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SEC Announces Stephen Cohen's Departure
On June 3, the SEC announced that Stephen L. Cohen, Associate Director of the Enforcement Division, plans to leave the agency later this month. Cohen joined the SEC in 2004 as the Assistant Chief Litigation Counsel in the Enforcement Division, served as a senior advisor to former SEC Chairman Mary Schapiro from 2009 to 2011, and was appointed Associate Director of Enforcement in 2011. Under Cohen’s direction, the SEC brought enforcement actions addressing a variety of market participants’ alleged violations of federal securities laws.
FinCEN Determines North Korea is a Jurisdiction of Primary Money Laundering Concern, Issues NPRM to further Restrict Financial Transactions
On June 1, FinCEN announced a Notice of Finding that North Korea is a jurisdiction of “primary money laundering concern” under Section 311 of the USA PATRIOT Act. According to FinCEN, North Korea is a jurisdiction of primary money laundering because it (i) conducts international financial transactions that support the proliferation and development of WMD and ballistic missiles through its use of state-controlled financial institutions and front companies; (ii) lacks basic AML or combating the financing of terrorism (CFT) controls in its financial system; (iii) fails to maintain a diplomatic relationship with the U.S.; and (iv) relies on the alleged illicit and corrupt activity of high-level officials to support its government. In light of its findings, FinCEN further issued a Notice of Proposed Rulemaking seeking to implement “a special measure to further isolate North Korea from the international financial system by prohibiting covered U.S. financial institutions from opening or maintaining correspondent accounts with North Korea financial institutions, and prohibiting the use of U.S. correspondent accounts to process transactions for North Korea financial institutions.”
OCC Terminates Consent Orders against San Francisco Bank; Imposes Civil Money Penalty
On May 25, the OCC announced that it terminated a 2011 consent order related to mortgage servicing, as well as 2013 and 2015 amended orders, against a San Francisco-based bank after determining that it now complies with the orders. For previous violations of the original 2011 order, the OCC assessed a $70 million civil money penalty against the bank. Specifically, the OCC alleges that the bank (i) failed to correct identified deficiencies in the original and amended orders in a timely fashion, thus violating the original order from October 1, 2014 through August 31, 2015; (ii) filed payment change notices in bankruptcy courts that did not comply with bankruptcy rules and safe and sound banking practices between December 1, 2011 and March 31, 2015; and (iii) made escrow calculations that led to incorrect loan modification denials that constituted unsafe or unsound banking practices between March 2013 and October 2014. The bank will pay the $70 million penalty to the U.S. Treasury. The termination of the orders ends business restrictions that had been mandated in June 2015.
OCC Enters into Agreement with New York Federally Charted Savings Bank
On May 24, the OCC entered into an agreement with a New York-based federal savings bank over the bank’s allegedly unsafe or unsound banking practices “relating to strategic and capital planning, concentration risk management, and board and management oversight at the [b]ank, and violations of law relating to Bank Secrecy Act (BSA) internal controls and BSA officer requirements.” Pursuant to the agreement, the bank’s Board must, among other things, revise and adopt a written program of internal control policies and procedures that the bank must implement to ensure ongoing compliance with the BSA. The policies and procedures must include, at a minimum, (i) effective customer due diligence and enhanced due diligence processes at account opening and thereafter; (ii) adequate methodology to ensure proper risk rating of customer accounts at their opening and thereafter; (iii) effective evaluations and investigations of suspicious activity system alerts; (iv) effective suspicious activity investigation process; and (v) periodic validation of the bank’s automated BSA monitoring system settings.
OFAC Issues Statement Regarding May Kingpin Act Designations
Last month, OFAC designated as Specially Designated Narcotics Traffickers (SDNTs) an alleged Panamanian money laundering organization and its leaders, as well as six associates who, according to OFAC, provided material support and/or acted on behalf of the organization. OFAC also designated 68 companies connected to the organization, including Felix B. Maduro, S.A., Importadora Maduro, S.A., and Maduro Internacional, S.A. (the “Felix Maduro Group”), for being owned or controlled by the designated individuals. According to a June 1 statement, the Government of Panama is working to sever the SDNTs’ ownership and control of the Felix Maduro Group so as “to protect the Panamanian and U.S. financial systems from abuse.” As such, OFAC advised that it would not impose sanctions on non-U.S. persons for engaging in transactions related to the removal of the SDNTs’ ownership, provided certain conditions are met. Additionally, OFAC advised that to the extent such transactions may involve U.S. persons or implicate U.S. jurisdiction, involved parties should apply for a specific license from OFAC.
