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FinCEN Renews Southern California Geographic Targeting Order; Issues New Geographic Targeting Order on Border Cash Shipments in Texas
On August 7, FinCEN renewed a Geographic Targeting Order (GTO) for common carriers of currency at two border crossings in Southern California. Similarly, FinCEN issued a new GTO for carriers at eight major border crossings in Texas. Designed to increase the transparency of cross-border money movements, the GTOs temporarily amend the Report of International Transportation of Currency or Monetary Instruments (CMIR) requirements for common carriers of currency when transporting cash in amounts exceeding $10,000 across the two California borders and the eight Texas borders. The GTOs require the relevant common carriers of currency to disclose 100 percent of information in the CMIRs, eliminating “the reporting exemption for these carriers that might otherwise apply to transporting currency from a foreign person to a bank.” Additional changes to the CMIR reporting requirements include providing the names and addresses for the following persons: (i) the currency originator; (ii) currency recipient; and (iii) all other parties engaging in the movement of currency and monetary devices. The Southern California GTO extends the CMIR reporting requirements until February 4, 2016; the Texas GTO is effective September 17, 2015, and is valid through March 15, 2016.
OFAC Announces Settlement Agreement with Insurance Company
On August 6, OFAC announced a $271,815 settlement with a New York-based insurance company with an overall focus on marine insurance and related lines of business, professional liability insurance, and commercial umbrella and primary and excess casualty businesses. According to OFAC, from May 8, 2008 to April 1, 2011, the company and its London branch office, “issued global protection and indemnity (“P&I”) insurance policies that provided coverage to North Korean-flagged vessels and covered incidents that occurred in or involved Iran, Sudan, or Cuba—some of which led to the payment of claims.” The company’s willingness to engage with OFAC-sanctioned countries resulted in 48 alleged violations of Foreign Assets Control Regulations, Executive Order 13466 of June 26, 2008, North Korea Sanctions Regulations, Iranian Transactions and Sanctions Regulations, Sudanese Sanctions Regulations, and Cuban Asset Control Regulations. OFAC stated that (i) the company did not maintain a formal compliance program at the time it issued the P&I insurance policies; and (ii) the company’s London office personnel “misinterpreted the applicability of OFAC sanctions regulations.” The final settlement amount reflects the fact that managers and supervisors knew or had reason to know that the majority of the insurance policies and claims payments at issue involved OFAC-sanctioned countries; the company is a commercially sophisticated financial institution; and it did not have a formal OFAC compliance program in place at the time the apparent violations occurred. Mitigating factors included the company’s cooperation with OFAC’s investigation; lack of prior enforcement action; and its remedial action plan to implement a sufficient OFAC compliance program.
CFPB Issues Guidance Reminding Servicers of Requirements for Cancellation and Termination of Private Mortgage Insurance
On August 4, the CFPB issued Compliance Bulletin 2015-03 to provide guidance to mortgage servicers on their compliance obligations related to the private mortgage insurance (PMI) cancellation and termination provisions under the Homeowners Protection Act (HPA). The bulletin summarizes HPA requirements regarding annual disclosures, PMI refunds, borrower-requested cancellation, automatic termination, and final termination of PMI. The bulletin also cautions servicers to implement investor guidelines in a manner that does not violate the HPA. In a statement released by the Bureau, CFPB Director Richard Cordray advised, “We will continue to supervise mortgage servicers to ensure they are treating borrowers fairly, and [the Bureau’s] guidance should help servicers come into compliance with the [HPA].”
FTC Settles with Operators of Alleged Credit Repair Scheme
On August 4, the FTC announced a settlement with a California-based company and its employees for allegedly violating the FTC Act and the Credit Repair Organizations Act. According to the associated complaint filed by the FTC in March 2015, the defendants operated a bogus credit repair scheme targeting Spanish-speaking consumers. The FTC alleged that the company and the four named employees deceived consumers with false representations that the company was affiliated with the FTC and false promises that they could repair consumers' credit reports and guarantee that the consumer would have a credit score of 700 or higher within six months or less for a fee of approximately $2,000. The FTC’s final orders against the individuals and the Company (i) hold the defendants jointly and severally liable for a $2.4 million monetary judgment; (ii) prohibit the defendants from selling or advertising credit repair services to consumers, and from deceiving consumers about any good or service they are selling, and (iii) bar the defendants from benefiting, through sale or otherwise, from having customers’ personal information. The final orders were approved by the Commission in a 5-0 vote and filed in the U.S. District Court for the Central District of California, Western Division on July 30 and August 3.
