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On December 3, Transparency International released its 2014 Corruption Perceptions Index (CPI). The CPI ranks 175 countries based on the perception of public sector corruption and found that more than two-thirds of the countries had a score below 50 on a scale from 0 to 100 which shows that the levels of bribery and corruption in the public sector are still perceived to be very high. Denmark is at the top of the list with a CPI score of 92. The United States was 17th with a score of 74 but scored lower than numerous other G20 countries, including Australia, Germany, Japan, and the United Kingdom. China had one of the biggest falls, dropping four points from 40 in 2013 to 36 in 2014, despite the fact that its government launched an anti-corruption campaign targeting corrupt public officials. Transparency International called on countries where public sector corruption is limited to stop encouraging it elsewhere by doing more to prevent money laundering and to stop secret companies from hiding corruption. The 2014 CPI can be found at here.
On December 4, Asem Elgawhary, a former vice president of Bechtel Corporation, pled guilty in federal district court in Maryland to mail fraud, conspiracy to commit money laundering, and obstruction and interference with the administration of the tax laws for his role in a kickback scheme to manipulate the bidding process for state-run power contracts in Egypt. From 1996 to 2011, Elgawhary was the general manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egypt’s state-owned electric company. PGESCo helped the Egyptian electric company select subcontractors by soliciting bids and awarding contracts for power projects. Elgawhary admitted to taking $5.2 million in kickbacks from three power companies to give them an unfair advantage in the bidding process. The power companies and their consultants paid the kickback payments into various off-shore and Swiss bank accounts under the control of Elgawhary. Elgawhary, a dual United States and Egyptian citizen, was indicted in February 2014 and is due to be sentenced on March 23, 2015.
It is worth noting that this case was not brought under the FCPA. The DOJ did not allege that Elgawhary was a Egyptian government official or that PGESCo, while a joint venture between Bechtel and the Egyptian state-owned electric company, was a state-owned enterprise for FCPA purposes. The case, though, follows in the footsteps of similar prosecutions of foreign government officials who received bribes and shows the U.S. government’s increasing willingness to police foreign recipients of bribes, even if those bribes are only commercial bribes.
On March 16, the U.S. Court of Appeals for the Eighth Circuit rejected a lawsuit under the Fair Debt Collection Practices Act (FDCPA) that was premised on pleadings filed in an unsuccessful state court collection action. Hemmingsen v. Messerli & Kramer, P.A., No. 11-2029, 2012 WL 878654 (8th Cir. Mar. 16, 2012). Plaintiff debtor successfully defended against a collection lawsuit in state court and thereafter commenced an FDCPA action for harassment, false or misleading representations in the state court action, and unfair practices. The claims were based upon defendant debt collection counsel’s summary judgment motion and supporting affidavit; the factual allegations in these documents were deemed unsupportable by the state court when it dismissed the collection lawsuit. A federal district court dismissed the FDCPA action on the ground that representations in the motion and affidavit in the collection action were made to the state court, and not to the plaintiff as required by the FDCPA. On appeal, the Eighth Circuit rejected this broad FDCPA defense and instead embraced a “case-by-case” approach. The court held that these particular FDCPA claims failed because evidence introduced in federal court provided some factual support for the pleadings filed in the state court action.
On March 20, the CFPB submitted to Congress its first annual report on the administration and enforcement of the Fair Debt Collections Practices Act (FDCPA). The CFPB inherited the annual reporting function as part of the Dodd-Frank Act’s transfer to the CFPB of the primary regulatory responsibility for the FDCPA. Prior to this report, the FTC prepared the annual report, and this year it submitted a letter to the CFPB detailing its efforts under the FDCPA. The report, as informed by the FTC letter, provides (i) a brief background on the FDCPA, (ii) a summary of consumer complaints about the debt collection industry, (iii) a description of the CFPB’s FDCPA supervision authority, including its rulemaking to expand that authority by defining “larger participant” nonbanks, (iv) an outline of recent FTC and CFPB enforcement activity and amicus briefs filed against entities engaged in debt collection, including ongoing non-public investigations of debt collection practices, and (v) each regulator’s FDCPA-related research and policy initiatives.
