On January 15, the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced a final rule amending its Cuban Assets Control Regulations (CACR) to reflect policy changes previously announced by President Obama on December 17. The amendments (i) allow U.S. financial institutions to maintain correspondent accounts at Cuban financial institutions; (ii) allow U.S. financial institutions to enroll merchants and process credit and debit card transactions for travel-related and other transactions consistent with the CACR; (iii) increase the limit of remittances to $2,000 from $500 per quarter; and (iv) under an expanded license, allow U.S. registered brokers or dealers in securities and registered money transmitters to process authorized remittances without having to apply for a specific license. In addition, OFAC released a FAQ sheet to help explain the new amendments, which are effective January 16.
On January 21, the Australian Transaction Reports and Analysis Centre (AUSTRAC) announced a $122,400 penalty (Australian dollars) against a large financial services company for failing to register six affiliate businesses as remittance services providers. AUSTRAC serves as Australia’s regulator of anti-money laundering and counter-terrorism financing activities. AUSTRAC noted the company’s voluntary disclosure was taken into consideration when determining its enforcement approach.
On December 18, President Obama signed into law H.R. 5859, the “Ukraine Freedom Support Act of 2014.” First introduced in the House on December 11, the bill gives the President the authority to impose sanctions against countries, entities, and individual persons that pose potential threats to financial stability through excessive risk-taking with the Russian market. The bill provides authority for sanctions against foreign persons, including executive officers of an entity, relating to (i) banking transactions; (ii) investing in or purchasing equity or debt instruments; (iii) U.S. property transactions; and (iv) Export-Import Bank of the United States assistance. Finally, the bill directs the President to “use U.S. influence to encourage the World Bank Group, the European Bank for Reconstruction and Development, and other international financial institutions to invest in and stimulate private investment in such projects.”
OFAC Settles with Independent Manufacturer for Alleged Violations of the Cuban Assets Control Regulations
Recently, OFAC settled with a Portland, Oregon based manufacturer for allegedly violating the Cuban Assets Control Regulations, 31 C.F.R. part 515. The manufacturer agreed to pay $2,057,540 for the actions of its subsidiary, which “purchased nickel briquettes made or derived from Cuban-origin nickel between on or about November 7, 2007, and on or about June 11, 2011.” OFAC concluded that the manufacturer self-disclosed the supposed violations and such violations “constitute a non-egregious case.” Under the Economic Sanctions Enforcement Guidelines, OFAC noted that the manufacturer “acted with reckless disregard for Cuba sanctions program,” and caused “significant harm to…its policy objectives by conducting large-volume and high-value transactions in products made or derived from Cuban-nickel.”
On November 12, the FCA announced that it was fining five banks for their foreign exchange practices. Specifically, ineffective controls at the banks allegedly allowed traders to strategize and manipulate exchange rates for their benefit. Additionally, confidential bank information was compromised in online chat rooms, including “the disclosure of information regarding customer order flows and proprietary Bank information, such as [foreign exchange] rate spreads.” The combined amount of civil money penalties against the banks is $1.7 billion.
On November 10, the Financial Stability Board issued policy proposals in response to G20 Leaders’ request at the 2013 St. Petersburg Summit to develop proposals by the end of 2014. The proposals consist of “a set of principles and a detailed term sheet on the adequacy of loss-absorbing and recapitalization capacity of global systemically important banks (G-SIBs).” The proposals will establish a new minimum standard for total loss-absorbing capacity (TLAC). The new TLAC standard should (i) ensure home and host authorities that G-SIBs have adequate capacity to absorb losses; (ii) allow resolution authorities “to implement a resolution strategy that minimi[zes] any impact on financial stability and ensures the continuity of critical economic functions;” and (iii) help achieve an equal playing field internationally. Comments and responses to the proposals are due by February 2, 2015.
