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New Mexico Passes Law Creating Framework for Licensure of Money Transmitters
Recently, the New Mexico Senate Chamber unanimously passed House Bill 250. The legislation creates a licensing framework for persons or businesses engaging in money transmissions, check cashing, and currency exchange, and delegates certain powers and duties to the Director of the Financial Institution’s Division of the Regulation and Licensing Department. The legislation is currently awaiting Governor Susana Martinez’s signature.
Massachusetts AG Announces New Consumer Advocacy and Response Division
On March 3, Massachusetts AG Healey announced a new Consumer Advocacy and Response Division (CARD) intended to protect Massachusetts consumers from alleged fraud, unfair business practices, and consumer abuse. The CARD staff will assist consumers with issues such as (i) auto purchasing and financing; (ii) data security and identity theft; (iii) debt collection; and (iv) foreclosure prevention. In 2015, AG Healey’s office handled more than 2,600 consumer complaint cases, resolving issues related to debt collection, auto lending, and securing refunds for disputed charges with cellular phone carriers.
Ninth Circuit: Fannie and Freddie Are Not Government Agents for FCA Purposes
Recently, the U.S. Court of Appeals for the Ninth Circuit affirmed the District Court of Nevada’s ruling that, for the purposes of the False Claims Act (FCA), 31 U.S.C § 3729(b)(2)(A)(i), Fannie Mae and Freddie Mac are not instrumentalities or officers, employees, or agents of the federal government. U.S. ex rel. Adams v. Aurora Loan Servs., Inc., No. 14-15031 (9th Cir. Feb. 22, 2016). In this case, the plaintiffs alleged that several lenders and loan servicers (collectively, defendants) made certain false certifications to Fannie and Freddie in connection with the purchase and sale of loans. Plaintiffs argued that the False Claims Act applies to claims made to Fannie and Freddie because they are agencies or instrumentalities of the federal government under one of the two definitions of a “claim” in the Act. The Ninth Circuit held that Fannie and Freddie are not federal instrumentalities for FCA purposes of the first definition of a “claim,” notwithstanding the government’s conservatorship. Likewise, the court confirmed that because Fannie Mae and Freddie Mac are private companies, albeit subject to the government’s conservatorship, claims made to the companies were not made to an officer, employee or agent of the federal government. The court observed that plaintiffs did not make an argument under the second definition of claim under the FCA, which defines a claim as a request or demand made upon non-government third parties under certain conditions, and therefore expressed no opinion on whether such a claim could have been brought.
FTC Issues Summary of Consumer Complaints for 2015
On March 1, the FTC released a copy of its Consumer Sentinel Network Data Book, which summarizes consumer complaints reported to the agency between January 2015 and December 2015. The report, which is published annually and covers rankings for 30 different complaint categories, found debt collection to be the highest volume complaint category, with identity theft issues and imposter scams following close behind. The report attributes the rise in debt collection complaints to a data contributor that began to collect complaints via a mobile application, resulting in a significant increase in complaints related to debt collection calls placed to mobile phones. Additional areas of complaints submitted to the FTC included: (i) telephone and mobile service plans, rates, and charges; (ii) auto-related complaints; (iii) banks and lenders; (iv) credit card billing services and notification practices; (v) foreign money offers and counterfeit check scams; and (vi) education advertising and accreditation. Addressing identity theft and debt collection concerns, FTC Director Jessica Rich emphasized the agency’s ongoing work to combat alleged unlawful and deceptive debt collection practices: “Steps like the recent upgrade to IdentityTheft.gov and our leadership of a nationwide initiative to combat unlawful debt collection practices are critical to our ongoing work to protect consumers from these harms.”
