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Treasury Adopts Methodology for Monitoring the Affordability of Auto Insurance
On July 13, the Treasury Department announced that the Federal Insurance Office (FIO) adopted a methodology for monitoring the affordability of auto insurance. Under the Dodd-Frank Act, the FIO is authorized to monitor the extent to which affordable personal automobile insurance is made available to traditionally underserved communities and consumers, minorities, and low- and moderate-income (LMI) persons. Pursuant to the new methodology, FIO will calculate affordability by using an affordability index that divides the average annual personal automobile liability premium by the median household income for identified majority-minority or majority-LMI ZIP codes. If the Affordability Index does not exceed to 2%, then FIO will consider personal automobile liability insurance affordable. Finally, to monitor the availability of auto insurance, FIO will obtain and analyze aggregated premium data in addition to using publicly available data through the U.S. Census Bureau.
FTC Approves Consent Order Against Two Ohio-Based Auto Dealers
On July 14, the FTC announced the approval of a final consent order against two Ohio-based auto dealers to resolve allegations that they failed to make certain advertising disclosures in violation of the FTC Act, the Consumer Leasing Act (CLA), and the CLA’s implementing Regulation M. Specifically, according to the FTC’s November 2015 complaint, the auto dealers’ lease advertisements (i) failed to disclose, or adequately disclose, that typical consumers would not qualify for advertised terms; and (ii) displayed a monthly payment amount without clearly and conspicuously disclosing terms required by the CLA and Regulation M. Pursuant to the consent order, the auto dealers are prohibited from, among other things, (i) advertising the amount of any payment, or the length or any payment term, without also clearly and conspicuously disclosing all related qualification restrictions, such as those based on the consumer’s credit score; (ii) misrepresenting payment terms; and (iii) advertising payment terms without clearly and conspicuously disclosing terms required by the CLA and Regulation M.
OCC to Host Risk Governance and Credit Workshops
On August 16, the OCC will host a Risk Governance workshop intended to provide directors of national community banks and federal savings associations with information to measure and manage risk. On August 17, the OCC will also host a Credit Risk workshop. Each workshop will take place in Kansas City, Missouri and will be limited to 35 registrants.
OFAC Updates Cuba-Related FAQs
On July 8, OFAC updated its list of frequently asked questions related to Cuba to add two new FAQs regarding the use of U.S. dollars in certain transactions. New FAQ number 43 clarifies that persons subject to U.S. jurisdiction may use the U.S. dollar to conduct transactions in Cuba or with Cuban nationals if the activity is authorized by or exempt from the Cuban Assets Control Regulations (CACR). FAQ 43 further clarifies that under 31 CFR § 515.584(d), commonly known as the “U-turn” general license, U.S. banking institutions are authorized to process transactions originating and terminating outside the United States provided that neither the originator nor the beneficiary is a person subject to U.S. jurisdiction. This means that transactions related to third-country commerce involving Cuba or Cuban nationals may be processed in U.S. dollars through the U.S. financial system via financial institutions located in the United States that serve as intermediary banks. New FAQ 50 relates to correspondent accounts. Pursuant to a general license in the CACR, U.S. depository institutions are permitted to maintain correspondent accounts at financial institutions that are nationals of Cuba, provided such accounts are used only for transactions that are authorized or exempt under the CACR. FAQ 50 explains that such accounts may be maintained in U.S. dollars, and that transactions necessary to establish and maintain such accounts – including processing funds transfers in U.S. dollars - are authorized. Finally, FAQ 50 notes that financial institutions that are nationals of Cuba remain prohibited from opening correspondent accounts at a U.S. financial institution.
California DBO Publishes Report on Lender and Servicer Data
On July 11, the California Department of Business and Oversight (DBO) published its 2015 Annual Report: Operation of Lenders and Servicers under the California Residential Mortgage Lending Act, which compiles consolidated data from unaudited annual reports filed by mortgage lenders and servicers licensed under the California Residential Mortgage Lending Act. Notably, the report identifies a significant increase in the number and aggregate principal amount of mortgage loans that were originated by such licensees in 2015 as compared to 2014 (an increase of 47.3 percent and 56.7 percent, respectively). Additionally, among other things, the aggregate principal amount of mortgage loans serviced by such licensees increased each month in 2015 compared to 2014 (by 7.4 percent), while the number of foreclosures reported by such licensees somewhat decreased in 2015 compared to 2014 (by 3.6 percent).