On November 3, a medical company agreed to pay a total of $55 million to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. According to the SEC’s cease-and-desist order, subsidiaries of the bio-medical instrument manufacturer paid $7.5 million in bribes in Russia, Thailand, and Vietnam from 2005 to 2010 in order to win business in violation of Section 30A of the FCPA, which resulted in $35 million in improper profits for the company. Some of the payments were disguised as commissions to foreign agents, in situations where the “agents had no employees and no capacity to perform the purported services for [a medical company].” The company also allegedly had an “atmosphere of secrecy.” The company self-disclosed the violations to the government in 2010. Read more…
Just a month after announcing its internal investigation of possible FCPA violations, news reports indicate that a major cable company’s review will be completed or substantially completed by the first quarter of 2015. The company also announced that it “plans to exit all of its Asia Pacific and African manufacturing operations,” although it did not link the exit – which affects nine plants in Asia and five plants in Africa, and approximately 17% of its total sales – to its FCPA investigation.
In September, the Kentucky-based cable manufacturer announced that it was investigating its payment practices with respect to employees of public utility companies in Angola, Thailand, India and Portugal due to possible FCPA concerns. News reports indicate that, to date, the company has spent millions on the review, which has included a review of over 450,000 documents and interviews of over 20 individuals. The company also disclosed that it was cooperating with investigations by the DOJ and SEC.
On November 6, the Financial Stability Board published its annual update of global systemically important banks (G-SIBs). Included in its annual update is the addition of one international bank bringing the total number of institutions on the list to 30. Eight U.S. G-SIBs remain on the list. Coinciding with the updated list, the Basel Committee on Banking Supervision also published updated information regarding denominators and capital thresholds used to calculate bank scores and allocate capital requirements of G-SIBs.
On October 29, representatives from 51 countries, having met at the Global Forum on Transparency and Exchange of Information for Tax Purposes, agreed to address tax havens in exchange for transparency in tax information. Recently, the Global Forum released a report regarding the Global Forum’s progress in efforts to increase tax transparency and exchange of information. Since the early 2000s, the Global Forum has worked with the Paris-based Organisation for Economic Cooperation and Development (OECD) to increase international tax transparency. The OECD drafted the Standard for Automatic Exchange of Financial Account Information in Tax Matters so that jurisdictions participating in the fight against tax evasion will have a way to share financial information with each other.
On September 22, 2014, following a two-month trial, a federal jury in the Eastern District of New York ruled in favor of a group of 297 individual plaintiffs in a civil suit accusing Arab Bank PLC, headquartered in Amman, Jordan, of supporting terrorism. Linde vs. Arab Bank PLC, No. 1:04-CV-2799 (E.D.N.Y. filed July 2, 2004).
In summary, the plaintiffs alleged that Arab Bank was liable under the U.S. Anti-Terrorism Act, 18 U.S.C. § 2331, et seq. (the “ATA”), for the deaths and/or severe injuries resulting from acts in international terrorism that occurred between 2001 and 2004, because the bank had processed and facilitated payments for Hamas and other terrorist or terrorist-related organizations, their members, the families of suicide bombers, or Hamas front organizations.
What this means for financial institutions, particularly foreign banks that increasingly face the potential reach of U.S. laws and plaintiffs, remains to be seen. But there are three take-aways worthy of immediate consideration.
On October 11, the International Swaps and Derivatives Association, Inc. (ISDA) announced that 18 major global banks (G-18) agreed to sign the Resolution Stay Protocol, which was designed to support cross-border resolution and reduce systematic risk and is a significant step for banks that are considered “too-big-to-fail.” Effective January 2015, the Protocol will allow participating counterparties to “opt into certain overseas resolution regimes via a change to their derivatives contracts.” The Protocol will be applicable to new and existing trades and will likely extend to firms beyond G-18 banks in 2015.
Law Firm Expansion to Further Assist Clients with Global Litigation, Financial Crimes Compliance, Privacy/Data Protection & FCPA Needs
WASHINGTON, DC / LONDON, ENGLAND (September 8, 2014) – BuckleySandler LLP, a leading financial services and criminal & civil enforcement defense law firm, announced today the opening of its first international office, located in London. James T. Parkinson has relocated from the firm’s Washington, DC office to be its London partner-in-residence, enabling the firm to better assist its clients with their global regulatory, litigation, enforcement, financial crimes, FCPA, digital commerce, privacy/data security and anti-money laundering needs.
