Michael Kardonick, 58, of Brooklyn, New York, convicted of conspiracy to commit money laundering, has been sentenced to 120 months in prison and ordered to pay more than $2 million in restitution by U.S. District Judge Charles J. Siragusa. Assistant U.S. Attorney Bradley E. Tyler, who was in charge of the prosecution, stated that between January 2004 and July 2008, Hochul was part of a scheme to defraud individuals who had invested approximately $2.5 million in international currency trading investments. Hochul did this through the company Atwood & James S.A. During the course of the scheme, Hochul used mail and wire communications to bring about the fraud, and used the illegally obtained investor proceeds to promote the scheme, which was in violation of the federal money laundering provisions.
The law enforcement action is part of the Obama Administration’s Financial Fraud Enforcement Task Force, established to wage "an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes." The task force includes participants from a number of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement. These groups, working together, have coordinated a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes. It also will ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
The sentencing is the culmination of an investigation on the part of special agents of the Federal Bureau of Investigation, the United States Postal Inspection Service, and the Internal Revenue Service, Criminal Investigation Division.
The Consumer Financial Protection Bureau recently published three additional guides to assist companies seeking to comply with its HOEPA rule, ECOA valuations rule, and TILA high-priced mortgage appraisal rule. As with other guides it has released, the CFPB cautions that the guides are not a substitute for the rules and the Official Interpretations, and that the guides do not consider other federal or state laws that may apply to the origination of mortgage loans. Nevertheless they represent plain English guidance for the rules.
FinCEN Director Jennifer Shasky Calvery highlighted the importance of accurate reporting, payment processors, and the Universal SAR during her remarks to the Mortgage Bankers Association at its Fraud Issues Conference.
The director said that FinCEN's advanced analytic tools and analysts play an important role in analyzing and integrating BSA data and other information to accomplish three ends:
1. Map illicit finance networks;
2. Identify compromised financial institutions and jurisdictions; and
3. Understand the current methods and schemes for illicit finance.
These three key pieces of analysis, she said, are critical to enable law enforcement and regulators to take action against money laundering and the various types of illegal activity underpinning it.
Calvery noted that FinCEN continues to be an active member of the Financial Fraud Enforcement Task Force's Consumer Protection Working Group, which has focused on third party payment processors. As she has mentioned in past speeches, some payment processors have engaged in money laundering, identity theft, and other illicit transactions, as they facilitate the movement of funds from the victim to the fraudulent merchant. Calvery promised that her agency would continue to work closely with its law enforcement and regulatory partners on this issue.
The director reported that one aspect of FinCEN's modernization is the requirement of financial institutions to use the new FinCEN reports, which include CTRs and SARs, as of April 1, 2013. The new FinCEN reports were specifically developed to work with the FinCEN Query system that was just rolled out, she said. The new FinCEN reports allow the agency, along with law enforcement, and regulators to manipulate the data that is submitted in a much more meaningful way. In developing the new universal SAR form, Calvery told the MBA Conference, FinCEN sought input from regulators and law enforcement to obtain suggestions on additional categories of suspicious activity for inclusion. As a result, the SAR has expanded the suspicious activity information options from 21 to more than 70, allowing the financial industry to provide more detailed information on the type of suspicious activity being seen, she said.
The director detailed the new form with respect to possible mortgage fraud. She explained that several new categories were added, which will allow the financial industry to report on the types of frauds of most interest to law enforcement. "Instead of simply checking 'mortgage fraud,' financial institutions can now be more specific in terms of the type of fraud they suspect." She said that the new form now included boxes for:
Reverse mortgage fraud;
Loan modification fraud;
Appraisal fraud; and
Foreclosure rescue fraud.
Calvery said that although financial institutions were not required to begin using the reports until recently, she was encouraged by the submissions to FinCEN. She noted that the new forms do not create any new obligations or otherwise change existing statutory and regulatory expectations for financial institutions. She pointed out that they must provide the most complete and accurate information they can, but are not under an obligation to collect non-mandatory information because there is now a field for that data. However, just as has always been the case, if financial institutions have information that is pertinent to a report, they need to be able to include it in the report, so that the CTR, SAR, or other FinCEN report is complete and accurate, Calvery said.
