Top Story Compliance Related

FinCEN has released additional guidance on its 2016 rule on Customer Due Diligence Requirements for Financial Institutions and Beneficial Ownership Requirements for Legal Entity Customers, which carry a required compliance date of May 11, 2018. The 24-page Guidance FIN-2018-G001 comprises 37 new questions and FinCEN's answers to each, along with an opening caveat that a "covered financial institution with notice of or a reasonable suspicion that a customer is evading or attempting to evade beneficial ownership or other customer due diligence requirements should consider whether it should not open an account, close an account, or file a suspicious activity report, regardless of any interpretations below." The FAQ is a supplement to the July 2016 FAQ from the agency, and addresses several industry questions that may have been raised by the earlier document.

BOL Gurus Mary Beth Guard and Brian Crow will present a two-hour webinar, Last-Minute Training Tips for BO and CDD, on Friday, April 27, 2018. They will cover all the subtle nuances of the Beneficial Ownership Requirements and this most recent FinCEN Guidance, including what happens when a certificate of deposit automatically renews, what you need to do with loan renewals, close-in-time new accounts, risk-related triggers and re-certification of beneficial ownership. Register Now!

The CFPB has released its semi-annual report to Congress highlighting the Bureau’s work. This is the first report issued by Acting Director Mick Mulvaney and it includes his four recommendations for statutory changes to the Bureau:

• Make the CFPB's funding subject to congressional appropriations
• Require congressional approval of major Bureau rules
• Ensure that the Director of the Bureau answers to the president in exercise of executive authority
• Create an independent Inspector General for the agency

The Securities and Exchange Commission has announced it has filed a complaint charging two co-founders of a purported financial services start-up with orchestrating a fraudulent initial coin offering (ICO) that raised more than $32 million from thousands of investors last year. Criminal authorities separately charged and arrested both defendants. The complaint alleges that Sohrab “Sam” Sharma and Robert Farkas, co-founders of Centra Tech. Inc., masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a "CTR Token." Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products. They claimed, for example, to offer a debit card backed by Visa and Mastercard that would allow users to instantly convert hard-to-spend cryptocurrencies into U.S. dollars or other legal tender. In reality, the SEC alleges, Centra had no relationships with Visa or Mastercard.

The Federal Reserve Board has announced it has issued Section 19 letters to seven individuals since January 1. The parties who received the letters are prohibited from becoming or continuing as an institution-affiliated party with respect to any banking organizations or credit unions, by reason of having been convicted of any criminal offense involving dishonesty or a breach of trust or money laundering, or having agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such offense. They may not, among other things, act as an employee, officer, director, or agent of a banking organizations or credit unions. Nor may they otherwise participate, directly or indirectly, in the conduct of the affairs of any of these organizations. They are also prohibited from directly or indirectly owning or controlling any insured depository institution or holding company. They are not prohibited from being an arms-length customer of a banking organization or credit union, such as having a loan, checking or savings account.

"Section 19" is a reference to section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829). When the Federal Reserve Board sends "Section 19 letters," it sends a notice to individuals that they are prohibited from participating as an institution-affiliated party. When the FDIC refers to a Section 19 order, it means an order in response to an application for a waiver of section 19 prohibitions, which can be obtained after passage of time when there is evidence of rehabilitation and a finding that the applicant's participation as an institution-affiliated party would not pose a threat to the safety or soundness of an insured depository institution or the interests of its depositors, nor would it threaten to impair public confidence in such an institution.

The Treasury Department announced Monday that OFAC and the State Department have targeted Pakistan-based terrorst group Lashkar e-Tayyiba (LeT) and its political party, the Milli Muslim League (MML) by designating MML and seven of its officials as Specially Designated Global Terrorists. The State Department amended the designation of LeT (designated in 2001) to add the alias MML, as well as another alias, Tehreek e-Azadi-e-Kashmir (TaK).

As a result of Monday’s designations, all property and interests in property of these persons subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. Treasury's announcement said "Those working with the Milli Muslim League, including providing financial donations, should think twice about doing so or risk exposure to U.S. sanctions.”

Identifying information on the seven individuals designated on Monday and the changes to the Lashkar e-Tayyiba listing can be found in our April 2 and April 3 OFAC Updates.

The CFPB has adopted its first official seal. An article with a graphic of the seal and an explanation of its symbolism has been posted on the CFPB Blog.

The FDIC has released a list of orders of administrative enforcement actions taken in February 2018 against banks and individuals. The administrative enforcement actions in those orders consisted of one consent order; four Section 19 orders; seven removal and prohibition orders; one civil money penalty; two terminations of consent orders; one termination of insurance; and one order of restitution. Additionally, the FDIC made public a termination of consent order and a termination of insurance issued in December 2017, and a Section 19 order issued in January 2018.

The order for a civil money penalty, which also included an order for removal and prohibition, was issued to a former North Carolina bank vice president whose lending to a nominee borrower resulted in a loss of over $105,000 to his bank.

The Federal Reserve Board has submitted to Congress its annual report outlining the Office of Minority and Women Inclusion’s activities, successes, and challenges.

A U.S. District Court judge has invalidated a provision of the National Credit Union Administration's Field of Membership rule added in 2016 that allowed community credit unions to serve large regions covering multiple metro areas with huge populations. Overturned in a memorandum opinion from Judge Dabney Friedrich of the U.S. District Court for the District of Columbia were the expanded definitions found in the NCUA's December 7, 2016 [81 FR 88412] rule for the terms "local community" and "rural district." The Court ruled that the NCUA violated the Administrative Procedure Act in expanding the scope of the two definitions by "exceeding the agency's statutory authority."

The Federal Emergency Management Agency has published a rule in today's Federal Register identifying communities in California, Colorado and Iowa that have been scheduled for suspension from the National Flood Insurance Program on April 4, 2018, for noncompliance with the floodplain management requirements of the program. Communities to be suspended include:

• CA: City of Thousand Oaks, Ventura County; unincorporated areas of Ventura County; City of Westlake Village, Los Angeles and Ventura Counties.
• CO: Cities of Brush and Fort Morgan, Morgan County; unincorporated areas of Morgan County.
• IA: City of Corwith, Hancock County; Forest City, Hancock and Winnebago Counties; City of Garner, Hancock County; City of Woden, Hancock County; unincorporated areas of Hancock County.