By Stephanie K. Mann, J.D.
In order to further its initiative to crack down on unfair, deceptive, or abusive acts and practices affecting its citizens, New York Department of Financial Services has announced a settlement with Blue Global LLC, an online payday loan lead generator, for violations of New York law, under which the company must pay a $1 million penalty, cease payday loan lead generation activities in New York, and provide new consumer warnings and disclosures. The company’s Chief Executive Officer was personally found to be in violation of New York law under the Consent Order.
An investigation by the Department found that Blue Global misrepresented to New York customers and others the legal status of payday loans the company advertised primarily through websites, including 1OODayLoans.com. Additionally, the company misrepresented the safety and security of personal information that consumers entered on websites operated by Blue Global in violation of New York state law Financial Services Law Sec. 408. As a result, Blue Global’s New York customers’ personal information was available to persons who used it to attempt to commit fraud and harass consumers.
Under the agreement, Blue Global is also required to pay damages to any New York consumer who has suffered identity theft traceable to a data security breach of the company’s systems or to certain conduct by Blue Global and must adhere to data security measures to protect consumers’ personal information.
Blue Global, an Arizona limited liability corporation, is said to have sold the leads consisting of sensitive personal information of approximately 180,000 New York consumers, and collected personal information from approximately 350,000 New York consumers, according to the Department.
Blue Global released a statement calling the agreement “in our company’s and our stakeholders’ best interests” and lauding the “satisfactory resolution” to the issue.
Unsecured customer information. Blue Global offered payday loans and other financial products and services on its websites. The company allegedly offered to sell or share leads consisting of consumers’ sensitive personal and financial information captured from their websites with buyers. The information includes any or all of the following: a person’s first and last name; address; Social Security number; date of birth; driver’s license number; bank account number; routing number; email address; and other information that may be used to identify an individual.
Blue Global’s online advertisements promised consumers that protecting consumers’ personal information was “at the top of our priority list” and that securing such information was “completely 24/7 guaranteed.” Contrary to these representations, the Department’s investigation revealed that Blue Global did not take any protective measures when sharing consumers’ sensitive information with third parties.
For more information about payday lending, subscribe to the Banking and Finance Law Daily.
Monday, March 21, 2016
Friday, March 18, 2016
'Dictator’ Cordray testifies before Financial Services Committee
By Katalina M. Bianco, J.D.
The House Financial Services Committee held a hearing on the Consumer Financial Protection Bureau’s semi-annual report to Congress on March 16, 2016. The hearing featured the testimony of CFPB Director Richard Cordray and was opened by Chair Jeb Hensarling (R-Texas) who stated, “Congress has made Mr. Cordray a dictator. And when it comes to the well-being and liberty of American consumers, he is not a particularly benevolent one.”
In his opening remarks, Hensarling charged that Corday “will presume” to decide whether Americans will be able to take out a small-dollar loan or resolve contract disputes through arbitration. He referred to auto loans, stating, “Already Mr. Cordray has decided that countless Americans should pay more for auto loans based upon junk science and a dubious legal theory of statistical unintentional discrimination.” The committee chair went on to criticize the CFPB’s Qualified Mortgage rule “which when fully implemented will disqualify almost one-fourth of all Americans who qualified for a home mortgage just a few years ago.”
Hensarling dismissed the citing of millions of dollars in fines imposed by the bureau via enforcement actions, stating that this argument is raised by “apologists” for the bureau. Rather, he continued, the bureau “operates as legislature cop on the beat, prosecutor, judge and jury all rolled into one.”
Waters remarks. In her opening remarks, Rep. Maxine Waters (D-Calif), Ranking Member of the Financial Services Committee, expressed views of the CFPB and its director that were in direct contrast to those presented by Hensarling. She praised the bureau’s accomplishments that she said have helped more Americans “participate in a financial system that is fair and strong.” She commended the bureau for the $11.2 billion dollars it returned to consumers through its supervision and enforcement efforts. The lawmaker also highlighted “particularly important efforts” such as its work so far on payday lending, discrimination in the auto lending industry, and the “unscrupulous” for-profit college that “deceived students into taking out expensive private loans and engaging in illegal debt collection practices.”
