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AG Sessions Discusses Approach to Enforcement at Annual Ethics Conference
In prepared remarks delivered April 24 at the Ethics and Compliance Initiative Annual Conference, Attorney General Jeff Sessions discussed the DOJ’s anticipated approach to prosecuting corporate fraud and misconduct under his leadership. The Attorney General announced the Department of Justice’s (DOJ) commitment to “re-double” its efforts to combat violent crime, while continuing to investigate and prosecute “corporate fraud and misconduct.” Specifically, Mr. Sessions pledged that the DOJ will “continue to emphasize the importance of holding individuals accountable for corporate misconduct” and when making charging decisions, will account for “whether companies have good compliance programs; whether they cooperate and self-disclose their wrongdoing; and whether they take suitable steps to remediate problems.”
Notable among the many points made by Mr. Sessions during his speech, was his emphasis on the Foreign Corrupt Practices Act (“FCPA”). As explained by Mr. Sessions, “corruption harms free competition, distorts prices, and often leads to substandard products and services coming into this country” and, ultimately, “increases the cost of doing business, and hurts honest companies that don’t pay these bribes.” To this end, the Attorney General promised to “strongly enforce the FCPA and other anti-corruption laws.” As he put it, “[c]ompanies should succeed because they provide superior products and services, not because they have paid off the right people.” In closing, the Attorney General took a moment to remind the audience that “[o]ur economy, and indeed, our whole system of self-government, depends on people believing that those who choose to disregard the law will be caught and punished. This is ultimately the responsibility of the Justice Department.”
Fannie and Freddie Open Records Act of 2017 Passes House, Forwarded on to the Senate
On April 27, the House passed (by a vote of 425 to 0), the Fannie and Freddie Open Records Act of 2017 (H.R. 1694). The proposed measure—sponsored by House Oversight and Government Reform Committee Chairman Jason Chaffetz (R-UT)—would subject Fannie Mae and Freddie Mac to the transparency requirements applicable to federal agencies under the Freedom of Information Act (“FOIA”) for the duration of the time the enterprises remain under FHFA conservatorship. Pursuant to FOIA, the public has presumptive access to agency records unless the material falls within any of FOIA’s nine categories of exception. Having passed in the House, the bill was subsequently forwarded on to the Senate, where it has been assigned to the Senate Judiciary committee. An April 24 Committee Report on the bill provides some explanatory background on the issue addressed by the bill and the bill’s intentions.
FINRA Releases New Guidance on Rules Concerning Digital Communications
On April 25, FINRA issued new guidance on the application of its rules governing communications with the public concerning social media networking sites and online business communications. In 2010 and 2011, FINRA released Regulatory Notices 10-06 and 11-39 to provide initial guidance on these specific rules, and in 2013, “adopted amendments to Rule 2010 that codif[ied] guidance provided in the Notices with respect to the supervision of interactive social media posts by member firms.” In December 2014, FINRA issued its Respective Rule Review Report, which was designed to “assess whether the communications rules are meeting their intended investor protection objectives . . . and to take steps to maintain or improve the effectiveness of the rules.” FINRA Regulatory Notice 17-18 is the response to the report’s request for additional guidance and provides examples of how FINRA applies its rules to the following topics: text messaging, personal communications, hyperlinks and content sharing, native advertising, online testimonials and endorsements, correction of third-party content, and BrokerCheck. FINRA further notes that Regulatory Notice 17-18 is intended to deliver further guidance and does not alter principles previously provided in prior notices.
OFAC Updates: New Sanction Designations and Additions to Specially Designated Nationals List
In April, OFAC announced implementation of three new 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 Designated Nationals (SDN) and Blocked Persons.
Libya-Based ISIS Financial Facilitators / Algerian ISIS Supporter and Arms Trafficker. On April 13, OFAC imposed sanctions against certain Libyan and Algerian financial facilitators for their roles in assisting ISIS’s financial operations in Libya. The designations block the individuals, one of whom was designated as engaging in actions through weapon trafficking, from the global financial system, and further state that “all property and interests in property . . . subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with” the identified individuals.