OCC Releases Bulletin Outlining BSA Noncompliance Enforcement Process
On February 29, the OCC released Bulletin 2016-6, supplementing information in Bulletin 2007-36, “BSA Enforcement Policy,” and rescinding Bulletin 205-45, “Process for Taking Administrative Enforcement Actions Against Banks Based on BSA Violations.” Applicable to OCC-supervised institutions, the bulletin describes the OCC’s enforcement process for banks’ noncompliance with BSA requirements and dealing with repeated or uncorrected BSA compliance problems. As outlined in the bulletin, this administrative enforcement process is comprised of four distinct parts: (i) notice and opportunity to respond, during which bank management has 15 days to respond to the OCC’s written notice regarding potential noncompliance; (ii) consideration of enforcement actions, when the OCC’s supervisory office and legal department reviews relevant materials and makes a recommendation to the OCC Supervision Review Committee, which then determines whether the OCC should pursue an enforcement action or if the determination should instead be delegated to the Senior Deputy Comptroller; (iii) initiation of BSA enforcement actions, at which point the bank receives the final letter or report of examination, a proposed cease-and-desist order, and notice regarding potential civil money penalties upon approval of the action; and (iv) coordination with other agencies, when the OCC notifies FinCEN of any informal and formal actions taken against the alleged perpetrator, and when the OCC ensures that all suspicious activity reports are filed and coordinated with other appropriate law enforcement agencies.
CFPB Monthly Consumer Snapshot Highlights Complaints Related to Prepaid Products
On March 1, the CFPB released its most recent complaint report focusing on prepaid products. According to the report, as of February 1, 2016, consumers have submitted approximately 4,300 complaints specific to prepaid products. Findings related to prepaid products highlighted in the report include: (i) consumers are not able to access funds loaded to prepaid cards for extended periods of time; (ii) companies are refusing to re-issue cards with remaining balances to consumers before the originally issued card expires; (iii) consumers are facing various extra charges, such as replacement, monthly, inactivity, and PIN number change fees; and (iv) companies are freezing entire balances when a consumer files a claim to dispute an unexpected charge, making funds unavailable until the claim process is complete. The report also notes that “[c]onsumers who were victims of frauds or scams frequently complained that scammers instructed them to purchase prepaid cards in order to transfer funds to the fraud perpetrators.”
In addition to its focus on prepaid product based complaints, the report identifies the Houston, Texas metropolitan area as its geographical spotlight, noting that as of February 1, 2016, the CFPB has received approximately 63,200 industry-wide complaints from Texas consumers, with about 15,700 coming from Houston consumers alone. A review of the Texas complaints resulted in a highlight of the most-complained-about companies and the most-complained-about consumer financial products and services. Debt collection, mortgage, and credit reporting accounted for the top three most-complained about products in both the Texas sampling and for all consumer complaints submitted to the CFPB’s Consumer Complaint Database.
Large International Bank Discloses SEC and DOJ Investigations Into its Hiring Practices in Asia
On March 1, a large international bank based in the U.K. disclosed in its annual report that it is being investigated in connection with its hiring practices in Asia. In disclosing both DOJ and SEC investigations, the bank noted that it is cooperating with the investigations and “keeping certain regulators in other jurisdictions informed.” While not explicitly linking the hiring probe to the FCPA, the acknowledgement appears to be the latest by an international financial institution concerning U.S. investigations into FCPA implications of its hiring practices in Asia and continues the long-running “Sons and Daughters” investigations by the SEC. Prior coverage of other aspects of the “Sons and Daughters” investigation around the world is available here.
Separately in its annual report, the U.K.-based financial institution also stated that the “DOJ and SEC are undertaking an investigation into whether the [bank’s] relationships with third parties who assist [the bank] to win or retain business are compliant with the” FCPA. The bank disclosed that it has briefed regulators in other jurisdictions about these investigations.
SEC Settles with Health Science Company and Former Employee Over Bribes to Russian Government Officials
On March 3, the SEC announced it settled FCPA charges with a health science company and a former engineer, Mikhail Gourevitch, for their role in bribing Russian government officials to obtain approvals for a liver cancer drug. The company and Gourevitch settled their respective cases with the SEC via separate Administrative Orders Instituting Cease-and-Desist Proceedings. Both the company (now a privately held company, but which was publicly-traded on the NYSE during the 2004-2011 time period at issue) and Gourevitch consented to the SEC orders without admitting or denying the FCPA findings.
