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Nevada Casino Operator Settles FCPA Allegations with SEC
On April 7, the SEC settled FCPA allegations with a Nevada-based operator of numerous hotel, resort, and casino properties in the United States and Asia. In a cease and desist order, the SEC found that the operating company violated the FCPA’s internal controls and books and records provisions related to activities in China and Macau. The SEC order alleged that the operating company made more than $62 million in payments to a consultant in Asia, without supporting documentation or appropriate authorizations, and at times continued to make payments to the consultant without being able to account for prior transfers.
The operating company consented to the SEC’s order without admitting or denying the charges and agreed to pay a $9 million dollar penalty. In addition to the penalty, the operating company agreed to obtain an independent monitor for two years to “review its FCPA-related internal controls, recordkeeping, and financial reporting policies and procedures and its ethics and compliance functions.”
Indiana Medical Device Manufacturer's Deferred Prosecution Agreement with DOJ Extended for a Second Time
On March 25, an Indiana-based medical device manufacturer announced that the deferred prosecution agreement it entered into with the DOJ to settle FCPA charges in 2012 would be extended a second time. The company reported that the DOJ and SEC’s investigation into alleged misconduct in Brazil and Mexico, and into the company’s compliance program, was still ongoing.
The company settled FCPA charges with the DOJ and SEC in 2012 related to its conduct in Argentina, Brazil and China. As previously reported, the company disclosed in March 2015 that the deferred prosecution agreement it had agreed to as part of the settlement would be extended for one year because the company had discovered additional potential FCPA violations in Brazil and Mexico.
Pharmaceutical Company Settles with SEC Regarding FCPA Offenses in China
On March 23, the SEC announced that it settled FCPA allegations with a Switzerland-based pharmaceutical company, via a cease and desist order finding that the company violated the FCPA’s book and records and internal controls provisions related to activities in China. The SEC found that employees of two of the company’s Chinese subsidiaries gave money and gifts to Chinese health care providers at state-owned hospitals in order to boost sales. In some cases, the order found, the company’s employees created spreadsheets that linked payments to individual Chinese health care providers to increased sales of certain drugs and created a ranking system for the health care providers.
The SEC’s order found that the company recorded the payments as lecture fees, conferences, seminars, medical studies, and travel and entertainment. The SEC further found that the company failed to devise and implement a sufficient system of internal accounting controls to detect the improper payments, and lacked an effective anti-corruption compliance program. The order did not say whether the company self-disclosed the involved conduct, but the order notes the company’s cooperation and states that the company began an internal investigation after news reports surfaced that a competitor was investigating similar FCPA concerns in its Chinese subsidiaries.
The company consented to the SEC’s order without admitting or denying the charges and agreed to pay $25 million to resolve the case, including a $2 million penalty, disgorgement of $21.5 million in profits, and $1.5 million in prejudgment interest. The company will also provide status reports to the SEC for the next two years regarding remediation efforts and new anti-corruption compliance measures.
California AG Harris Announces Settlement with San Francisco-Based Bank Over Consumer Privacy Violations
On March 28, California AG Harris announced an $8.5 million settlement with a San Francisco-based bank for alleged violations of California consumer privacy laws. Specifically, AG Harris’s and five district attorneys’ investigation into the bank found that its employees failed to “timely and adequately disclose the recording of communications they had with members of the public” in violation of sections 632 and 632.7 of the California Penal Code. Without admitting liability, the bank agreed to (i) implement changes to its policies; (ii) comply fully with California’s laws concerning the recording of communications between the bank and California consumers, making a clear, conspicuous, and accurate disclosure (the Recorded Call Disclosure) at the beginning of any communication that is subject to recording; and (iii) implement an internal compliance program to “promote full compliance with the requirements of Penal Code sections 632.7 and 632, and the Recorded call disclosure.” Of the $8.5 million civil money penalty, $384,000 will be used to reimburse the prosecutors’ investigative costs, and $500,000 will be contributed to two California organization dedicated to advancing consumer protection and privacy rights.
OCC Announces Workshop for Bank Directors
On May 2 through May 4, the OCC will host a workshop in Wilmington, Delaware for directors of national community banks and federal savings associations. With a focus on directors’ duties and core responsibilities, the workshop will discuss major laws and regulations and is intended to increase familiarity with the examination process. The OCC is limiting the workshop’s capacity to the first 35 registrants.
