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FDIC Issues Letter Announcing Nationwide Seminars for Bank Officers and Employees
On January 19, the FDIC issued FIL-6-2016 announcing that, between February 23, 2016 and December 5, 2016, it will conduct six identical live seminars regarding FDIC deposit insurance coverage for bank employees and bank officers. In addition to the live seminars, the FDIC posted to its YouTube channel three separate seminars, entitled (i) Fundamentals of Deposit Insurance Coverage; (ii) Deposit Insurance Coverage for Revocable Trust Accounts; and (iii) Advanced Topics in Deposit Insurance Coverage. Both the live seminars and the seminars readily available on the YouTube channel will provide bank employees and officers with an understanding of how to calculate deposit insurance coverage.
Iran Sanctions: Treasury Comments on JCPOA Implementation Day
On January 16, the Department of the Treasury issued a statement regarding Implementation Day under the Joint Comprehensive Plan of Action (JCPOA), the plan reached between the P5+1 (the United States, China, France, Russia, the United Kingdom, and Germany), the European Union, and Iran concerning Iran’s nuclear program. In response to Iran taking the appropriate nuclear-related measures, the United States followed through on lifting nuclear-related “secondary sanctions” on Iran, which included certain financial and banking-related sanctions. To summarize the effect of Implementation Day, OFAC issued guidance and FAQs. As outlined in the FAQs and in addition to lifting the nuclear-related “secondary sanctions,” the United States removed more than 400 individuals and entities from OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List). Still, as Treasury Secretary Lew noted, “other than certain limited exceptions provided for in the JCPOA, the U.S. embargo broadly remains in place, meaning that U.S. persons, including U.S. banks, will still be prohibited from virtually all dealings with Iranian entities.”
FinCEN Updates FATF AML/CFT Deficient Jurisdictions List
On January 19, FinCEN issued an advisory, FIN-2016-A001, to provide financial institutions with guidance on reviewing their obligations and risk-based approaches with respect to certain jurisdictions. According to the advisory, on October 23, the Financial Action Task Force (FATF) updated two documents identifying the following: (i) jurisdictions that are either subject to the FATF’s call to apply countermeasures, or to Enhanced Due Diligence (EDD) due to their AML/CFT deficiencies; and (ii) jurisdictions with AML/CFT deficiencies. FinCEN’s recently issued advisory summarizes the changes made to the respective lists and reiterates that a financial institution must file a Suspicious Activity Report if it “knows, suspects, or has reason to suspect that a transaction involves funds derived from illegal activity or that a customer has otherwise engaged in activities indicative of money laundering, terrorist financing, or other violation of federal law or regulation.”
FHFA Issues Final Rule Amending Regulations Governing Eligibility for FHLBank Membership
On January 12, the FHFA issued a final rule amending membership eligibility in the Federal Home Loan Bank (FHLBank) system. The final rule, which follows the FHFA’s September 2014 proposal to revise the requirements for financial institutions applying for and retaining membership in the FHLBank system, removes two provisions from the proposal “that would have required FHLBank members to maintain ongoing minimum levels of investment in specified residential mortgage assets as a condition of remaining eligible for membership.” In addition, the final rule defines “insurance company” to exclude captive insurers, rendering such entities ineligible for FHLBank membership. According to the FHFA, a captive insurer’s primary business is to underwrite insurance for its “parent company or for other affiliates, rather than for the public at large.” According to the FHFA, “REITs and other entities have been forming captives solely for the purpose of providing ineligible institutions access to Bank advances,” and the FHFA’s final rule is “intended to prevent further use of captives to circumvent the membership eligibility of the Bank Act.” The final rule allows current captive insurer members who joined prior to the 2014 proposal up to five years to terminate their membership, and captive insurers who joined after the issuance of the 2014 proposal have one year to terminate. The final rule becomes effective 30 days from publication in the Federal Register.
U.S. FinCEN Issues Geographical Targeting Orders Requiring Reporting of High-End Cash Purchases and Buyers of Residential Real Estate in Manhattan and Miami
On January 13, FinCEN issued two Geographical Targeting Orders (GTO) requiring certain U.S. title insurance companies to provide identification for certain “all-cash” buyers of high end real estate, and to report such transactions. One GTO focuses on the Borough of Manhattan in New York City, New York and the other focuses on Miami-Dade County, Florida.
According to FinCEN, natural persons may be purchasing real estate without bank financing and through LLCs or “other opaque structures” in an attempt to hide their assets and identity. FinCEN commented: “Having prioritized anti-money laundering protections on real estate transactions involving lending, FinCEN’s remaining concern is with money laundering vulnerabilities associated with all-cash real estate transactions.” The two GTOS will be effective from March 1, 2016 through August 27, 2016, and will require certain title insurance companies to “record and report to FinCEN the beneficial ownership information of legal entities purchasing certain high-value residential real estate without external financing.”
The GTOs are identical with the exception of the purchase price value applicable to the different locations. For purchases exceeding $3 million in the Borough of Manhattan, or $1 million in Miami-Dad County, that are made by a legal entity (as defined in the GTO), “without a bank loan or other similar form of external financing,” where “the purchase is made, at least in part, using currency or a cashier’s check, a certified check, a traveler’s check, or a money order in any form,” a title insurance company, and any of its subsidiaries and agents, is required to file a Form 8300 within 30 days of closing.
Among other information, the Form 8300 must:
- Contain information about the identity of the individual primarily responsible for representing the Purchaser, including a copy of this individual’s driver’s license, passport, or other similar identifying documentation.
- Contain information about the identity of the Purchaser.
