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Top Story Compliance Related

02/16/2024

OCC enforcement actions for February 2024

The OCC has released its February 2024 list of enforcement actions taken against national banks and federal savings associations and related individuals.

  • The previously announced cease and desist order, order for civil money penalty, and Gramm-Leach-Bliley agreement issued to City National Bank, Los Angeles, California.
  • A cease and desist order against Blue Ridge Bank, N.A., Martinsville, Virginia, for unsafe or unsound practices, including those related to BSA/AML, capital ratios, capital and strategic planning, liquidity risk management, and information technology controls. The deficiencies in the BSA/AML compliance program resulted in violations of law, rule, or regulation, and the bank also failed to correct previously reported BSA problems.
  • A formal agreement with The First National Bank of St. Ignace, St. Ignace, Michigan, for unsafe or unsound practices, including those related to capital planning, capital stress testing, and strategic planning, and a violation of law, rule, or regulation related to payment of dividends.
  • An order of prohibition and for payment of a $50,000 civil money penalty against Stephen Adams, former senior vice president and managing director of residential lending, Sterling Bank and Trust, FSB, Southfield Michigan, for his role in failing to appropriately supervise, investigate, and discipline employees originating residential mortgage loans.
  • Orders of prohibition issued to—
    • Cole R. Mann, former branch manager, PNC Bank, National Association, Wilmington, Delaware, for stealing, embezzling, or otherwise misappropriating funds from the bank and a bank customer
    • Chimere Shanta Mitchell, former fraud and claims operations specialist at Wells Fargo Bank, N.A., Sioux Falls, South Dakota, for misappropriating confidential information of bank customers, including more than 20 elderly customers, and selling the information to a third party, resulting in fraudulent transactions
    • Aaron Parsons, relationship banker and Webster Bank N.A., Stamford, Connecticut, for unauthorized withdrawals from accounts of bank customers, four of whom are elderly, and depositing the funds in his own bank account
    • Nyema'sha Taylor, former teller at Wells Fargo Bank, N.A., Sioux Falls, South Dakota, for knowingly processing unauthorized cash withdrawals from a customer’s account
    • Francis Andujar Velazquez, former senior customer service representative, Santander Bank, Wilmington, Delaware, for misappropriating funds from customers’ accounts by making purchases using confidential bank customer information and selling confidential information of bank customers to a third party and facilitating fraudulent transactions
    • Mirsha Yamili Wilson, former associate Banker, JPMorgan Chase Bank, N.A., Columbus, Ohio, for taking cash used to supply a bank branch’s ATMs and concealing the shortage
  • Personal cease and desist orders against—
    • Colleen Kimmel, former general counsel, Sterling Bank and Trust, FSB, Southfield, Michigan, for her role in not ensuring the bank conducted or suggesting to the Board that the bank conduct an investigation into concerns related to a residential mortgage loan product, not ensuring the bank’s BSA program had an adequate system of internal controls, and not timely reporting suspicious activity related to certain residential mortgage loans
    • Jonathan Kolk, former residential underwriting manager, Sterling Bank and Trust, FSB, Southfield, Michigan, for capitulating to pressure to quickly underwrite certain residential mortgage loans and his role in underwriting, and supervising the underwriting of, loans that had false or fraudulent loan applications

02/16/2024

OFAC amends North Korea Sanctions Regulations

The Treasury Department's Office of Foreign Assets Control has published [89 FR 12233] in today's Federal Register a final rule amending its North Korea Sanctions Regulations [31 C.F.R. 510] to modify a general license that authorizes certain transactions in support of specified humanitarian activities of nongovernmental organizations. Additionally, OFAC is adding general licenses to authorize the following: transactions related to the exportation and reexportation of items authorized by the U.S. Department of Commerce; the provision of certain agricultural commodities, medicine, and medical devices; and certain journalistic activities in North Korea.

The rule is effective today. OFAC also issued several new North Korea-related FAQs and amended three FAQs.

02/15/2024

Merchant cash advance operator to pay $20.3M

The Federal Trade Commission has announced a federal court has entered a judgment requiring merchant cash advance operator Jonathan Braun to pay $20.3 million in monetary relief and civil penalties. This is the first trial by jury that the FTC has ever conducted.

