Top Story Compliance Related

OFAC has announced a $7,772,102 settlement with Zoltek Companies, Inc. and its world-wide subsidiaries. Zoltek, a holding company headquartered in Bridgeton, Missouri, and the owner of Zoltek Corporation located in the United States, and Zoltek Vegyipari ZRT located in Hungary, has agreed to settle its potential civil liability for 26 apparent violations of the Belarus Sanctions Regulations. The apparent violations involve Zoltek U.S. approving 26 purchases of acrylonitrile, a chemical used in the production of carbon fiber, between Zoltek ZRT and J.S.C. Naftan, a Belarusian entity designated by OFAC.

OFAC has announced the designation of a former officer of Russia’s Main Intelligence Directorate (GRU) for having acted on behalf of sanctioned oligarch Oleg Deripaska. OFAC also issued new designations related to the Internet Research Agency (IRA), an entity previously sanctioned for its efforts to interfere in U.S. elections. The action also includes the designation of 15 members of the GRU, a previously designated Russian military intelligence organization, for their involvement in a wide range of malign activity, including attempting to interfere in the 2016 U.S. election, efforts to undermine international organizations through cyber-enabled means, and an assassination in the United Kingdom. Identification information can be found in our OFAC Update.

The FDIC, FRB, OCC, SEC, and the U.S. Commodity Futures Trading Commission have issued a notice of proposed rulemaking to amend regulations implementing Section 13 of the Bank Holding Company Act (the Volcker Rule) in a manner consistent with the statutory amendments made pursuant to Sections 203 and 204 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). These statutory amendments modified the Volcker Rule to exclude certain community banks from the Volcker Rule and to permit banking entities subject to the Volcker Rule to share a name with a hedge fund or private equity fund that it organizes and offers under certain circumstances. The FDIC issued FIL-86-2018 regarding the proposal.

HUD has announced Tamaron Association, an association representing residents of a 55-and-older condominium development in Waldwick, New Jersey, will pay $9,000 under an Initial Decision and Consent Order resolving allegations that the association refused to sell a condo to a man with disabilities and his wife because the couple planned to have their adult, disabled daughter live with them.

The SEC has announced that Bank of New York Mellon will pay more than $54 million to settle charges of improper handling of “pre-released” American Depositary Receipts (ADRs). ADRs, which are U.S. securities that represent foreign shares of a foreign company, require a corresponding number of foreign shares to be held in custody at a depositary bank. The practice of “pre-release” allows ADRs to be issued without the deposit of foreign shares, provided brokers receiving them have an agreement with a depositary bank and the broker or its customer owns the number of foreign shares that corresponds to the number of shares the ADR represents.

An Order issued by the SEC found that BNY Mellon improperly provided ADRs to brokers in thousands of pre-release transactions when neither the broker nor its customers had the foreign shares needed to support those new ADRs. Such practices resulted in inflating the total number of a foreign issuer’s tradeable securities, which resulted in abusive practices like inappropriate short selling and dividend arbitrage that should not have been occurring.

The Financial Crimes Enforcement Network (FinCEN) announced Monday that it has assessed a $14.5 million civil money penalty on UBS Financial Services, Inc., of which $5 million will be paid to the U.S. Treasury, and the balance will be concurrent with $9.5 million of the $10 million in penalties imposed for similar or related conduct by the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

FinCEN said UBSFS failed to develop and implement an appropriate, risk-based anti-money laundering program that adequately addressed the risks associated with accounts that included both traditional brokerage and banking-like services. UBSFS failed to implement appropriate policies and procedures to ensure the detection and reporting of suspicious activity through all accounts—particularly for those accounts that exhibited little to no securities trading. The firm did not adequately structure its AML program to address the use of securities accounts for the purpose of moving funds rather than trading securities.

FinCEN also said that, over several years, UBSFS processed through certain of its brokerage accounts hundreds of transactions that exhibited red flags associated with shell company activity. UBSFS failed to adequately monitor foreign currency-denominated wire transfers—amounting to tens of billions of dollars—that were conducted through its commodities accounts and retail brokerage accounts. UBSFS’s AML monitoring system failed to capture critical information about these foreign currency-denominated wires, including sender and recipient information and the country of origin and destination. As a result, it was unable to identify and investigate potentially suspicious transactions based on the presence of important risk factors, such as jurisdiction and the involvement of politically exposed persons.

For additional information, see our Penalty Page entry.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have published [83 FR 64660] a proposal that would implement a new approach for calculating the exposure amount of derivative contracts under the agencies' regulatory capital rule. The proposed approach, called the standardized approach for counterparty credit risk (SA-CCR), would replace the current exposure methodology (CEM) as an additional methodology for calculating advanced approaches total risk-weighted assets under the capital rule. Comments are due by February 15, 2019.

The Federal Trade Commission has announced that a federal judge in Florida has issued an order and permanent injunction banning Kevin W. Guice from the telemarketing and debt-relief industries, agreeing with the Commission and the State of Florida that he founded and operated a massive debt-relief scam that took in over $23 million from more than 10,000 consumers, until halted by a June 2016 temporary restraining order.

The order and permanent injunction resolve the FTC’s and the State of Florida’s charges against Guice under the Federal Trade Commission Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The order contains both injunctive and monetary relief, permanently barring Guice from all telemarketing, either directly or through an intermediary. The order imposes a non-suspended judgment of $23,099,878 against Guice, payable to the Commission, for restitution to the consumers he defrauded. In addition to cash, Guice will surrender his 55-foot ocean yacht (the “Tuff Life II”), a luxury-watch collection, and other personal property to a court-appointed receiver.

Treasury has announced that OFAC has imposed sanctions on three individuals pursuant to Executive Order (E.O) 13664: Israel Ziv and Obac William Olawo, for being leaders of entities whose actions have the purpose or effect of expanding or extending the conflict in South Sudan, and Gregory Vasili, for actions that have undermined peace, stability, and security in South Sudan. Additionally, OFAC designated six entities for being owned or controlled by Ziv and Olawo.

Any property or interests in property of those designated by OFAC that is within or transiting U.S. jurisdiction or the possession or control of a U.S. person must be blocked and reported to OFAC. OFAC’s regulations generally prohibit all transactions by U.S. persons or within or transiting the United States that involve any property or interests in property of a designated person. Such property includes all property of entities 50 percent or more owned by one or more designated persons. For identifying information on the designated individuals and entities, see our OFAC Update.

The NCUA Board held an open meeting at the agency’s headquarters on December 13, 2018, and unanimously approved three items:

• Lowering the normal operating level of the National Credit Union Share Insurance Fund to 1.38 percent from 1.39 percent.
• Posting the final report of the agency’s Regulatory Reform Task Force in the Federal Register, following a briefing by the Office of the General Counsel.
• A final rule making technical amendments to agency regulations to correct minor drafting errors and rescind certain unnecessary provisions.