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OFAC Issues General License Authorizing Certain Exports to or from Burma
On December 7, OFAC issued a six-month general license authorizing trade transactions involving Specially Designated Nationals and SDN-owned entities that would otherwise be prohibited by the Burmese Sanctions Regulations. The general license authorizes certain transactions that are “ordinarily incident to an exportation to or from Burma of goods, technology, or non-financial services” and also permits U.S. financial institutions to “unblock and return transactions blocked on or after April 1, 2015 that would have qualified as authorized had they been engaged in pursuant to the authorization in the general license.” U.S. financial institutions that unblock transactions blocked on or after April 1, 2015 must submit to the Department of the Treasury a report to include the following: (i) a copy of the original blocking report filed with OFAC; (ii) the date the transaction was unblocked; (iii) the amount unblocked, if applicable; (iv) the name of the party to whom the blocked property was returned; and (v) a reference to the general license as the legal authority under which the transaction was unblocked and the blocked property was returned. The general license is effective through June 7, 2016.
DOJ Announces Sentencing of Former Secret Service Agent for Involvement in Silk Road Investigation
On December 7, the DOJ announced that a former Secret Service agent was sentenced to 71 months in prison on charges of money laundering and obstruction of justice. Between 2012 and 2014, the former agent conducted forensic computer investigations from the Northern District of California to locate, identify, and prosecute persons involved in operating Silk Road, a covert online marketplace for illicit goods, as part of the Baltimore Silk Road Task Force. As part of his guilty plea, the agent admitted to using account information from a January 2013 search and arrest of a Silk Road customer support representative to “reset passwords and pins of various accounts on Silk Road and move approximately 20,000 bitcoin, at the time worth approximately $350,000, from those accounts into a bitcoin ‘wallet’ [he] controlled.” The former agent also admitted to (i) moving stolen bitcoin money into an account on a Japan-based online digital currency exchange; (ii) liquidating the bitcoin into $820,000 in U.S. currency and transferring those funds into a personal investment account in the U.S.; (iii) using the customer support representative’s access to Silk Road to steal bitcoin, which limited the investigation of Silk Road; and (iv) making false and misleading statements to both prosecutors and investigators involved in the San Francisco grand jury investigation into his activity. In addition to the prison sentence, the court ordered the former agent to forfeit more than $650,000. The Secret Service agent is the second federal agent to be sentenced this year in connection with the Baltimore Silk Road Task Force’s investigation into the Silk Road.
FinCEN Appoints Andrea Sharrin as Policy Division Associate Director, Replaces Jamal El-Hindi
On December 7, FinCEN announced the selection of Andrea Sharrin as Associate Director for its Policy Division, the division responsible for drafting BSA rules as well as addressing strategic policy issues surrounding anti-money laundering and countering terrorist financing. Sharrin currently serves as the Director of the Office of Compliance and Enforcement in FinCEN’s Enforcement Division with responsibility for FinCEN's BSA compliance and enforcement program. In her new role, Sharrin will lead the team that “defines the framework for protecting the U.S. financial system from money laundering, terrorist financing, and other illicit finance,” and will oversee FinCEN’s regulatory functions, which include drafting guidance and issuing regulatory rulings related to BSA. Sharrin replaces Jamal El-Hindi who was named FinCEN’s Deputy Director earlier this year.
Former New York-Based Broker-Dealer Executives Sentenced to Two Years in Prison
Two former executives of a now-defunct New York-based broker-dealer were each sentenced to two years in prison for their roles in a bribery scheme involving a Venezuela’s state-owned economic development bank. On December 8, Tomas Clarke, the former Miami-based senior vice president of the broker-dealer, was sentenced to two years in prison and ordered to forfeit nearly $5.8 million for his role. On December 4, Ernesto Lujan, the former managing partner at the broker-dealer’s Miami office, was sentenced to two years in prison and ordered to forfeit $18.5 million. The pair pleaded guilty in August 2013 in the U.S. District Court for the Southern District of New York to conspiracy to violate the FCPA, the Travel Act, and to commit money laundering, as well as substantive counts of these offenses.
The broker-dealer earned more than $60 million in commissions from trades placed by the Venezuela’s state-owned economic development bank over a five year period. To obtain that business, the broker-dealer paid millions of dollars in bribes to an official, Maria De Los Angeles Gonzalez De Hernandez (Gonzalez), at the development bank, often routing them through third parties and offshore bank accounts in Switzerland and elsewhere. Clarke and Lujan are two of five former broker-dealer executives to plead guilty in connection with this case. In March, two other former executives, including the broker-dealer’s former CEO, were each sentenced to four years in prison. One other former executive, who pleaded guilty in August 2013, has yet to be sentenced. Gonzalez, who pleaded guilty in November 2013 in the U.S. District Court for the Southern District of New York to conspiracy to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses, also is awaiting sentencing.
CFPB Reports on Effect of the CARD Act
On December 3, the CFPB published a report summarizing the impact of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) on consumers and the credit market. According to the report, access to credit has increased by 10% since early 2012, with more than 60% of adults owning at least one credit card account. The report states that as a result of the CARD Act placing limitations on the use of over-limit fees, and its requirement that such fees and other penalty fees be “reasonable and proportional” to the underlying violation of account terms, consumers saved billions of dollars from 2011 through 2014. The CFPB’s outstanding areas of concern relating to the credit market include: (i) deferred-interest promotions; (ii) debt collection practices; and (iii) rewards program offers that provide only partial information.