The judgment follows a January trial in which a jury found that Braun, in his role with small-business funding company RCG Advances, which formerly did business as Richmond Capital Group, knowingly violated the Gramm-Leach-Bliley Act by deceiving small businesses about the amount of funding that Defendants would provide to and collect from them. The court entered a judgment of $3,421,067 to redress the harm that Braun’s misconduct caused to small businesses. In addition, noting the utter disregard and contempt that Braun showed to consumers, including spewing vile threats and profanities to small business owners, the court imposed $16,956,000 in civil penalties for Braun’s violations of law.

The FTC sued Braun in June 2020, along with four other defendants, charging that he deceived small businesses and other organizations by misrepresenting the terms of merchant cash advances his business provided, and then used unfair collection practices, including sometimes threatening physical violence, to compel consumers to pay.

02/15/2024

Treasury fact sheet on recent actions

Yesterday, the Treasury Department issued a Fact Sheet on recent actions taken to enhance financial transparency and combat illicit finance. These initiatives include major steps towards implementing the Anti-Money Laundering Act, including the Corporate Transparency Act, and supporting the Administration’s Strategy to Counter Corruption. Major initiatives include:

  • Increasing corporate transparency through beneficial ownership reporting as FinCEN implements the Corporate Transparency Act
  • Strengthening transparency in the residential real estate market with its February 2024 Notice of Proposed Rulemaking to require certain professionals involved in real estate closings and settlements to report information to FinCEN about non-financed transfers of residential real estate to legal entities or trusts.
  • Protecting the investment adviser sector from abuse with its recent Notice of Proposed Rulemaking to require certain investment advisers to apply AML/CFT requirements pursuant to the Bank Secrecy Act, including implementing risk-based AML/CFT programs, reporting suspicious activity to FinCEN, and fulfilling relevant recordkeeping requirements. Related to this effort, Treasury also published a detailed risk assessment of the investment adviser sector that identified several illicit finance and national security risks.
  • Publication of the 2024 National Risk Assessments on Money Laundering, Terrorist Financing, and Proliferation Financing.

02/15/2024

OCC workshops for directors and senior managers

The OCC reports it has opened registration for its 2024 schedule of in-person workshops for board directors and senior management of national community banks and federal savings associations.

The OCC examiner-led workshops provide practical training and guidance to directors and senior management of national community banks and federal savings associations to support the safe and sound operation of community-based financial institutions.

The OCC offers five daylong workshops:

  • Building Blocks: Developing Strong Management
  • Risk Governance: Improving Effectiveness
  • Compliance Risk: Understanding the Rules
  • Credit Risk: Recognizing and Responding to Risk
  • Operational Risk: Navigating Rapid Changes

The OCC is also offering a half-day workshop, Capital Markets: Keeping Current. This workshop covers balance sheet management risks, as well as hot topics and risk themes for bankers and regulators in the capital markets area.

Workshops are limited to 35 participants. Attendees will receive course materials, supervisory publications, and lunch.

Schedules, locations, cost and fee waiver information, and online registration are available on the OCC's website.

02/15/2024

OFAC sanctions network smuggling U.S. tech to Central Bank of Iran

The U.S. Department of the Treasury yesterday announced that OFAC has a procurement network responsible for facilitating the illegal export of goods and technology from over two dozen U.S. companies to end-users in Iran, including the Central Bank of Iran (CBI), which is designated for its role in providing financial support to the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and Hizballah. These designations target three individuals and four entities tied to the procurement of sophisticated U.S. technology for use by CBI in violation of U.S. export restrictions and sanctions.

Among the goods and technology acquired by CBI were items classified as information security items subject to national security and anti-terrorism controls by the U.S. Department of Commerce’s Bureau of Industry and Security.

For the names and identification information of the designated entities and individuals, see BankersOnline's February 14, 2024, OFAC Update.

02/14/2024

FinCEN sees increase in reports of use of CVC for child exploitation and human trafficking

Yesterday, FinCEN issued a Financial Trend Analysis (FTA) reflecting an increase in Bank Secrecy Act (BSA) reporting associated with the use of convertible virtual currency (CVC) and online child sexual exploitation (OCSE) and human trafficking. This FTA is based on BSA reporting filed between January 2020 and December 2021.

The analysis detailed in this FTA furthers Treasury efforts to combat human trafficking as well as the illicit uses of CVC. For example, Brian Nelson, Treasury’s Under Secretary for Terrorism and Financial Intelligence, announced at the President’s Interagency Task Force to Monitor and Combat Trafficking that FinCEN has joined the Canadian financial intelligence unit’s Project Protect—a flagship public-private partnership on human trafficking. In addition, in June 2021, FinCEN identified human trafficking and cybercrime as among the “Anti-Money Laundering and Countering the Financing of Terrorism National Priorities” issued pursuant to the Anti-Money Laundering Act of 2020.

