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Former Venezuelan official pleads guilty in bribery scheme
The DOJ announced on April 19, that a former Venezuelan official had pleaded guilty to one count of conspiracy to commit money laundering. The charge arose from the former official’s role in a bribery scheme involving bribes paid by the owners of U.S. companies to Venezuelan government officials to secure energy contracts and payments on outstanding invoices. As the former general manager of a procurement subsidiary of a Venezuelan state-owned energy company, he had solicited and accepted bribes. The judge entered a personal money judgment of $7,033,504.71. As a government official receiving the bribes, he could not be charged himself with FCPA offenses (which are targeted at those paying the bribes). Related charges against four other individuals remain pending, including charges of conspiracy to violate the FCPA; 11 individuals have already pleaded guilty in previous cases.
For prior coverage of the company's enforcement actions, please see here.
OCC updates Comptroller’s Handbook to include recovery planning standards for large financial institutions
On April 26, the OCC released the “Recovery Planning” booklet as part of its Comptroller’s Handbook. The booklet explains the purpose of effective recovery planning and provides guidance for OCC examiners to use when assessing the “appropriateness and adequacy of [a] covered bank’s recovery planning process and the integration of that process into the covered bank’s overall risk governance framework.” According to the OCC, unless determined otherwise, a bank is subject to the Recovery Planning guidelines if the bank has average total consolidated assets of (i) $50 billion or more; (ii) less than $50 billion, if the bank was previously a covered bank; or (iii) less than $50 billion, if the OCC determines that the bank is highly complex or otherwise presents a heightened risk. Recovery plans are designed to identify triggers and options for responding to a range of “severe internal and external stress scenarios” for the purpose of timely restoring financial strength and viability, and should, among other things, include measures to reduce risk as well as strategies to develop and maintain plans specific and appropriate to the size and complexity of the covered bank. The booklet states that recovery plans “may not assume or rely on any extraordinary government support.”
Global internet media company fined $35 million for cybersecurity breach disclosures
On April 24, the SEC ordered a global internet media company, acquired in 2017 by a global communications company, to pay $35 million to settle claims alleging that the company failed to disclose a 2014 cybersecurity breach in which Russian hackers stole data from over 500 million user accounts. Compromised private user information included usernames, email addresses, phone numbers, birthdates, passwords, and security questions and answers. According to the SEC’s cease-and-desist order, during the two years following the breach, the internet media company (i) failed to inform outside counsel or auditors of the breach in order to assess public filing disclosure obligations; (ii) failed to maintain internal disclosure controls and procedures designed to guarantee that the company’s information security team reports addressing actual data breaches, or the risk of such breaches, were properly and timely assessed for potential disclosure; and (iii) made misleading statements in its public filings that warned investors only of the “risk of potential future data breaches” without disclosing the 2014 data breach. The SEC claimed that the disclosure violations continued as acquisition discussions were held in 2016 and resulted in renegotiation of the terms of the company’s sale, including a 7.25 percent reduction in price. The company ultimately disclosed the breach to the public in September of 2016. In agreeing to the settlement, the company neither admitted nor denied the SEC’s findings, except as to the SEC’s jurisdiction over the matter.
Arizona prohibits gift card fees and certain expiration dates
On April 17, the Arizona governor signed SB 1264, which prohibits the issuance or sale of gift cards in Arizona that are subject to fees or certain expiration dates. Arizona previously allowed gift cards to be subject to an expiration date, a fee, or both as long as the relevant information was clearly and conspicuously disclosed to the consumer before the purchase was made. SB 1264 prohibits gift cards from begin subject to a fee and prohibits the underlying money on a gift card from being subject to an expiration date. The law allows an expiration date with respect to the card, code, or device associated with a gift card, only if the gift card contains a clear and conspicuous disclosure that the underlying monies associated with the card do not expire and the consumer may obtain a replacement. The prohibition on gift card fees and expiration dates does not apply to (i) gift cards that are sold below face value or donated to nonprofit or charitable organizations; (ii) gift cards distributed pursuant to an awards, loyalty, or promotion program when the consumer has given no money or other property in exchange for the card; and (iii) cards for prepaid telecommunications services, electronic funds transfer cards, bank-issued debit or general purpose reloadable prepaid cards not marketed or labeled as gift cards or gift certificates. The law becomes effective 91 days after the end of the legislative session.
11th Circuit denies motion to compel arbitration; rules claims relate to BSA violations and not to terms of user agreement
On April 23, the U.S. Court of Appeals for the 11th Circuit upheld a district court’s decision to deny a global money services business’s motion to compel arbitration under the doctrine of equitable estoppel. According to the unpublished opinion, the plaintiff-appellee—a customer of a now defunct cryptocurrency exchange (defunct exchange)—filed a proposed class action against the money services business and the CEO of the defunct exchange, alleging that when the money services business liquidated bitcoin into cash for two accounts that the CEO opened, it aided and abetted the defunct exchange’s breach of fiduciary duty and the CEO’s theft of customer assets. The customer claimed that the money services business had a duty under the Bank Secrecy Act (BSA) to monitor or investigate the CEO’s actions, detect the CEO’s theft of customer assets, and report the CEO’s suspicious activity to appropriate authorities. However, the business argued that when the CEO opened his accounts, he agreed to be bound by an arbitration clause in the user agreement, and that therefore, under the doctrine of equitable estoppel, the customer was bound by the arbitration clause because the customer’s claims were based on the user agreement. The district court rejected the business’s argument and found that the customer was not asserting any rights or benefits that arose out of the user agreement but rather on duties created under the BSA. The 11th Circuit affirmed the district court’s decision, stating that the customer’s claims were predicated on duties the defendant-appellant owed under federal statutes and regulations as well as state common law and not on enforcing the terms of the user agreement, and, therefore, the customer could not be compelled to arbitrate the claim.
