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Top Story Compliance Related

07/23/2021

OFAC sanctions Cuban defense minister and special forces unit

Yesterday, OFAC sanctioned one Cuban individual and one Cuban entity, targeting the Cuban Minister of Defense, Alvaro Lopez Miera, and the Brigada Especial Nacional del Ministerio del Interior of the Cuban Ministry of the Interior in connection with the repression of peaceful, pro-democratic protests in Cuba that began on July 11.

For identification information, see BankersOnline's July 22, 2021, OFAC Update.

07/22/2021

Tandy Leather and former CEO settle SEC charges

The Securities and Exchange Commission has announced that Fort Worth, Texas, specialty retailer Tandy Leather Factory Inc. and its former chief executive officer, Shannon Greene, have agreed to settle charges for accounting, reporting, and control failures that led to a multi-year restatement of the company’s financial statements.

According to the order filed by the SEC, Tandy’s inventory tracking system was incapable of supporting its disclosed inventory accounting methodology because it did not properly maintain historical cost information for its inventory. Data from this system populated Tandy’s financial statements with inaccurate financial information, which in turn impacted the company’s calculations for, among other things, inventory, net income, and gross profit for years. Greene and others at the company were aware of the inventory tracking system’s limitations, but did not adequately remedy them, and failed to design and maintain proper accounting controls to reasonably ensure that Tandy’s transactions were recorded in accordance with generally accepted accounting principles. Tandy also failed to properly design, maintain, and evaluate its disclosure controls and procedures (DCP) and internal control over financial reporting (ICFR), and Greene failed to properly assess and evaluate the effectiveness of the same. As a result, Greene inaccurately certified that Tandy’s DCP and ICFR were properly designed and effective. On June 22, 2021, Tandy issued restated financial statements for fiscal years 2017 and 2018, each quarter in fiscal year 2018, and the first quarter of fiscal year 2019.

Without admitting or denying the order’s findings, Tandy and Greene each consented to cease and desist from further committing or causing these violations and pay civil money penalties of $200,000 and $25,000, respectively. In accepting Tandy’s settlement offer, the SEC took into account remedial actions the company took promptly after learning of the issues detailed in the SEC’s order.

07/22/2021

FTC amends rules of practice

The Federal Trade Commission has published a final rule [86 FR 38542] amending its rules of practice in 16 CFR parts 0 and 1. The revised rules, effective today, modernize procedures for rulemakings to define unfair or deceptive acts or practices under the FTC Act to provide for more efficient conduct of rulemaking proceedings. The Commission is also revising these rules to better reflect the agency's organizational structure and authority.

The Commission is also making conforming edits to make the rule language more gender-neutral; use active voice instead of passive voice; replace ambiguous uses of “shall” with “may”, “will”, or “must” as appropriate; make nonsubstantive grammatical changes; and add and standardize citations to the U.S. Code where appropriate.

07/21/2021

Agencies to act jointly on CRA rules modernization

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency on Tuesday issued an interagency statement on Community Reinvestment Act (CRA) Joint Agency Action. The agencies said they are "committed to working together to jointly strengthen and modernize regulations implementing" the CRA. "Joint agency action will best achieve a consistent, modernized framework across all banks to help meet the credit needs of the communities in which they do business, including low- and moderate-income neighborhoods."

The OCC announced it will propose rescinding the Community Reinvestment Act (CRA) rule issued in May 2020 and is committed to working with the Federal Reserve Board and the FDIC to put forward a joint rulemaking that strengthens and modernizes the CRA. The decision to propose rescinding the 2020 rule follows the completion of a review initiated by Acting Comptroller of the Currency Michael Hsu shortly after he took office.

07/21/2021

OFAC issues Venezuela-related license

OFAC has issued a Venezuela-related General License and updated a related FAQ. See the July 20, 2021, BankersOnline OFAC Update for details.

07/20/2021

SEC orders $8.1M returned to investors

The Securities and Exchange Commission yesterday filed a settled action against UBS Financial Services Inc. for compliance failures relating to sales of a volatility linked exchange-traded product (ETP). The Order filed by the SEC indicates the ETP at issue is designed to track short-term volatility expectations in the market as measured against derivatives of a volatility index. According to the order, the issuer of the product warned UBS that it was not appropriate to hold the product for extended periods, and the product’s offering documents made clear that the product was more likely to decline in value when held over a longer period.