The FinCEN director also cautioned that these new reports were indeed new, and that there would "certainly continue to be some growing pains." She also stressed that it remains crucial that the reports are delivered into the right hands. For example, Calvery reported that FinCEN was currently working to provide direct BSA access to the Federal Housing Finance Agency, as well as the state insurance regulatory agencies.
Most credit unions have been investing the majority of their compliance resources in trying to understand and implement the historic changes to consumer protection laws for mortgage lending. But now the Consumer Financial Protection Bureau has issued a white paper that discusses its study on the short-term, small-dollar loan market that provides payday loans and deposit advance loans. Payday lending takes place in nondepository financial institutions and is mostly regulated by state law. However, many credit unions make deposit advance loans, as well as offering courtesy overdraft programs, with the goal of helping their members. Now, however, it is clear that the bureau and thus other federal regulators will be looking at these products closely in the coming months and years.
Context of the Study
The CFPB gathered data from a number of depository institutions and included consumers who were either eligible to take an advance during the first month of the study period or eligible during subsequent months if they had been eligible sometime during the quarter prior to the beginning of the study period. About half of the institutions’ consumer deposit accounts were eligible for deposit advances. The sample contained more than 100,000 eligible accounts, with roughly 15 percent of accounts having at least one deposit advance during the study period. The study compared deposit advance users and consumers who are eligible for — but did not take — any advances, as well as deposit advance users with varying levels of use.
The bureau used this sampling methodology so that patterns measured could not be attributed to any specific institution. According to Bureau Director Richard Cordray “the purpose of [the] field hearing, and the purpose of all our research and analysis and outreach on these issues, is to help us figure out how to determine the right approach to protect consumers and ensure that they have access to a small loan market that is fair, transparent, and competitive.” He went on to say the bureau was “attempting to gather data to get a complete picture of the payday market and its impact on consumers,” including how consumers “are affected by long-term use of these products.”
What Is a Deposit Advance Product?
A deposit advance product is a small-dollar, short-term loan that a depository institution (credit union) makes available to a member whose deposit account reflects recurring direct deposits. The member is allowed to take out a loan, which is to be repaid from the proceeds of the next direct deposit. These loans typically have high fees, are repaid in a lump sum in advance of the member’s other bills, and often do not utilize fundamental and prudent underwriting practices to determine the member’s ability to repay the loan and meet other necessary financial obligations.
The Bureau’s Conclusions
The CFPB’s conclusions are based on the statistical findings in the report on deposit advance products:
Deposit advances had a median of just under $3,000 in average monthly deposits.
Deposit advance users tended to have a lower volume of payments and other account withdrawals than eligible nonusers. However, deposit advance users tended to conduct a larger number of account transactions than eligible nonusers, particularly debit card transactions.
A significant share of deposit advance borrowers took a sizable volume of advances during the 12-month study period. More than half of deposit advance users in our sample took advances totaling more than $3,000 and more than a quarter (27 percent) of deposit advance borrowers took advances totaling more than $6,000 over 12 months. The two highest usage groups accounted for 64 percent of the total dollar volume of advances and more than half (55 percent) of the total number of advances extended. In contrast, the borrowers who used $1,500 or less in advances during the same time period accounted for less than 10 percent of the total dollar amount and number of advances.
A typical fee is $10 per $100 borrowed. This fee would imply an annual percentage rate of 304 percent given a 12-day duration. A hypothetical lower fee of $5 per $100 advanced would yield an APR of 152 percent, while a hypothetical higher fee of $15 per $100 advanced would yield an APR of 456 percent with the same 12-day term. The APR will vary significantly depending on the duration of a particular advance balance episode and the fee charged by an individual institution.
Consumer Protection Concerns
The findings in the report raise substantial consumer protection concerns for the bureau. It intends to continue its inquiry into small-dollar lending products to better understand the factors contributing to the sustained use of these products by many consumers and the light to moderate use by others. The bureau plans to analyze the effectiveness of limitations, such as cooling-off periods, in curbing sustained use and other harms. The bureau is separately analyzing borrowing activity by consumers using online payday loans
While it is understood there is a need for short term small loans and many consumers only use them occasionally, the CFPB has concluded that the products may become harmful for consumers when they are used to make up for chronic cash flow shortages. The bureau noted that a sizable share of payday loan and deposit advance users conduct transactions on a long-term basis, suggesting that they are unable to fully repay the loan and pay other expenses without taking out a new loan shortly thereafter.