Syrian “Research Center” Accused of Developing Weapons. On April 24, OFAC announced it was taking action against 271 employees of a Syrian research center for “developing and producing non-conventional weapons and the means to deliver them.” The sanctions came as a reaction to the widely- reported April 4 sarin gas attack against civilians, and followed sanctions announced January 12 against 18 officials, five branches of the Syrian military, and associated entities for their participation in a chemical weapons program responsible for attacks in 2014 and 2015. The 271 named individuals are “designated for materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services in support of, and having acted or purported to act for or on behalf of, directly or indirectly, the Government of Syria.” The new sanctions block U.S. persons from dealing with these employees.
Foreign Narcotics Kingpin Sanctions. OFAC made additions to the Specially Designated Nationals (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 deal in the property or interest in property of an entity or individual on the SDN list. Additions to the list include Foreign Narcotics Kingpin Sanctions Regulations against two Mexican entities, and Global Terrorism Sanctions Regulations against a Saudi individual.
CFPB to Discuss Small Business Lending at May 10 Field Hearing
On May 10, the CFPB will hold a field hearing on small business lending in Los Angeles, CA. The announcement, which is posted on the Events page of the CFPB’s website, indicates that the hearing will feature “remarks from Director Cordray, as well as testimony from community groups, industry representatives, and members of the public.” Notably, “small business data collection” was among the topics covered by the Bureau in its latest fair lending report (See previous InfoBytes coverage here). Specifically, the CFPB noted in its report that Congress “expressed concern that women-owned and minority-owned businesses may experience discrimination when they apply for credit, and has required the CFPB to take steps to ensure their fair access to credit.” In response to this observation, the Bureau indicated in its report that its “[s]mall business lending supervisory activity will also help expand and enhance the Bureau’s knowledge in this area, including the credit process; existing data collection process; and the nature, extent, and management of fair lending risk.”
Online Lenders Alliance Expresses “Strong Opposition” to Proposed Rate Cap Legislation in California and Maryland
In an April 12 letter to California Assembly member Matthew Dababneh (who chairs the state Assembly’s Committee on Banking and Finance), the Online Lenders Alliance (OLA) expressed its “strong opposition” to legislation introduced in California that would impose an interest rate cap for consumer loans or lines of credit in those states. Specifically, the Alliance contended that the legislation (A.B. 1109) would “significantly impact a consumer’s ability to find credit.” The OLA also communicated similar concerns in a letter to Maryland Governor Larry Hogan requesting that he veto cross-filed legislation (SB 527/ HB 1270) passed by the Maryland General Assembly.
Washington State Enacts Law Defining Licensing Requirements for Transmitters of Money and Virtual Currency
On April 17, Washington Governor Jay Inslee signed into law a new piece of legislation (SSB 5031), which formally adds virtual currency to its money transmitter law. The legislation—introduced at the request of the Washington Department of Financial Institutions (DFI)—amends the definition of money transmission to include virtual currency, which is defined as “a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government.” The definition of virtual currency does not, however, include “the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange.” The new law requires that applicants for a money transmitter license with business models that store virtual currency on behalf of others must provide a third-party security audit of all electronic information and data systems acceptable to DFI. Furthermore, licensees transmitting virtual currencies must now hold “like-kind virtual currencies” of the same volume as that held by the licensee but which is obligated to consumers in lieu of permissible investments. Among other disclosures, virtual currency licensees must disclose to consumers a schedule of fees and charges, whether the product or service is insured, that the transfer is irrevocable, and the licensee's liability for mistakes. Among other provisions, the law:
- outlines new bond requirements for online currency exchange licensees;
- expands supervisory powers allowing DFI to participate in joint or concurrent examinations with other state or federal agencies;
- mandates that licensees report all licensee branch locations and all authorized delegates to the nationwide licensing system within 30 days of the contractual agreement with the licensee to provide money services in the state;
- makes civil penalties $100 per violation per day for each day a violation is outstanding; and
- excludes from its definition of “money transmission” the “provision solely of connection services to the internet, telecommunications services, or network access; units of value that are issued in affinity or rewards programs that cannot be redeemed for either money or virtual currencies; and units of value that are used solely within online gaming platforms that have no market or application outside of the gaming platforms.”