D.C. AG Racine Announces Settlement with Debt Collection Company
Recently, D.C. AG Karl Racine announced a settlement with a Maryland-based debt collector that allegedly engaged in unlawful and deceptive practices in violation of D.C.’s Consumer Protection Procedures Act and Debt Collection Law. According to the press release, the debt collector, among other things, allegedly collected costs and legal fees from consumers without obtaining a supporting court order, left voicemails to consumers in violation of applicable law, and failed to sufficiently inform consumers about their right to make a debt validation request. Pursuant to the order, the debt collector must, among other things: (i) pay $45,000 (subject to adjustment) to D.C. for its investigative costs; (ii) pay restitution to affected consumers; (iii) “clearly and conspicuously” disclose to consumers that have orally requested the verification of a debt to do so in writing; and (iv) not collect or attempt to collect any amount for “court fees,” as defined in the order, unless a judgment or order has awarded such fees.
European Union Approves EU-U.S. Privacy Shield
On July 12, the European Union (EU) finalized and adopted the EU-U.S. Privacy Shield for transatlantic data flows. As previously covered in InfoBytes, on October 6, 2015, the Court of Justice of the European Union declared in Shrems v. Data Protection Commissioner “invalid” a decision of the European Commission that the EU-U.S. Safe Harbor Framework provided adequate protection for personal data transferred from the EU to the U.S., thus requiring the EU and the U.S. to develop a new framework for transatlantic data transfers. The recently finalized EU-U.S. privacy shield is based on the following principles: (i) strong obligations on companies handling data, including requiring the Department of Commerce to regularly conduct updates and reviews of participating companies and tightening conditions for the onward transfers of data; (ii) clear safeguards and transparency obligations on U.S. government, assuring that “the access of public authorities for law enforcement and national security is subject to clear limitations, safeguards and oversight mechanisms”; (iii) effective protection of individual rights, including complaint-handling mechanisms and the designation of an Ombudsperson independent from U.S. intelligence services to handle redress possibility in the area of national security for EU citizens; and (iv) annual joint review mechanism to monitor the functioning of the Privacy Shield. On July 12, the Commission simultaneously released a Q&A, a Fact Sheet, the “Adequacy Decision,” which will enter into force immediately after Member States are notified, and Annexes.
UK-Based Company and Seven Individuals Charged in the UK With Bribery Surrounding Angola Operations
On July 13, the UK Serious Fraud Office (SFO) charged a UK-based logistics and freight operations company, along with seven current and former executives, with making corrupt payments in violation of Section 1 of the Prevention of Corruption Act 1906. The company is a subsidiary of a privately-owned company headquartered in Hamburg, Germany. The conduct at issue is alleged to have occurred between January 2005 and December 2006, and involves an alleged conspiracy to bribe an agent of an Angolan state oil company to bolster the subsidiary company’s business in the Republic of Angola.
Among other things, Section 1 of the Prevention of Corruption Act 1906 criminalizes the act of offering any gift or consideration to induce an agent to take action in relation to the agent’s principal. Notably, the Prevention of Corruption Act 1906, and, collectively, the Prevention of Corruption Acts 1889-1916, were repealed and replaced by the Bribery Act 2010, which took effect on July 1, 2011. The conduct at issue, however, occurred prior to the enactment of the Bribery Act and, although the Prevention of Corruption Acts were repealed, the government can still use them to prosecute offenses committed before the repeal.
The SFO accepted the case for investigation in September 2014. The subsidiary company and the charged individuals are now scheduled to appear before the Westminster Magistrate’s Court on August 4, 2016.