Cordray testimony on consumer initiatives. In his written testimony, Cordray discussed the efforts that the bureau has undertaken to fulfill its mission mandated by the Dodd-Frank Act as outlined in the CFPB’s latest semi-annual report. First and foremost, the CFPB listens and responds to consumers, a task that is central to its mission, Cordray said. The CFPB director discussed improvements made to the CFPB’s Office of Consumer Complaints and the fact that the bureau has begun publishing consumer complaint narratives. In July 2015, the CFPB launched the first in a new series of monthly reports to highlight key trends from consumer complaints submitted to the agency. Cordray added that the CFPB also is working to provide tools and information intended to develop practical skills and support sound financial decision-making by consumers.
Supervision and enforcement. Discussing the bureau’s supervision and enforcement functions, the CFPB director noted that in the six months since its last semi-annual report, supervisory actions have led to more than $95 million in redress to over 177,000 consumers. During the same period, the CFPB also announced orders through enforcement actions for approximately $5.8 billion in total relief for consumers, along with over $153 million in civil money penalties. Cordray outlined for the committee specific enforcement actions taken by the CFPB during the same timeframe and its partnership with other agencies, federal and local, to enforce consumer compliance laws.
Rulemaking. Cordray listed the bureau’s rulemaking efforts during the past six months, including a final rule defining larger participants of the automobile financing market and defining certain automobile leasing activity as a financial product or service, “which extends the Bureau’s supervision relating to consumer financial protection laws to any nonbank auto finance company that makes, acquires, or refinances 10,000 or more loans or leases in a year, and a request for information regarding student loan servicing.”
The CFPB director said that the bureau “seeks to serve as a resource, by writing clear rules of the road, enforcing consumer financial protection laws in ways that improve the consumer financial marketplace, and by helping individual consumers resolve their specific issues with financial products and services.”
Committee view on hearing. In a release issued after the hearing, the Financial Services Committee provided its view as to key “takeways.” First, the CFPB is not accountable to Congress or the American people because it is not subject to checks and balances. According to the committee, “real” consumer protection puts power in the hands of consumers. Finally, the bureau does have an important mission, and if properly designed and led, it is “capable of great good.” However, when the CFPB acts in ways that are not accountable or transparent, it is “also capable of great harm to the consumers it is supposed to protect.” A link to a video of Hensarling’s questioning of Cordray and the CFPB director’s testimony is included in the release.
For more information about Cordray and the Financial Services Committee, subscribe to the Banking and Finance Law Daily.
The House Financial Services Committee held a hearing on the Consumer Financial Protection Bureau’s semi-annual report to Congress on March 16, 2016. The hearing featured the testimony of CFPB Director Richard Cordray and was opened by Chair Jeb Hensarling (R-Texas) who stated, “Congress has made Mr. Cordray a dictator. And when it comes to the well-being and liberty of American consumers, he is not a particularly benevolent one.”
In his opening remarks, Hensarling charged that Corday “will presume” to decide whether Americans will be able to take out a small-dollar loan or resolve contract disputes through arbitration. He referred to auto loans, stating, “Already Mr. Cordray has decided that countless Americans should pay more for auto loans based upon junk science and a dubious legal theory of statistical unintentional discrimination.” The committee chair went on to criticize the CFPB’s Qualified Mortgage rule “which when fully implemented will disqualify almost one-fourth of all Americans who qualified for a home mortgage just a few years ago.”
Hensarling dismissed the citing of millions of dollars in fines imposed by the bureau via enforcement actions, stating that this argument is raised by “apologists” for the bureau. Rather, he continued, the bureau “operates as legislature cop on the beat, prosecutor, judge and jury all rolled into one.”
Waters remarks. In her opening remarks, Rep. Maxine Waters (D-Calif), Ranking Member of the Financial Services Committee, expressed views of the CFPB and its director that were in direct contrast to those presented by Hensarling. She praised the bureau’s accomplishments that she said have helped more Americans “participate in a financial system that is fair and strong.” She commended the bureau for the $11.2 billion dollars it returned to consumers through its supervision and enforcement efforts. The lawmaker also highlighted “particularly important efforts” such as its work so far on payday lending, discrimination in the auto lending industry, and the “unscrupulous” for-profit college that “deceived students into taking out expensive private loans and engaging in illegal debt collection practices.”