In the order settling the charges against the company, the SEC found that it violated the FCPA’s books and records and internal accounting controls provisions in connection with payments made to a Russian third-party agent. According to the SEC, portions of the payments to the agent were used to bribe government officials in Russia to obtain government approval to license, register, and distribute TheraSphere, a liver cancer therapy drug. The company never ultimately won approval to distribute TheraSphere and did not earn any profits as a result from the improper payments.
The order found that the company mischaracterized the agent fees as legitimate business expenses and that it (i) did not have adequate policies and procedures in places to detect corruption risks; and (ii) provided little, if any, training regarding how to conduct business in high-risk jurisdictions. The company, which is a leading provider of medical isotopes, targeted therapies, and sterilization technologies, agreed to pay a $375,000 penalty to settle the charges. The SEC noted the company’s cooperation, self-reporting, and remedial acts in assessing the penalty.
Gourevitch, a dual Canadian and Israeli citizen, agreed to pay $100,000 in disgorgement, $12,950 in prejudgment interest, and a $66,000 penalty to settle the charges that he violated the anti-bribery, books-and-records, and false records provisions of the FCPA. The SEC found that Gourevitch facilitated and monitored the consulting contracts between the company and the Russian third-party agent, who was Gourevitch’s childhood friend.
Telecommunications Company Settles FCPA Charges With SEC in Apparent "Sons and Daughters" Case
The SEC announced on March 1 that it settled FCPA charges with a San Diego-based mobile chip maker. The company agreed to pay a $7.5 million civil penalty to resolve charges that it violated the FCPA by hiring relatives of Chinese government officials and providing things of value to foreign officials and their family members, in an attempt to influence these officials to take actions that would assist the company in obtaining or retaining business in China.
The company and the SEC settled the case via an Administrative Order Instituting Cease-and-Desist Proceedings, in which the company did not admit or deny the findings set forth in the order. The order found that the company had violated the anti-bribery, internal controls, and books-and-records provisions of the FCPA. In addition to the $7.5 million civil penalty, the company agreed to provide the SEC with self-reports and certifications concerning its FCPA compliance during a two-year period.
According to the order, the company both offered and provided employment and paid internships to family members of Chinese foreign officials in order to try to obtain business. Many of these hires were referred to internally at the company as “must place” or “special” hires and did not satisfy the company’s internal hiring standards. The order also details the company’s provision of meals, gifts, travel, and entertainment to both foreign officials and relatives of foreign officials in an effort to influence these officials to use the company’s technology.
The settlement appears to be an extension of the SEC’s “Sons and Daughters” investigations which, up until now, have been focused on the hiring practices of financial institutions in the Asia Pacific. Prior coverage of other aspects of the “Sons and Daughters” investigations around the world is available here.
Medical Device Subsidiary Agrees to DPA with DOJ Related to Health Care Bribes
On March 1, a Miami-based medical device company entered into a deferred prosecution agreement (DPA) to resolve charges of conspiracy to violate the FCPA and violating the FCPA in connection with improper payments and benefits to health care practitioners at government-owned facilities in Central and South America. The company, which is a majority-owned subsidiary of the United States’ largest distributor of endoscopes and related medical equipment, agreed to pay a $22.8 million penalty and admitted its criminal conduct.
According to the company’s admissions, from 2006 through August 2011, it “designed and implemented a plan to increase medical equipment sales in Central and South America by providing personal benefits, including cash, money transfers, [ ] travel, free or heavily discounted equipment, and other things of value to certain health care practitioners” employed at government-owned health care facilities. The improper payments totaled nearly $3 million, which resulted in the recognition of more than $7.5 million in profits.
Under the terms of the DPA, the DOJ will defer criminal prosecution for a period of three years and the company will appoint a compliance monitor and implement numerous compliance measures. In reaching the resolution, the DOJ gave the company a 20 percent reduction on its penalty as a result of its cooperation, which included “conducting an extensive internal investigation, translating documents, and collecting, analyzing, and organizing voluminous evidence and information.” However, in assessing the penalty, the DOJ noted that the company did not voluntarily disclose the misconduct in a timely manner.