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GAO Issues Report on Combating Narcotics-Related Money Laundering in the Western Hemisphere
On September 7, the U.S. Government Accountability Office (GAO) issued a report, Anti-Money Laundering: U.S. Efforts to Combat Narcotics-Related Money Laundering in the Western Hemisphere, detailing activities by the Treasury and State Departments to combat these illicit activities. In conducting the study, GAO reviewed laws, regulations, and budget data, and also conducted interviews with experts and U.S. officials, in order to examine anti-money laundering activities over the period of fiscal years 2011 through 2015. GAO also made site visits to Colombia, Mexico, and Panama, identified as “jurisdictions of primary concern for money laundering” by the State Department. Among other things, the report noted that “State and Treasury allocated about $63 million to support AML-related capacity-building and technical assistance” to fund training and equipment for financial intelligence units employed to detect illicit financial transactions in these countries. The report further provides that many entities are required to report suspicious activities to the Treasury’s Financial Crimes Enforcement Network, which was established to collect, analyze, and disseminate “financial intelligence information to combat money laundering.”
OCC Updates Comptroller’s Licensing Manual to Provide Revised Guidance on Flood Insurance Requirements
On September 7, the OCC released OCC Bulletin 2017-35 announcing a replacement of its handbook titled “Flood Disaster Protection Act” (FDPA)—last issued in 1999—to reflect recent amendments to the FDPA and implement regulations that resulted from the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act) and the Homeowner Flood Insurance Affordability Act of 2014. The booklet, which is part of the Comptroller’s Licensing Manual, clarifies the following changes, among other things:
- flood insurance requirement exemptions for certain detached nonresidential structures;
- a requirement that banks—or servicers acting on behalf of a bank—escrow flood insurance premiums and fees for “any loan secured by a residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016,” and also lists exemptions to the requirement;
- a requirement that banks and servicers “subject to the escrow requirement” must provide borrowers the option to escrow flood insurance premiums and fees and are required to implement the escrow “as soon as reasonably practicable” after the request has been received;
- FDPA provisions on force-placed insurance, including termination and refund requirements; and
- “examination procedures for determining compliance with the detached structure, escrow, and force placement provisions.”
Notably, the OCC stated that the Biggert-Waters Act provision, which requires the acceptance of private flood insurance policies that meets specified criteria to satisfy the mandatory purchase requirement, has not yet been adopted and will be addressed separately.
Legislation Introduced to Make Bitcoin Purchases up to $600 Tax-Exempt
On September 7, Representatives Jared Polis (D-Colo.) and David Schweikert (R-Ariz.)—co-chairs of the Congressional Blockchain Caucus—introduced the Cryptocurrency Tax Fairness Act of 2017 to allow for tax and IRS reporting requirements exemptions on cryptocurrency transactions of up to $600. The bill is in response to an IRS notice issued in 2014 that held that virtual currency, such as bitcoin and other forms of cryptocurrency, must be treated as property for U.S. federal tax purposes. According to a press release issued by Rep. Polis’ office, this “outdated guidance classifies even the smallest of cryptocurrency transactions the same as buying or selling stock, which dis-incentivizes consumers from using virtual currencies to pay for goods and services.” The bill proposes amending the Internal Revenue Code to exclude up to $600 of “gain from the sale or exchange of virtual currency for other than cash or cash equivalents” from gross income and ordering the Treasury Department to create “regulations providing for information returns on virtual currency transactions for which gain or loss is recognized.”
Second Circuit Cites Escobar, Vacates and Remands FCA Suit
On September 7, the Second Circuit Court of Appeals issued an order concerning a False Claims Act (FCA) case on remand from the United States Supreme Court. In its order, the three-judge panel determined that the FCA complaint should be reviewed under the higher court’s Escobar standard, which “set out a materiality standard for FCA claims that has not been applied in the present case.” See Universal Health Servs., Inc. v. U.S. ex rel. Escobar, 136 S. Ct. 1989 (2016). As previously discussed in InfoBytes, Escobar holds that a misrepresentation must be material to the government’s payment decision to be actionable under the FCA and that the implied false certification theory can be a basis for liability under the FCA.
In issuing the order, the appellate court vacated the district court’s dismissal of the relators’ complaint (which it had affirmed the first time around) and remanded for further proceedings to determine whether the bank’s certification was materially false. At issue is a qui tam suit filed against a national bank, in which plaintiffs claimed the bank violated the FCA when it certified to the Federal Reserve that the bank and its predecessors were obeying the law in order to “borrow money at favorable rates” during the financial crisis. The decision originally relied upon two requirements cited in a case overturned by Escobar—“the express-designation requirement for implied false certification claims and the particularity requirement for express false certification claims.”