California Federal Court Enters Final Judgment Against Debt Relief Company; Rules in Favor of CFPB
Last week, a California federal district court entered a final judgment against a California-based debt settlement company to resolve the CFPB’s charges that the company violated the Telemarketing Sales Rule and the CFPA. Specifically, the CFPB alleged that the company disguised illegal advance fees for its debt relief services as fees for bankruptcy-related services and misrepresented its services by making consumers believe that they would become debt free when, in fact, “few, if any” consumers became debt free using the company’s services. The court’s final judgment orders the company, which has declared bankruptcy, to pay (i) more than $132 million in restitution to borrowers enrolled in the company’s program between October 27, 2010 and June 18, 2015; and (ii) a $40 million civil money penalty. The order comes after an October 2015 order against the company’s owner, which ordered him to pay $500,000 in consumer redress and permanently banned him from the debt relief industry.
CFPB Releases Guidance on Financial Exploitation of Older Americans
On March 23, the CFPB simultaneously issued a report and an advisory providing financial institutions with information on the financial exploitation of older Americans and recommendations on how to prevent and respond to such exploitation. The report combines the CFPB’s “expertise regarding elder financial exploitation” with knowledge gained from interviews conducted between May 2014 to March 2016 with various stakeholders, including, but not limited to, representatives of individual banks and credit unions of various sizes, trade associations, technology vendors, and law enforcement. According to the CFPB, the release of recommendations outlined in the report and advisory mark the “first time a federal regulator has provided an extensive set of voluntary best practices to help banks and credit unions fight [financial exploitation of older Americans].” The CFPB recommended that financial institutions (i) establish protocols for ensuring staff compliance with the Electronic Fund Transfer Act; (ii) train staff to detect the warning signs of financial exploitation and respond appropriately to suspicious events; (iii) maintain fraud detection systems that provide analyses of the types of products and account activity associated with elder financial exploitation; (iv) report cases of suspected exploitation, which includes filing Suspicious Activity Reports with FinCEN when necessary; and (v) collaborate with stakeholders, including law enforcement, at the local, regional, and state level.
CFPB Issues Annual Complaint Report Specific to the Military Community
On March 22, the CFPB released its fourth annual report highlighting complaints the agency received in 2015 from servicemembers, veterans, and their families. According to the report, debt collection complaints continue to be the most common. The report states that, between January 1, 2015 and December 31, 2015, the CFPB received more than 19,000 complaints from the military community, 46% of which related to the debt collection industry. Complaints related to mortgages and credit reporting follow at 15% and 11%, respectively. The report also summarizes four public enforcement actions in 2015, noting that the actions provided servicemembers with more than $5 million in refunds and other relief.
Congress Passes Bill to Extend Foreclosure Protection Element of the SCRA
On March 21, the U.S. House of Representatives passed S.B. 2393, which extends through 2017 the provision of the Servicemembers Civil Relief Act’s (SCRA) that protects servicemembers against foreclosure without a court order or waiver for one year following completion of their service. On January 1, 2016, the foreclosure protection provision reverted back to the period of active duty military service plus 90 days, rather than the period of active duty military service plus one year. Upon the President’s signature, the SCRA’s protection against foreclosure without a court order or waiver will return to the period of active duty military service plus one year through December 31, 2017.
FinCEN Supplements 2011 FAQs Regarding Prepaid Access
On March 24, FinCEN issued FIN-2016-G002 to supplement guidance issued in 2011 regarding aspects of its Prepaid Access Final Rule. FIN-2016-G002 provides answers to a list of frequently asked questions related to the following areas: (i) the relationship between de minimis cash refund requirements under state law and the exemption in FinCEN’s regulations for closed loop prepaid access products; (ii) conditions under which the use of quick response codes and other technology would fall within the definition of closed loop prepaid access; (iii) whether the term “defined merchant” in the context of closed loop prepaid access is limited to a single merchant; (iv) policies and procedures reasonably adapted to avoid the threshold for being designated as a “seller” of prepaid access; and (v) listing sellers of prepaid access on the provider’s money services business (MSB) agent list.