Top Story Compliance Related

The FDIC has issued Financial Institution Letters with guidance to help financial institutions and facilitate recovery in areas of Iowa and New Mexico.

• FIL-37-2024, addressing institutions in areas of New Mexico (Mescalera Tribe; Lincoln and Otero Counties) affected by the South Fork Fire and Salt Fire on June 17, 2024, and continuing
• FIL-38-2024, addressing institutions in areas of Iowa (Clay, Emmet, Lyon, Sioux, and Plymouth Counties) affected by severe storms, flooding, straight-line winds, and tornadoes on June 16, 2024, and continuing

The SCOTUS Blog reported Friday that the Supreme Court cut back the power of federal agencies to interpret the laws they administer and ruled that courts should rely on their own interpretation of ambiguous laws.

By a vote of 6-3, the justices overruled their landmark 1984 decision in Chevron v. Natural Resources Defense Council, which gave rise to the doctrine known as the Chevron doctrine. Under that doctrine, if Congress has not directly addressed the question at the center of a dispute, a court was required to uphold the agency’s interpretation of the statute as long as it was reasonable. But in a 35-page ruling by Chief Justice John Roberts, the justices rejected that doctrine, calling it “fundamentally misguided.”

On Friday, FinCEN announced a proposed rule to strengthen and modernize financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. While financial institutions have long maintained AML/CFT programs under existing regulations, this proposed rule would amend those regulations to explicitly require that such programs be effective, risk-based, and reasonably designed, enabling financial institutions to focus their resources and attention in a manner consistent with their risk profiles. Effective, risk-based, and reasonably designed AML/CFT programs are critical for protecting national security and the integrity of the U.S. financial system. The proposed amendments are based on changes to the Bank Secrecy Act (BSA) as enacted by the Anti-Money Laundering Act of 2020 (AML Act) and are a key component of Treasury’s objective of building a more effective and risk-based AML/CFT regulatory and supervisory regime.

This proposed rule would:

• amend the existing program rules to explicitly require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process
• require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs, as well as provide for certain technical changes to program requirements
• promote clarity and consistency across FinCEN’s program rules for different types of financial institutions

The proposal also articulates certain broader considerations for an effective and risk-based AML/CFT framework as envisioned by the AML Act. For example, through its emphasis on risk-based AML/CFT programs, the proposed rule seeks to avoid one-size-fits-all approaches to customer risk that can lead to financial institutions declining to provide financial services to entire categories of customers. Friday’s proposal is consistent with a key recommendation in Treasury’s De-risking Strategy, which recommended proposing regulations to require financial institutions to have reasonably designed and risk-based AML/CFT programs supervised on a risk basis and taking into consideration the effects of financial inclusion. Finally, the proposed rule would encourage financial institutions to modernize their AML/CFT programs where appropriate to responsibly innovate, while still managing illicit finance risks.

FinCEN's proposal was prepared in consultation with the Federal Reserve Board, the OCC, the FDIC, and the NCUA in order to collectively issue proposed amendments to their respective BSA compliance program rules for the institutions they supervise.

Written comments on FinCEN’s proposed rule must be received on or before 60 days following its publication in the Federal Register.

• Proposed Rule
• Fact Sheet
• Publication update: Published on 7/3/2024 at 89 FR 55428 with a comment period ending on 9/3/2024

The FDIC has released a list of enforcement orders issued in May 2024 against FDIC-supervised financial institutions and individuals formerly or currently affiliated with such institutions.

Flood Insurance Violations:

• Oriental Bank, San Juan, Puerto Rico, was assessed a civil money penalty of $447,125
• Spring Valley Bank, Wyoming, Ohio, was assessed a $1,500 civil money penalty

Cease and Desist or Consent Orders:

• Old Glory Bank, Elmore City, Oklahoma
• Forbright Bank, Potomac, Maryland
• Community Bank and Trust - West Georgia, LaGrange Georgia
• Thread Bank, Rogersville, Tennessee
• TNBANK, Oak Ridge, Tennessee
• Union County Savings Bank Elizabeth, New Jersey
• California Business Bank, Irvine, California

Orders against individuals:

• Justin L. Holt, former SVP and loan officer at Bank of Tyler, Tyler, TX (now known as UBank, Huntington, TX), received a personal consent order and order to pay a $25,000 civil money penalty after a finding that he repeatedly caused the disbursement of loan funds on a construction loan without properly documenting the disbursements and without requiring or verifying progress or completion of construction per bank policy, thus resulting in a dissipation of loan proceeds by the borrower; and misrepresented the status of such construction in an effort to obscure those actions.
• Hector Hugo Gutierrez Jr., formerly affiliated with Branch Banking and Trust Company (now Truist Bank, Charlotte, North Carolina) was issued a prohibition order.
• Yvonne Han, affiliated with 1st Colonial Community Bank, Collingswood, New Jersey, was issued a personal consent order

Yesterday, the U.S. Supreme Court stripped the Securities and Exchange Commission of a major tool in fighting securities fraud in a decision that could also affect other regulatory agencies, reports AP News.