Cordray testimony on consumer initiatives. In his written testimony, Cordray discussed the efforts that the bureau has undertaken to fulfill its mission mandated by the Dodd-Frank Act as outlined in the CFPB’s latest semi-annual report. First and foremost, the CFPB listens and responds to consumers, a task that is central to its mission, Cordray said. The CFPB director discussed improvements made to the CFPB’s Office of Consumer Complaints and the fact that the bureau has begun publishing consumer complaint narratives. In July 2015, the CFPB launched the first in a new series of monthly reports to highlight key trends from consumer complaints submitted to the agency. Cordray added that the CFPB also is working to provide tools and information intended to develop practical skills and support sound financial decision-making by consumers.
Supervision and enforcement. Discussing the bureau’s supervision and enforcement functions, the CFPB director noted that in the six months since its last semi-annual report, supervisory actions have led to more than $95 million in redress to over 177,000 consumers. During the same period, the CFPB also announced orders through enforcement actions for approximately $5.8 billion in total relief for consumers, along with over $153 million in civil money penalties. Cordray outlined for the committee specific enforcement actions taken by the CFPB during the same timeframe and its partnership with other agencies, federal and local, to enforce consumer compliance laws.
Rulemaking. Cordray listed the bureau’s rulemaking efforts during the past six months, including a final rule defining larger participants of the automobile financing market and defining certain automobile leasing activity as a financial product or service, “which extends the Bureau’s supervision relating to consumer financial protection laws to any nonbank auto finance company that makes, acquires, or refinances 10,000 or more loans or leases in a year, and a request for information regarding student loan servicing.”
The CFPB director said that the bureau “seeks to serve as a resource, by writing clear rules of the road, enforcing consumer financial protection laws in ways that improve the consumer financial marketplace, and by helping individual consumers resolve their specific issues with financial products and services.”
Committee view on hearing. In a release issued after the hearing, the Financial Services Committee provided its view as to key “takeways.” First, the CFPB is not accountable to Congress or the American people because it is not subject to checks and balances. According to the committee, “real” consumer protection puts power in the hands of consumers. Finally, the bureau does have an important mission, and if properly designed and led, it is “capable of great good.” However, when the CFPB acts in ways that are not accountable or transparent, it is “also capable of great harm to the consumers it is supposed to protect.” A link to a video of Hensarling’s questioning of Cordray and the CFPB director’s testimony is included in the release.
For more information about Cordray and the Financial Services Committee, subscribe to the Banking and Finance Law Daily.
Fintech: Friend or foe?
By John M. Pachkowski, J.D.
The Federal Reserve Bank of Atlanta has published an article as part of its online publication Economy Matters examining the issues surrounding the relationship between banks and fintech companies.
The article entitled “Fintech Companies: Banks' Allies or Rivals?,” which was written by Robert Canova, a senior policy analyst in the Atlanta Fed's Supervision and Regulation Division, noted that “tension is slowly creeping into the banking world as fintech firms increase their foothold in a more important part of the financial industry sector.” He added, “banks see competition from fintech firms as the biggest threat facing the banking industry.”
What is fintech? For purposes of the article, the definition of “fintech” has evolved from just those companies that developed software that was seen as “disruptive” to any company, either start-up or established, that develops software used in providing financial services. The activities that fall into the fintech spectrum include: crowdfunding, peer-to-peer lenders, and payments, as well as providing data collection, credit scoring, and cybersecurity.
Given the universe of fintech companies, Canova observed that it was easier to discuss fintech “in terms of whether it's an ally or rival to the banking industry.”
Allies. Fintech companies act as strategic allies to the banking industry in several ways with many banks having had long relationships with a few large firms that now fall into the fintech definition. In addition, some bank are using newer fintech companies as technology vendors and avoiding competition with larger banks or other fintech companies in adopting new technology. Finally some banks are entering into strategic partnerships.
Rivals. On the flip, many fintech companies are still perceived as rivals since they offer technology-based services that dramatically reduce overall friction and difficulty in the transactional process that are “highly desired by customers, especially younger ones.”
Greater scrutiny. Regardless of being considered an ally or rival, Canova noted that it is “only a matter of time” before fintech companies face greater scrutiny from regulators. For example, The Clearing House, a trade association of the 24 largest banks, noted that there was an overall lack of consumer regulations applicable to fintech firms that often leave their customers more vulnerable than a typical bank would.
For more information about fintech, subscribe to the Banking and Finance Law Daily.
The Federal Reserve Bank of Atlanta has published an article as part of its online publication Economy Matters examining the issues surrounding the relationship between banks and fintech companies.