Over half of deposit advance users in the sample took out advances totaling over $3,000. This group of deposit advance users tended to be indebted for over 40 percent of the year, with a median break between advance balance episodes of 12 days or less. Therefore, it seems clear to the bureau that many consumers are unable to repay their loan in full and still meet their other expenses.
The CFPB is not sure whether consumers understand the costs, benefits, and risks of using these products. On their face, these products may appear simple, with a set fee and quick availability. However, the fact that deposit advances do not have a repayment date, but rather are repaid as soon as qualified deposits are received, adds a layer of complexity to the product that consumers may not effectively grasp.
Moreover, the bureau thinks that consumers may not appreciate the substantial probability of being indebted for longer than anticipated and the costs of such sustained use. To the extent these products are marketed as a short-term obligation, some consumers may misunderstand the costs and risks, particularly those associated with repeated borrowing.
The bureau is concerned that the current repayment structure of payday loans and deposit advances, coupled with the absence of significant underwriting, likely contributes to the risk that some borrowers will find themselves caught in a cycle of high-cost borrowing over an extended period of time.
Furthermore, the bureau noted that these products are represented as being appropriate for consumers who have an immediate expense that needs to be deferred for a short period of time and will have a sufficient influx of cash by the next pay period to retire the debt — and to pay the significant borrowing costs. However, the bureau said it appears that lenders do not attempt to determine whether a borrower meets this profile before extending a loan. Lenders may instead rely on their relative priority position in the repayment hierarchy to extend credit without regard to whether the consumer can afford the loan. According to the report, this position, in turn, trumps the consumer’s ability to organize and prioritize payment of debts and other expenses. Other structural and usage characteristics may also play a material role in harm experienced by consumers. Based on their analysis, we might expect more disclosure rules about these products even though they are covered by a plethora of regulations now.
In September 2012, the National Credit Union Administration approved an advanced notice of proposed rulemaking on the agency’s payday-alternative loan (PAL loan) rule. The NCUA board was reviewing its regulation governing payday-alternative loans, formerly known as short-term, small amount loans. The board intended to improve the regulation to encourage more federal credit unions to offer PAL loans and believed it may be necessary to amend the regulation.
The PAL Rule
On September 16, 2010, the NCUA board amended its general lending rule to enable federal credit unions to offer PAL loans, previously referred to as short-term, small-amount loans, as an alternative to predatory payday loans. PAL loans can help certain members to break free of their dependency on high-cost payday loans. To help FCUs afford to make PAL loans, which tend to have higher rates of default than mainstream loan products, the PAL rule permits FCUs to charge a higher rate of interest for PAL loans if certain conditions are met.
The current rule, 12 CFR 701.21, allows federal credit unions to charge a rate no higher than 1,000 basis points above the agency-set loan interest rate cap, now 18 percent. The rule permits an application fee of up to $20, requires that loan amounts are no lower than $200 and no higher than $1,000, and among other things, prohibits more than three such loans to one member in any rolling six-month period.
NCUA sought comments on the application fee and any other comments about the current regulation. The agency included specific questions for the industry and the general public to consider. Although the comment period expired on the notice, a proposed rule was never issued. You can read it at http://www.gpo.gov/fdsys/pkg/FR-2012-09-27/pdf/2012-23718.pdf.
New York State's Utica College is the first college in the United States to become an education partner with the Association of Certified Anti-Money Laundering Specialists (ACAMS).
The partnership offers significant benefits to on-campus Utica College students and those online, including free student membership for up to two years, as well as the option to take the CAMS certification examination upon graduation at a discount. Current ACAMS members also receive tuition discounts and a waived application fee when applying to Utica College's online programs.
ACAMS is the largest international membership organization dedicated to furthering the knowledge and expertise of AML/CTF and financial crime detection and prevention professionals in a wide range of industries in the public and private sectors. The CAMS certification is widely recognized among compliance professionals worldwide. Candidates who pass the CAMS examination are qualified for anti-money laundering duties in business and government, and the need for anti-money laundering experts continues to increase, according to industry experts.