DOJ Announces Indictment of Former Derivatives Traders for Alleged LIBOR Manipulation
On June 2, the DOJ announced that a federal grand jury of the Southern District of New York indicted two former senior traders of an international investment bank for their alleged roles in a scheme to manipulate the U.S. Dollar London InterBank Offered Rate (LIBOR). Specifically, the former employees were charged with “one count of conspiracy to commit wire fraud and bank fraud and nine counts of wire fraud for their participation in a scheme to manipulate the USD LIBOR rate in a manner that benefited their own or [the investment bank’s] financial positions in derivatives that were linked to those benchmarks.” According to allegations included in the indictment, as director of the Pool Trading Desk in New York and as director of the Money Market Derivatives (MMD) Desk in London, the two former senior traders directed subordinates and/or requested that colleagues “submit false and fraudulent LIBOR contributions consistent with the traders’ or the bank’s financial interests rather than the honest and unbiased costs of borrowing.” Chief U.S. District Judge Colleen McMahon of the SDNY has been assigned to the case.
NYDFS Announces First Settlements to Provide Restitution to Consumers Affected by Alleged Unlawful Payday Lending Practices
The NYDFS recently announced that it entered into consent orders with two debt buyers, one based out of Kansas and the other out of Virginia. According to the Department, the debt buyers improperly purchased and collected on illegal payday loans from New York consumers, with the Kansas-based debt buyer allegedly attempting to collect on more than 7,000 payday loan debts of New York consumers and collecting payments on more than 4,000 of those debts between 2007 and 2014. The NYDFSs press statement further alleges that the Kansas-based debt buyer repeatedly called New York consumers at work and at home, threatened to call consumers employers, and called family members to pressure consumers into paying their alleged payday loan debts. Pursuant to the consent order with the Kansas company, the debt buyer will (i) discharge more than $2.26 million in consumers payday loan debts; (ii) contact credit reporting bureaus and request that they remove any negative information that it previously provided associated with New Yorkers payday loan accounts; (iii) move to vacate judgments it obtained on New Yorkers payday loan accounts; and (iv) release pending garnishments, levies, liens, restraining notices, or attachments associated with judgments on New York consumers payday loan accounts. The Kansas debt buyer will issue almost $725,000 in refunds to more than 3,000 New Yorkers. The Virginia-based debt buyer will provide refunds totaling more than $66,000 to 52 New Yorkers allegedly affected by its lending practices, and discharge almost $53,000 in payday loan debts to 106 New Yorkers. The two settlements are the first NYDFS settlements to provide consumer restitution to New Yorkers affected by payday loans.
Vermont AG Announces Settlement with Arizona Payment Processor of Internet Loans
Recently, Vermont AG William Sorrell announced a settlement of approximately $178,000 with an Arizona-based electronic payment processor to resolve alleged violations of state consumer protection laws prohibiting unfair and deceptive practices. According to AG Sorrell’s office, the company processed internet loans on behalf of unlicensed lenders in violation of the state’s consumer protection laws. Under the settlement, which is the state's fourth and largest against a payment processor of high interest, unlicensed loans, the company must credit consumer bank accounts a total of $153,282 and pay $25,000 in civil penalties and costs to Vermont.
Texas AG Settles with Online Payments System over Security Practices
On May 20, Texas AG Ken Paxton announced that his office reached a settlement agreement with a California-based online payments system to resolve allegations that a money transfer mobile application – of which the payments system is the parent company – violated the Texas Deceptive Trade Practices Act (DTPA). According to the state’s investigation into the payments system, the mobile application allegedly (i) used consumers’ phone contacts without clearly disclosing how it would use the contacts; (ii) failed to clearly disclose how consumers’ transactions and interactions with each other would be shared; and (iii) misrepresented certain communication features. In addition to agreeing that the mobile application will reform its privacy and security disclosure practices, the online payment system must pay the state $175,000.
Third Circuit Upholds District Court's Ruling in its First Case Interpreting the Scope of SCRA Protections
Last month, the U.S. Court of Appeals for the Third Circuit affirmed the district court’s ruling that protections pursuant to the Servicemembers Civil Relief Act (SCRA) do not apply to a business owned by a servicemember. Davis v. City of Philadelphia, No. 15-2937 (3d Cir. May 4, 2016). In 2004, the servicemember plaintiff transferred his and his wife’s property to a Pennsylvania company that he and his wife owned. The plaintiff, having served in the military between 2008 and 2011, claimed that the property’s tax debt should have been reduced under the SCRA. The district court granted the City’s motion to dismiss, holding that because the plaintiff was not personally liable for his company’s debt, the City had not denied him relief under the SCRA.
The Third Circuit affirmed, finding that the plain language of the SCRA’s property tax interest rate cap and its protection against penalties extend only to “property…owned individually by a servicemember or jointly by a servicemember and a dependent or dependents.” 50 U.S.C. § 3991(e) (emphasis added). The SCRA defines “servicemember” as “a member of the uniformed services;” therefore, the court reasoned that property owned by a servicemember is a separate legal entity from the actual servicemember and is ineligible for the SCRA’s protections. The court held that the servicemember failed to prove that an interest in excess of six percent was assessed against him while on active duty or that he actually owned the property. Rather, because the company was the actual owner of the property and was solely liable for tax debt, the Third Circuit affirmed the district court’s ruling.