The article entitled “Fintech Companies: Banks' Allies or Rivals?,” which was written by Robert Canova, a senior policy analyst in the Atlanta Fed's Supervision and Regulation Division, noted that “tension is slowly creeping into the banking world as fintech firms increase their foothold in a more important part of the financial industry sector.” He added, “banks see competition from fintech firms as the biggest threat facing the banking industry.”
What is fintech? For purposes of the article, the definition of “fintech” has evolved from just those companies that developed software that was seen as “disruptive” to any company, either start-up or established, that develops software used in providing financial services. The activities that fall into the fintech spectrum include: crowdfunding, peer-to-peer lenders, and payments, as well as providing data collection, credit scoring, and cybersecurity.
Given the universe of fintech companies, Canova observed that it was easier to discuss fintech “in terms of whether it's an ally or rival to the banking industry.”
Allies. Fintech companies act as strategic allies to the banking industry in several ways with many banks having had long relationships with a few large firms that now fall into the fintech definition. In addition, some bank are using newer fintech companies as technology vendors and avoiding competition with larger banks or other fintech companies in adopting new technology. Finally some banks are entering into strategic partnerships.
Rivals. On the flip, many fintech companies are still perceived as rivals since they offer technology-based services that dramatically reduce overall friction and difficulty in the transactional process that are “highly desired by customers, especially younger ones.”
Greater scrutiny. Regardless of being considered an ally or rival, Canova noted that it is “only a matter of time” before fintech companies face greater scrutiny from regulators. For example, The Clearing House, a trade association of the 24 largest banks, noted that there was an overall lack of consumer regulations applicable to fintech firms that often leave their customers more vulnerable than a typical bank would.
For more information about fintech, subscribe to the Banking and Finance Law Daily.
Thursday, March 17, 2016
CFPB argues state’s debt-collecting special counsel are covered by FDCPA
By Katalina M. Bianco, J.D.
Private attorneys acting as special counsel to Ohio’s Attorney General for general debt-collecting purposes are not state officers under the Fair Debt Collection Practices Act, according to the Consumer Financial Protection Bureau. In an amicus curiae brief filed with the Supreme Court in Sheriff v. Gillie, the CFPB argues that the attorneys actually are debt collectors who are subject to the FDCPA’s requirements.
Private attorneys acting as special counsel to Ohio’s Attorney General for general debt-collecting purposes are not state officers under the Fair Debt Collection Practices Act, according to the Consumer Financial Protection Bureau. In an amicus curiae brief filed with the Supreme Court in Sheriff v. Gillie, the CFPB argues that the attorneys actually are debt collectors who are subject to the FDCPA’s requirements.
The FDCPA applies only to debt collectors, and the act’s definition of “debt collector” includes an explicit exception for “any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties . . .” (15 U.S.C. §1692a(7)(C)). A federal district court judge decided that, as special attorneys general, the private attorneys were officers of the state who enjoyed the protection of that exception.
The U.S. Court of Appeals for the Sixth Circuit disagreed, relying on a combination of state law and the FDCPA to determine that the attorneys were not state officials. According to the panel majority, the attorneys did not meet the Dictionary Act definition of "officer," which was the definition to be used because the word was not defined by the FDCPA. Under Ohio law, the attorneys were independent contractors, and independent contractors cannot be officers. Finally, if applied to the private attorneys, the FDCPA would not violate principles of federalism because it would not be an attempt to regulate the state or challenge the structure of the state’s government. The act would apply only to debt collectors, who were third parties.
CFPB arguments. The bureau argues that the special counsel are not state officers because they do not hold any state office and do not exercise any part of the state’s sovereignty. Their authority is derived strictly from contracts with the state’s attorney general, and those contracts explicitly declare them to be independent contractors.
The purpose of the FDCPA is to control the practices of third-party debt collectors, the bureau notes. Exempting private attorneys who are acting to collect debts on behalf of a state government would undermine that purpose.
The CFPB adds that the appellate court was correct in saying that the application of the FDCPA to the private attorneys would not intrude on the state’s sovereignty. Ohio can use its own employees or officers to collect debts without being affected by the act. Only third parties acting for the state would be affected, and there was no Supreme Court precedent for the proposition that federal regulation of a state’s independent contractors intruded on the state’s sovereignty.
Letter head issues. The brief also supports the appellate court decision that the collection letters sent by the attorneys could have contained misrepresentations. The letters used the attorney general’s letterhead but were signed by the private attorneys as “Outside Counsel for the Attorney General’s Office” or as “Special Counsel to the Attorney General.” The consumers claimed that this created a false impression about who sent the letters.