The justices ruled in a 6-3 vote that people accused of fraud by the SEC, which regulates securities markets, have the right to a jury trial in federal court. The in-house proceedings the SEC has used in some civil fraud complaints, including against Houston hedge fund manager George Jarkesy, violate the Constitution, the court said.

OFAC has announced a $538,000 settlement with Mondo TV, S.p.a., an Italy-based animation company. Mondo has agreed to settle its potential civil liability for 18 apparent violations of the North Korea Sanctions Regulations.

Between May 2019 and November 2021, Mondo caused U.S. financial institutions to process approximately $537,939 in payments for animation work Mondo outsourced to a Government of North Korea-owned animation studio. This settlement amount reflects OFAC's determination that Mondo's conduct was non-egregious but not voluntarily disclosed.

The CFPB has posted a Bureau Blog article announcing the Bureau's release of its Fair Lending Annual Report to Congress describing the Bureau's actions against unlawful discrimination and for advancing access to fair credit in calendar year 2023.

FinCEN has reported it has issued a final rule under section 311 of the USA PATRIOT Act (section 311) that severs Al-Huda Bank from the United States financial system by prohibiting domestic financial institutions and agencies from opening or maintaining a correspondent account for or on behalf of Al-Huda Bank, an Iraqi bank that serves as a conduit for terrorist financing.

On January 31, 2024, FinCEN issued a finding and notice of proposed rulemaking (NPRM) that identified Al-Huda Bank as a foreign financial institution of primary money laundering concern. As described in the finding, Al-Huda Bank has for years exploited its access to U.S. dollars to support designated foreign terrorist organizations, including Iran’s Islamic Revolutionary Guard Corps (IRGC) and IRGC-Quds Force, as well as Iran-aligned Iraqi militias Kata’ib Hizballah and Asa’ib Ahl al-Haq. Moreover, the chairman of Al-Huda Bank is complicit in Al-Huda Bank’s illicit financial activities, including money laundering through front companies that conceal the true nature of and parties involved in illicit transactions, ultimately enabling the financing of terrorism.

FinCEN is taking this section 311 action to protect the United States financial system from Al-Huda Bank’s illicit activity. Pursuant to this final rule, covered financial institutions are now prohibited from opening or maintaining correspondent accounts for or on behalf of Al-Huda Bank, and are required to take reasonable steps not to process transactions for the correspondent account of a foreign banking institution in the United States if such a transaction involves Al-Huda Bank, preventing indirect access by Al-Huda Bank to the United States financial system. This final rule also requires covered financial institutions to apply special due diligence to their foreign correspondent accounts that is reasonably designed to guard against their use to process transactions involving Al-Huda Bank.

The rule adds section 663 to 31 CFR Part 1010, effective upon publication in the Federal Register. BankersOnline has added section 663 to its 31 CFR Part 1010 pages.

The CFPB on Tuesday announced its issuance of an interim final rule with a request for public comment to amend Regulation B to extend the compliance dates set forth in its 2023 small business lending rule and to make other date-related conforming adjustments.

The interim final rule will be effective 30 days after publication of the rule in the Federal Register. Comments will be accepted within the same 30-day period.

The rule extends compliance dates by 290 days, which is the time that has elapsed between the Texas court’s first issuance of a stay last year and the Supreme Court’s decision in CFPB v. CFSA last month. Lenders with the highest volume of small business loans must begin collecting data by July 18, 2025; moderate volume lenders by January 16, 2026; and the smallest volume lenders by October 18, 2026. The deadline for reporting small business lending data to the CFPB remains June 1 following the calendar year for which data are collected. Under the interim final rule, lenders may continue using their small business originations from 2022 and 2023 to determine their initial compliance date, or instead use their originations from 2023 and 2024.

Lenders may choose to start collecting data earlier. The rule permits lenders to collect demographic data up to one year before their compliance date to test their procedures and systems. The CFPB has also updated its grace period to reflect the revised dates. The CFPB does not intend to assess penalties for reporting errors for the first 12 months of collection, and it intends to conduct examinations only to assist lenders in diagnosing compliance weaknesses, so long as lenders engage in good faith compliance efforts.

BankersOnline has updated section 1002.114 of its Regulation B pages to reflect the changes in the interim final rule.

PUBLICATION AND EFFECTIVE DATE: Published at 89 FR 55024 in the Federal Register for 7/3/2024, with an effective date of 8/2/2024 (comments on the interim final rules will be accepted through 8/2/2024).

The Federal Reserve Board has announced the execution of a written agreement between Pedcor Financial, LLC (Carmel, Indiana), Pedcor Financial Bancorp (Carmel, Indiana), Fidelity Federal Bancorp (Evansville, Indiana), and the Federal Reserve Bank of Chicago, to address capital planning, risk management, contingency funding planning, and oversight by senior management and the board of directors of United Fidelity Bank, FSB (Evansville, Indiana).