- Contain information about the identity of the Beneficial Owner(s) of the Purchaser. The Covered Business must obtain and record a copy of the Beneficial Owner’s driver’s license, passport, or other similar identifying documentation. A “Beneficial Owner” means each individual who, directly or indirectly, owns 25% or more of the equity interests of the Purchaser.
- If the purchaser involved in the Covered Transaction is a limited liability company, then the Covered Business must provide the name, address, and taxpayer identification number of all its member
This development is consistent with FinCEN’s long-term trend of pushing for greater transparency, exemplified by its pending proposed rule that would mandate enhanced customer due diligence related to beneficial ownership. See prior InfoBytes Alert and our description of the proposed rule.
CFPB Releases TRID Resource for Construction Loans
Recently, the CFPB released a fact sheet that provides a basic outline for applying Know Before You Owe mortgage disclosures to constructions loans. Specifically, the fact sheet notes that (i) most construction loans are covered by the Know Before You Owe mortgage disclosures, with the exception of those that are open-end transactions or for commercial purposes; and (ii) Regulation Z’s existing provisions for disclosures for certain construction loans and construction-to-permanent loans continue to apply. In addition, the fact sheet provides guidance regarding a creditor’s choice to disclose a construction loan with permanent financing as one or two transactions. According to the fact sheet, the CFPB may release additional guidance to facilitate compliance with the Know Before You Owe mortgage disclosure rule, including a possible webinar regarding construction loan disclosures.
FTC Issues Report on Big Data
On January 6, the FTC published a report titled, “Big Data: A Tool for Inclusion or Exclusion? Understanding the Issues.” The report, which draws from information from a September 2014 FTC workshop, as well as public comments and research, primarily focuses on the final stage in the life cycle of big data use by addressing the commercial use of consumer data and its effect on low-income and underserved populations. According to the report, participants in the 2014 workshop expressed concern that potential inaccuracies and biases from big data may lead companies to “exclude low-income and underserved communities from credit and employment opportunities.” For example, the report states that, “if big data analytics incorrectly predicts that particular consumers are not good candidates for prime credit offers, educational opportunities, or certain lucrative jobs, such educational opportunities, employment, and credit may never be offered to these consumers.” In order to minimize legal and ethical risks, and to avoid possible exclusion and/or discrimination, the report suggests that companies should obtain an understanding of various laws that may apply to their big data practices, including the FCRA, equal opportunity laws, and the FTC Act. The report provides a basic overview of these laws and presents companies with a number of questions to consider when examining whether or not their data practices comply with such laws, including, but not limited to, whether or not a company maintains reasonable security over consumer data, and whether it complies with requirements under the Equal Credit Opportunity Act regarding requests for information and record retention. In addition to these questions, the report advises companies to consider the following four key policy questions: (i) How representative is your data set? (ii) Does your data model account for biases? (iii) How accurate are your predictions based on big data? (iv) Does your reliance on big data raise ethical or fairness concerns? Finally, while the report acknowledges the benefits of big data, such as providing access to credit using non-traditional methods and increasing equal access to employment, the FTC’s report stresses the significance of examining and raising awareness about big data practices that have the potential to adversely impact low-income and underserved populations.
FDIC Scott Strockoz to Serve as Acting National Director of Minority and Community Development Banking
On January 15, the FDIC announced that Robert W. Mooney, national director for Minority and Community Development Banking, retired at the end of 2015. Scott D. Strockoz will serve as acting national director for Minority and Community Development Banking. Strockoz currently serves as deputy regional director in the New York Region and oversees examination activities regarding financial institutions’ compliance with consumer protection, fair lending, and community reinvestment laws and regulations. Strockoz “holds examiner commissions in both risk management and consumer protection and has additionally served as review examiner, field supervisor, acting regional director, and acting associate director, Compliance and Consumer Protection.”
SEC Adopts Interim Rules Implementing Provisions of the FAST Act
On January 13, the SEC announced that it approved interim final rules to implement certain sections of the Fixing America’s Surface Transportation Act (“FAST Act,”), revising Forms S-1 and F-1 for emerging growth companies and smaller reporting companies. Specifically, the rules amend Forms S-1 and F-1 to allow emerging growth companies to omit financial information for certain historical time periods prior to the offering, provided registration statements include all required financial information at the time of the offering. Additionally, under the revised Form S-1, smaller reporting companies, excluding blank check companies, shell companies, or issuers for offerings of penny stocks, will be allowed to use incorporation by reference for future federal securities laws filings after the registration statement becomes effective. These eligible smaller reporting companies will be required to be current by having filed: (i) an annual report for its most recent fiscal year; and (ii) “all required Exchange Act reports and materials during the 12 months immediately preceding filing of the Form S-1.” These rules will become effective when published in the Federal Register.
SEC Files Complaint Against Former Bank Executives, Alleges Fraudulent Reporting of Loan Losses
On January 13, the SEC filed a complaint against 11 former executives and board members of an Alabama-based federal savings bank and its holding company for allegedly participating in various schemes to mislead investors and bank regulators by concealing loan losses, and for violating reporting, internal controls, books-and-records, and proxy solicitation provisions. According to the SEC, the bank’s officers and directors extended, renewed, and rolled over loans, and/or used straw borrowers to “avoid properly classifying the loans as impaired and increasing the Allowance for Loan and Lease Losses (‘ALLL’).” The SEC’s complaint further alleges that in 2009 and 2010, the bank misstated its reported income by approximately 99% and 54%, respectively. The SEC is charging the defendants with, among other things, various counts of fraud, aiding and abetting fraud, circumvention of internal controls and falsified books and records, and false statements to accounts in violation of the Securities Act and the Exchange Act. Nine out of the 11 named defendants agreed to settle the charges against them, with penalties ranging from $100,000 to $250,000, and the remaining two defendants are contesting the charges in federal district court in Tallahassee, Florida.