The 2017 fiscal year saw the widespread emergence of new, more sophisticated forms of financial technologies that had perhaps their largest overall impact on the financial services sector to date, with greater change anticipated in the next several years. 2017 also saw the continued increase in stringency of the regulatory requirements banks have had to maintain compliance with, another trend that does not seem to be diminishing despite the efforts of a group of larger U.S. banks to rebel against harsh compliance requirements (see Weekly Roundup article from September 10th, 2017 in GR blog). In response to potential risks that have arisen with the rise of new technologies, the growth of cybercurrencies, and other factors, national governments have responded by ramping up their own policies and procedures as they continue the plight against financial crime at the domestic and international levels. Similar measures have also been initiated to better manage risks facing the industry altogether, and subsequently increase the sustainability and efficiency of the financial entities found within their borders. The Office of the Comptroller of the Currency (OCC), the independent bureau of the United States Department of the Treasury in charge of regulating and supervising national banks and federal branches of foreign banks in the U.S., recently released its bank supervision operating plan for the 2018 fiscal year which aims to do just that. The plan is expected to have major ramifications on the financial sector, with the supervision strategies of key risk areas for national banks and other financial institutions (FI’s) becoming the major point of emphasis. The operating plan will reportedly guide the development of strategies for FI’s of all sizes and will help to guide supervisory planning and resource allocations for 2018.
An abstract released by Lexology titled “OCC Releases Bank Supervision Operating Plan for Fiscal Year 2018” cited in BSA News Now on October 9th, 2017, describes some of the key points of the OCC’s Committee on Bank Supervision (CBS) plan for altering the supervisory priorities of FI’s of the United States. At the center of the OCC’s discussion for the 2018 fiscal year, which began October 1st, 2017 and concludes September 30, 2018, are the areas of cybersecurity and operational resiliency, commercial and retail credit loan underwriting, concentration risk management, business model sustainability and viability and the strategy changes that may be necessary, the Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance management, and the ability of FI’s to address new regulatory requirements.
Several CBS operating units will be tasked with using the plan to guide their efforts targeting the aforementioned areas that will be addressed, with the task of gaining an agency-wide view of risk on the topics being the primary goal. The OCC’s National Risk Committee (NRC), will focus its individual efforts on coordinating both existing and future supervision and policy issues, and will also recommend actions that may be necessary to address such issues. The NRC plans to place the gathering of quality information about the industry and its latest nuances at a premium, as these analytics will likely aid in the identification and prioritization of different areas of risk that will be targeted. Additionally, the refinement of documentation standards will also be addressed by the NRC, as this will allow for a more consistent assessment of supervision risk by the NRC and OCC overall. In its plan, the OCC notes that its Large Bank Supervision (LBS) department will “develop and execute individually approved FY 2018 supervisory strategies for each large bank, federal branch, and federal agency.” Furthermore, “Examiners will scope activities to maximize integration and prioritization of examination team resources across banks, and across risks and lines of business within banks” (OCC.gov, 2017). The supervision strategies the LBS will address will be statutory requirements, and strategy guidance in this regard will be altered in response to the respective risk profile’s of each bank that is overseen. Other areas that will be covered by the remaining OCC departments, which include the Compliance and Community Affairs (CCA) department and the Midsize and Community Bank Supervision (MCBS) department, include the evaluation of credit underwriting practices on new/renewed loans and increased risk layering for this practice, the evaluation of interest rate risk management (including the quantification of interest rate risks in assets in different scenarios), and the “improvement of the OCC’s ability to anticipate and address emerging risks by working with the Financial Stability Oversight Council, Federal Reserve, FDIC, CFPB, Office of Financial Research, and NRC to identify systemic risk and related metrics” (OCC.gov, 2017).
The consistent monitoring of proper AML/BSA/CTF controls and programs in financial institutions will continue, and the compliance of banks to the latest regulations and amendments made to previous measures will also be followed closely. The most notable change to existing regulation discussed by the OCC is the Financial Crimes Enforcement Network’s (FinCEN) final rule, which requires banks to be up to date on new customer due diligence (CDD) and beneficial ownership requirements by May 11, 2018. The OCC plans to provide updates about supervisory priorities and horizontal risk assessments in the fall and spring editions of its Semiannual Risk Perspective. Global RADAR will relay this information to readers in upcoming “Weekly Roundup” articles.
Former Argentinian Pres. Used Dirty Money to buy U.S. Real Estate
It seems that the fallout from the Panama Papers fiasco may never end.
Earlier this week, Argentina’s top anti-corruption official released a statement that alleged that the country’s former president, Cristina Fernández de Kirchner, purchased more than 60 properties in the United States with “dirty money.” Laura Alonso, the aforementioned anti-corruption official, stated that federal investigators linked the properties in question to an aide to Fernández de Kirchner’s husband, Nestor Kirchner, who held the Argentinian presidency before his wife replaced him in 2007. According to reports, in 2016 “a Miami Herald investigation found that companies linked to the aide had purchased nearly $70 million worth of real estate in South Florida and New York” (Gurney & Nehamas, 2017). The funds used to make the purchases are believed to be public funds that Alonso regarded as ““dirty money that in reality belongs to all Argentines” (Gurney & Nehamas, 2017).
The Kirchner’s have denied the allegations thus far, and further details supplementing the charges have yet to be revealed. However, Alonso has indicated the intentions of Argentine authorities to seize each and every one of the properties, if the claims are in fact true. Fernández de Kirchner is currently facing two unrelated indictments for corruption, and recently had $8.5 million in assets frozen by an Argentine court. Making matters all the more complicated, Fernández de Kirchner is currently running for Argentina’s Senate in an election that will be held later this month. Her aspirations already in doubt due to the fact that she is running against the party of Argentina’s current president, Mauricio Macri, the latest claims against her may be the nail in the coffin for her campaign. It appears that losing the campaign may be the least of her worries however, as she will likely face substantial jail time if Alonso’s allegations are legitimate.
