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Brother of Honduran government official indicated for laundering bribes in New Orleans
On May 1, the Department of Justice announced the indictment of a Honduran national for trying to launder more than $1.3 million in bribes that had been paid to his brother, the former Executive Director of the Honduran Institute of Social Security. The bribes had been paid by two Honduran businessmen for the benefit of the Executive Director. The indictment alleges that he conspired with his brother to launder the funds through international wire transfers and the purchase of real estate in the New Orleans area. The indictment further alleges that he also used his brother’s high-ranking position to profit from lucrative Honduran government contracts and that he impeded an official proceeding by lying to the U.S. government about the source of the funds. He was arrested on the same day the indictment was announced.
DOJ issues new policy against “piling on” in corporate enforcement, FCPA cases
On May 9, the DOJ issued a new policy to discourage “piling on” in corporate enforcement cases, including those involving the FCPA. The new policy directs the DOJ to “consider the totality of fines and penalties” being imposed by the DOJ and other law enforcement agencies on a company for the same misconduct. In a speech delivered to a New York City bar organization, Deputy Attorney General Rod Rosenstein described the new policy as encouraging “coordination among Department components and other enforcement agencies” with the aim of “avoiding unfair duplicative penalties.”
The new policy contains four main elements. First, the DOJ should not threaten criminal prosecution solely to persuade a company to pay a larger settlement in a civil case. Second, DOJ components must coordinate with one another to achieve an overall equitable result. Third, the DOJ should coordinate with other federal, state, local, and foreign enforcement authorities. Finally, the DOJ should consider several factors, including the egregiousness of the wrongdoing and the adequacy of the company’s cooperation with the DOJ, in determining whether multiple penalties serve the interests of justice in a particular case.
Rosenstein specifically noted in his address that the DOJ’s “FCPA Unit [had recently] announced its first coordinated resolution with . . . Singapore.” See FCPA Scorecard post. The new policy does not prohibit the DOJ from considering additional remedies in “appropriate circumstances.”
CFPB Succession: Bureau dismantles Office for Students; no longer plans student loan regulations; and more
On May 9, according to multiple reports, the CFPB internally announced that the Bureau would eliminate the Office of Students & Younger Consumers and move its staff into the Office of Financial Education as part of acting Director Mulvaney’s agency reorganization. The Bureau will continue to have a Student Loan Ombudsman position, which is required by the Dodd-Frank Act. It is also reported that the Bureau intends to create a new “Office of Cost Benefit Analysis” and rename certain existing offices. As previously covered by InfoBytes, acting Director Mulvaney plans to move the Office of Fair Lending and Equal Opportunity from the Division of Supervision, Enforcement and Fair Lending to the Office of the Director, in order to focus on “advocacy, coordination and education.” Day-to-day responsibility for enforcement and supervision oversight will remain in the renamed Division of Supervision and Enforcement (SE).
The Office of Management Budget (OMB) released the CFPB’s Spring 2018 rulemaking agenda, which no longer includes “Student Loan Servicing” as a Long-Term Action. In previous agendas, the Bureau described its plan for Student Loan Servicing as “The CFPB will continue to monitor the student loan servicing market for trends and developments. As this work continues, the Bureau will evaluate possible policy responses, including potential rulemaking. Possible topics for consideration might include specific acts or practices and consumer disclosures.” In addition to dropping Student Loan Servicing, the Spring 2018 agenda also no longer lists plans for Supervision of Larger Participants in Markets for Personal Loans, Overdraft Services, or Submission of Credit Card Agreements under TILA (more information on the CFPB’s previous plans for these rules can be found here).
As expected, the Spring 2018 agenda also included two new additions to the Proposed Rule Stage:
- HMDA. The Bureau has previously announced it intends to engage in a broader rulemaking to (i) re-examine the criteria determining whether institutions are required to report data; (ii) adjust the requirements related to reporting certain types of transactions; and (iii) re-evaluate the required reporting of additional information beyond the data points required by the Dodd-Frank Act (InfoBytes coverage here). The Bureau indicates it expects a Notice of Proposed Rulemaking (NPRM) on any changes to the HMDA rule before 2019.
- Payday, Vehicle Title, and Certain High-Cost Installment Loans. In January, the Bureau announced the intention to reconsider the 2017 payday rule (covered by InfoBytes here). The OMB agenda indicates the Bureau expects a NPRM by February 2019.
Notably, the CFPB continues to include “Debt Collection Rule” in a Proposed Rule Stage, as it has in previous agenda iterations. However, the Bureau has extended the deadline for its NPRM to February 2019.