The CFPB argues in its brief that whether the letters were false, deceptive, or misleading was to be judged according to the perspective of an unsophisticated consumer. According to the CFPB, a reasonable jury could decide that an unsophisticated consumer could be misled into believing that the attorneys were employees of the attorney general, so the suit should not be dismissed.
The case is No. 15-388.
For more information about CFPB amicus briefs, subscribe to the Banking and Finance Law Daily.
Tuesday, March 15, 2016
Reform National Flood Insurance Program before renewing it, AAF paper urges
By Thomas G. Wolfe, J.D.
In her research paper for the American Action Forum, author Meghan Milloy urges policymakers to make several major changes to the National Flood Insurance Program (NFIP). Noting that the NFIP is slated for renewal by Congress in 2017, Milloy exhorts policymakers to “avoid a blanket stamp of approval” and to make necessary improvements to the NFIP, which she characterizes as an “indebted and inefficient program.” In her March 9, 2016, paper, titled “The NFIP is Due for Some Major Reforms,” Milloy sketches the history of the NFIP, outlines the program’s current problems and challenges, and offers recommendations for its reform.
Milloy is the Director of Financial Services Policy at the American Action Forum.
In Milloy’s estimation, the NFIP’s biggest problems and challenges are threefold. First, there is a low rate of compliance with the NFIP. Only 53 percent of the nearly 1.5 million structures in designated Special Flood Hazard areas that are required to be covered under the NFIP are actually covered. Moreover, since there are fewer flood insurance policies in place than are required, there is less revenue for the program. According to Milloy, the NFIP “has been in debt to taxpayers for over 10 years.”
Second, in connection with insurance premiums for the program, Milloy discerns several flaws: (1) the premiums don’t reflect the risk; (2) there are artificially low caps on premium increases; (3) “full risk” premiums are too low; and (4) the premium rates “rely on inaccurate data.”
Third, given the structure of the NFIP and the exceptional strain on the program that resulted from Hurricane Katrina in 2005 and Superstorm Sandy in 2012, the potential losses generated from the NFIP “have created substantial exposure for the federal government and U.S. taxpayers.” Milloy cites a 2013 report issued by the Government Accountability Office in support of the gravity of the NFIP’s indebtedness.
Based on these findings, Milloy offers several options for reforming the NFIP:
In her research paper for the American Action Forum, author Meghan Milloy urges policymakers to make several major changes to the National Flood Insurance Program (NFIP). Noting that the NFIP is slated for renewal by Congress in 2017, Milloy exhorts policymakers to “avoid a blanket stamp of approval” and to make necessary improvements to the NFIP, which she characterizes as an “indebted and inefficient program.” In her March 9, 2016, paper, titled “The NFIP is Due for Some Major Reforms,” Milloy sketches the history of the NFIP, outlines the program’s current problems and challenges, and offers recommendations for its reform.
Milloy is the Director of Financial Services Policy at the American Action Forum.
In Milloy’s estimation, the NFIP’s biggest problems and challenges are threefold. First, there is a low rate of compliance with the NFIP. Only 53 percent of the nearly 1.5 million structures in designated Special Flood Hazard areas that are required to be covered under the NFIP are actually covered. Moreover, since there are fewer flood insurance policies in place than are required, there is less revenue for the program. According to Milloy, the NFIP “has been in debt to taxpayers for over 10 years.”
Second, in connection with insurance premiums for the program, Milloy discerns several flaws: (1) the premiums don’t reflect the risk; (2) there are artificially low caps on premium increases; (3) “full risk” premiums are too low; and (4) the premium rates “rely on inaccurate data.”
Third, given the structure of the NFIP and the exceptional strain on the program that resulted from Hurricane Katrina in 2005 and Superstorm Sandy in 2012, the potential losses generated from the NFIP “have created substantial exposure for the federal government and U.S. taxpayers.” Milloy cites a 2013 report issued by the Government Accountability Office in support of the gravity of the NFIP’s indebtedness.
Based on these findings, Milloy offers several options for reforming the NFIP:
- Employ stronger enforcement measures to increase the number of NFIP policyholders, not only to ensure compliance but also to increase the amount of revenue coming into the NFIP via additional premium payments.
