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OFAC Updates: New Sanction Designations and Additions to Specially Designated Nationals List
Recently, OFAC announced implementation of sanctions against several entities and individuals designated for, among others, materially assisting, sponsoring, or providing financial support to certain foreign entities. In addition, OFAC updated its list of Specially Designed Nations (SDN) and announced a settlement agreement with a Canadian-based motor vehicle finance company.
North Korea Suppliers of Weapons Proliferation Programs. On June 1, OFAC announced it was taking action against six entities and three individuals in response to their involvement in North Korea’s continued efforts to develop weapons of mass destruction (WMD). The announcement targets the country’s military, nuclear, and WMD programs, in addition to its overseas financial operations. The sanctions prohibit any U.S. individual from dealing with the designees, and further states that “any property or interests in property of the designated persons in the possession or control of U.S. persons or within the United States must be blocked.” John E. Smith, the Director of OFAC, stated, “Treasury is working with our allies to counter networks that enable North Korea’s destabilizing activities, and we urge our partners to take parallel steps to cut off their funding sources.” These sanctions are in addition to those imposed earlier in April on eleven North Koreans and one associated entity (see previous InfoBytes coverage here).
Iraq-Based Chemical Weapons Developers. On June 12, OFAC announced, for the first time, designations against individuals involved in the development of ISIS’ chemical weapons. The sanctions were pursuant to Executive Order 13224, which “provides a means by which to disrupt the financial support network for terrorists and terrorist organizations by authorizing the U.S. government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing, acts of terrorism.” The property and interests in property of the two individuals identified in the designations, subject to U.S. jurisdiction, are blocked, and “U.S. persons are generally prohibited from engaging in transactions with them.”
Settlement Agreement with Motor Vehicle Finance Company. On June 8, OFAC announced it had reached a settlement with a motor vehicle finance company as a result of transactions by its Canadian based subsidiary. The enforcement action claims the majority-owned subsidiary, which “specializes in various forms of financing in the [U.S.] for purchasers, lessees, and authorized independent [auto] dealers,”—between 2011 and 2014—allegedly violated 13 Cuban Assets Control Regulations by leasing vehicles to the Cuban Embassy in violation of OFAC’s Blocked Persons and SDN list, which prohibited transactions with Cuban government entities. The company voluntarily self-disclosed the alleged violations and agreed to remit $87,255 to settle its potential civil liability.
Foreign Narcotics Kingpin Sanctions. On May 24 and 25, OFAC made additions to the SDN list, which designates individuals and companies who are prohibited from dealing with the U.S. and whose assets are blocked. Transactions are prohibited if they involve transferring, paying, exporting, or otherwise dealing in the property or interest in property of an entity or individual on the SDN list. Additions to the list were made under the Foreign Narcotics Kingpin Sanctions Regulations against several Mexican and Colombian individuals and entities.
CFPB Releases Study on Credit Visible Consumers
On June 7, the CFPB published analysis of how consumers transition out of credit invisibility. “Credit invisibility” refers to an individual who lacks a credit record at any of the three nationwide credit reporting agencies. The report, entitled CFPB Data Point: Becoming Credit Visible, highlights the results of its latest study of the credit reporting industry, finding that consumers in low-income areas are more likely to gain credit visibility in negative ways such as through an account in collection or some form of public record. In a previous study, the CFPB estimated approximately 26 million Americans were credit invisible with an additional 19 million consumers having “unscorable” credit files—i.e. files that contain insufficient or too brief credit history. (See previous InfoBytes coverage here.) Without such a record, lenders find it more difficult to assess a consumer’s creditworthiness, resulting in credit invisible individuals having a harder time accessing credit.
The report notes that credit invisibility can present a “Catch-22” scenario, whereby a consumer needs credit history to get access to credit but cannot establish a credit history without first being extended credit. However, the report concludes that because 91 percent of consumers acquire a credit record before turning 30, it is possible to avoid a “Catch-22” situation.
The Bureau highlighted the following key findings:
- Most consumers – almost 80 percent – become credit visible before age 25, but Consumers in low- and moderate-income neighborhoods are likely to be older when they establish a credit history.
- Members of all age groups and income levels most commonly use credit cards to establish credit history, with student loans ranking second.
- Approximately 1-in-4 consumers first establish credit history through an account either held by another responsible party—i.e. becoming an “authorized user”—or with a co-borrower. This trend is more common among higher-income groups.
- Consumers in lower-income neighborhoods, however, are more likely to establish a credit history through “non-loan items,” which usually convey negative information (e.g., third-party collections, delinquent utility bills, child support payments, etc.).
- In recent years, more consumers create a credit history using a credit card, except within the under 25 age group. The report attributed the trend in the under 25 age group to a number of factors including increased student loans and the restrictions of the Credit Card Accountability Responsibility and Disclosure Act, which made credit cards less available to young consumers.