FinCEN recognizes law enforcement agencies for use of BSA reporting
On May 8, the Financial Crimes Enforcement Network (FinCEN) announced its third annual Law Enforcement Awards to law enforcement agencies that use Bank Secrecy Act data provided by financial institutions in their criminal investigations. The program seeks to recognize law enforcement agencies that made effective use of financial institution reporting to obtain a successful prosecution, and to demonstrate to the financial industry the value of its reporting to law enforcement. The following agencies were recognized:
- Suspicious Activity Report Review Task Force Category – Internal Revenue Service-Criminal Investigation (IRS-CI). Based on a review of financial data showing a pattern of unusual cash withdrawals by one subject from a single financial institution, IRS-CI uncovered a criminal conspiracy to defraud the estate of a deceased individual of over $2 million. IRS-CI executed warrants and recovered over $500,000 and over $2 million in restitution was ordered to be returned to the true heir of the estate.
- Transnational Organized Crime/Third Party Money Launderers Category – Drug Enforcement Administration (DEA). Using FinCEN’s data and investigative tools, the DEA helped dismantle two Southern California and Tijuana-based money laundering schemes. Arrest warrants were issued for 27 individuals and officials were able to seize millions of dollars in cash, real estate, and vehicles.
- Transnational Security Threats Category – FBI. Utilizing FinCEN resources, an FBI investigation, conducted in coordination with the Office of Foreign Assets Control (OFAC), resulted in the blocking of $7 million in transactions used to provide access to the U.S. financial system on behalf of North Korean entities, a $20 million monetary penalty, and the addition of several entities to OFAC’s Designated Nationals and Blocked Persons List (SDN list).
- Cyber Threats Category – Internal Revenue Service-Criminal Investigation (IRS-CI). IRS-CI untangled a money laundering scheme that had generated over $17 million in proceeds through wire transfers from multiple foreign-based accounts. IRS-CI search warrants led to the forfeiture of $10 million in fraudulent proceeds and three subjects pled guilty to conspiracy to commit fraud and related activity in connection with computers, with a fourth found guilty of wire fraud and money laundering.
- Significant Fraud Category – Immigration and Customs Enforcement – Homeland Security Investigations (HSI). HSI led an investigation that identified a complex money laundering conspiracy in which operators at an India-based call center and U.S.-based facilitators worked together to launder $300 million. Twenty-four subjects in the United States were arrested across eight states, all of whom were convicted of conspiracy, money laundering, and various fraud crimes.
- Third-Party Money Launderers Category – Internal Revenue Service – Criminal Investigation (IRS-CI). IRS-CI led a multi-agency effort to combat Mexican kleptocracy. Using FinCEN resources and a high volume of financial data, an investigation resulted in seizure of over $800 million in assets and subjects being charged with various financial crimes, such as money laundering, bank fraud, wire fraud, loan fraud, and racketeering.
- State and Local Law Enforcement – Nassau County Policy Department. Nassau County Police launched an investigation after becoming aware of a high volume of cash deposits in a subject’s account. In coordination with the DEA, Nassau County Police determined the activity was a trade-based money laundering scheme designed to launder the proceeds of illegal narcotics transactions. The investigation resulted in fines totaling $8.5 million.
DOJ settles with Minnesota community bank to resolve fair lending violations
On May 8, the Department of Justice announced a settlement with a Minnesota community bank to resolve allegations that the lender excluded predominantly minority neighborhoods from its mortgage lending service in violation of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). According to the complaint filed in 2017, between 2010 and 2015, the bank engaged in unlawful redlining in and around Minneapolis-St. Paul, Minnesota by meeting the residential credit needs of individuals in majority-white census tracts, but avoided serving similar needs in majority-minority census tracts. The settlement requires the bank to expand its banking services in predominantly minority neighborhoods, including opening one full service branch within the specified census tract. In addition to compliance monitoring and reporting requirements, the bank is also required to (i) employ a Community Development Officer and an Executive leader; (ii) spend a minimum of $300,000 on advertising, outreach, and education and credit repair initiatives; (iii) invest a minimum of $300,000 in a program for special purpose loan subsidies; and (iv) continue to provide fair lending training to all employees.
Court holds lenders may not require borrowers to use an affiliated appraisal management company under RESPA; denies class certification
On February 7, a magistrate judge of the U.S. District Court for the Northern District of Georgia recommended denial of a motion for class certification in a case alleging that a mortgage lender, an affiliated appraisal management company (AMC), and the individual owner, through trusts, of both the lender and the AMC committed RESPA violations. The plaintiffs alleged that the individual owner received a thing of value, i.e, profit distributions from the AMC, that were generated from the lender’s referrals to the AMC in violation of Section 8(a) of RESPA, notwithstanding the exemption for affiliated business arrangements, (i) because no disclosure of the affiliation was provided to the borrowers, or (ii) because, even when a disclosure was provided, the borrowers were required to use the AMC.
