activity firms may conduct; (ii) to rescind authorizations that allow firms to engage in physical commodity activities involving power plants; (iii) to remove copper from the list of precious metals that all bank holding companies are permitted to own and store; and (iv) to establish reporting requirements on the nature and extent of firms' physical commodity holdings and activities.  In the memo discussing the proposal, the Fed indicated that it was addressing circumstances where “damages can exceed the market value of the physical commodity involved in the catastrophic events, and can exceed the committed capital and insurance policies of the organization.” The deadline to submit comments is set at December 22.

    Federal Issues Banking Federal Reserve Agency Rule-Making & Guidance

  • DOJ Teams Up With OFAC to Bring Enforcement against Chinese Front Company

    Federal Issues

    On September 26, the DOJ announced charges against a Chinese trading company and its executives for conspiracy to violate the International Emergency Economic Powers Act (IEEPA), and to defraud the United States; as well as for conspiracy to launder monetary instruments through U.S. financial institutions. The criminal complaint alleges that the company served as a third-party payer, using an illicit network of front companies, financial facilitators, and trade representatives to purchase sugar and fertilizer for a banking entity based in North Korea that OFAC had designated as a Specially Designated National (SDN) in 2009. The civil forfeiture complaint seeks forfeiture of funds spread out across 25 different bank accounts located in China and connected to the affairs of the company. In addition, OFAC imposed sanctions on the company, which is located near the North Korean border and openly worked with the SDN banking entity after 2009.

    Federal Issues International Anti-Money Laundering FinCEN DOJ Sanctions OFAC China

  • DOJ Settles False Claims Act Lawsuit Over HUD and FHA Mortgages

    Federal Issues

    On September 29, the DOJ announced a settlement with a large regional bank, whereby the bank agreed to pay $83 million to resolve allegations that it violated the False Claims Act by originating and underwriting mortgage loans insured by the U.S. Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) that did not meet applicable FHA requirements. In addition to underwriting defects, the DOJ alleged deficiencies in the bank’s quality control function, especially during periods of increased loan volume, as well as failures to adequately self-report loans with material defects. The settlement is not an admission of liability by the bank. BuckleySandler represented the bank in this matter.

    Federal Issues Mortgages HUD DOJ FHA False Claims Act / FIRREA

  • DOJ and OCC Reach Consent Agreement With Bank Over Alleged SCRA Violations

    Federal Issues

    On September 29, the DOJ and OCC announced separate settlement agreements with a major U.S. bank regarding alleged violations of the Servicemembers Civil Relief Act (SCRA). The DOJ’s complaint alleged that the bank repossessed vehicles owned by active duty servicemembers without the required court orders. Under the DOJ consent order, the bank agreed to pay $10,000 to each affected servicemembers whose vehicles were repossessed between from January 2008 to July 2015 not in compliance with SCRA, plus any lost equity in the repossessed vehicle, with interest. The DOJ identified 413 affected servicemembers and the bank agreed to set aside $4,130,000 (or more if needed) to pay the required compensation. The bank also agreed to pay a $60,000 civil penalty. The DOJ acknowledged that the bank had in 2014, prior to the investigation, taken steps to ensure SCRA compliance with a full-scale review of its portfolio to identify servicemembers for SCRA protection, and had previously and voluntarily commenced efforts to compensate any affected borrowers. In the OCC consent order, the OCC found errors and deficiencies by the bank in four areas:  (i) applying the 6% interest rate cap; (ii) filing accurate military status affidavits; (iii) repossessing servicemembers automobiles while they were on active duty; and (iv) implementing its SCRA compliance program. Under the consent order for a civil money penalty, the bank agreed to pay a civil money penalty of $20 million, to create a remediation plan for affected servicemembers, and to bolster its SCRA-related policies and procedures.

    Federal Issues Banking Consumer Finance OCC SCRA DOJ

  • House Considers Further Narrowing FDIC Scope on Brokered Deposits

    Federal Issues

    On September 27, the House Financial Institutions and Consumer Credit Subcommittee heard testimony on HR 4116, a bill that would affect how the FDIC determines the amount of deposits at insured banks that qualify as “brokered deposits.” The Federal Deposit Insurance Act currently requires larger premiums for banks with higher ratios of brokered deposits as compared to traditional deposits. This bill would exclude reciprocal deposits from the definition of brokered deposits where the condition of the institution at its most recent examination was adjudged either good or outstanding, or where the total reciprocal deposits of the institution do not exceed either $10 billion or 20% of its total liabilities.  This narrowed scope of brokered deposits would come on the heels of the FDIC’s decision to exclude smaller community banks from including reciprocal deposits are brokered deposits announced earlier this year.

