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FTC Takes Action against Debt Relief Operation
On February 24, the FTC announced that it charged a debt relief operation and two individuals with violations of the FTC Act and the Telemarketing Sales Rule (TSR). According to the FTC, the named defendants misrepresented their ability to help financially distressed homeowners and student loan borrowers modify their loans. Additionally, one of the companies involved in the debt relief operation and its owner also were charged with violations of the Mortgage Assistance Relief Services (MARS) rule/ Regulation O for (i) failing to provide homeowners with disclosures during the purported loan restructure process; (ii) charging upfront fees to consumers for mortgage assistance relief services; (iii) advising homeowners to cease communication with lenders or servicers; and (iv) misrepresenting material aspects of their mortgage assistance relief services. The FTC’s February 16 complaint seeks to permanently enjoin the named defendants from future violations of the FTC Act, the TSR, and the MARS Rule/Regulation O as well as obtain redress for injured consumers through rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.
President Obama Signs into Law the Judicial Redress Act
On February 24, President Obama signed the Judicial Redress Act, legislation that, according to the President, ensures “data is protected in the strongest possible way with our privacy laws.” The legislation is considered critical to EU-U.S. data flows in that it paves the way for the extension of Privacy Act rights to EU citizens, which will give them rights to seek Privacy Act remedies via civil action in U.S. courts. Regarding the Act, Věra Jourová, the EU Commissioner for Justice, Consumers, and Gender Equality, commented, “[t]he entry into force of this Judicial Redress Act will pave the way for the signature of the EU-U.S. Data Protection Umbrella Agreement. This agreement will guarantee a high level of protection of all personal data, regardless of nationality, when transferred across the Atlantic for law enforcement purposes.”
The signing of the Judicial Redress Act comes after the European Commission’s approval of the EU-U.S. Privacy Shield, a new framework for transatlantic data flows.
OCC and FinCEN Assess Civil Money Penalties against Florida-Based Wealth Management Firm for BSA Violations
On February 25, the OCC, in coordination with FinCEN, announced that it took action against a Florida-based wealth management firm and private bank for allegedly violating the Bank Secrecy Act (BSA). According to the OCC, the bank failed to maintain an effective BSA/AML compliance program, thus violating its 2010 agreement with the OCC to “revise its policies, procedures, and systems related to the BSA/AML laws and regulations (‘BSA/AML Compliance Program’), and, among other things, address weaknesses with the Bank’s BSA/AML Compliance programs, including a lack of internal controls necessary to ensure effective and timely customer identification, risk assessment, monitoring, validation, and suspicious activity reports (‘SARs’).” Without admitting or denying any wrongdoing, the bank agreed to pay a total of $4 million in civil penalties, with $2.5 million to be paid directly to the OCC and, pursuant to FinCEN’s separately announced civil money penalty, $1.5 to be paid to the U.S. Department of the Treasury.
OCC to Host Credit and Compliance Risks Workshops
On March 22, the OCC will host a Credit Risk workshop for directors of national community banks and federal savings associations. The workshop will focus on credit risk within the loan portfolio, including identifying trends and recognizing problems. In addition, the workshop will address (i) the board and management’s roles; (ii) how to stay informed of changes in credit risk; and (iii) how to effect change. On March 23, the OCC will host a separate Compliance Risk workshop that will include lectures, discussions, and exercises on key elements of a robust compliance risk management system. Topic discussions will include the BSA, Community Reinvestment Act, and the TRID rule. Both workshops will take place in Santa Ana, California; capacity is limited to the first 35 registrants.
FinCEN Withdraws Findings and Proposed Rulemakings
On February 19, FinCEN withdrew three findings and proposed rulemakings under Section 311 of the USA PATRIOT Act. FinCEN determined that the three entities subject to the proposed rulemakings “no longer pose a money laundering threat to the U.S. financial system.” FinCEN withdrew its findings and proposed rulemakings against (i) a Costa Rica-based financial institution; (ii) a Belarus-based financial institution; and (iii) an Andorra-based financial institution. Regarding the Costa Rica-based institution, FinCEN noted that the DOJ “seized [its] accounts and Internet domain names and charged seven of its principals and employees with money laundering;” the institution stopped functioning after such actions were taken. According to FinCEN, the Belarus-based entity, along with its successor, no longer operates as a foreign financial institution and does not operate in a way that poses a threat to the U.S. financial system. Finally, concerning the third entity, FinCEN noted that Andorran authorities assumed control of the management and operations of the entity, arrested its chief executive officer on money laundering charges, and “are in the final stages of implementing a resolution plan that is isolating the assets, liabilities, and clients of [the entity] that raise money laundering concerns.”
Massachusetts AG Settles with Mortgage Lender and Servicer Over Force-Placed Insurance Policies
On February 18, Massachusetts AG Maura Healey announced that a New York-based mortgage lender and servicer agreed to pay a total of $4 million “to resolve allegations that it received commissions and other kickbacks relating to force-placed insurance policies that it procured for struggling Massachusetts homeowners.” According to AG Healey, until June 1, 2012, the mortgage servicer received payments that were linked to force-placed insurance premiums charged to borrowers, which “created an improper conflict of interest and violated state consumer protection laws.” Under the assurance of discontinuance, which was filed in Suffolk Superior Court, the mortgage servicer will pay affected Massachusetts homeowners $2.675 million in restitution, as well as $1.4 million to the Commonwealth.
