CFPB; OFAC

Posted by Anthony Demangone

Does the CFPB even need a director?  Last week, I would have said that the answer to that question was quite clear. Today, I'm not so sure.

When U.S. Congressmen voted on the Dodd-Frank legislation regarding the CFPB, it was understood that the new agency would be run by a director that had to pass through the Senate confirmation process.  That was a very important concept, because those Congressmen who were on the fence about whether the new CFPB would have too much power could calm their fears knowing that the Director was subject to confirmation.  If a possible director had some flaw or had ideas that made too many Senators uncomfortable, that person would not be confirmed, or more likely - would not even be put forward into the confirmation process.

The naming of Elizabeth Warren as a Special Advisor to the President did ruffle some feathers, as that move seemed to run counter to the Dodd-Frank confirmation process. This trend has been exacerbated by recent news that the officials from Treasury Department  are confident that the CFPB can run just fine without a confirmed Director - even after the official transfer date has come and gone. Read more about this development here. (Bank Lawyer's Blog.) 

This development is a bit troubling.  Having a Senate-confirmed director is a well-designed example of "checks and balances."  Anyone who sat in Civics 101 can tell you that the fewer checks and balances you have, you'll see a greater likelihood for shenanigans.  Checks and balances: good.  Shenanigans: bad.  I know that a Director will eventually be named, but the longer the CFPB is allowed to function without one…well…shenanigans.  That’s all I can say.

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OFAC.  OFAC has issued guidance on "Weak AKAs"  or "weak aliases."  If you look at the SDN list, you'll see that many entries have AKAs or "known aliases" included with the entry.  OFAC notes that many of these are "weak," as they'll trigger a few false positives.  OFAC is now noting which AKAs are weak. For example, in the .pdf version of the SDN list, weak AKAs are inside double quotations.   Here are some FAQs about weak AKAs:

Am I required to screen for weak aliases (AKAs)? 
OFAC’s regulations do not explicitly require any specific screening regime.  Financial institutions and others must make screening choices based on their circumstances and compliance approach.  As a general matter, though, OFAC does not expect that persons will screen for weak AKAs, but expects that such AKAs may be used to help determine whether a “hit” arising from other information is accurate. 

Will I be penalized for processing an unauthorized transaction involving a weak alias (AKA)?
A person who processes an unauthorized transaction involving an SDN has violated U.S. law and may be subject to an enforcement action.  Generally speaking, however, if (i) the only sanctions reference in the transaction is a weak AKA, (ii) the person involved in the processing had no other reason to know that the transaction involved an SDN or was otherwise in violation of U.S. law, and (iii) the person maintains a rigorous risk-based compliance program, OFAC will not issue a civil penalty against an individual or entity for processing such a transaction.

 

Comments

[Geoff]

I think you've hit the nail on the head when you say "If a possible director had some flaw or had ideas that made too many Senators uncomfortable, that person would not be confirmed, or more likely - would not even be put forward into the confirmation process."

At this point in time, there is no possible director mutually acceptable to the President and a fillibuster-proof majority of the Senate; ergo, no director has been nominated. In point of fact, even if there is a hypothetical director who would be acceptable, their nomination could be stalled out in the byzantine inner workings of the Senate by a single Senator who disagreed.

Having a Senate-confirmed director is a well-designed example of "checks and balances", but given that the current mood and inclination of the Senate is ill-suited to exercising this power, I can hardly fault them for running without a director in the meantime.