The law goes into effect July 23, 2017.
CFPB Releases Supervisory Highlights Focused on Student Lending and Mortgage Servicing
On April 26, the CFPB released its Supervisory Highlights for spring 2017, which outlines its supervisory and oversight actions in areas such as mortgage servicing and student loan servicing. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in approximately $6.1 million in restitution to more than 16,000 consumers.”
Student loan servicing. Bureau examiners reported that student loan servicers (i) routinely acted on incorrect information about whether the borrower was enrolled in school, and (ii) failed to reverse certain charges, including improper late fees and capitalization of unpaid interest, even after they knew they had wrongly ended a deferment.
Mortgage servicing. According to the report, the Bureau continued to see “serious issues for consumers seeking alternatives to foreclosure, or loss mitigation, at certain servicers.” CFPB examiners found problems with premature foreclosure filings, mishandling of escrow accounts, and incomplete periodic statements. Furthermore, examiners found that one or more mortgage servicers:
- failed to identify the additional documents and information borrowers needed to submit to complete a loss mitigation application and then denied the applications for not including those documents;
- launched the foreclosure process prematurely after receiving loss mitigation applications from borrowers, thereby failing to give required foreclosure protections to qualified consumers;
- mishandled escrow accounts by using funds to pay insurance premiums on unrelated loans, creating shortages in the escrow accounts and higher monthly payments for consumers; and
- issued incomplete periodic statements that used vague language such as “Misc. Expenses” and “Charge for Service” when describing transaction activity.
The report also outlined the Bureau’s position on employee production incentives and presented guidance and examples of where “incentives contributed to substantial harm.”
House Financial Services Subcommittee Explores Ways to Safeguard Financial System from Terrorist Financing
On April 27, the Financial Services Subcommittee on Terrorism and Illicit Finance held a hearing entitled Safeguarding the Financial System from Terrorist Financing to examine information sharing and data collection practices at the Financial Crimes Enforcement Network (FinCEN) and assess how the process could be improved. According to a Committee memorandum released in advance of the hearing, the hearing was also called for the purposes of considering whether to amend the Bank Secrecy Act and USA PATRIOT Act to improve FinCEN’s effectiveness in disrupting terrorist financing and money laundering.
Jamal El-Hindi, the Acting Director of the Financial Crimes Enforcement Network (FinCEN) at the Department of the Treasury, was the only witness. For just over an hour, the Acting Director offered testimony and answered questions concerning, among other things, the collection, analysis and dissemination of Bank Secrecy Act data and information sharing between the public and private sectors. Mr. El-Hindi also discussed several new and evolving money laundering and terrorist financing challenges, including potential money laundering vulnerabilities associated with “all cash” real estate transactions, virtual currency, and cybersecurity.
In a statement delivered by Rep. Maxin Waters (D-CA), the Ranking Member of the Committee on Financial Services, the Congresswoman noted, among other things, that “high-end U.S. real estate is a key sector used by corrupt foreign leaders, drug traffickers and other criminals to launder illicit money.” The Ranking Member explained further that she “find[s] it disturbing that FinCEN continues to largely exempt the real-estate sector from even the most basic anti-money laundering requirements,” and urged the regulator to “take more urgent action to address these risks nationwide and on a permanent basis.”
A video recording of the hearing may be accessed here.
Special Alert: Supreme Court Holds Cities Have Standing Under FHA, But Limits Potential Claims
On May 1, the Supreme Court ruled 5-3 that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the Fair Housing Act against lenders for injuries allegedly flowing from discriminatory lending practices. However, the Court held that such injuries must be proximately caused by the alleged misconduct—rather than simply a foreseeable result. Some commentators suggest that the Court’s zone of interest analysis will result in the filing of new claims. Our view of this decision is that it will reduce such litigation efforts as prospective municipal plaintiffs recognize that it will be more difficult to survive early dispositive motions focused on whether the damages claims bear a direct relationship to the conduct alleged.
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Click here to read full special alert.If you have questions about the ruling or other related issues, visit our Fair Lending practice page for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.