More recently, in October 2023, FinCEN issued a finding pursuant to Section 311 of the USA PATRIOT Act that CVC mixing is a class of transactions of primary money laundering concern and proposed reporting requirements to increase transparency in connection with CVC mixing.

FinCEN’s analysis highlights the value of BSA reporting filed by regulated financial institutions.

02/14/2024

Virginia bank pays $9,600 flood insurance penalty

The Federal Reserve Board has reported it has issued a consent order for the payment of a civil money penalty of $9,600 to Select Bank, Forest, Virginia, for a pattern or practice of unspecified flood insurance violations.

02/14/2024

FinCEN proposes AML/CFT requirements for some investment advisors

FinCEN has issued a Notice of Proposed Rulemaking to be published in the February 15, 2024, Federal Register that would require certain investment advisers to apply Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) requirements pursuant to the Bank Secrecy Act (BSA), including implementing risk-based AML/CFT programs, reporting suspicious activity to FinCEN, and fulfilling recordkeeping requirements.

The proposed rule would add investment advisers to the list of businesses classified as “financial institutions” under the BSA. Investment advisers registered with the Securities and Exchange Commission (SEC), as well as those that report to the SEC as exempt reporting advisers, would be required to implement AML/CFT programs. They would also be required to file suspicious activity reports, fulfill certain recordkeeping requirements, and fulfill other obligations applicable to financial institutions subject to the BSA and FinCEN’s implementing regulations.

The proposed rule would also apply information-sharing provisions between and among FinCEN, law enforcement government agencies, and certain financial institutions, along with special measures that have been applied under Section 311 of the USA PATRIOT Act. Finally, FinCEN is proposing to delegate examination authority for this rule to the SEC given the SEC’s expertise in the regulation of investment advisers and experience in examining other financial institutions with respect to AML/CFT responsibilities.

Treasury today also published its risk assessment of this sector, which identifies illicit finance threats and vulnerabilities in the sector, including how the uneven application of AML/CFT requirements across the sector allows both legitimate and illicit investors to “shop around” for an adviser who does not need to inquire into their source of wealth.

Comments on the proposal are due by April 15, 2025.

02/13/2024

FFIEC statement on exam principles related to valuation bias

The Federal Financial Institutions Examination Council has issued, on behalf of its members—the Federal Reserve Board, FDIC, OCC, CFPB, NCUA, and the State Liaison Committee—a Statement on Examination Principles Related to Valuation Discrimination and Bias in Residential Lending. The statement's purpose is to (i) mitigate risks that may arise due to potential discrimination or bias in those practices, and (ii) promote credible valuations.

Because real estate valuations are a critical underwriting component in residential real estate lending, both from a consumer compliance and safety and soundness perspective, examiners assess institutions’ compliance management systems and risk management practices for identifying and mitigating potential discrimination or bias in residential property valuation practices.

Institutions rely on real estate valuations when assessing the level of collateral support in residential credit decisions. Deficiencies in real estate valuations, including those due to valuation discrimination or bias, can lead to increased safety and soundness risks, as well as consumer harm and have an adverse impact on borrowers and their communities. Examples of such harm are consumers being denied access to credit for which they may be otherwise qualified, offered credit at less favorable terms, or steered to a narrower class of loan products.

For an institution, the failure of internal controls to identify, monitor, and control valuation discrimination or bias could negatively affect credit decisions, potentially exposing an institution to legal and compliance risks or affecting an institution’s financial condition and operations. Furthermore, material findings and concerns related to noncompliance with laws and regulations generally negatively affect the supervisory assessment of an institution’s management in a safety and soundness examination.

To promote compliance with statutory and regulatory requirements, institutions may establish a formal valuation review program. Effective review programs can enable institutions to identify noncompliance with appraisal regulations or USPAP, inaccuracies, or poorly supported valuations. These review programs can also provide the opportunity for institutions to address deficiencies due to potential valuation discrimination or bias before making a credit decision. The Interagency Appraisal and Evaluation Guidelines [see 75 FR 77450, December 10, 2010] provide additional information on the valuation review process and identify elements of an effective real estate valuation program.

The statement of principles should not be interpreted as new guidance to supervised institutions nor an increased focus on supervised institutions’ appraisal practices. Instead, the statement of principles offers transparency into the examination process and supports risk-focused examination work.

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