Suspicious Transactions Continue to Rise in Singapore
Singapore’s Commercial Affairs Department (CAD) released its annual financial intelligence report earlier this week, and for the third consecutive year the number of suspicious transaction reports (STR’s) filed in the country has risen. Is this a sign of increased criminal activity within its borders, or simply improvements in suspicious activity detection? The CAD believes it is the latter. In a statement released on the report’s findings, the CAD stated, “The upward trend is an indication of the continued vigilance of reporting entities in detecting suspicious transactions and the anti-money laundering and counter-financing of terrorism awareness in Singapore” (Mei, 2017). The 34,129 reports filed with Singapore’s Transaction Reporting Office (STRO) marks a 12% increase from the figure reported in 2015 alone. The overall number of STR’s filed has increased by nearly 12,000 total since 2013.
Overall, nearly half of the STR’s filed in Singapore in 2016 came from the banking sector, which has historically been the main source of these reports. The greatest number of filings seen outside of this sphere last year came from remittance agents, with casinos trailing slightly in this regard. While not very substantial in scope, the efforts of both the STRO and the Corrupt Practices Investigation Bureau (CPIB) have led to a steady increase in convictions on money laundering-related offenses over the past 3 years. The STRO is now also receiving greater requests for assistance (RFA’s) from foreign FI’s than ever before, a sign of the improvements seen in the country’s anti-money laundering (AML) and counter terrorist financing (CTF) measures. The implementation of a national anti-scam hotline, as well as increased involvement of police in affairs of this nature have also aided in the apprehension of suspects found to be in connection to financial crime and criminal syndicates throughout the country.
SEC Investigating Firing of Prominent Pepsi Lawyer
The U.S. Securities and Exchange Commission announced its decision to investigate a potentially unjust firing allegation brought forth by the former top lawyer of PepsiCo Inc. Maura Smith, a former member of the company’s general counsel between 2011 and 2012 claims that she was fired by PepsiCo as retaliation for her handling of an internal probe into the company’s potential improprieties in Russia several years ago. Smith reportedly oversaw the hiring of outside lawyers by brought on board by PepsiCo. “to dig into business practices at Wimm-Bill-Dann, a big Russian maker of dairy products and juices that PepsiCo spent about $5 billion to acquire in 2011, the documents show” (Ackerman, Palazzolo, and Maloney, 2017).
The controversy began early in the acquisition process, as a Wimm-Bill-Dann employee reported an allegation that the Russia-based company had shifted expenses to hide a $3 million shortfall in quarterly financial results in August of 2011. PepsiCo. staff investigated the claims and the company, and auditors determined that the results would not need to be restated. However, the investigation also uncovered several other improprieties performed by the Russian company. These transgressions were found to include “evidence of theft, improper land deals and millions of dollars in questionable consulting contracts and gratuities, including a company-owned Audi A8 sedan that was provided to a regional governor of Russia to use for free” (Ackerman, Palazzolo, and Maloney, 2017). Pepsi addressed these issues, cutting ties with employees that were involved in the allegations, in addition to improving Wimm-Bill-Dann’s business controls and practices, in addition to updating their compliance measures.
Maura Smith entered the picture during PepsiCo’s initial investigation, and issues allegedly arose between she and a member of the outside law firm hired by Pepsi to aid in a more thorough, secondary investigation. The lawyer from the outside company, Gibson, Dunn & Crutcher LLP, claimed that Smith had attempted to recruit members of the law firm to aid her in the creation of detailed memo she hoped to provide to the PepsiCo. board of directors. The outside lawyer, who remains unnamed, believes that Smith “wanted to ‘call out names of former and current employees and place blame,’ while protecting her own position at the company” (Ackerman, Palazzolo, and Maloney, 2017). The Gibson Dunn attorney then contacted PepsiCo’s chief financial officer (CFO) Hugh Johnston regarding his concerns, who ultimately asked Smith to cease working on the memo; one that never ended up reaching the board. Smith’s employment then ended on June 15, 2012.
The initial stages of the SEC’s inquiry are examining the circumstances surrounding Smith’s firing, specifically in regards to Smith’s ethical conflicts with other executives of the company. Upon her release in 2012, PepsiCo. issued a statement saying that Smith had resigned in order to pursue outside opportunities. According to a report from Fox Business, Smith’s separation agreement “entitled her to nearly $6 million in cash payments”, and “the agreement prevents the company and Ms. Smith from disparaging one another” (Ackerman, Palazzolo, and Maloney, 2017). PepsiCo. has loaded up with a “dream team” of prominent lawyers to represent the company throughout the SEC investigation.
Ackerman, Andrew, Joe Palazzolo, and Jennifer Maloney. “SEC Probes Departure of PepsiCo’s Former Top Lawyer — Update.” Fox Business. Fox Business, 27 Sept. 2017. Web.
Buckley Sandler LLP. “OCC Releases Bank Supervision Operating Plan for Fiscal Year 2018.” Lexology. 5 Oct. 2017. Web.
“Fiscal Year 2018 Bank Supervision Operating Plan Office of the Comptroller of the Currency Committee on Bank Supervision.” OCC.gov. Office of the Comptroller of the Currency, 2017. Web.
Gurney, Kyra, and Nicholas Nehamas. “Argentina’s Former Leader Stashed ‘dirty Money’ in Miami, Official Says before Election.” MiamiHerald.com. The Miami Herald, 6 Oct. 2017. Web.
Mei, Tan Tam. “12% Increase in Suspicious Transactions Reported: Commercial Affairs Department.” The Straits Times. 09 Oct. 2017. Web.