- Charge policyholders premiums that better reflect the actual amount of risk of loss to their properties and implement the “grandfathering” of existing policies to minimize any “rate shock” to the program.
- Return the NFIP to a status of self-sufficiency by sharing the risk of loss with the private flood insurance market—thus allowing the federal government to focus on “flood risk mitigation” while letting the private market focus on underwriting flood insurance policies.
- Update the NFIP’s technology in general and create a central repository for flood elevation data in particular.
For more information about the implications of flood insurance for the financial services industry, subscribe to the Banking and Finance Law Daily.
Friday, March 11, 2016
Maloney: ‘Unmask’ anonymous shell corporations sheltering money laundering activities
By Katalina M. Bianco, J.D.
Representative Carolyn B. Maloney (D-NY) is promoting action on legislation that is intended to stop anonymous money laundering operations by requiring disclosure of shell corporation beneficial owners. Reps. Maloney and Peter King (R-NY) originally introduced the Incorporation Transparency and Law Enforcement Assistance Act (H.R. 4450) in the 113th Congress. Maloney was joined by various law enforcement officials, including Manhattan District Attorney Cyrus Vance and former Federal Bureau of Investigation Special Agent Konrad Motyka from the Society of Former Special Agents of the FBI.
“ISIS and other terrorists are remarkably sophisticated, and they are looking for any opportunity to exploit our legal and financial systems,” said Maloney. “We are aiding and abetting terrorists and criminals when we allow them to set up anonymous shell companies and funnel money into the United States.” The lawmaker added, “The level of ineptitude in dealing with this problem in Washington is shocking.”
Maloney said that her bill simply would require that to form a U.S. corporation, the true owners must be revealed. “I think the American people would be shocked to learn that isn’t the law already.”
Legislation. According to Maloney, the introduction of H.R. 4450 followed an investigation by Global Witness that exposed the common practice of using U.S.-based shell corporations to launder money linked to criminal enterprises. An investigation last year by The New York Times documented how streams of foreign wealth shielded by shell corporations are used to purchase more than half of all properties in New York City that cost more than $5 million.
The bill directs the Treasury Department to issue regulations requiring corporations and limited liability companies formed in a state that does not already require basic disclosure to file information about their beneficial ownership with Treasury as a backup. The measure also provides minimum disclosure requirements for states and civil penalties for those who submit fraudulent, incomplete, or outdated information when setting up a corporation.
For more information about recent efforts to reveal the beneficial owners of shell corporations, subscribe to the Banking and Finance Law Daily.
Representative Carolyn B. Maloney (D-NY) is promoting action on legislation that is intended to stop anonymous money laundering operations by requiring disclosure of shell corporation beneficial owners. Reps. Maloney and Peter King (R-NY) originally introduced the Incorporation Transparency and Law Enforcement Assistance Act (H.R. 4450) in the 113th Congress. Maloney was joined by various law enforcement officials, including Manhattan District Attorney Cyrus Vance and former Federal Bureau of Investigation Special Agent Konrad Motyka from the Society of Former Special Agents of the FBI.
“ISIS and other terrorists are remarkably sophisticated, and they are looking for any opportunity to exploit our legal and financial systems,” said Maloney. “We are aiding and abetting terrorists and criminals when we allow them to set up anonymous shell companies and funnel money into the United States.” The lawmaker added, “The level of ineptitude in dealing with this problem in Washington is shocking.”
Maloney said that her bill simply would require that to form a U.S. corporation, the true owners must be revealed. “I think the American people would be shocked to learn that isn’t the law already.”
Legislation. According to Maloney, the introduction of H.R. 4450 followed an investigation by Global Witness that exposed the common practice of using U.S.-based shell corporations to launder money linked to criminal enterprises. An investigation last year by The New York Times documented how streams of foreign wealth shielded by shell corporations are used to purchase more than half of all properties in New York City that cost more than $5 million.
The bill directs the Treasury Department to issue regulations requiring corporations and limited liability companies formed in a state that does not already require basic disclosure to file information about their beneficial ownership with Treasury as a backup. The measure also provides minimum disclosure requirements for states and civil penalties for those who submit fraudulent, incomplete, or outdated information when setting up a corporation.
For more information about recent efforts to reveal the beneficial owners of shell corporations, subscribe to the Banking and Finance Law Daily.
Thursday, March 10, 2016
Florida bank penalized for compliance deficiencies leaving Ponzi scheme undiscovered
By Andrew A. Turner, J.D.