The SEC order finds that UBS:

  • prohibited brokerage representatives from soliciting sales of the product and placed other restrictions on sales of the product to brokerage customers, but did not place similar restrictions on certain financial advisers’ use of the product in discretionary managed client accounts
  • adopted a concentration limit on volatility-linked ETPs, but failed to implement a system for monitoring and enforcing that limit for five years
  • prohibited the financial advisers from making additional recommendations of this ETP prior to being contacted by the Commission staff

The order also finds that between January 2016 and January 2018, certain financial advisers:

  • had a flawed understanding of the appropriate use of the volatility-linked ETP
  • failed to take sufficient steps to understand risks associated with holding the product for extended periods
  • purchased and held the product in client accounts for lengthy periods, including hundreds of accounts that held the product for over a year, resulting in meaningful losses

Without admitting or denying the SEC’s findings, UBS agreed to cease and desist from violations of Rule 206(4)-7 of the Investment Advisers Act of 1940, a censure, and disgorgement and prejudgment interest of $112,274 and a civil penalty of $8 million, which will be distributed to investors harmed by the conduct at issue.

07/20/2021

Proposed guidance published

The OCC, FDIC, and Federal Reserve have published [86 FR 38182] their proposed Interagency Guidance on Third-Part Relationships Risk Management, which was announced last week. Comments on the proposal are due by September 17, 2021.

07/20/2021

Large bank resolution plans released

The Federal Reserve Board and FDIC have released the public sections of eight large domestic firms' resolution plans, which are required by the Dodd-Frank Act and commonly known as living wills. Resolution plans describe the company's strategy for rapid and orderly resolution under the Bankruptcy Code in the event of material financial distress or failure. Eight firms were required to submit targeted resolution plans by July 1: Bank of America Corporation; The Bank of New York Mellon Corporation; Citigroup Inc.; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; State Street Corporation; and Wells Fargo & Company.

The public sections of the resolution plans are available on the FDIC's and the Federal Reserve's websites.

07/19/2021

Advisory highlights growing Hong Kong risks

On Friday, the U.S. Departments of State, Commerce, Homeland Security and the Treasury issued an advisory to highlight growing risks associated with actions undertaken by the Government of the People’s Republic of China and the Government of the Hong Kong Special Administrative Region (SAR) that could adversely impact U.S. companies that operate in the Hong Kong SAR of the People’s Republic of China.

Businesses, individuals, and other persons, including academic institutions, research service providers, and investors that operate in Hong Kong, or have exposure to sanctioned individuals or entities, should be aware of changes to Hong Kong’s laws and regulations. This new legal landscape, including the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region, could adversely affect businesses and individuals operating in Hong Kong. As a result of these changes, they should be aware of potential reputational, regulatory, financial, and, in certain instances, legal risks associated with their Hong Kong operations.

These risks fall into four categories: risks for businesses following the imposition of the NSL; data privacy risks; risks regarding transparency and access to critical business information; and risks for businesses with exposure to sanctioned Hong Kong or PRC entities or individuals.

OFAC also designated seven individuals under its Hong Kong Executive Order 13936 sanctions. The July 16, 2021, BankersOnline OFAC Update has identification details.

07/19/2021

Robocalling septic tank cleaner company down the drain

The Federal Trade Commission has announced that the owners of a New Jersey-based company that sells septic tank cleaning products agreed to a permanent ban on telemarketing and will pay more than $1.6 million to settle Federal Trade Commission charges that the company and its telemarketer made illegal robocalls to consumers, including tens of millions of calls to numbers listed on the agency’s Do Not Call Registry. In addition, the defendants will turn over a residential property as part of the settlement.

The FTC's complaint indicted Environmental Safety International, Inc. or ESI; ESI officers brothers Joseph Carney and Sean Carney; and their brother Raymond Carney, who acted together to initiate more than 45 million illegal telemarketing calls to consumers nationwide between January 2018 and March 2019 to promote ESI’s “Activator 1000” line of septic tank cleaning products. The FTC alleges that 31 million of those calls were made to numbers on the DNC Registry. The Department of Justice filed the complaint and proposed orders on the FTC’s behalf.

The complaint also alleges that ESI sent letters to consumers who agreed to buy their products but had unpaid invoices, falsely claiming that they would be referred to a “national collection agency” or to an attorney. However, ESI never took either of these actions.

In addition to the bans on telemarketing, the settlement orders impose $10.2 million civil penalty judgments against all defendants, which will be partially suspended after Joseph and Sean Carney pay $1,646,210 to the U.S. Treasury, and Raymond Carney pays $15,000.

In addition, Joseph and Sean Carney are prohibited from making material misrepresentations to consumers, including that they would be referred to an attorney or collection agency. They are prohibited from billing or attempting to collect payments from any consumers in connection with the sale of their septic tank cleaning products, and are required to notify all ESI customers with unpaid balances that they no longer have to pay ESI because their balances have been cancelled. Joseph and Sean Carney must also apply for ESI’s dissolution within 30 days.

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