Credit Reporting Agency Announces Widespread Consumer Data Breach
On September 7, a major credit reporting agency issued a press release announcing a data breach that impacts approximately 143 million U.S. consumers. An internal investigation revealed that from mid-May through the end of July 2017, hackers exploited a website application vulnerability to access names, Social Security numbers, birth dates, addresses, driver’s license numbers, as well as roughly 209,000 credit card numbers. The company discovered the breach on July 29 and “acted immediately to stop the intrusion.” A “leading, independent cybersecurity firm” has been hired to recommend security improvements, and the company is working with law enforcement authorities. Furthermore, the press release states that “the company has found no evidence of unauthorized activity on [its] core consumer or commercial credit reporting databases.” A website has been set up to assist consumers trying to determine if their information has been affected and offers credit file monitoring and identify theft protection.
FinCEN Releases Advisory Alert for Financial Institutions, OFAC Issues Sanctions Against South Sudanese Government Officials
On September 6, the Treasury Department issued a press release announcing multiple actions taken in response to the “continued deterioration of the humanitarian situation in South Sudan.” Under Secretary for Terrorism and Financial Intelligence, Sigal Mandelker, stated, “These actions send a clear message to those enriching themselves at the expense of the South Sudanese people that we will not let them exploit the U.S. financial system to move and hide the proceeds of their corruption and malign behavior.”
Financial Crimes Enforcement Network (FinCEN). FinCEN issued an advisory (FIN-2017-A004) to financial institutions to address concerns that certain South Sudanese senior political figures may potentially move assets using the U.S. financial system. FinCEN projects that since 2013—when a new political conflict began in Sudan—certain senior political officials from both the government and opposition parties have “engaged in and profited from corrupt practices.” The advisory provides due diligence guidance for U.S. financial institutions, issues a reminder regarding suspicious activity report filing obligations, and warns financial institutions to “assess the risk for laundering of the proceeds of public corruption associated with specific particular customers and transactions.”
Office of Foreign Assets Control (OFAC). Pursuant to Executive Order 13664, which blocks the property of certain persons with respect to South Sudan and authorizes sanctions against persons who threaten the peace, security, or stability of South Sudan, OFAC issued sanctions against three government officials and three entities owned by one of the sanctioned individuals. The identified individuals’ actions include, among other things, (i) “actions or policies that threaten the peace, security, and stability of South Sudan”; (ii) “actions or policies that have the purpose or effect of expanding or extending the conflict in South Sudan or obstructing reconciliation or peace talks or processes”; and (iii) “obstruction of the activities of international peacekeeping, diplomatic, or humanitarian missions in South Sudan, or of the delivery or distribution of, or access to, humanitarian assistance.” The sanctions prohibit any U.S. individual from dealing with the designated entities and individuals, and further states that “all of these individuals’ and entities’ assets within U.S. jurisdiction are blocked.” Additionally, individuals designated under Executive Order 13664 are banned from entry into the U.S.
Senate Committee on Banking, Housing, and Urban Affairs to Hold Fintech Hearing
On September 12, the Senate Committee on Banking, Housing, and Urban Affairs will hold an open session hearing entitled “Examining the Fintech Landscape.” The hearing will feature witnesses from the U.S. Government Accountability Office, S&P Global Market Intelligence, and the University of Maryland School of Law. The hearing will take place at 10:00 am EDT and be made available via webcast.
FDIC Releases Revised Supervisory Appeals Guidelines, Updates FAQs on New Accounting Standards, and Announces FFIEC Industry Outreach Website
On September 6, the FDIC released revised guidelines (FIL-42-2017) for appeals of certain material supervisory determinations to expand the circumstances under which banks may submit an appeal with the Division Directors and the Supervision Appeals Review Committee. The guidelines apply to all FDIC-supervised depository institutions. As previously reported in InfoBytes, the guidelines will provide consistency with the appeals processes of other federal banking agencies and will, among other things, (i) permit the appeal of the level of compliance with an existing formal enforcement action; (ii) provide that formal enforcement-related actions or decisions do not affect a pending appeal; (iii) allow for additional opportunities for appeal rights available under the guidelines with respect to material supervisory determinations in certain circumstances; (iv) annually publish the Division Directors’ material supervisory determinations decisions and (v) draw up other limited technical and conforming amendments. With the issuance of these guidelines, the FDIC is rescinding FIL-52-2016 (“FDIC Seeks Comment on Bank Appeals Guidelines”) and FIL-113-2004 (“FDIC Appeals Processes’).
