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FinCEN Announces Civil Money Penalty Against West Virginia Bank for BSA Violations
On June 15, FinCEN announced a $4.5 million civil money penalty against a West Virginia-based bank for alleged violations of the BSA from 2008 through 2013. According to the Assessment of Civil Money Penalty, the bank failed to monitor, detect, and report suspicious activity as a result of an inadequate AML and customer due diligence program, ultimately allowing over $9.2 million in structured and otherwise suspicious cash transactions to pass though the financial institution unreported. FinCEN found that the bank failed to establish and maintain an AML program that provided, at a minimum: (i) a system of internal controls to ensure ongoing compliance; (ii) a designated individual or individuals responsible for coordinating and monitoring day-to-day compliance; (iii) independent testing for compliance to be conducted by either an outside party or bank personnel; and (iv) training for appropriate personnel. FinCEN’s enforcement action and $4.5 million civil money penalty against the bank is concurrent with a $3.5 million penalty imposed by the FDIC, of which $2.2 million is concurrent with a forfeiture pursuant to a deferred prosecution agreement with the U.S. Attorney’s Office for the Southern District of West Virginia.
European Union Reaches Agreement Regarding New Data Protection Law
On June 15, the 28 governments of the European Union agreed to a draft Data Protection Regulation that would establish tighter privacy provisions for users of online services – including those provided by U.S. tech companies – in a majority of European countries. The draft Regulation advances a single set of data protection rules for the EU, which include data breach notification obligations, within 24 hours if feasible, a strengthened “right to be forgotten,” and additional enforcement power for Europe’s data protection authorities, including penalties of up to €1 million or up to 2% of global annual turnover of a company. While EU Commissioners say the proposed law would cut costs for businesses, critics argue that its provision requiring data processors to delete individuals’ personal data upon request would inevitably increase costs for European-based internet companies. For the past three and a half years, the EU has tried to reach an agreement to merge the countries’ rules on personal data protection into one set of regulations. If this most recent proposal passes the next phase of European Parliament negotiations, the law will have a 2016 effective date, with a two year transitional period for companies and data protection authorities to adapt to the new regulations.
SEC Requests Public Feedback On Exchange-Traded Products
On June 12, the SEC issued a press release announcing that it is seeking public comment on how it should regulate exchange-traded products (ETPs), on how broker-dealers sell the securities, especially to retail investors, and on investors’ understanding of the nature and use of ETPs. In particular, the securities regulator is requesting public feedback on arbitrage mechanisms and market pricing for ETPs, legal exemptions, and other regulations related to the listing standards and trading of ETPs. Comments will be received for 60 days following publication in the Federal Register.
OCC Announces Improved Online Access to Corporate Application Information and Comments
On June 12, the OCC announced an improvement to the public’s ability to access information online concerning business combination corporate applications submitted by national banks and federal savings associations. The enhanced online access, which is now accessible via the agency’s homepage and licensing page, allows the public to submit and view comments on business combination applications on a single page. In addition, the single page provides links to a public copy of the corporate application, supplemental material filed by the applicant, and a location for individuals to view and submit comments.
Federal Reserve Releases 2015 Annual Performance Plan
Recently, the Federal Reserve submitted to Congress its 2015 Annual Performance Plan, which sets forth the Board’s planned projects, initiatives, and activities for the upcoming year. The Plan, which complements the Federal Reserve’s Strategic Framework 2012-15, outlines planned activities in the following six areas aimed at assisting the Board in meeting its strategic framework’s long-term objectives: (i) supervision, regulation, and monitoring risks to financial stability; (ii) data governance; (iii) facilities infrastructure; (iv) human capital; (v) management process; and (vi) cost reduction and budgetary growth. Among its initiatives, the Board aims to continue building an interdisciplinary infrastructure for supervision, regulation, and monitoring of risks to financial stability. In addition, the Board’s staff plans to develop “analytical tools” that enhance the Board’s understanding of evolving market structures and practices, including changes in risk-management practices and incentives for financial institutions to appropriately manage risk exposures. With respect to the supervision of individual institutions, the report highlights the Board’s intent to develop supervisory approaches for community and regional banks, as well as for savings and loan holding companies, that “identify and support taking action against early warning indicators of outlier risk.”
Illinois AG Madigan Announces $1 Million Settlement Regarding Company's Management of Foreclosed Properties
On June 3, Illinois AG Madigan announced a $1 million settlement with an Ohio-based company that mortgage lenders hire to manage properties throughout the foreclosure process and ensure that the properties retain their value. The settlement resolves a 2013 lawsuit by Madigan that alleged that the company wrongly deemed homes vacant, and instructed its contractors to shut off utilities, change the properties’ locks and illegally remove residents’ personal belongings even though they actively remained in their homes. Under the settlement, the company agreed to overhaul its business practices by using objective standards to ensure that homes are vacant, such as: (i) requiring its inspectors to support their inspections with photographs and an affidavit; (ii) posting notice to the occupant that the property has been deemed vacant; (iii) not misrepresenting the occupants’ rights to stay in their home, even if they are behind on their mortgage payments and in foreclosure; (iv) increasing its oversight and quality control of its subcontractors; (v) providing consumers with access to a 24-hour hotline for submitting complaints; and (vi) unless the company obtains a court order, not removing any personal property prior to foreclosure.