    Federal Issues FDIC Banking U.S. House

  • OCC Hints At AML Guidelines to Come

    Federal Issues

    On September 28, OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance for banks to manage AML/BSA risks in their foreign correspondent banking relationships.

    Federal Issues Consumer Finance OCC Anti-Money Laundering Bank Secrecy Act

  • NCUA Settles MBS Case with Foreign Bank

    Federal Issues

    A foreign bank has agreed to pay $1.1 billion to settle lawsuits brought in Kansas and California in 2011 by the National Credit Union Administration Board (NCUA) as the liquidating agent for two corporate credit unions. The lawsuit centered on claims that the bank sold faulty mortgage-backed securities, contributing to the failures of the two credit unions during the financial crisis.

    Federal Issues Banking NCUA

  • New York Hedge Fund Enters Into Fourth-Largest FCPA Enforcement Action of All Time

    Federal Issues

    On September 29, a New York-based publicly-traded hedge fund agreed to pay approximately $412 million to the DOJ and SEC to resolve related criminal and civil charges of violating the FCPA in connection with the bribery of high-level government officials across Africa. This is the fourth-largest FCPA enforcement settlement of all time, and the first time a hedge fund has been held accountable for violating the FCPA. In the criminal case, the hedge fund entered into a three-year deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA, falsification of books and records, and failure to implement adequate internal controls. The hedge fund agreed to pay a criminal penalty of approximately $213 million, and to retain a compliance monitor for three years. The DPA’s Statement of Facts describes bribes paid to government officials in the Democratic Republic of Congo (Congo) and Libya to help the hedge fund obtain special access and preferential prices for investment opportunities in government controlled-mining sectors in Congo, and secure an investment from the Libyan Investment Authority, Libya’s sovereign wealth fund. In parallel proceedings, the hedge fund agreed to pay $199 million to the SEC and entered into an Administrative Order Instituting Cease-and-Desist Proceedings to settle the FCPA civil charges. The SEC’s allegations covered Libya, Chad, Niger, and the Congo, and alleged that the fund used intermediaries, agents, and business partners to corruptly influence foreign officials. The Order found that the hedge fund executives ignored red flags and corruption risks and permitted the corrupt transactions to proceed. Both the fund’s CEO and CFO agreed to settle related allegations, without admitting or denying the findings. The CEO agreed to pay nearly $2.2 million to the SEC in the settlement, and a penalty will be assessed against the CFO at a future date.

    Federal Issues Criminal Enforcement FCPA International DOJ

  • Second Circuit Overturns Credit Card Antitrust Violation

    Courts

    On September 26, the U.S. Court of Appeals for the Second Circuit ruled that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by prohibiting merchants from directing customers to use other, less costly forms of payment. The appeals court reversed based on the lower courts definition of the market as limited to the “core enabling functions provided by networks which allow merchants to capture, authorize, and settle transactions for customers who elect to pay with their credit or charge card.” According to the decision, this definition was too limited in this case, because the credit card network derived its market share from cardholder satisfaction, providing “no reason to intervene and disturb the present functioning of the payment‐card industry.” The court noted that the outcome in this case is different than in previous credit card exclusionary rule cases because here, the payment clearing network and the card issuing function are completely integrated, meaning that the issuer and the network are the same company.

    Courts Consumer Finance Credit Cards Payments

  • Congress Seeks Answers from Bank CEO and Federal Bank Regulators

    Consumer Finance

    On September 20, the CEO of a major national bank faced questions from the House Financial Services Committee over consumer account practices uncovered during a recent enforcement action by the CFPB. The CEO will return to Capitol Hill on September 29 for additional testimony in front of the Committee. In addition, the Director of the CFPB and the Comptroller of the Currency faced scrutiny from the Senate Committee on Banking, Housing & Urban Affairs on their agencies awareness of, and failure to prohibit, the bank’s alleged actions for more than two years. In prepared testimony, Director Cordray indicated that the civil penalty levied against the bank was the “largest fine by far that the Consumer Bureau has imposed on any financial company to date” calling it a “dramatic amount as compared to the actual financial harm to consumers” but also “justified here by the outrageous and abusive nature of these fraudulent practices on such an enormous scale.” Director Cordray further stated that this enforcement action should help clarify how the CFPB will continue to analyze and enforce the prohibition on “abusive” practices under its mandate.  Meanwhile Comptroller Curry explained how this enforcement action demonstrates the complimentary roles played by the OCC and the CFPB in supervising bank practices.

    CFPB OCC U.S. Senate U.S. House Senate Banking Committee House Financial Services Committee

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