CSBS Suit Challenging OCC Fintech Charter Dismissed

For the second time, a federal judge has dismissed a suit brought by the Conference of State Bank Supervisors (“CSBS”) seeking to block the Office of the Comptroller of the Currency (“OCC”) from offering a national fintech banking charter. Judge Dabney Friedrich of the D.C. Circuit again found that the claims brought by the CSBS are not ripe, given that the no fintech charters have been approved or issued by the OCC, and therefore the CSBS lacks standing to bring the suit.

The New York Department of Financial Services (“NYDFS”), a CSBS member, has brought a separate suit on the matter in the Southern District of New York—and in that case, the judge has found the matter is ripe for adjudication and has allowed that suit to continue. In both suits, the plaintiffs allege the OCC’s fintech charter impinges on state sovereignty and exceeds the OCC’s congressional mandate.  Judge Friedrich notes in her opinion that her decision runs counter to the decision in the NYDFS case but disagrees with that decision where it conflicts with the D.C. Circuit’s dismissal of the CSBS case.

FDIC Updates Risk Management Examination Policies

Recently, the Federal Deposit Insurance Corporation (“FDIC”) issued a letter to the financial institutions it supervises, highlighting an update to its Risk Management Manual of Examination Policies (the “Manual”). The update adds a new section, “Risk-Focused, Forward-Looking Safety and Soundness Supervision.” The new section includes the FDIC’s existing philosophy that examinations of supervised institutions should focus on areas presenting the greatest risks. The new section’s purpose is to provide a more complete description of this philosophy as well as improve the transparency of examination practices. Additionally, the new section states that the risk-focused approach to examinations is “forward-looking” and focuses on “how well an institution can respond to changing market conditions given its particular risk profile.”

The new section is now included in Part VI of the Manual, “Appendix: Examination Processes and Tools.”

Credit Card Processor Cannot Dismiss FTC Monetary Damages Claim

Card Processor Electronic Payment Solutions, LLC, its CEO, and founding partner (collectively, “EPS”) saw efforts to escape a Federal Trade Commission (“FTC”) claim of monetary damages fail in an Arizona federal court. The claim relates to EPS’s alleged involvement in a purported telemarketing scam by Money Now Funding (“MNF”), resulting in over $7 million in damages. The FTC alleged that the telemarketing scheme was used to launder money through fraudulent credit card transactions. The principals of MNF were alleged to create fictitious entities and then processed credit card charges through those fictitious merchant accounts rather than through MNF’s merchant account. The court held that the EPS defendants played an integral role in the MNF scheme by approving MNF’s merchant applications despite indications of fraud and processing the transactions through the fraudulent accounts.

The FTC sought monetary damages under FTC Act Section 13(b), and the defendants moved to dismiss this claim, arguing that restitution and disgorgement are not permissible forms of equitable relief under Section 13(b) because that section only states that a court may issue a permanent injunction. The judge in the case found the FTC’s pleadings sufficiently met required standards for seeking monetary damages and denied the defendant’s motion to dismiss.

FinCEN Issues Advisory on Trafficking of Fentanyl and Synthetic Opioids

The Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued an advisory to financial institutions alerting them to the use of illicit financial schemes to facilitate the trafficking of fentanyl and other synthetic opioids. The advisory provides detailed information regarding several ways in which transnational criminal organizations (“TCOs”) use the U.S. financial system to traffic fentanyl and other synthetic opioids, including using money services businesses, bank transfers, online payment processors, and virtual currencies for purchases domestically and internationally, and to launder money gained from their illicit trafficking. The advisory is designed to assist financial institutions in detecting and reporting suspicious activity associated with criminal enterprises engaged in the fentanyl trade. The advisory highlights and identifies the typologies and red flags associated with these transactions.

FinCEN identifies two general typologies for fentanyl trafficking: the direct purchase of fentanyl from China by individuals in the U.S. and cross-border trafficking of fentanyl from Mexico by TCOs and other criminal enterprises. Within these two typologies, the advisory notes that funding for fentanyl trafficking occurs through purchasing from foreign and domestic sources through money services businesses, bank transfers, or online payment processors, or through convertible virtual currency purchases, as well as from other general money laundering mechanisms such as bulk cash smuggling and trade-based money laundering. The advisory includes fund flow diagrams and case studies of some of these funding mechanisms.


SWIFT Publishes New Pre-Auth API Standard

The Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) recently published a new API standard for pre-authorization of funds. The new standard, facilitated in part by the European Union’s Second Payment Services Directive, is aimed at fostering innovation and open-banking by creating uniformity across banks, merchants, and non-bank fintechs.

The new standard follows the Pay Later API standard, released by SWIFT earlier this year.