CFPB Issues Fall Rulemaking Agenda, Potential Student Loan Servicing Rules on Horizon
On November 20, the CFPB released its fall rulemaking agenda. The CFPB’s notable current initiatives include: (i) addressing arbitration clauses in contracts related to consumer financial products and services and providing an outline of rulemaking ideas such as “whether to propose rules that would prevent companies from using these agreements to foreclose consumers’ ability to bring class action lawsuits”; (ii) developing a Notice of Proposed Rulemaking, with an anticipated release date in the first quarter of 2016, to address concerns relating to payday and auto title lending; (iii) finalizing its December 2014 proposed rule, “Prepaid Accounts Under the Electronic Fund Transfer Act (Regulation E) and the Truth in Lending Act (Regulation Z),” to address consumer protection concerns relating to reloadable cards and other similar prepaid products; and (iv) considering rules to designate consumer installment loans and vehicle title loans as “larger participants” under the CFPB’s supervisory authority. Looking ahead, the CFPB’s report highlights the potential for rulemaking to address issues related to credit reporting and student loan servicing. Regarding student loan servicing, the CFPB stresses that it “has made it a priority to take action against companies that are engaging in illegal servicing practices,” and that it will “continue to monitor the market for trends and developments and evaluate possible policy responses, including potentially proposing rules.”
House Report Examines the CFPB's Methodology in Auto Finance Investigations
On November 24, Republicans on the House Committee on Financial Services issued a report regarding the CFPB’s approach for determining discrimination in the auto lending industry. The report questions the CFPB’s proxy methodology and its authority to bring claims against banks involved in indirect auto lending under the Equal Credit Opportunity Act’s (ECOA) disparate impact theory. According to the report, disparate impact “is a controversial legal theory of liability in discrimination cases.” The report further states that, even if it assumes that the ECOA permits disparate impact claims, the CFPB is nonetheless required to identify the following to establish a prima facie case: (i) a specific policy or practice adopted by the creditor; (ii) disparate impact on a prohibited basis; and (iii) a causal relationship between the challenged practice and the alleged disparate impact. The report states, “[d]ocuments obtained by the Committee show that the Bureau will likely have difficulty proving any one of these requirements, much less all three.” Notably, the report criticizes the CFPB’s adoption of the Bayesian Improved Surname Geocoding proxy method, which “combines surname- and geography-based information into a single proxy probability for race and ethnicity,” labeling it as “faulty and unreliable.” The report further suggests that the CFPB observed the method to be “less accurate . . . than some proprietary proxy methods that use nonpublic data.” In closing, the report comments on the CFPB’s “ambition to eliminate dealer markup” by summarizing (i) a December 2013 settlement in which the CFPB used its leverage over a bank holding company to negotiate the settlement terms; (ii) the agency’s plans to increase the number of individual enforcement actions on dealer markup and compensation policies; and (iii) potential ECOA rulemaking to “promulgate a regulation prohibiting lenders from compensating dealers based on the terms of a loan.”
OCC Updates Risk Assessment Guidance
On December 3, the OCC revised its Comptroller’s Handbook to include updated guidance regarding its risk assessment system (RAS). The RAS guidance clarifies the relationship between RAS and the Uniform Financial Institutions Rating System known as CAMELS. In addition, the guidance revises the definition of banking risk and applies a single definition – “the potential that events will have an adverse effect on a bank’s current or projected financial condition and resilience” – to all categories. Finally, the guidance expands the quality of risk management assessment to include a category of “insufficient,” between the already existing categories of “satisfactory” and “weak,” and also expands the assessment of strategic and reputation risk to consider both quantity of risk and quality of risk management.
Second Circuit Upholds District Court Decision to Dismiss Arbitration Case
On November 19, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a case alleging that two leading credit card issuing banks schemed to require that disputes be settled in arbitration, as opposed to class action lawsuits. The plaintiffs challenged the District Court’s decision on the grounds that language in United States v. General Motors Corp. should be used “to adopt a rule that the existence of conspiracy is a legal conclusion subject to review de novo.” Ross v. Citigroup, Inc., No. 14-1610 (2nd Cir. Nov. 19, 2015). Plaintiffs further argued that the District Court’s conclusion that the defendants’ actions did not constitute as conspiracy in violation of the Sherman Act should not be shielded by the “clearly erroneous” test. The District Court analyzed various “plus factors,” including motive, the quantity and nature of inter-firm communications, and whether the arbitration clauses were “artificially standardized” because of an illegal agreement, to determine whether or not conspiracy existed among the credit card issuing banks. The District Court concluded that the credit card issuing banks’ final decision to implement class-action-barring clauses was reached “individually and internally.” Stating that General Motors has never been applied as generously as the plaintiffs argued for it to be, the Second Circuit’s review of the record found the District Court’s conclusion plausible and not “clearly erroneous.”
DOJ Charges 16 Additional Individuals with FIFA-Related Corruption; Swiss Authorities Arrest Two High-Ranking FIFA Members
On December 3, the DOJ charged an additional 16 individuals in connection with its ongoing corruption investigation into FIFA. The new indictment included a number of high ranking FIFA members, including Alfredo Hawit, the president of the Confederation of North, Central America and Caribbean Association Football (CONCACAF) and vice-president of FIFA, and Juan Angel Napout, the president of the South American Football Confederation (CONMEBOL) and a member of the FIFA executive committee. Both of these individuals were arrested by Swiss authorities in Zurich and are opposing extradition to the United States.
With the additional 16 individuals, a total of 41 people and entities have been charged as part of the DOJ’s ongoing investigation.