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Federal Banking Regulators Schedule EGRPRA Outreach Meeting in Chicago
On September 28, the Federal Reserve, the FDIC, and the OCC announced that the latest outreach meeting under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) will be held on October 10 in Chicago, Illinois. The meeting will feature panel presentations from industry insiders and consumer advocates. Senior officials from the Federal Reserve, OCC, and FDIC are also scheduled to attend. This meeting will be the fifth of six outreach meetings focused on identifying outdated or burdensome regulatory requirements imposed on financial institutions. The sixth and final meeting is expected to take place on December 2 in Washington, D.C. Previous InfoBytes coverage on EGRPRA can be found here.
FinCEN to Withdraw 2011 Proposed Rule Against Lebanon-Based Bank
On September 28, FinCEN announced its intention to withdraw its February 2011 Notice of Finding and Notice of Proposed Rulemaking identifying a Lebanon-based bank as a “financial institution of primary money laundering concern” under Section 311 of the USA PATRIOT Act. The bank had been linked with Hezbollah and found to be involved in international narcotics and money laundering networks. Accordingly, through the Notice of Finding, FinCEN sought to impose certain “special measures” on the bank which are designed to, among other things, weaken foreign banks suspected of money laundering and financing terrorism, as well as protect American financial institutions. However, given that the bank’s license was revoked in September 2011 by Lebanon’s central bank, the Banque du Liban, and all of its assets were subsequently liquidated, the bank no longer exists as a foreign financial institution and, as such, is no longer subject to the prohibitions set forth in the proposed rule. The withdrawal of FinCEN’s Notice of Finding does not require a comment period and will be effective upon publication in the Federal Register.
HUD, FDIC, and U.S. Attorney File Suit Against Mortgage Lending Companies
On September 28, HUD, the FDIC, and the U.S. Attorney for the Eastern District of New York filed suit against a non-profit housing counseling corporation and certain mortgage lenders for allegedly running a scheme to defraud the United States and various banks out of over $5,000,000 in false claims. Filed in the Eastern District of New York, the complaint alleges that, in order to remain in HUD’s Direct Endorsement Program, a federal program that insures mortgage loans through the FHA, the mortgage lenders sought to fraudulently conceal the high default rates of their loans by funneling money through the corporation to pay their borrowers’ payments, in direct violation of FHA regulations. The mortgage lenders would then sell the federally-insured loans to FDIC-insured banks. Once either a bank’s indemnification or repurchase rights, or the period during which HUD monitored loans for early payment defaults, lapsed, the mortgage lenders would stop making payments, resulting in the ultimate default of the borrowers. The complaint seeks treble damages under the FCA, the FIRREA, and under common law theories of gross negligence, breach of fiduciary trust, and unjust enrichment.
Speaker of the U.S. House of Representatives Set to Resign at End of October
On September 25, the Speaker of the U.S. House of Representatives, Rep. John Boehner (R-OH) issued a statement announcing that he will resign both his Speakership and congressional seat on October 30. No announcement has been made addressing who will replace Boehner as Speaker of the House.
FIFA Investigation Ensnares President Blatter
After months of speculation about potential legal ramifications for FIFA President Joseph (“Sepp”) Blatter, the Office of the Attorney General of Switzerland announced that Mr. Blatter is the subject of criminal proceedings in that country. The allegations include criminal mismanagement related to a contract with the Caribbean Football Union that was purportedly against the interests of FIFA, as well as misappropriation related to a payment to the President of the Union of European Football Associations (UEFA). The Office of the Attorney General also reported that Mr. Blatter was interrogated and his offices were searched.
Previous FCPA Scorecard coverage of this investigation can be found here.
European Union Advocate General Calls For High Court to Rule U.S.-EU Data Sharing Program Invalid
In an opinion that has the potential to seriously disrupt how U.S. companies can share data from Europe, on September 23, Advocate General (AG) Yves Bot of the Court of Justice of the European Union (CJEU) declared that the existing framework governing that exchange of data fails to “ensure an adequate level of protection of the personal data which is transferred to the United States from the European Union.” This is because that framework, in AG Bot’s view, contains holes that can allow access to European’s personal data by the NSA and other U.S. security agencies. “[T]he law and practice of the United States allow the large-scale collection of the personal data of citizens of the [EU] which is transferred under the [framework] without those citizens benefiting from effective judicial protection.” And while the FTC and private dispute resolutions have the power to monitor possible breaches of the framework by private companies, neither has the power to monitor possible breaches by U.S. security agencies.
