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05/11/2022

Federal Reserve adds to FEDS series

The Federal Reserve Board has added two new papers to its Finance and Economics Discussion Series (FEDS).

Cyberattacks and Financial Stability: Evidence from a Natural Experiment studies the effects of a unique multi-day cyberattack on a technology service provider, and identifies first- and second-round effects of the event. For banks using relevant services of the TSP, the attack impaired their ability to send payments over Fedwire, even though the Federal Reserve extended the time they had to submit payments. This impairment (first-round effect) caused other banks to receive fewer payments (second-round effect), leaving them at risk of having too few reserves to send their own payments (a potential third-round effect). These innocent-bystander banks responded differently depending on their size and reserve holdings. Those with sufficient reserves drew down their reserves. Of the others, smaller banks borrowed from the discount window, while larger banks borrowed in the federal funds market. These significant adjustments to operations and funding prevented the second-round effect from spilling over into third-round effect and broader financial instability. These findings highlight the important role for bank contingency planning, liquidity buffers, and the Federal Reserve in supporting the financial system’s recovery from a cyberattack.

The Collateral Channel and Bank Credit studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. The authors estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. These estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints.

FEDS are Federal Reserve staff working papers that investigate a broad range of issues in economics and finance, with a focus on the U.S. economy and domestic financial markets.

05/10/2022

OFAC targets network supporting ISIS in Syria

Treasury has announced that OFAC has designated a network of five Islamic State of Iraq and Syria (ISIS) financial facilitators operating across Indonesia, Syria, and Turkey. For names and identification information, see our May 9, 2022, OFAC Update.

05/09/2022

U.S. takes wide-ranging action against Russia's war efforts

In a rare Sunday press release, Treasury yesterday announced OFAC has designated individuals and entities critical to Russia’s ability to wage war against Ukraine. These include the board members of two of Russia’s most important banks, a Russian state-owned bank and 10 of its subsidiaries, a state-supported weapons manufacturer, and three of Russia’s state-controlled television stations that generate revenue for the state.

OFAC also acted to cut off access to services that are used by the Russian Federation and Russian elites to evade sanctions. On Sunday, OFAC identified accounting, trust and corporate formation, and management consulting as categories of services that are subject to a prohibition on the export, reexport, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, to any person located in the Russian Federation. OFAC also determined that these same services sectors of the Russian Federation economy are subject to sanctions pursuant to E.O. 14024.

OFAC had previously designated the CEO and Chairman, and the First Deputy Chairman of the Executive Board of Public Joint Stock Company Sberbank of Russia (Sberbank). On Sunday, it designated eight other current and recent members of the Executive Board of Sberbank.

In addition, OFAC yesterday designated 27 members of Gazprombank's Board of Directors.

Also designated were Joint Stock Company Moscow Industrial Bank and ten of its subsidiaries, plus Limited Liability Company Promtekhnologiya, a private defense company that supplies Russia's military and intelligence services with rifles, and three of Russia's top state-owned television stations.

Treasury also took action to cut off Russia’s access to certain key services from U.S. companies, which Russian Federation companies and Russian elites use to build wealth, generating revenue for Putin’s war machine, and evade sanctions. OFAC issued a determination pursuant to E.O. 14071 prohibiting the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, and management consulting services to any person located in the Russian Federation. This prohibition will take effect June 7, 2022. In conjunction with this determination, OFAC issued new guidance and general licenses authorizing certain transactions related to these services. Yesterday’s action means that the Russian Federation and Russian elites will no longer benefit from U.S. companies’ valuable accounting, trust and corporate formation, and management consulting services.

For further information and a list of yesterday's additions to OFAC's SDN List, see the May 8, 2022, BankersOnline OFAC Update.

05/09/2022

OFAC targets virtual currency mixer and targets DPRK cyber threats

Treasury has announced that OFAC has sanctioned virtual currency mixer Blender.io, which is used by the Democratic People’s Republic of Korea (DPRK) to support its malicious cyber activities and money-laundering of stolen virtual currency. On March 23, 2022, Lazarus Group, a DPRK state-sponsored cyber hacking group, carried out the largest virtual currency heist to date, worth almost $620 million, from a blockchain project linked to the online game Axie Infinity; Blender was used in processing over $20.5 million of the illicit proceeds.

OFAC also updated the SDN List to identify additional virtual currency addresses used by the Lazarus Group to launder illicit proceeds.

See the May 6, 2022, BankersOnline OFAC Update for the new and updated listings.

05/06/2022

Federal Reserve Board bans former Georgia banker

The Federal Reserve Board has announced its has executed a consent order of prohibition against Angela Garcia, former senior vice president and residential loan servicing director at Synovus Bank, Columbus, Georgia. The Board found that, between 2020 and 2021, Garcia embezzled $69,039 from a bank general ledger account, deposited the funds in accounts belonging to her relatives, and made fraudulent entries in the bank’s records regarding these transactions.

The order states that Garcia was terminated by the bank in June 2021, is no longer involved in banking, and has agreed to reimburse the bank in full for its loss.

05/04/2022

Nacha guide on voice payments contract issues

Nacha has announced its Payments Innovation Alliance has created a legal and risk mitigation resource guide for financial institutions seeking to implement voice payments capabilities and applications (skills) through smart devices, such as the Amazon Echo and Google Nest.