Charges Filed by SEC Allege Bank Secrecy Act Violations
On June 5, the SEC filed charges against a U.S. brokerage firm (firm) for failure to comply with suspicious activity reports (SARs) filing requirements, in violation of the Bank Secrecy Act (BSA), the Exchange Act Section 17(a), and Rule 17a-8. The complaint, filed in the U.S. District Court for the Southern District of New York, alleges that although the firm had a BSA Compliance Program, the program did not accurately reflect what the firm did in practice. More specifically, the SEC alleges thousands of violations including failure to file SARs, failure to file SARs within the required 30 days after the date the suspicious activity was detected, and filing incomplete SARs that did not include the requisite narratives describing what is “unusual, irregular, or suspicious” about the transaction. According to the SEC press release, “by failing to file SARs, [the firm] deprived regulators and law enforcement of critically important information often related to trades in microcap securities used to investigate potentially serious misconduct.”
The SEC requested relief in the form of permanent injunctions and monetary penalties and interest.
Special Alert: Treasury Issues Report Encouraging Sweeping Reforms to Regulation of Consumer Financial Products and Services
On June 12, the Treasury Department issued the first of four reports to the president detailing its review of financial regulation in the United States and making recommendations to reform federal regulatory oversight of depository institutions. For depository (and nondepository) institutions offering consumer financial products and services, the report sets forth a series of recommendations to reform the supervision and enforcement practices of federal financial regulators, and in particular the Consumer Financial Protection Bureau. The report also details a number of recommended reforms to regulations governing mortgage lending and servicing and indicates that the Treasury Secretary is particularly interested in modernizing the Community Reinvestment Act (CRA).
The report makes clear that the Treasury Department supports substantial structural reforms at the CFPB, many of which complement concepts included in the Financial CHOICE Act, which passed the House on June 8. The Treasury Department is particularly interested in reducing the autonomy of the CFPB by making the CFPB Director removable at will by the president or converting the CFPB to a commission, as well as by subjecting the CFPB’s budget to Congressional appropriations. The Treasury Department also proposes eliminating the CFPB’s supervisory authority, and would return that authority to the federal prudential regulators for depository institutions and to state regulators for other financial institutions, as applicable. The report also contains a number of recommendations to amend the CFPB’s enforcement authority, which are aimed at giving regulated institutions better advance notice of regulatory expectations and stronger procedural rights when responding to CFPB investigations. The proposed CFPB reforms come within a broader set of recommended reforms to the entire federal financial oversight structure designed to ensure consistency and fairness across regulators.***
Click here to read full special alert.If you have questions about the ruling or other related issues, visit our Consumer Financial Protection Bureau practice page for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
Special Alert: Supreme Court Holds that a Person May Collect Defaulted Debts Purchased for Its Own Account Without Triggering the FDCPA
On June 12, the United States Supreme Court issued a ruling in Henson v. Santander Consumer USA Inc., affirming the Fourth Circuit’s holding that the Fair Debt Collection Practices Act’s (“FDCPA” or the “Act”) definition of the term “debt collector” does not necessarily apply to a company collecting debts in default that it purchased for its own account.
The Henson Case
The FDCPA defines the term “debt collector” as those who regularly seek to collect debts “owed…another.” Like the Fourth Circuit, the Supreme Court reasoned that the FDCPA’s definition focuses attention on “third party collection agents working for a debt owner — not on a debt owner seeking to collect debts for itself” and thus, in the context of the facts presented, the purchaser of the debts at issue did not qualify as a debt collector under the FDCPA.***
Click here to read full special alert.If you have questions about the ruling or other related issues, visit our Debt Collection & Buying practice page for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
Special Alert: OCC Issues Supplement to Third-Party Oversight Guidance, Emphasizes Bank Responsibilities in Managing Risks in Fintech Relationships
On June 7, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2017-21 as a supplement to Bulletin 2013-29, the OCC’s 2013 risk management guidance related to third-party relationships. The OCC’s latest release answers 14 frequently asked questions (FAQs) and marks the second supplement issued this year to Bulletin 2013-29. Previously, on January 24, 2017, the OCC issued Bulletin 2017-7 to advise national banks, federal savings associations, and technology service providers of examination procedures the OCC would follow during supervisory examinations.
As previously summarized in Buckley Sandler’s Special Alert, Bulletin 2013-29 requires banks and federal savings associations (collectively “banks”) to provide comprehensive oversight of third parties, and warns that failure to have in place an effective risk management process commensurate with the risk and complexity of a bank’s third-party relationships “may be an unsafe and unsound banking practice.” Bulletin 2013-29 outlined a “life cycle” approach and provided detailed descriptions of steps that a bank should consider taking at five important stages of third-party relationships: (i) planning; (ii) due diligence and third-party selection; (iii) contract negotiation; (iv) ongoing monitoring; and (v) termination. Consistent with the life cycle approach established in Bulletin 2013-29, the examination procedures set forth in Bulletin 2017-7 identify steps examiners should take in requesting information relevant to assessing the banks’ third-party relationship risk management at each phase of the life cycle.***
Click here to read full special alert.If you have questions about the ruling or other related issues, visit our Vendor Management and FinTech practice pages for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
Attorney General Sessions Issues Memorandum Ending Payments to Third-Party Organizations as Part of Future Settlement Agreements
On June 7, Attorney General Jeff Sessions issued a memorandum entitled “Prohibition on Settlement Payments to Third Parties” instructing the Department of Justice (DOJ) to cease entering into settlement agreements that include payments to third-party organizations. Attorney General Sessions stated in a press release released by the DOJ, “[w]hen the federal government settles a case against a corporate wrongdoer, any settlement funds should go first to the victims and then to the American people—not to bankroll third-party special interest groups or the political friends of whoever is in power.”