SEC Adopts Final CEO Pay Disclosure Rule
On August 5, the SEC adopted a rule requiring public companies to disclose the pay ratio of their CEO to the median compensation of their employees. The rule gives companies some flexibility in the method of determining the pay ratio while providing investors with information to assess the compensation of CEOs. Methods companies may employ to identify the median employee include using (i) a statistical sample of the total employee population; (ii) payroll or tax records that contain a consistently applied compensation measure; or (iii) yearly total compensation as calculated under the existing executive compensation rules. The total compensation for CEOs and total compensation for average employees must be calculated in the same manner. Under the new rule, companies must also disclose the methodology used for identifying the median employee’s annual compensation. Companies will be required to provide disclosure of their pay ratios for their first fiscal year beginning on or after Jan. 1, 2017. Smaller reporting companies, emerging growth companies, foreign private issuers, MJDS filers, and registered investment companies are exempt from the pay ratio rule, which will be effective 60 days after publication in the Federal Register.
Special Alert: CFPB Reports On The Findings From Its "Know Before You Owe" eClosing Pilot Project
In 2014, the Consumer Financial Protection Bureau (“CFPB”) initiated an eClosing pilot program. The eClosing pilot was intended to assist the CFPB in evaluating the use of electronic records and signatures in the residential mortgage closing process. The pilot program has now been completed and on August 5, 2015 the Consumer Financial Protection Bureau (“CFPB”) released a report detailing its findings (“Report”). In the Report, the CFPB indicates that eClosings present a significant opportunity to enhance the closing process for both consumers and the mortgage industry.
The pilot program focused on the mortgage closing process and measured borrowers’ (i) understanding (both perceived and actual) of the process, (ii) perception of efficiency, and (iii) feelings of empowerment. The program also sought to quantify objective measures of process efficiency. The program was conducted over four months in 2014 with seven lenders, four technology companies, settlement agents, and real estate professionals. About 3000 borrowers participated in the study – roughly 1200 completed the CFPB’s survey.
The CFPB sought to determine if an electronic closing process improved the borrowers’ (i) understanding of the transaction, (ii) perception of efficiency, and (iii) feeling of empowerment. These three criteria were measured in multiple ways. To gauge understanding, the borrower was asked about their perceived understanding of the terms and fees, costs, and their rights and responsibilities. To determine the borrower’s actual understanding of their mortgage, they were given an eight question quiz. Five questions were about mortgages generally and three about their mortgage, specifically. To evaluate the efficiency of the transaction, the CFPB measured the difference between eClosings and paper closings in terms of delays, errors in documents, and the time required between steps in the process. Borrowers were also asked about their perceptions concerning efficiency. Finally, in order to gauge the borrower’s feeling of empowerment, the CFPB asked about the borrower’s feelings of control, his or her role, and the role(s) of others in the process.
Among the key findings of the survey cited by the CFPB:
- eClosing borrowers felt more empowered, had better perceived and actual understanding of the transaction, and perceived the process as more efficient than a paper-based closing;
- Delivery of closing documents prior to closing, in particular, improved consumer’s feeling of empowerment and enhanced their perceived and actual understanding of the transaction; and
- eClosing borrowers tended to have shorter closing meetings and a shorter time frame from clearing the closing documents until the actual closing.
The CFPB also stated that the eClosing pilot provided insights into practical issues affecting the success of the eClosing process, and expressed the hope that these insights would assist the mortgage industry in further improving the process. The CFPB’s observations included:
- Certain documents were often still signed on paper because of technology platform limitations, questions about eSignature risks, and the limited availability of electronic notarization services.
- Hybrid closings (part electronic and part paper) caused some confusion among lenders and investors, and more guidance from investors on the subject of hybrid closing would be desirable.
- The large number of stakeholders in the mortgage lending process created coordination and acceptance challenges – some ancillary service providers were resistant to the process changes required by eClosings.
- Mapping closing document packages to eClosing processes proved to be an ongoing challenge during the pilot.
- Settlement agents and closing attorneys appeared to have a significant learning curve when first being introduced to eClosings.