On the same day, the FDIC also issued FIL-41-2017, which presents updates to its “Frequently Asked Questions on the New Accounting Standard on Financial Instruments—Credit Losses” for financial intuitions and examiners. The FAQs apply to all FDIC-supervised banks, savings associations, and community institutions. The updates address topics such as “qualitative factors, data to implement [credit loss methodology], purchased credit-deteriorated assets, the evaluation of the public business entity criteria, the mechanics of adopting the standard for Call Report purposes, and collateral-dependent loans.” They also contain a reminder to institutions that credit loss methodology can be scaled base on an institution’s size, and encourage readiness and preparation plans to transition to the new accounting standard.
Finally, the FDIC also issued FIL-40-2017 to announce the Federal Financial Institutions Examination Council’s (FFIEC) new Industry Outreach website, which was created as a way for financial institutions, trade associations, third-party providers, and consultants to access information related to supervisory guidance and regulations. The website will also provide information on FFIEC-sponsored webinars.
CFPB Issues Consent Order to Online Lead Aggregator, Settles Separate 2016 Lead Aggregator Action
On September 6, the CFPB ordered an online loan lead aggregator to pay $100,000 for its alleged involvement in selling leads to small-dollar lenders and installment loan purchasers who then extended loans that were void in whole or in part under the borrower’s state laws. The consent order alleges that the California-based company knew the state of residence for each lead sold, yet “regularly sold [l]eads for consumers located in states where the resulting loan was void or the lender had no legal right to collect the principal, interest, or fees from the consumer based on state-licensing requirements or interest-rate limits.” The order also claims that, because the company knows the identity of each purchaser prior to the sale of the loan, it should also know (i) whether the purchaser is likely to comply with the state laws, or (ii) whether the leads it sells will result in loans exceeding state usury interest rate limits or fail to be in compliance with the consumer’s state laws. Pursuant to the consent order, in addition to the $100,000 civil money penalty, the company must (i) “undertake reasonable efforts to ensure” leads do not result in loans that are void under the laws of the consumer’s state; (ii) obtain, among other things, copies of licenses required by each state for its end users “where the absence of such a license would render a loan void in whole or in part under the laws of that state”; (iii) implement procedures for reviewing loans that result from its leads to ensure compliance with privacy and other laws; (iv) establish a policy to prohibit lenders from making loans that are likely to result in loans that are void under the consumer’s state-licensing requirements or interest-rate limits and “refrain from conveying” leads for such loans; and (v) submit registration for the Bureau’s Company Portal.
On the same day, the CFPB also entered into a $250,000 settlement with the company’s president and primary owner for his alleged actions cited in a 2016 complaint involving his role as the operator of a different online lead aggregator. (See previous InfoBytes summary here.) In addition to the civil money penalty, the president has agreed to (i) make efforts to guarantee that all loans offered to consumers are valid in the states where they live; (ii) ensure that there is no misleading, inaccurate, or false information contained in the consumer-facing content of all lead generators from which leads are accepted; and (iii) require all lead generators to “prominently disclose to consumers an accurate description” of how leads will be received, conveyed, and processed. The president has neither admitted nor denied the CFPB’s allegations.
CFPB, Federal and State Banking Agencies Issue Guidance for Financial Institutions on Providing Disaster Relief to Consumers
As previously reported in InfoBytes, several federal banking agencies have already issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent disasters. On September 1, the CFPB issued a statement for CFPB-supervised entities on ways to provide assistance to consumers who may be at financial risk. The list includes:
- offering penalty-free forbearance or repayment periods with disclosed terms;
- limiting or waiving fees and charges, including overdraft fees, ATM fees, or late fees;
- restructuring or refinancing existing debt, including extending repayment terms;
- easing documentation or credit-extension requirements;
- increasing capacity for customer service hotlines, particularly those that serve consumers in languages other than English; and
- increasing ATM daily cash withdrawal limits.
The statement further suggests that supervised entities should utilize existing regulatory flexibility if doing so would benefit affected consumers. Included are examples from Regulations B, X, and Z. Additionally, the Bureau stated it will “consider the circumstances that supervised entities may face following a major disaster and will be sensitive to good faith efforts to assist consumers.”
The CFPB separately published a blog post for consumers containing a financial toolkit that includes links to disaster relief organizations, ways to secure financial needs, and information on forbearance options, insurance settlements, and contractor evaluations. The CFPB also issued a warning to consumers of the increased risk of scams and fraud.
In related news, on September 6, the Federal Reserve Board, Conference of State Bank Supervisors, FDIC, and OCC issued a joint press release for financial institutions that may be impacted by Hurricane Irma. The agencies encouraged constructive cooperation with borrowers, noting that “prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.” Guidance was also issued on matters concerning Community Reinvestment Act considerations, investments, regulatory reporting requirements, publishing requirements, and temporary banking facilities.