The EU’s 1995 Data Protection Directive (“Directive”) requires that the transfer of personal data from an EU country to another country take place only if the other country ensures an adequate level of data protection. For the past 15 years, per a 2000 decision by the European Commission, U.S. companies participating in the U.S.-EU Safe Harbor Framework for personal data protection have been deemed to be compliant with that requirement. AG Bot’s opinion, however, calls that 2000 decision invalid. “To my mind, the existence of a [Commission] decision” on the sufficiency of a country’s personal data protection regime “cannot eliminate or even reduce” the powers of each EU member state’s Data Protection Authority, under Article 28 of the Directive, to independently assess the sufficiency of that country’s personal data protection regime. This opinion thus turns the power back over to individual EU countries to assess U.S. companies’ personal data protections, potentially leading to a fractured and technologically daunting state of digital commerce in Europe.
Negotiations are underway for a new U.S.-EU Safe Harbor Framework, but if AG Bot’s opinion is followed, no Framework would prevent country-by-country determinations of the sufficiency of a U.S. company’s personal data protections.
Owner of Mortgage Company Sentenced to Serve More Than 11 Years for Role in $64 Million Mortgage Fraud Operation
On September 24, the DOJ released a statement regarding the sentencing of the owner of a Florida mortgage company for allegedly organizing a mortgage fraud scheme. In July 2015, the owner, along with his business partner and a senior underwriter for the mortgage company, pleaded guilty to the mortgage fraud scheme that resulted in $64 million in losses to the FHA. The August 2014 indictment stated that the three individuals edited borrowers’ loan applications, altering important information so that they appeared to be qualified for FHA loans when, in fact, they were not. As a result of the September sentencing, the owner of the company will pay more than $64 million in restitution and forfeit $8 million in illegal profits. The owner’s business partner was sentenced to serve 41 months in prison; in addition, he will pay more than $7 million in restitution and forfeit $400,000 in illegal profits. The company’s underwriter will pay more than $24 million in restitution and serve 51 months in prison. A total of 24 defendants were charged in the case, which was jointly investigated by the HUD-OIG and the DOJ.
CFPB and DOJ Fine Savings Association Over Alleged Mortgage Redlining Practices
On September 24, the CFPB and DOJ announced a joint enforcement action against a federally-chartered savings association, alleging that the lender excluded predominantly minority neighborhoods from its mortgage lending business. The consent order, subject to court approval, would require the lender to, among other things, (i) pay $25 million in various subsidies to assist minority borrowers; (ii) provide a total of $2.25 million, over a five-year period, to local initiatives providing assistance and consumer education to residents in the excluded neighborhoods; and (iii) pay a $5.5 million civil money penalty.
Legislation Seeking Better Transparency in Federal Agency Settlements Passes Unanimously in U.S. Senate
On September 21, Senate Bill 1109, the Truth in Settlements Act, passed in the U.S. Senate with amendments by unanimous consent and has now been referred to the U.S. House of Representative’s Committee on Oversight and Government Reform for consideration. Originally introduced in January 2014 and sponsored by Elizabeth Warren (D-MA), the Truth in Settlements Act would require federal agencies to post online, in a searchable format, a list of each covered settlement agreement, criminal or civil, with payments totaling $1 million or more. The list would entail, among other things, (i) the names of the settling parties and the amount each must pay; (ii) a description of the claims each party settled; (iii) whether a portion of the settlement amount is tax-deductible; and (iv) any actions the settling parties must take under the settlement agreement in lieu of payment. If enacted, the bill would require agencies to publicly explain via written statement why confidentiality is justified for certain instances. The bill, co-sponsored by Senators James Lankford (R-OK) and Tammy Baldwin (D-WI), aims to provide greater transparency and oversight regarding settlements reached by federal enforcement agencies.
CFPB Sets Date for Second Field Hearing on Arbitration
On September 22, via blog post, the CFPB announced that it will host its second field hearing addressing pre-dispute arbitration agreements in various consumer financial contracts. Scheduled for October 7, 2015, the hearing will take place in Denver, Colorado and feature remarks from CFPB Director Richard Cordray, testimony from consumer groups, industry representatives, and members of the public. Previous InfoBytes coverage on arbitration can be seen here.