The Report signals the CFPB’s ongoing support for continued development and deployment of eClosing processes. The Report concludes:
Borrowers experiencing eClosing scored higher on average than those experiencing paper closings on many of our measures of perceptions of empowerment, understanding, and efficiency, which suggests that eClosing can be a valuable option for consumers. In particular, eClosing seem to serve as a vehicle to help facilitate two other drivers of empowerment, understanding, and efficiency at closing: early document review and easy integration of educational materials.
However, the Report also calls upon the mortgage industry, as it moves forward, to conduct further research on the impact of eClosings on the borrower’s experience.
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Questions regarding the matters discussed in this Alert may be directed to any BuckleySandler attorney with whom you have consulted in the past.
Vantage Drilling Self-Reports Potential FCPA Violation
On August 4, Vantage Drilling Company, an international offshore drilling contractor, acknowledged that an overseas agent had entered into plea discussions with Brazilian authorities and provided evidence in the ongoing corruption investigation focused on Petrobras. Vantage acknowledged that the agent had purportedly provided evidence related to a former director of Vantage and Petrobras. The company disclosed that it had opened an internal investigation and self-reported the matter to the DOJ and the SEC.
The Brazilian corruption investigations into Petrobras and its affiliates and counterparties continue to expand with no end in sight, and the expected related U.S. investigations are beginning to be disclosed.
CSBS Announcement: Arizona Department of Financial Institutions Becomes Latest State Agency to Adopt National SAFE MLO Test
On July 29, the Conference of State Bank Supervisors (CSBS) announced that the Arizona Department of Financial Institutions began using the National SAFE Mortgage Loan Originator (MLO) Test, making it the 47th state banking agency to adopt the SAFE MLO Test containing Uniform State Content. Combining both the national and state testing requirements of the SAFE Act and the CSBS/AARMR model state law, the test with Uniform State Content was first made available to state banking agencies on April 1, 2013 to help streamline the application process for MLOs seeking to obtain licensure in more than one state. Since April 1, 2013, according to the CSBS, over 58,000 MLOs have taken the National SAFE MLO Test with Uniform State Content. Notably, applicants who take the test on or after October 3, 2015, will be expected to understand requirements of the TRID Rule as promulgated by the CFPB.
Former Derivatives Trader Convicted and Sentenced in U.K. on Libor Manipulation Charges, Also Facing Criminal Charges in U.S.
On August 3, a jury in the United Kingdom convicted former derivatives trader Tom Hayes on eight counts of fraud for his role in the manipulation of the London Interbank Offered Rate (Libor) for Japanese Yen. Hayes was subsequently sentenced to 14 years in prison. Prosecutors had argued that Hayes, a former trader at two international banks, had asked traders at his bank who were responsible for submitting the bank’s daily Libor submissions for publication – as well as submitters at other banks and brokers involved in the Libor process – to raise or lower their submissions for the Yen Libor from 2006 to 2010 to help Hayes increase the profit on his trades. Hayes was the first individual to be tried in U.K. courts for Libor manipulation, with some of Hayes’ alleged co-conspirators set to go to trial in late September. Hayes is also facing criminal charges for the same conduct in the U.S.
OFAC Provides Guidance to Financial Institutions to Help Comply with Crimea Sanctions Regulations
On July 30, OFAC issued a “Crimea Sanctions Advisory,” highlighting certain actions that have been used to circumvent or evade U.S. sanctions involving the Crimea region as described in Executive Order 13685. The Advisory provides guidance to U.S. persons and persons engaging in business activities in or through the United States, directing them to implement appropriate internal controls relative to their OFAC sanctions risk profile. Specifically with respect to financial transactions, OFAC noted that “certain individuals or entities have engaged in a pattern or practice of repeatedly omitting originator or beneficiary address information” from SWIFT messages. OFAC advised that U.S. financial institutions should be “cautious” when processing payment instructions that fail to disclose complete address information when engaging in transactions involving an individual or entity that has previously omitted information of Crimean individuals or entities. OFAC offered three examples of risk mitigating measures: (i) ensure that transaction monitoring systems include appropriate search terms corresponding to major geographic locations in Crimea and not simply references to “Crimea”; (ii) request additional information from entities that previously violated or attempted to violate U.S. sanctions on Crimea; and (iii) clearly communicate U.S. sanctions obligations to international partners and discuss OFAC sanctions compliance expectations with correspondent banking and trade partners.
In addition to issuing the Crimea Sanctions Advisory, OFAC updated its Specially Designated Nationals List and Sectoral Sanctions Identifications List with additional designations.