Summary of Memorandum. The memorandum, which became effective immediately and applies to future settlements, notes that previous settlement agreements involving the DOJ required “payments to various non-governmental, third-party organizations . . . [that] were neither victims nor parties to the lawsuits.” The memorandum now states that DOJ “attorneys may not enter into any agreement on behalf of the United States in settlement of federal claims or charges . . . that directs or provides for a payment or loan to any non-governmental person or entity that is not a party to the dispute.” The following are “limited” exceptions:
- “the policy does not apply to an otherwise lawful payment or loan that provides restitution to a victim or that otherwise directly remedies the harm that is sought to be redressed, including, for example, harm to the environment or from official corruption”;
- “the policy does not apply to payments for legal or other professional services rendered in connection with the case”; and
- “the policy does not apply to payments expressly authorized by statute, including restitution and forfeiture.”
The memorandum states that it applies to “all civil and criminal cases litigated under the direction of the Attorney General and includes civil settlement agreements, cy pres agreements or provisions, plea agreements, non-prosecution agreements, and deferred prosecution agreements.”
OCC Supplement Answers Frequently Asked Questions Covering Third-Party Relationships: Risk Management Guidance
On June 7, the OCC released Bulletin 2017-21, which provides answers to frequently asked questions from national banks and federal saving associations concerning third-party procedure guidance. The Bulletin, issued to supplement Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance” released October 30, 2013, highlights the OCC’s responses to the following topics:
- defines third-party relationships and provides guidance on conducting due diligence and ongoing monitoring of service providers;
- provides insight on how to adjust risk management practices specific to each relationship;
- discusses ways to structure third-party risk management processes;
- discusses advantages and disadvantages to collaboration between multiple banks when managing third-party relationships;
- outlines bank-specific requirements when using collaborative arrangements;
- provides information-sharing forums that offer resources to help banks monitor cyber threats;
- discusses how to determine whether a fintech relationships is a “critical activity” and covers risks associated with engaging a start-up fintech company;
- addresses ways in which banks and fintech companies can partner together to serve underbanked populations;
- covers criteria to consider when entering into a marketplace lending arrangement with a nonbank entity;
- clarifies whether OCC Bulletin 2013-29 applies when a bank engages a third-party to provide mobile payments options to consumers;
- outlines the OCC’s compliance management requirements;
- discusses banks’ rights to access interagency technology service provider reports; and
- answers whether a bank can rely on the accuracy of a third-party’s risk management report.
As previously covered in InfoBytes, the OCC released a supplement (Bulletin 2017-7) to Bulletin 2013-29 in January of this year identifying steps prudential bank examiners should take when assessing banks’ third-party relationship risks.
Treasury Audit Report Analyzes Responses to Threats by Office of Terrorist Financing and Financial Crimes
On May 23, the Treasury Department’s Office of Inspector General issued an audit report presenting the results of its study into how, and to what extent, the Treasury’s Office of Terrorist Financing and Financial Crimes (TFFC) addresses threats to international financial systems. The OIG reviewed TFFC—which is responsible for leading and assisting tasks forces, including the Anti-Money Laundering Task Force—to determine how its collaboration efforts with the national security community and other federal agencies identifies and addresses “threats to the international financial system from money laundering and other forms of illicit finance.” According to the findings, while the majority of federal agency officials interviewed for the report were satisfied with TFFC’s collaboration efforts overall, others believed enhanced collaboration efforts were warranted. The OIG also found that TFFC failed to establish “policies or procedures for collaboration or a mechanism to monitor, evaluate, and report the results of its collaborative efforts as recommended by the Government Accountability Office” in a 2009 report. Accordingly, the OIG recommended that TFFC develop and improve upon the necessary policies and procedures needed to monitor the effectiveness of “interagency collaboration,” as well as address areas of concern regarding collaboration efforts with foreign countries. TFFC agreed with these recommendations and stated it is currently working to improve interagency collaboration.
CFPB Fines Mortgage Servicer for RESPA Violations
On June 7, the CFPB ordered a mortgage servicer to pay up to $1.15 million in restitution for failing to provide borrowers with required foreclosure protections when handling loss-mitigation applications. The consent order alleges the servicer violated RESPA by failing to send critical information to consumers who were applying for foreclosure relief, and, in some circumstances, beginning foreclosure proceedings on borrowers who had submitted completed applications. Pursuant to the consent order, in addition to restitution, the servicer is required to provide borrowers the opportunity to pursue foreclosure relief, must cease its illegal practices, and develop policies and procedures to ensure compliance with mortgage servicing rules.