While reviewing whether the class would have standing, the court disagreed with the defendant’s assertion that the affiliated business arrangement exemption under Section 8(c)(4) of RESPA, which generally bans the required use of an affiliate, but permits a lender to impose its choice of an attorney, credit reporting agency, or real estate appraiser to represent the lender’s interest, should be interpreted to permit the mortgage lender’s required use of an affiliated AMC. The defendants argued that allowing a consumer to shop for an appraisal management company would be inconsistent with TILA and Regulation Z, whose official commentary to Section 1026.37(f)(2) lists “appraisal management company fee” as an example of an item that may be disclosed under “services you cannot shop for” in the Good Faith Estimate. The court rejected that assertion, stating that there are multiple settlement services the lender may require the consumer to use which do not run afoul of RESPA or TILA and that Section 8 is only implicated where there is a kickback involved. The court further examined the plain meaning of Section 8(c)(4) and determined that, from a statutory interpretation perspective, an appraiser and an appraisal management company are not “one and the same.”
Additionally, the court disagreed with the defendants argument that the plaintiffs’ payment to the AMC was covered under the exception in Section 8(c)(2) of RESPA because the payment was not a “thing of value” under Section 8(a). In rejecting the defendants’ argument, the court noted the kickback at issue is the profit ultimately paid to the individual owner, not the plaintiffs’ payment to the AMC, and the defendants did not present any authority that the exception applies when the payment is for ownership interest.
The court ultimately recommended the denial of the class certification because plaintiffs did not demonstrate that ascertaining the class was administratively feasible, including the problem of ascertaining which loans were federally related mortgage loan and which were not. The court also concluded that, given the number of individual inquiries in the case, the requirement that common question of law and fact predominate was not satisfied.
D.C. Appeals Court holds that a condominium association may not foreclose on its super-priority lien while leaving the property subject to the first-lien mortgage
On March 1, the District of Columbia Court of Appeals held that a condominium association acting on its six-month super-priority lien for unpaid condominium fees may not perform its foreclosure sale while leaving the property subject to a first deed of trust lien, even if the terms of the sale stated that the condo unit could be sold subject to the first deed of trust. The D.C. Appeals Court was tasked with deciding whether the mortgagee’s first mortgage lien was extinguished by foreclosure of the HOA’s super-lien under D.C. Code § 42-1903.13(a)(2). In the District of Columbia, condominium associations are granted a “super-priority lien” over first mortgage lienholders, which permits an association to collect up to six months of unpaid assessments upon foreclosure on a condominium unit. Foreclosure of a unit extinguishes all liens when the proceeds of the foreclosure sale are insufficient to satisfy them. The D.C. Appeals Court held that a condominium association could not foreclose on its super-priority lien while leaving the property subject to the unsatisfied balance of the first mortgage or first deed of trust.
The D.C. Appeals Court reversed the trial court’s order granting summary judgment to the mortgagee and remanded for further proceedings.
FFIEC releases 2017 HMDA data; CFPB releases new annual report on mortgage market activity and trends
On May 7, the Federal Financial Institutions Examinations Council released the 2017 Home Mortgage Disclosure Act (HMDA) data on mortgage lending transactions covering information submitted by financial institutions on or before April 18. The data will not remain static, but instead will be updated on an on-going basis to reflect late submissions and resubmissions. The data currently include information on 14.1 million actions: 12.1 million home loan applications, 7.3 million of which resulted in loan originations, and 2.1 million in purchased loans. Observations from the CFPB on the data include: (i) total number of originated loans decreased by 12.4 percent; home-purchase lending increased by 4 percent; (ii) nondepository, independent mortgage companies accounted for 56.1 percent of first-lien owner-occupied home purchase loans (up from 53.3 percent in 2016); and (iii) the share of refinance loans to low- and moderate-income borrowers increased from 16.9 percent to 22.9 percent.
On the same day, the CFPB also released its first annual series of data points describing mortgage market activity based on data reported under HMDA. The report summarizes the 2017 HMDA data and recent trends in the mortgage market.
National bank reaches $480 million settlement with investors over incentive compensation sales program
On May 4, a national bank announced it reached an agreement in principle to pay $480 million to certain investors to resolve a consolidated securities fraud class action, related to the bank’s previous incentive compensation sales program. The class action stems from the September 2016 consent order between the bank and the CFPB which resolved allegations that the bank’s employees opened deposit and credit card accounts for consumers without obtaining consent to do so (previously covered by InfoBytes here). The class action alleges that the bank made misrepresentations and omissions in certain securities disclosures related to its sales practices matters. The bank acknowledged the agreement, which is still pending court approval, in its May 4 10-Q securities filing.
OFAC adds Venezuelans to Specially Designated Nationals List
On May 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) made additions to the Specially Designated Nationals List under the Foreign Narcotics Kingpin Designation Act. OFAC’s additions to the list include a former Venezuelan financial intelligence service official, two of his aides, and 20 companies located in Venezuela and Panama, owned or controlled by the three individuals. The designations identify persons who have materially assisted in, or provided financial or technological support for or to, the former official’s international narcotics trafficking activities, which include the laundering of narcotics proceeds and other illicit funds. As a result, all assets belonging to the identified individuals and entities subject to U.S. jurisdiction are blocked and must be reported to OFAC, and U.S. persons are generally prohibited from dealing with them.
See here for continuing InfoBytes coverage of Venezuelan actions.