$110 Million Civil Money Penalty and Indictment against BTC-e
By Nicole DeSantis, Rabobank, NA
The federal Financial Crimes Enforcement Network (FinCEN) recently imposed a $110 million Civil Money Penalty (fine) against BTC-e, a large virtual currency exchanger, stemming from allegations that BTC-e and its principal operative violated U.S. anti-money-laundering (AML) laws. BTC-e operates as an “exchanger” of convertible virtual currencies, offering the purchase and sale of U.S. dollars, Russian rubles, euros, bitcoin, and other currencies for over 700,000 customers worldwide. Under U.S. AML laws and previous FinCEN guidance, as a virtual currency exchanger, BTC-e is considered a Money Service Business (MSB). MSBs must comply with requirements under the Bank Secrecy Act (31 U.S.C. 5311 et seq.). BTC-e failed to comply with numerous basic BSA requirements, including registering as an MSB with FinCEN, maintaining a written AML program, designating a BSA compliance officer, training appropriate personnel in the detection of suspicious transactions and suspicious activity reports (SARs). It also failed to obtain certain required identifying information from customers, which allowed completely anonymized transfers of bitcoin and other virtual currencies to occur in transactions often connected to illegal drug sales and stolen funds. Its lack of controls also allowed some BTC-e customers to openly and explicitly discuss criminal activity on BTC-e’s user chat feature. In addition to the FinCEN fine, the U.S. Department of Justice indicted BTC-e and one of its principal operatives, Alexander Vinnik, in the U.S. District Court for the Northern District of California for allegedly engaging in money laundering and violating several U.S. federal laws.
$246 Million Civil Money Penalty against BNP Paribas, S.A.
By Nicole DeSantis, Rabobank, NA
The Federal Reserve Board (FRB) recently imposed a $246 million civil money penalty (fine) and cease and desist order against BNP Paribas, S.A. and two of its U.S.-based subsidiaries (collectively BNPP). The enforcement action stemmed from safety and soundness issues associated with BNPP’s foreign exchange practices. The FRB fine was predicated on deficiencies in BNP Paribas's oversight of, and internal controls over, foreign exchange (FX) traders who bought and sold U.S. dollars and foreign currencies for the firm’s own accounts and customers. According to the FRB, BNPP did not have a system or controls in place to detect if its traders were manipulating FX prices by using electronic chat rooms to communicate with competitors about their trading positions. The FRB’s order mandated that BNPP improve its senior management oversight and controls relating to the firm’s FX trading so that chat room accessibility and other deficiencies could be addressed. It also prohibited the firm from re-employing individuals who were involved in the underlying conduct, a direct reference to the FRB's action earlier this year in which it prohibited a former BNPP trader from participating in the banking industry due to his manipulation of FX prices.
CFPB Releases New Data Point Report on Frequent Overdrafters Along with Sample Overdraft Disclosure Forms
By Mark Tew, Rabobank, NA
In August, the Consumer Financial Protection Bureau (CFPB) published a new Data Point report on frequent overdrafters. The stated purpose of the report is to provide the industry with insight into the CFPB’s evidence-based perspective on the impact of existing overdraft rules and fees on consumers. The report highlights that just a small fraction of consumer accounts—about 8 percent—were responsible for almost 75 percent of all overdraft fees. The report also includes a comparison analysis of outcomes for consumers who opted in and those who did not opt in to their respective financial institutions’ overdraft protection plans. The CFPB further notes that consumers who opted in to overdraft protection incurred more than seven times as many overdraft fees as consumers who were not opted in. The report is being viewed by industry observers as the first step toward new overdraft services rulemaking, which was listed in the CFPB’s 2017 rulemaking agenda. Also released in connection with the new Data Point report were four different sample Overdraft Disclosure Forms that the CFPB states are designed to improve transparency to consumers. The CFPB is seeking feedback on the sample forms.
CFPB Issues Compliance Bulletin Warning against Tricking Consumers into Expensive Pay-by-Phone Fees
By Mark Tew, Rabobank, NA
On July 31, 2017, the Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin warning companies against tricking consumers into paying expensive pay-by-phone fees. In it, CFPB Director Richard Cordray states, “We are concerned that companies are misleading consumers about pay-by-phone fees or keeping them in the dark about much cheaper or no-cost payment options.” The CFPB does not mandate any particular disclosure or way to inform consumers about pay-by-phone fees, but expresses concerns over practices that it considers to be unfair, deceptive, or abusive acts or practices (UDAAP violations). Among those practices the CFPB highlights as deceptive is charging a $14.95 pay-by-phone fee by masking it as a “processing charge.” Additional deceptive practices called out in the bulletin included failing to inform consumers up front and in writing about the phone charges, failing to inform the consumer about lower-cost alternative payment options, and charging extra for an “expedited” payment, even though the “expedited” payment did not post the same day. The CFPB reaffirms its commitment to monitor the practices of companies that assess pay-by-phone fees, and highlights that consumer complaints represent a valuable source for identifying such deceptive practices.
White Collar Crime
More Pleas in the Long-Running Haiti Teleco Saga
By Stuart H. Deming, Deming PLLC
In July, Amadeus Richers of Brazil was the ninth individual to have pled guilty or been convicted at trial of Foreign Corrupt Practices Act (FCPA) violations involving Telecommunications D’Haiti (Haiti Teleco), the state-owned and state-controlled telecommunications company in Haiti. Of particular significance to the long-running nature of the scandal was the plea to one count of conspiracy to violate the FCPA related to Mr. Richers’s actions over ten years ago. This was during the 2001-2004 period, when bribes were paid to Haiti-Teleco officials as well as to officials or their relatives in the executive branch of the Haitian government. The plea is reflective of the persistence of the U.S. Department of Justice in pursuing FCPA violations.