- SEC Charges Citigroup Global Markets Inc. with Recordkeeping Failures concerning Underwriting Expenses / SEC
On August 29, 2023 the Securities and Exchange Commission (SEC) announced settled cease-and-desist proceedings against broker-dealer Citigroup Global Markets Inc. (CGMI) for willfully violating recordkeeping requirements concerning expenses that the firm incurred in connection with its underwriting business.
Recordkeeping requirements of the federal securities laws require broker-dealers to make and keep current certain books and records, including ledgers or other records reflecting all assets and liabilities. The SEC’s order finds that, from at least 2009 through May 2019, CGMI used an unsubstantiated and unverified method to calculate and record indirect expenses associated with its work as an underwriter. According to the SEC’s order, CGMI calculated an indirect expense amount based on a fixed percentage of the underwriting fee for each deal where it was engaged as a lead underwriter and then, using fixed “allocation grids,” divided that amount into specific categories of expenses. The order finds that, upon calculating these indirect expenses through this unsubstantiated method, CGMI recorded the amounts in its general ledger. According to the order, for at least a decade, CGMI did not know the basis of this indirect expense calculation method and conducted no review or similar process to verify that this method was reasonable.
For more information: https://www.sec.gov/news/press-release/2023-165
2. CFPB Reaches Multibillion Dollar Settlement with Credit Repair Conglomerate / CFBP
On August 28, 2023 the Consumer Financial Protection Bureau (CFPB) entered into a proposed settlement with a ring of corporate entities operating some of the largest credit repair brands in the country, including Lexington Law and CreditRepair.com. The agreement follows a ruling from the court that the companies collected illegal advance fees for credit repair services through telemarketing in violation of federal law. If approved, the settlement would impose a $2.7 billion judgment against the companies. The order will also ban the companies from telemarketing credit repair services for 10 years.
The CFPB previously sued the companies to halt their illegal conduct and seek redress and other relief. In March 2023, the district court ruled that the defendants violated the advance fee provision of the Telemarketing Sales Rule. The Telemarketing Sale Rule provides a range of protections for consumers related to telemarketing and sets payment restrictions for certain goods and services. It requires credit repair companies to wait until six months after they provide the consumer with documentation reflecting that the promised results were achieved, before they request or receive payment from the consumer.
For more information: CFPB Reaches Multibillion Dollar Settlement with Credit Repair Conglomerate | Consumer Financial Protection Bureau (consumerfinance.gov)
3. Public Consultation on the FATF Best Practice Paper to Combat the Abuse of Non Profit Organisations / FATF
The Financial Action Task Force (FATF) is considering proposals for the update of the FATF Best Practice Paper to Combat the Abuse of NPOs. This project is being undertaken in parallel to the proposed amendments to Recommendation 8 and its Interpretive Note (also under public consultation) to better clarify the implementation of a risk-based approach.
In June 2022, the FATF Plenary agreed to review the Best Practice Paper and established a Project Team of FATF delegations to consider the necessary changes and gather relevant information.
The Guidance/BPP proposed for public consultation reflects the work and discussion of the Project Team, as well as members’ and other stakeholders’ input of relevant case studies and data on best practices to combat the abuse of NPOs.
The FATF is consulting all interested stakeholders in advance of finalising the Guidance/BPP. Views from practitioners, experts and stakeholders from the NPO sector and the financial institutions are welcome.
Of particular interest, comments and additional input is welcome regarding:
- Mitigating TF risk at an NPO individual level (section 3.2 and Annex B of the BPP);
- 0Implementing good governance at an NPO individual level to meet R.8 objectives (section 3.4 and Annex B of the BPP);
- Financial institutions’ initiatives to ensure access of legitimate NPOs to financial services, including risk-based mitigating measures (section 4.2 and Annex C of the BPP);
- NPOs and donors’ initiatives to ensure access of legitimate NPOs to financial services (section 4.3 and Annex C of the BPP); and
- Examples of misapplication of R.8, to identify avoidable practices and to help countries, financial institutions and NPOs correctly implement the risk-based approach.
For more information: Public Consultation on the FATF Best Practice Paper to Combat the Abuse of Non Profit Organisations (fatf-gafi.org)
4. Tornado Cash Founders Charged with Money Laundering and Sanctions Violations / DOJ
On August 23, 2023 the Department of Justice (DOJ) has published that a Russian national and a Washington man were charged with conspiracy to commit money laundering, conspiracy to commit sanctions violations, and conspiracy to operate an unlicensed money transmitting business.
According to the indictment, unsealed in the Southern District of New York, Roman Storm, 34, of Auburn, Washington, and Roman Semenov, 49, of Russia, created, operated, and promoted Tornado Cash, a cryptocurrency mixer that facilitated more than $1 billion in money laundering transactions, and laundered hundreds of millions of dollars for the Lazarus Group, the sanctioned North Korean cybercrime organization. Storm was arrested today in the state of Washington and will be presented later today in the Western District of Washington.
For more information: Office of Public Affairs | Tornado Cash Founders Charged with Money Laundering and Sanctions Violations | United States Department of Justice
This update is provided as general information only and may not be relied upon in any individual case without additional legal advice.