UK Serious Fraud Office Enters Into Second DPA with Undisclosed Company
On July 11, the United Kingdom’s Serious Fraud Office (SFO) entered into its second-ever deferred prosecution agreement (DPA), under section 1 of the Criminal Law Act 1977 (conspiracy to corrupt and conspiracy to bribe) and section 7 of the Bribery Act 2010 (failure of a commercial organization to prevent bribery). The counterparty to the DPA is an unnamed UK small to medium sized entity (SME), a wholly-owned subsidiary of a U.S. corporation, which generates the majority of its revenues from exports to Asian markets. The DPA did not name the entities due to ongoing related legal proceedings.
The allegations implicate conduct spanning from June 2004 through June 2012 (straddling the effective date of the Bribery Act), involving offers and payments of bribes to secure contracts in foreign jurisdictions. As part of the DPA, the SME agreed to pay a penalty of £352,000 and to disgorge £6,201,085 in gross profits, £1,953,085 of which will be contributed by the U.S. parent company as repayment of a portion of the dividends it received from the SME. The DPA also requires the SME’s continued cooperation and reporting of ongoing compliance efforts.
In its judgment accepting the DPA, the Crown Court addressed the issue of whether to allow the SME – a wholly-owned subsidiary of modest resources – to become insolvent or, in the alternative, to mitigate the financial penalties knowing that the SME could only survive a substantial payment with the support of its parent company. Significantly, the Crown Court sought to avoid encouraging a parent company to establish a subsidiary “as a vehicle through which corrupt payment may be made,” and then summarily dumping the subsidiary when facing criminal repercussions, emphasizing that such a scenario would likely result in the parent company facing prosecution under section 7 of the Bribery Act.
The judgment states that while the SME’s compliance programs were wholly inadequate during the relevant period, the U.S. parent company implemented its global compliance program in the SME in late 2011, through which, in mid-2012, concerns came to light regarding the manner in which a number of contracts were obtained. In mitigating the financial penalties to allow the SME to continue its operations, the Crown Court made clear that there was no allegation that the U.S. parent company knowingly profited from the criminal activities of the SME, nor that it should have known of such activities. The judgment states that the U.S. parent company acted promptly and appropriately when such matters came to light, underscoring the value of self-reporting and cooperation.
Global Technology Company Settles FCPA Charges with SEC; DOJ Issues Third Declination Letter
On July 11, a Wisconsin-based global technology company agreed, pursuant to an administrative cease and desist order and without admitting or denying the SEC’s findings, to pay $14.3 million to settle the SEC’s allegations that it violated the books and records and internal controls provisions of the FCPA. The charges related to actions taken by managers and employees of the company’s wholly-owned Chinese subsidiary, between 2007 and 2013, to make payments to sham vendors to effect bribes and improper payments to employees of Chinese government owned shipyards, ship-owners, and others, as well as to obtain and retain business and personally enrich the subsidiary’s employees. The company’s settlement includes a disgorgement of $11,800,000, prejudgment interest of $1,382,561, as well as a civil penalty of $1,180,000. The company also agreed to a one-year period of self-reporting to the SEC on the status of its FCPA and anti-corruption related remediation and compliance enhancements.
On the same day, the DOJ Fraud Section released a declination letter sent on June 21, 2016, to the company, in which DOJ declined prosecution of possible FCPA violations “despite the bribery by employees of [the company’s] subsidiary in China.” The DOJ letter stated that its decision is consistent with the FCPA Pilot Program , a one-year program launched in April 2016, to encourage companies “to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs.” DOJ determined that the company had voluntarily self-reported potential FCPA violations, conducted a thorough internal investigation, and continues to cooperate fully and remediate its internal controls.
No individuals have been charged in this matter, but DOJ noted in its declination letter that the company removed from the company all 16 employees determined to have been involved in the misconduct. The company also agreed to continue to cooperate in any ongoing investigation of individuals.
This is the third declination letter issued by the DOJ since its FCPA Pilot Program was announced it April 2016. Prior FCPA Scorecard coverage on the FCPA Pilot Program can be found here.