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08/04/2020

FinCEN adds FAQs on CDD requirements

FinCEN has issued Guidance FIN-2020-G002 in the form of three new FAQs regarding customer due diligence requirements for covered financial institutions. The three FAQs clarify the regulatory requirements related to—

  • obtaining customer information;
  • establishing a customer risk profile; and
  • performing ongoing monitoring of the customer relationship in order to assist covered financial institutions with their compliance obligations in these areas.

The new FAQs, developed in consultation with federal financial regulators, are in addition to those that were published on July 19, 2016, and April 3, 2018.

08/04/2020

FTC sues merchant cash advance lender for UDAP

The Federal Trade Commission has filed a complaint in the U.S. District Court for the Southern District of New York against Yellowstone Capital LLC and Fundry LLC, both New York limited liability companies; and Yitzhak D. Stern, also known as Isaac Stern, and Jeffrey Reece, individually and as officers of the two LLCs; seeking permanent injunctive and other equitable relief. Yellowstone and Fundry are providers of merchant cash advances, and used deception to lure small business customers, then regularly withdrew money from their accounts without consent even after the customers had repaid the money they owed, according to the Commission's complaint.

Merchant cash advances are a form of financing in which the defendants provide money to a small business up front in exchange for a larger amount repaid through daily automatic payments. The Commission alleges that the defendants unlawfully withdrew millions of dollars in excess payments from their customers' accounts, and took weeks or months to provide refunds when challenged by those customers.

In addition, the complaint alleges that for years Yellowstone deceived potential customers about the amount of money they would receive, with the amount shown on the contract not reflecting additional fees that would be deducted. According to the complaint, these fees totaled hundreds and even thousands of dollars, and were not revealed to business owners until, in some cases, after their contracts were signed, The FTC also alleges that the defendants relied on deceptive marketing to promote their services. Specifically, the complaint states that Yellowstone promised that business owners would not be required to provide collateral or be subject to a personal guaranty. These promises appeared in online ads and other forms of marketing, but in many instances Yellowstone’s contracts actually required business owners to be personally liable if their business failed to make repayments, as well as put the business and all of its property up as collateral.

08/03/2020

OFAC sanctions Chinese entity and officials

OFAC sanctioned a Chinese government entity and two current or former government officials on July 31 in connection with serious rights abuses against ethnic minorities in the Xinjiang Uyghur Autonomous Region (XUAR). These designations include the Xinjiang Production and Construction Corps (XPCC), Sun Jinlong, a former Political Commissar of the XPCC, and Peng Jiarui, the Deputy Party Secretary and Commander of the XPCC. The entity and officials were designated for their connection to serious human rights abuse against ethnic minorities in Xinjiang, which reportedly include mass arbitrary detention and severe physical abuse, among other serious abuses targeting Uyghurs, a Turkic Muslim population indigenous to Xinjiang, and other ethnic minorities in the region.

For details on the identity of the designated entity and individuals, and information on a new General License issued in connection with the designations, see the BankersOnline OFAC Update.

08/03/2020

Funding of March 2020 C&I drawdowns discussed

An article, "How Did Banks Fund C&I Drawdowns at the Onset of the COVID-19 Crisis?" has been posted to the Federal Reserve Board's FEDS Notes pages discussing how banks funded C&I drawdowns at the onset of the COVID-19 crisis. Banks experienced significant balance sheet expansions in March 2020 due to unprecedented increases in commercial and industrial (C&I) loans and deposit funding. According to the Federal Reserve's H.8 data, "Assets and Liabilities of Commercial Banks in the U.S.", C&I loans increased by nearly $480 billion in March—the largest monthly increase in the history of this series, surpassing the nearly $90 billion increase in C&I loans in the six weeks following Lehman Brothers' collapse in 2008.

Commentary in banks' and firms' earnings calls, as well as write-in comments provided in weekly data submissions, indicate that this growth was primarily attributable to firms drawing down revolving lines of credit to make up for revenue and funding disruptions related to the coronavirus pandemic.

08/03/2020

NCUA bans former CU employee

The NCUA reported that it issued one prohibition notice in July, banning a former employee of Space Coast Credit Union in Melbourne, Florida, from participating in the industry after she was sentenced on charges of identity theft, embezzlement, fraud and theft.

08/03/2020

FATF webinars on COVID-19 and money laundering

The Financial Action Task Force has made two webinars on money laundering, terrorist financing and COVID-19 available for viewing:

  • COVID-19 and the Changing Money Laundering and Terrorist Financing Risk Landscape
  • The Impact of COVID-19 on the Detection of Money Laundering and Terrorist Financing

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