As part of the series of Alliance Executive Briefings addressing conversational payments, Voice Payments Contractual Considerations for Financial Institutions provides background on the importance of Terms and Conditions (T&Cs) when offering voice payments services and how terms may be modified to best fit their skill. This guide also offers an overview of use cases, best practices for risk mitigation and a glossary of terms. Written by the Alliance's Conversational Payments and Cybersecurity Response Project Teams, it complements their other titles including Voice Payments: An Introduction and Overview; A Deep Dive into the Technology Behind Voice Payments; and Unwrapping Smart Speakers.

05/03/2022

Preventing and reporting scams of older adults

The CFPB has a blog article with tips for older adults and their families and friends on how to prevent and report scams which target older adults:

  • Don’t wire money. Wiring money is like sending cash. Once you send it, you usually can’t get it back. Don’t wire money even if someone sends you a check, tells you to deposit it, and wire some of the money back to them. That’s a fake check scam, and the bank will want you to repay the money you withdrew and sent. That may also be a money mule scam that will involve you in moving stolen money.
  • Don’t pay with a gift card. Gift cards are for gifts. As soon as you tell someone the numbers on the back of the gift card, they get control of the card and your money is gone forever. No legitimate business or government agency will insist that you pay with a gift card.
  • Don’t pay with cryptocurrency. If someone requires you to pay for something with Bitcoin, Ether, or some other type of cryptocurrency, they are probably a scammer. Cryptocurrency payments don’t come with legal protections. If you pay with cryptocurrency, you usually can’t get your money back unless the person you paid sends it back.
  • Report fraud to the Federal Trade Commission. If you’re contacted by someone telling you to pay or send money using these methods, please tell the FTC about it at ReportFraud. The information you share can help protect your community from fraud, scams, and bad business practices.

05/03/2022

FSB report on approaches to climate-change risks

The Financial Stability Board on Friday announced its publication of an interim report, Supervisory and Regulatory Approaches to Climate-related Risks, that aims to assist supervisory and regulatory authorities in developing their approaches to monitor, manage and mitigate cross-sectoral and system-wide risks arising from climate change and to promote consistent approaches across sectors and jurisdictions. Its recommendations focus on three areas:

  • Supervisory and regulatory reporting and collection of climate-related data from financial institutions
  • System-wide supervisory and regulatory approaches to assessing climate-related risks
  • Early consideration of other potential macroprudential policies and tools to address systemic risks

The FSB is inviting comments on its recommendations through June 30, 2022. The report includes a set of questions for this purpose. The final recommendations, incorporating feedback from the public consultation, will be published in the fourth quarter of 2022.

The Financial Stability Board is an international body that monitors and makes recommendations about the global financial system. Its decisions are not legally binding on its members. However, members of the FSB commit to pursue the maintenance of financial stability, maintain the openness and transparency of the financial sector, implement international financial standards, and agree to undergo periodic peer reviews, using among other evidence IMF/World Bank public Financial Sector Assessment Program (FSAP) reports.

The U.S. is represented on the FSB by Lael Brainard, Vice Chair of the Federal Reserve Board; Gary Gensler, Chairman of the Securities and Exchange Commission, and Andy Baukol, acting Under Secretary for International Affairs, Department of the Treasury.

05/02/2022

NCUA lists April prohibition actions

The National Credit Union Administration has announced it issued two prohibition orders and one notice of prohibition in April. The individuals named in the orders are prohibited from participating in the affairs of any federally insured depository institution.

  • Mark Colley, former CEO of First Oklahoma Federal Credit Union, Tulsa, Oklahoma, was found to have, without authorization, advanced due dates on multiple loans on multiple occasions to extend the time borrowers had to make loan payments; advanced funds from closed-end loans to member accounts for purposes of making payments on those same or other loans; and submitted reports with understated delinquency figures.
  • Barbara Diane Nelson, a former employee of Gerber Federal Credit Union, Fremont, Michigan, was found to have embezzled funds from the credit union for her personal gain and later pleaded guilty to charges of embezzlement and using computers to commit a crime.
  • Indira Mohabir, a former business loan processor at Western Federal Credit Union, Torrance, California, had been sentenced to 18 months of home confinement on charges of conspiracy to commit financial institution fraud and of issued credit union obligations without authority. According to the Credit Union Times [subscription required], court documents allege Mohabir opened nearly $3 million in lines of credit for her boyfriend, who was sentenced to six months in federal prison and 12 months of home confinement.

05/02/2022

FinCEN renews and expands GTOs

FinCEN has announced the renewal and expansion of its Geographic Targeting Orders (GTOs) that require U.S. title insurance companies to identify the natural persons behind shell companies used in all-cash purchases of residential real estate. The terms of the GTOs [sample order] are effective beginning April 30, 2022, and ending on October 26, 2022.

The GTOs continue to provide valuable data on the purchase of residential real estate by persons possibly involved in various illicit enterprises. Renewing the GTOs will further assist in tracking illicit funds and other criminal or illicit activity, as well as inform FinCEN’s future regulatory efforts in this sector.

FinCEN renewed the GTOs that cover certain counties within the following major U.S. metropolitan areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle. FinCEN, working in conjunction with its law enforcement partners, identified additional regions that present greater risks for illicit finance activity through all-cash purchases of residential real estate. Accordingly, FinCEN has expanded the geographic coverage of the GTOs to parts of the District of Columbia, Northern Virginia, and Maryland (DMV) metropolitan area, the Hawaiian islands of Maui, Hawaii, and Kauai, and Fairfield County, Connecticut. The purchase amount threshold remains $300,000 for each covered metropolitan area, with the exception of the City and County of Baltimore, where the purchase threshold is $50,000.

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