Gibraltar Private Bank and Trust Company of Coral Gables, Fla., has been assessed with civil money penalties by the Financial Crimes Enforcement Network and the Office of the Comptroller of the Currency for willful anti-money laundering compliance violations that led to its failure to monitor and detect suspicious activity despite red flags. The penalties will be satisfied by payments of $1.5 million to the Treasury Department and $2.5 million for the penalty imposed by the OCC.
The OCC, Gibraltar’s primary regulator, had previously placed it under a consent order to address deficiencies in the bank’s compliance program and customer due diligence and reporting obligations. These deficiencies ultimately caused Gibraltar to fail to timely file at least 120 suspicious activity reports (SARs) involving nearly $558 million in transactions occurring during the period of 2009 to 2013, much of which related to a $1.2 billion Ponzi scheme perpetrated by Scott Rothstein.
“We may never know how that scheme might have been disrupted had Gibraltar more rigorously complied with its obligations under the law. This bank’s failure to implement and maintain an effective AML program exposed its customers, its banking peers, and our financial system to significant abuse,” said FinCEN Director Jennifer Shasky Calvery.
Transaction monitoring. FinCEN found that Gibraltar’s transaction monitoring system contained incomplete and inaccurate account opening information and customer risk profiles, which hindered its compliance staff from adequately spotting unusual account activity. Gibraltar also failed to sufficiently address an automated monitoring system that generated an unmanageable number of alerts, including large numbers of false positives, which caused significant delays in Gibraltar’s review.
The deficiencies of Gibraltar’s SAR reporting were also due in part to Gibraltar’s investigation process. In particular, Gibraltar allowed the Rothstein investigation to languish and did not file a suspicious activity report on Rothstein-related activities until after information regarding his activities appeared in the media.
Risk assessment. Gibraltar did not adequately risk rate its high net-worth private banking customers, like Scott Rothstein, FinCEN said. As a result, the bank applied insufficient scrutiny to his and related accounts, and missed significant red flags. In addition, Gibraltar did not have up-to-date, accurate, and verified information to enable it to conduct its annual risk assessment.
For more information about anti-money laundering compliance issues, subscribe to the Banking and Finance Law Daily.
Gibraltar Private Bank and Trust Company of Coral Gables, Fla., has been assessed with civil money penalties by the Financial Crimes Enforcement Network and the Office of the Comptroller of the Currency for willful anti-money laundering compliance violations that led to its failure to monitor and detect suspicious activity despite red flags. The penalties will be satisfied by payments of $1.5 million to the Treasury Department and $2.5 million for the penalty imposed by the OCC.
The OCC, Gibraltar’s primary regulator, had previously placed it under a consent order to address deficiencies in the bank’s compliance program and customer due diligence and reporting obligations. These deficiencies ultimately caused Gibraltar to fail to timely file at least 120 suspicious activity reports (SARs) involving nearly $558 million in transactions occurring during the period of 2009 to 2013, much of which related to a $1.2 billion Ponzi scheme perpetrated by Scott Rothstein.
“We may never know how that scheme might have been disrupted had Gibraltar more rigorously complied with its obligations under the law. This bank’s failure to implement and maintain an effective AML program exposed its customers, its banking peers, and our financial system to significant abuse,” said FinCEN Director Jennifer Shasky Calvery.
Transaction monitoring. FinCEN found that Gibraltar’s transaction monitoring system contained incomplete and inaccurate account opening information and customer risk profiles, which hindered its compliance staff from adequately spotting unusual account activity. Gibraltar also failed to sufficiently address an automated monitoring system that generated an unmanageable number of alerts, including large numbers of false positives, which caused significant delays in Gibraltar’s review.
The deficiencies of Gibraltar’s SAR reporting were also due in part to Gibraltar’s investigation process. In particular, Gibraltar allowed the Rothstein investigation to languish and did not file a suspicious activity report on Rothstein-related activities until after information regarding his activities appeared in the media.
Risk assessment. Gibraltar did not adequately risk rate its high net-worth private banking customers, like Scott Rothstein, FinCEN said. As a result, the bank applied insufficient scrutiny to his and related accounts, and missed significant red flags. In addition, Gibraltar did not have up-to-date, accurate, and verified information to enable it to conduct its annual risk assessment.
For more information about anti-money laundering compliance issues, subscribe to the Banking and Finance Law Daily.
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