In addition to the $1 million agreement, which will be paid in restitution to consumers who filed complaints with respect to the company’s business practices, the company agreed to adhere to ongoing monitoring by Madigan’s office to ensure compliance with the settlement.
Georgia District Court Rules SEC's Use of Administrative Law Judges In Insider Trading Case "Likely Unconstitutional"
On June 8, in Hill v. Securities And Exchange Commission, Civ. Action No. 1:15-CV-1801-LMM, a Georgia federal judge ruled that the Securities and Exchange Commission’s use of an in-house Administrative Law Judge (“ALJ”) to preside over an insider-trading case was “likely unconstitutional.” In Hill, after a nearly two-year investigation, the Securities and Exchange Commission (“SEC”) served Charles Hill, a self-employed real estate developer who was not registered with the SEC, with an Order Instituting Cease-And-Desist Proceedings under Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), alleging liability for insider trading in violation of Section 14(e) of the Exchange Act and Rule 14e-3. The SEC alleged that Hill, using inside information he received, purchased and then sold a large quantity of Radiant Systems, Inc. stock, profiting approximately $744,000. In addition to the cease-and-desist order, the SEC sought a civil penalty and disgorgement from Mr. Hill. The SEC sought to collect the civil penalty through an administrative hearing using an in-house ALJ. Mr. Hill filed this action to challenge the SEC’s decision to use an administrative proceeding, and asked the Court to (i) declare the proceeding unconstitutional; and (ii) enjoin the proceeding from occurring until the Court issues its ruling. The Court granted, in part, and denied, in part, his request. After rejecting the SEC’s argument that the Court lacked subject matter jurisdiction over Mr. Hill’s constitutional claims, the Court rejected Mr. Hill’s arguments that the Dodd-Frank Act, which delegates to the SEC the power to choose between an administrative forum and a federal district court to adjudicate violations of the Exchange Act, constituted an unconstitutional delegation of legislative power, and that the SEC’s decision to prosecute claims against him administratively violated his Seventh Amendment right to a jury trial. However, the Court determined that the SEC’s manner of appointment of administrative judges likely violated the Appointments Clause, because those judges are “inferior officers” that the President or an agency head must appoint. Because the ALJ in this case had not been so appointed, the Court found that Mr. Hill had a likelihood of success on his claims, and entered a preliminary injunction enjoining the SEC administrative proceeding. The Court, however, noted that its decision “may seem unduly technical” because the SEC could easily cure the issue by having the SEC Commissioners appoint the ALJ, or by presiding over the matter themselves.
New York Court of Appeals Rules Possession of Note, Rather than Mortgage, Conveys Standing to Commence Foreclosure Action
On June 11, the New York Court of Appeals held that a loan servicer who holds the note has standing to commence a mortgage foreclosure action against a borrower even if the servicer cannot show that it also holds the mortgage. See Aurora Loan Servs., LLC v. Taylor, 2015 NY Slip Op 04872 (Jun. 11, 2015). The court reasoned that the servicer did not need to show possession of the mortgage because “the note, and not the mortgage, is the dispositive instrument that conveys standing to foreclose under New York law.” In Aurora, the defendant borrowers had executed an adjustable rate note and a mortgage in 2006. The mortgage designated Mortgage Electronic Recording Systems, Inc. (“MERS”) as nominee, but the note was not transferred to MERS with the mortgage. After the borrowers defaulted, the servicer took possession of the note and filed for foreclosure against the borrowers. In reaching its decision, the court disregarded borrowers’ argument that the involvement of MERS somehow impacted the servicer’s standing to foreclose.
Net 1 Announces Closure of SEC FCPA Investigation
On June 8, Net 1 UEPS Technologies, Inc., a South Africa-based mobile payments company incorporated in Florida, announced that the SEC had closed a FCPA investigation arising out of a contract with the South African Social Security Agency. The SEC and the DOJ opened parallel investigations in November 2012, and the DOJ investigation remains ongoing. Net 1 has asserted that the investigation was instigated by one of the losing bidders on the contract.
Eletrobras Hires U.S. Law Firm to Conduct FCPA Investigation
On June 10, Eletrobras, Brazil’s state-run power company, announced that it had hired Hogan Lovells to investigate potential violations of the FCPA and other anti-corruption laws and corporate policies. The focus of the investigation will be “projects in which Eletrobras Companies take part in a corporate form or as minority shareholder, through special purpose entities.” According to an earlier Eletrobras filing, the investigation was triggered by testimony taken in conjunction with the Brazilian government’s ongoing investigation of corruption allegations against Petrobras, dubbed “Operation Car Wash.” That testimony alleged that the CEO of an Eletrobras subsidiary received illicit payments from a consortium of companies bidding for the Angra 3 power plant project.