"It's not only banks and credit card companies that need to hire these professionals. Due to an increasingly complex regulatory environment -- and an ever-more sophisticated, high-tech network of criminals - the need has extended to casinos, real estate agencies, precious metal and jewelry dealers, securities brokers, accountants, lawyers, insurance companies and more," said Suzanne Lynch, professor of practice and chair of economic crime programs at Utica College.
Utica College was the first college in the United States to design a bachelor's degree program in economic crime investigation and a master's in economic crime management.
"Employers are looking for people with these specialized qualifications," said John J. Byrne, CAMS, ACAMS executive vice president. "Gone are the days of on-the-job training. The field is growing and changing quickly, a degree in economic crime from Utica College, along with ACAMS certification, is the best way to distinguish oneself as an expert fully qualified for anti-money laundering duties in business and government."
Byrne also remarked that CAMS-certified professionals earn roughly 30 percent more than non-certified professionals in similar positions.
"The interdisciplinary approach of Utica's economic crime investigation program delivers a broad-based approach and educational foundation to a profession that is constantly evolving to keep up with both regulatory demands and criminal creativity," said Byrne. "This coupled with the flexibility of completing the coursework online allows Utica economic crime and justice studies students to progress through educational advancement without stalling their professional careers in the process."
The Consumer Financial Protection Bureau is amending subpart B of Regulation E, which implements the Electronic Fund Transfer Act. The 2013 final rule modifies the final rules issued by the Bureau in February, July, and August 2012 to implement section 1073 of the Dodd-Frank Wall Street Reform and Consumer Protection Act regarding remittance transfers.
These amendments address three specific issues:
It modifies the 2012 final rule to make optional, in certain circumstances, the requirement to disclose fees imposed by a designated recipient’s institution.
It makes optional the requirement to disclose taxes collected by a person other than the remittance transfer provider. Instead, it requires disclaimers to be added to the rule’s disclosures indicating that the recipient may receive less than the disclosed total due to the fees and taxes for which disclosure is now optional.
It revises the error resolution provisions that apply when a remittance transfer is not delivered to a designated recipient because the sender provided incorrect or insufficient information, and in particular, when a sender provides an incorrect account number or recipient institution identifier that results in the transferred funds being deposited in the wrong account.
The rule is effective October 28, 2013.
Methods of Transferring Money Abroad
There are several methods of transferring money to foreign countries, and they can be generally categorized as either closed network or open network systems, although hybrids between open and closed networks also exist.
Closed Networks and Money Transmitters
In a closed network, a principal provider offers a service entirely through its own operations, or through a network of agents or other partners that help collect funds in the United States and disburse them abroad. Through the provider’s own contractual arrangements with those agents or other partners, or through the contractual relationships owned by the provider’s business partner, the principal provider can exercise some control over the transfer from end to end, including over fees and other terms of service.
In general, closed networks can be used to send transfers that can be received in a variety of forms. But they are most frequently used to send transfers that are not received in accounts held by depository institutions and credit unions. Additionally, closed networks are most frequently used by nondepository institutions called money transmitters, although depository institutions and credit unions may also provide (or operate as part of) closed networks.
Open Networks and Wire Transfers
In an open network, no single provider has control over or relationships with all of the participants that may collect funds in the United States or disburse funds abroad. Funds may pass from sending institutions through intermediary institutions to recipient institutions, any of which may deduct fees from the principal amount or set the exchange rate that applies to the transfer, depending on the circumstances.
Institutions involved in open network transfers may learn about each other’s practices regarding fees or other matters through any direct contractual or other relationships that do exist, through experience in sending wire transfers over time, through reference materials, or through information provided by the consumer.
Before the 2013 rule, in open networks there has not generally been a uniform global method for or practice of communication by all intermediary and recipient institutions with originating entities regarding the fees and exchange rates that intermediary or recipient institutions might apply to transfers.