5th Circuit will hear CFPB constitutionality challenge
On April 24, the U.S. Court of Appeals for the 5th Circuit agreed to hear a challenge by two Mississippi-based payday loan and check cashing companies to the constitutionality of the CFPB’s single-director structure. The CFPB filed a complaint against the two companies in May 2016 alleging violations of the Consumer Financial Protection Act for practices related to the companies’ check cashing and payday lending services, previously covered by InfoBytes here. The district court denied the companies’ motion for judgment on the pleadings, rejecting their arguments that the structure of the CFPB is unconstitutional and that the CFPB’s claims violate due process. However, the district court granted the companies’ motion to certify an interlocutory appeal as to the question of the constitutionality of the CFPB’s structure, referencing the D.C. Circuit’s decision in PHH Corp. v. CFPB, (covered by a Buckley Sandler Special Alert here), and noting the “substantial ground for difference of opinion as to this issue as exhibited by the differences of opinion amongst the jurists in the [D.C. Circuit] who have considered this issue.” The district court emphasized that the question is a “controlling question of law” that the 5th Circuit has yet to decide and, if the CFPB were determined to be an unconstitutional entity, this would materially advance the underlying action’s termination. A panel of the 5th Circuit has now granted the companies’ motion for leave to appeal from the interlocutory order on the issue of the constitutionality of the CFPB’s structure.
Senate confirms full slate of FTC commissioners
On April 26, the Senate confirmed Joseph Simons to lead the FTC, along with four other nominees—Republicans Noah Phillips and Christine Wilson and Democrats Rohit Chopra and Rebecca Slaughter. The FTC, which has been operating with only two commissioners, will now be headed by a full complement of commissioners. Acting Chairman Maureen Ohlhausen released a statement saying she looks forward to welcoming them to the FTC and noted that Ms. Wilson will take her seat once Acting Chairman Ohlhausen is confirmed as a judge on the U.S. Court of Federal Claims.
OCC files amicus brief in support of rehearing in 9th circuit preemption decision
On April 24, the OCC filed an amicus curiae brief in support of an en banc rehearing of the U.S. Court of Appeals for the 9th Circuit’s March decision, which held that a California law that requires the bank to pay interest on escrow funds is not preempted by federal law. As previously covered by InfoBytes, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing National Bank Act (NBA) preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson.
In a strongly worded brief, the OCC states that the court “errs in matters of fundamental importance to the national banking system” and “comprehensively misinterpreted” Barnett Bank and the cases upon which that decision rests. The OCC specifically argues that the court misinterpreted the legal standard for preemption articulated by Barnett Bank, ignored applicable Supreme Court standards prescribing a test for reviewing preemptive regulations, improperly created a burden of proof on national banks to demonstrate Congressional intent as to preemption, and inappropriately imposed a higher bar for “large corporate banks” to show state law interference. The OCC also argues that the court’s reliance on the effective dates of the Dodd-Frank provisions relied upon by the Court pre-date the transactions that were at issue in the case, and would therefore have no application to the facts of the case.
This filing supports the national bank’s petition for en banc rehearing filed April 13 and previously covered by InfoBytes here.
Federal Reserve issues cease and desist order against Taiwanese bank for BSA/AML deficiencies
On April 19, the Federal Reserve Board (Fed) issued a cease and desist order against a Taiwanese bank and its New York agency in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s order, a recent examination conducted by the Federal Reserve Bank of New York (Reserve Bank) and the NYDFS identified “significant deficiencies” in the agency’s BSA/AML compliance and risk management controls. The order requires, among other things, that the bank and agency submit within 60 days: (i) a written governance plan to strengthen the board of director’s oversight of BSA/AML compliance; (ii) a written program to achieve compliance with BSA/AML requirements; (iii) an enhanced, written customer due diligence program plan; and (iv) a revised program to ensure compliant suspicious activity monitoring and reporting. The bank and agency are further required to engage an independent third party acceptable to the Reserve Bank to conduct a review of certain wire transactions to determine whether “suspicious activity involving high risk customers or transactions” was properly identified and reported in accordance with applicable regulations. The order imposes no financial penalty.
8th Circuit affirms dismissal of FDCPA claims, rules false or misleading statements must be material to be actionable
On April 19, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s decision to grant a debt collector’s motion for judgment on the pleadings, concluding that false or misleading statements under the Fair Debt Collection Practices Act (FDCPA) must be material to be actionable. According to the opinion, the Conciliation Court for the 4th Judicial District of Minnesota previously issued a judgment finding that the debt collector failed to demonstrate “an entitlement to relief” when the debt collector sought payment (including statutory interest) for unpaid medical services. The plaintiff-appellant subsequently filed suit against the debt collector alleging that the debt collector’s conduct before the conciliation court violated the FDCPA. The district court issued a decision—which the 8th Circuit affirmed—holding that the debt collector’s “inadequate documentation of the assignment did not constitute a materially false representation” and, although the debt collector was ultimately unable to collect on the debt, loss of a collection action, standing alone, did not establish a violation of the FDCPA under the materiality standard. Additionally, the 8th Circuit held that the debt collector did not engage in unfair practices under the FDCPA when the debt collector attempted to collect interest on the debt under a Minnesota statute simply because the debtor may have had a legal defense to application of the statute.