“As the enforcement, regulatory and litigation challenges facing our clients globalize, it has become apparent that we need to be in London to enable us to meet our clients’ global needs,” explained BuckleySandler Chairman and Executive Partner Andrew L. Sandler. “Jamie’s move to London and our evolving strategic partnerships with global law firms with complementary practices are important steps in enabling the firm to assist clients in their global challenges and expand our global financial crimes practice.”
“I am excited to be relocating to London to better enable the firm to meet the global needs of our clients and expand our global financial crimes practice. Our new London presence is a significant part of BuckleySandler’s overall development of a strong capability to advise clients on comprehensive solutions to regulatory and enforcement problems on a global basis,” noted Parkinson. “This is an important initiative for the firm and a welcome professional opportunity for me.”
Sandler added, “With Jamie in London and the firm expanding our strategic partnerships, we are now able to respond immediately to client needs on a global basis.”
BuckleySandler’s London address: 16 St Martin’s Le Grand, London EC1A 4EN.
With more than 150 lawyers in Washington, New York, Los Angeles, Chicago and London, BuckleySandler provides best-in-class legal counsel to meet the challenges of its financial services industry and other corporate and individual clients across the full range of government enforcement actions, complex and class action litigation and transactional, regulatory and public policy issues. Operating in the United Kingdom as BuckleySandler International LLP, a limited liability partnership incorporated in England and Wales, for the practice of US law. The Firm represents numerous national and international leading financial services institutions. Online: www.buckleysandler.com; Twitter: https://twitter.com/BuckleySandler; InfoBytes Blog: http://www.infobytesblog.com.
On August 6, in remarks at a financial technology conference, the UK’s Chancellor of the Exchequer, George Osborne, outlined the UK government’s plans for the UK to become a world leader in financial innovation and financial technology. Mr. Osborne noted the UK’s science and technology resources and its history of leading the way in financial innovation. He called for new means of banking and payments for consumers and businesses that go beyond just viewing statements online and that “bypass traditional banks altogether, and lend money directly – through peer-to-peer platforms.” Mr. Osborne believes that “with the right backing from government,” London can become “the Fin Tech capital of the world.” To that end, he detailed the government’s plans to support financial innovation, including by: (i) establishing an appropriate tax regime for the industry; (ii) committing funds for government investment programs; (iii) establishing a favorable regulatory regime; (iv) creating a new partnership between Innovate Finance and the British Business Bank to champion financial innovation and technology; and (v) launching a “major program of work exploring the potential of virtual currencies and digital money.” For example, as part of the regulatory changes, Mr. Osborne described several pieces of legislation, including those that will: (i) require the large UK banks to “pass on information on small businesses they reject for loans, so that FinTech Companies and alternative lenders can step in and offer finance instead”; and (ii) allow consumers to use their smart phones to pay in checks.
On July 4, the European Banking Authority (EBA) released an Opinion that outlines for the EU Council, the European Commission, and the European Parliament requirements that would be needed to regulate virtual currencies. The EBA identified more than 70 risks across several categories and numerous causal drivers for those risks, including that (i) a virtual currency scheme can be created, and then its function subsequently changed, by anyone, and in the case of decentralized schemes, by anyone with a sufficient share of computational power; (ii) payer and payee can remain anonymous; (iii) virtual currency schemes do not respect jurisdictional boundaries and may therefore undermine financial sanctions and seizure of assets; and (iv) market participants lack sound corporate governance arrangements. To address those drivers, the EBA believes a regulatory framework would need to comprise, among other elements: (i) governance requirements for certain market participants; (ii) segregation of client accounts; (iii) capital requirements; and (iv) the creation of “scheme governing authorities” accountable for the integrity of a virtual currency scheme and its key components, including its protocol and transaction ledge. Given that the creation of such a regulatory framework will take time, the EBA recommends that European national prudential regulators take action in the immediate term to discourage financial institutions from buying, holding or selling virtual currencies while no regulatory regime is in place. In addition, the EBA recommends that EU legislators consider declaring market participants at the direct interface between conventional and virtual currencies, such as virtual currency exchanges, to become “obliged entities” under the EU Anti Money Laundering Directive and thus subject to its anti-money laundering and counter terrorist financing requirements. The EBA report follows a recent reportby the inter-governmental Financial Action Task Force (FATF) that provides an overview of virtual currency terms, markets, risks, and law enforcement actions announced to date.