Open networks are typically used to send funds to accounts at depository institutions or credit unions. They are primarily used by depository institutions, credit unions, and broker-dealers for sending money abroad. The most common form of open network remittance transfer is a wire transfer. The CFPB believes that closed network transactions by money transmitters and wire transfers sent by depository institutions and credit unions make up the great majority of the remittance transfer market.
The rules apply to remittance transfers if they are:
More than $15;
Made by a consumer in the United States; and
Sent to a person or company in a foreign country.
This includes many types of transfers, including wire transfers, and the rules apply to most companies that offer remittance transfers, including banks, credit unions, and thrifts.
You must comply with this rule if you provide remittance transfers in the normal course of business. You are exempt if you provided 100 or fewer remittance transfers in the previous calendar year and you provide 100 or fewer remittance transfers in the current calendar year.
If you provided 100 or fewer remittance transfers in the previous calendar year and then provide more than 100 remittance transfers in the current calendar year, you will have a reasonable period of time, not to exceed six months, to begin complying with the rule.
The rules require companies to give a disclosure to a consumer before the consumer pays for a remittance transfer. The disclosure must be in writing and may be given electronically if the sender requests it. The disclosure may also be given orally in telephone transactions.
The prepayment disclosure must list:
The exchange rate
Fees, using the term “transfer fees”
The amount of money to be delivered, using the term “transfer amount” or a substantially similar term, and the total amount of the transactions (amount of transfer plus fees) using the term “total”
Companies must also provide a receipt or proof of payment that repeats the information in the first disclosure. The receipt must also tell consumers the date when the money will arrive.
You must provide the disclosures in English and in some cases other languages.
Safe Harbor List of Countries
Along with the final rule, the Bureau republished the list of countries that qualify for an exception under the rule that allows estimated disclosures for certain amounts instead of exact amounts. This will apply when the laws of the recipient country do not permit determination of the exact amounts. The following countries are on the current list, which will be updated by the CFPB from time to time:
If the CFPB determines that it is appropriate to add an additional country to the list, it will release a revised list adding those countries as soon as reasonably practicable. If the Bureau believes that it may be appropriate to remove a country from the list, it will provide 90 days’ advance notice.
The 2013 rules also require that:
Consumers get 30 minutes (and sometimes more) to cancel a transfer. Consumers can get their money back if they cancel.
Companies must investigate if a consumer reports a problem with a transfer. For certain errors, consumers can get a refund or they can transfer with no charge the money that did not arrive as promised.
Companies that provide remittance transfers are responsible for mistakes made by certain people who work for them.
Appendix A of Regulation E (12 CFR 1005) contains 14 new model forms to help you provide prepayment disclosures, error resolution disclosures, and cancellation disclosures.
Avetik Moskovian, 46, an Armenian national, has pleaded guilty in federal court for his role in a conspiracy to launder approximately $1.5 million in funds defrauded from Medicare through a phony medical business in Brunswick, Georgia.
Moskovian, who resided in Los Angeles until the time of his arrest and was here in the United States on a permanent residence card from Armenia, pleaded guilty to money laundering conspiracy before Chief United States District Court Judge Lisa Godbey Wood.
According to the evidence presented at Moskovian’s guilty plea hearing:
From 2007 through 2008, various conspirators defrauded Medicare through a durable medical equipment company in Brunswick, Georgia, known as Brunswick Medical Supply. These conspirators submitted millions of dollars in phony claims for health care services that were never provided. The evidence showed that the conspirators stole the identities for doctors and patients from multiple different states, including Alaska, California, New York, and Ohio, and even submitted claims for people who were deceased at the time that Moskovian claimed to have provided them with medical equipment.
Once Medicare paid for these phony claims, Moskovian and others took numerous steps to launder the stolen money. Moskovian helped form at least four sham businesses in Los Angeles, opened multiple bank accounts in the names of these businesses, and used these bank accounts to launder the proceeds of the fraud. Moskovian engaged in multiple financial transactions within these accounts, including wire transfers and counter withdrawals of tens of thousands of dollars in cash, as part of his effort to help hide the money defrauded from Medicare.
Moskovian now faces a maximum statutory penalty of up to 20 years in prison; a fine up to $500,000; and five years of supervised release. His sentencing will be scheduled after the United States Probation Office completes a presentence investigation.