Ninth Circuit Denies Plaintiffs' Motion to Rehear Case on Retroactive Application of 2009 TILA Amendment
Last week, the U.S. Court of Appeals for the Ninth Circuit denied plaintiffs’ December 28 Petition for Panel Rehearing and Hearing En Banc of a putative class action in which the plaintiffs alleged that defendant banks were required to comply with a 2009 TILA amendment requiring written notice of the sale or transfer of mortgages to borrowers. Talaie v. Wells Fargo Bank, No. 13-56314 (9th Cir. Feb. 19, 2016). In this case, the plaintiffs alleged that the TILA amendment should have applied retroactively to actions taken three years prior to its passage—namely the failure to provide written notice to borrowers regarding the transfer of a deed of trust from one defendant to the other. On December 14, 2015, the Ninth Circuit affirmed a district court’s ruling that the TILA amendment did not apply retroactively, citing Landgraf v. USA Film Prods., 511 U.S. 244, 265 (1994) and concluding that there was no clear Congressional intent that the amendment applied retroactively. Plaintiffs’ December 28 petition for rehearing argued that the case should be reheard on the issues of (i) whether the TILA amendment should apply retroactively to borrowers who are currently being foreclosed upon by lenders; and (ii) whether tender was required for the cancellation of documents cause of action. The Ninth Circuit denied the plaintiffs’ petition, stating that “[t]he full court has been advised of Appellants’ petition for rehearing en banc and no judge of the court has requested a vote on the petition for rehearing en banc.”
Third Circuit Finds RESPA Claims in Captive Mortgage Reinsurance Case Untimely and Not Subject to Equitable Tolling
Last week, the U.S. Court of Appeals for the Third Circuit affirmed the district court’s ruling that the class action plaintiffs had not satisfied the elements of equitable tolling where they filed their lawsuit several years after the applicable statute of limitations had expired. Cunningham v. M&T Bank Corp., No. 15-1412 (3d Cir. Feb. 19, 2016). The Court noted that claims under RESPA have a one-year statute of limitations, running from the date of the occurrence of the violation, which begin “at the closing of the loan,” citing In re Cmty. Bank of N. Virginia, 622 F.3d 275, 301–02 (3d Cir. 2010). The Court outlined three elements to establish equitable tolling, “(1) that the defendant actively misled the plaintiff; (2) which prevented the plaintiff from recognizing the validity of her claim within the limitations period; and (3) where the plaintiff’s ignorance is not attributable to her lack of reasonable due diligence in attempting to uncover the relevant facts;” and emphasized that each of the plaintiffs were provided a disclosure before closing about the captive reinsurance arrangement, and that after closing the plaintiffs took no steps to investigate whether the bank’s captive reinsurance program might violate state or federal law.
Massachusetts-Based Technology Company and Two Chinese Subsidiaries Pay $28 Million to Settle Civil and Criminal FCPA Charges; SEC Uses First DPA With Individual
On February 16, the SEC and DOJ announced a settlement with a Massachusetts-based technology company for violations of the FCPA. The technology company and two Chinese subsidiaries agreed to pay $28 million to settle the parallel civil and criminal actions, with the technology company paying approximately $13.5 million in disgorgement and prejudgment interest to settle the SEC’s charges, and its two Chinese subsidiaries paying approximately $14.54 million in penalties in a Non-Prosecution Agreement with the DOJ.
The company admitted that its subsidiaries in Shanghai and Hong Kong provided non-business related travel and other improper payments to Chinese government officials to win business. Specifically, from 2006 to 2011, the two subsidiaries provided nearly $1.5 million to Chinese officials in improper travel, gifts, and entertainment. The Chinese officials were employed by state-owned entities that were customers of the technology company. The travel and entertainment expenses included overseas trips to visit the technology company’s facilities, including cooperate headquarters in Massachusetts, but the majority of the time on the trips was spent on recreational excursions unrelated to the purported business purpose. For example, the company paid for Chinese officials to visit New York, Las Vegas, San Diego, Los Angeles, and Honolulu, as well as guided tours, golfing, and other leisure activities during those trips. Employees of the company’s subsidiaries also provided gifts to the Chinese officials, including cell phones, iPods, gift cards, wine, and clothing. The payments were recorded in the company’s books and records as legitimate commissions or business expenses.
As part of the investigation, the SEC also entered into its first Deferred Prosecution Agreement (DAP) with an individual in an FCPA case. The SEC announced that it would wait three years to bring any FCPA charges against a former employee of one of the subsidiaries, Yu Kai Yuan, because of the cooperation he provided during the SEC’s investigation.
Amsterdam-Based Telecommunications Company Pays $795 Million to Settle FCPA Charges Both in US and Abroad
On February 18, an Amsterdam-based telecommunications company and its Uzbek subsidiary reached a global settlement with the SEC, DOJ, and Dutch regulators Openbarr Ministerie (OM) and the Fiscal Intelligence and Investigation Service (FIOD), in which the telecommunications company will pay more than $795 million to resolve FCPA violations in Uzbekistan. The Amsterdam-based telecommunications provider was charged with bribing an Uzbek government official related to the President of Uzbekistan in exchange for government-issued licenses. Between 2006 and 2012, the telecommunications company and its subsidiary made more than $114 million in bribe payments through an entity affiliated with the Uzbek official and disguised approximately half a million dollars as charitable donations made to charities affiliated with the Uzbek official.
The terms of the settlement require the telecommunications company to pay $397.5 million to Dutch regulators, $230.1 million to the DOJ, and $167.5 million to the SEC; it must also retain an independent corporate monitor for three years. DOJ also filed a forfeiture proceeding, seeking more than $550 million held in Swiss bank accounts which it alleged were funds that the Amsterdam-based telecommunications company and two other telecommunications companies used to bribe and/or launder the bribe payments to the Uzbek official. This forfeiture complaint follows the DOJ’s earlier forfeiture complaint filed on June 29, 2015, seeking forfeiture of more than $300 million in funds held in Belgium, Luxembourg, and Ireland.