On March 20, the FDIC approved for publication a proposed rule to implement new authorities granted by the Dodd-Frank Act that permit the FDIC, as receiver for a financial company whose failure would pose a significant risk to financial stability, to enforce certain contracts of subsidiaries and affiliates of the covered company. This proposed rule would include contracts that purport to terminate, accelerate, or provide for other remedies based on the insolvency, financial condition, or receivership of the covered company, so long as the FDIC complies with statutory requirements. The proposed rule would apply broadly to all contracts and make clear that the FDIC’s authority as receiver effectively preserves contractual relationships of subsidiaries and affiliates during the liquidation process.
On March 15, Wyoming enacted House Bill 0025, which ends the use of private transfer fee obligations for a specified period. Pursuant to the law, new private transfer fee obligations—which require the payment of a fee upon the subsequent transfer of a real property—entered into between April 1, 2012 and July 1, 2014 are not enforceable against subsequent owners, purchasers, or mortgagees. To enforce a private transfer fee obligation created prior to April 1, 2012, the payee must record a notice in the county clerk’s office where the property is located. However, the law contains no prohibition of enforcement of private transfer fees absent the required recording. This law became effective March 15, 2012.
On March 12, the U.S. District Court for the Southern District of New York ruled that Dow Jones & Company Inc. did not engage in unfair business practices or breach its contract with customers when it spun off Barron’s and added an additional fee for continued access to the publication. Lebowitz v. Dow Jones & Co. Inc., No. 06-2198, 2012 WL 795525 (S.D.N.Y. Mar. 12, 2012). The Wall Street Journal Online subscriber agreement stated that Dow Jones could change or add charges by giving its customers advance notice. Dow Jones notified customers in December 2005 that as of January 2006 it would charge separately for online access to the Wall Street Journal and Barron’s, thereby requiring existing customers to pay an additional fee for access to both. Dow Jones announced the change using pop-ups on its Wall Street Journal and Barron’s sites, which the court held was sufficient notice under the contract. The court also held that Dow Jones’s right change the price did not make the contract illusory.
On November 3, Bio-Rad Laboratories Inc. agreed to pay a total of $55 million to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. According the SEC’s cease-and-desist order, subsidiaries of the bio-medical instrument manufacturer paid $7.5 million in bribes in Russia, Thailand, and Vietnam from 2005 to 2010 in order to win business in violation of Section 30A of the FCPA, which resulted in $35 million in improper profits for the company. Some of the payments were disguised as commissions to foreign agents, in situations where the “agents had no employees and no capacity to perform the purported services for Bio-Rad.” The company also allegedly had an “atmosphere of secrecy.” Bio-Rad self-disclosed the violations to the government in 2010.
As part of the resolution, the company reached a Non-Prosecution Agreement with the DOJ regarding activities in Russia and agreed to a $14.35 million criminal penalty related to books and records and internal controls violations. The resolution with the SEC involved the payment of $40.7 million in disgorgement and pre-judgment interest regarding anti-bribery, books and records, and internal controls violations related to Russia, Thailand, and Vietnam.
Of note, and continuing the trend of cross-border cooperation, the SEC in its press release disclosed that numerous international entities had assisted its investigation, including the “Bank of Lithuania, Financial and Capital Market Commission of Latvia, and British Virgin Islands Financial Services Commission.” Underscoring the issue, following public disclosure of Bio-Rad’s settlement with the SEC regarding alleged payments in Vietnam, news reports indicate that Vietnam’s Ministry of Health has ordered a review of hospital purchases from Bio-Rad, and asked for information and assistance from US authorities.
On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs’ practice of attempting to sell identity theft products to consumers reporting identify thefts.
Just a month after announcing its internal investigation of possible FCPA violations, news reports indicate that General Cable Corporation’s review will be completed or substantially completed by the first quarter of 2015. The company also announced that it “plans to exit all of its Asia Pacific and African manufacturing operations,” although it did not link the exit – which affects nine plants in Asia and five plants in Africa, and approximately 17% of its total sales – to its FCPA investigation.
In September, the Kentucky-based cable manufacturer announced that it was investigating its payment practices with respect to employees of public utility companies in Angola, Thailand, India and Portugal due to possible FCPA concerns. News reports indicate that, to date, the company has spent millions on the review, which has included a review of over 450,000 documents and interviews of over 20 individuals. The company also disclosed that it was cooperating with investigations by the DOJ and SEC.
- Buckley Webcast: Tips for this year’s FHA annual recertification and what the shutdown means
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Melissa Klimkiewicz to discuss "RESPA-compliant marketing" at NEXT
- Daniel P. Stipano to provide "Update on AML/SAR reporting and enforcement" at an Mortgage Bankers Association webinar
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference