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This Week in Washington for August 13, 2018

August 13, 2018

By Dina Ellis

THE BIG PICTURE

Congressman Chris Collins, who represents New York’s 27th District, was arrested Wednesday along with his son Cameron on charges of insider trading. Rep. Collins, who served as an independent director of an Australian biotech company, Innate Immunotherapeutics Ltd., is charged with tipping off his son after receiving confidential information about negative clinical trial results for Innate’s multiple sclerosis drug. Rep. Collins has suspended his campaign for reelection, and House Speaker Paul Ryan removed Collins from his seat on the House Energy and Commerce Committee while the investigation is ongoing.

Following President Trump’s decision to withdraw from the Iran nuclear deal in May, the first set of economic sanctions which had been lifted as part of the 2015 agreement were reimposed on Tuesday. An additional set of sanctions are set to be restored in November. The decision put the U.S. at odds with our European allies, who issued a statement describing their “deep regret” regarding the snapback, and pledged to protect “European economic operators engaged in legitimate business with Iran.”

The hotly contested Special Election in Ohio’s 12th Congressional District to replace retiring Republican Rep. Pat Tiberi was held on Tuesday, with the outcome still too close to call. Republican Troy Balderson faced off against Democrat Danny O’Connor in a race that drew national attention as a potential bellwether for the 2018 midterms. While President Trump won the district by 12 points in 2016, the Special Election was unexpectedly close with the polls tightening leading up to Election Day. Balderson ended the night with a lead at the polls, but the final count of provisional ballots is still ongoing and will determine whether a recount will be triggered.

A new set of sanctions on Russia were announced Wednesday in response to Russia’s use of the Novichok nerve agent in an attempted assassination of former spy Sergei Skripal and his daughter on U.K. soil in March. The U.S. has formally determined that the attack violated the Biological Weapons Control and Warfare Elimination Act of 1991. The sanctions will go into effect in two waves, with the first round—primarily limiting U.S. exports of technology and machinery, to be imposed in two weeks. A second round of more serious sanctions could go into effect if Russia does not admit culpability and comply with inspections, which could lead to a ban on more imports and exports and a suspension of the state airline Aeroflot’s ability to fly into the U.S. Russian Prime Minister Dmitry Medvedev said the additional sanctions could be seen as a “declaration of economic war.”

Senate Judiciary Chairman Chuck Grassley announced on Friday that Brett Kavanaugh’s confirmation hearing is set to begin September 4th, less than two months after President Trump announced his nomination. Republicans and Democrats continue to argue over the scope and timing of when documents related to Kavanaugh’s tenure at the White House will be available for review, with Ranking Member Dianne Feinstein arguing “the committee shouldn't hold a hearing before we've had a chance to review his entire record.”

THIS WEEK ON THE HILL

The House remains in recess while the Senate returns Wednesday following an abbreviated August break.

THE REGULATORS

CFTC Proposes Rules to Simplify Process for Foreign Clearing Organizations to Obtain DCO Registration Exemption: The CFTC on Wednesday voted unanimously to approve a proposal to codify policies and procedures for clearing organizations located outside of the U.S. to obtain an exemption from registration as a derivatives clearing organization (DCO). The proposal would also reduce CFTC staff time and utilize fewer resources to grant exemptions. This proposal is in keeping with the CFTC’s Project KISS, an agency-wide initiative to simplify agency rules, regulations and practices to make them less burdensome, less costly and transparent to all market participants.

Treasury Extends Exemption on Beneficial Ownership Rule: On Wednesday, the Financial Crimes Enforcement Network announced that it was extending the exemption from the Beneficial Ownership Rule for certain financial products and services (i.e., certificate of deposit or loan accounts), to September 8th from the original August 9th cutoff date.

Treasury Issues Proposed Regulations on New 20 Percent Deduction for Pass-Through Businesses: The Treasury and Internal Revenue Service issued proposed regulations implementing a significant provision of the Tax Cuts and Jobs Act, which allows owners of sole proprietorships, partnerships, trusts, and S corporations to deduct 20 percent of their qualified business income. “The pass-through deduction is an important tax cut for small and mid-size businesses, reducing their effective tax rates to their lowest levels since the 1930s,” said Secretary Steven Mnuchin.

FinCEN Director Discusses Virtual Currency and Emerging Technology: Speaking at the 2018 Chicago-Kent Block (Legal) Tech Conference, FinCEN Director Kenneth Blanco discussed the Agency’s approach to virtual currency an emerging technologies. He reported that FinCEN has seen an uptick in crypto-related suspicious activity reports (SARS), receiving upwards of 1,500 a month, and noted that as “industry evolves and adopts these new technologies, we also must be cognizant that financial crime evolves right along with it.”

DEA Official Discusses Cryptocurrency: Despite popular perception about the widespread criminal use of cryptocurrencies, DEA special agent Lilita Infante who serves on the Cyber Investigative Task Force at the Agency reported that as the volume of bitcoin transactions has increased, the ratio of illegal activity has decreased dramatically, now accounting for just 10%. She added, “the blockchain actually gives us a lot of tools to be able to identify people. I actually want them to keep using them.”

Richmond Fed President Backs Gradual Rate Increases: Thomas Barkin, who heads the Federal Reserve Bank of Richmond, endorsed the current policy of gradual interest rate increases, saying “It is difficult to argue that lower than normal rates are appropriate when unemployment is low and inflation is effectively at the Fed's target.”

Layoffs Hit Market Watchdog: The Office of Financial Research was hit with upwards of 40 layoff notices last week. The OFR was established by the 2010 Dodd-Frank Act with a mission to “shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose, and provide policymakers with financial analysis, information, and evaluation of policy tools to mitigate them.” Treasury explained the decision as a move “to make OFR a more efficient organization with a stronger workforce and culture.”

CFPB Updates Regulation P to Implement Legislation Amending Gramm-Leach-Bliley Act: The CFPB finalized amendments to implement legislation that allows financial institutions that meet certain requirements to be exempt from sending annual privacy notices to their customers. The Gramm-Leach-Bliley Act (GLBA) generally requires that financial institutions send annual privacy notices to customers. In December 2015, Congress amended the GLBA as part of the Fixing America’s Surface Transportation Act (FAST Act). The rule issued by the Bureau implements this legislation and establishes deadlines for institutions resuming annual privacy notices if their practices change, and they therefore cease to qualify for the exemption.

Former Comptroller of the Currency Supports Fintech Charter: Former Comptroller Gene Ludwig, who now serves as the CEO of Promontory Financial Group, voiced his support for the OCC’s proposal to allow fintech companies to apply for bank-like charters, saying “the more we can take the unregulated financial system and put it under the umbrella of the regulated financial system, the better off everybody is from the standpoint of safety and soundness.”

COMINGS AND GOINGS AT THE AGENCIES

Allison Lee Rumored to Be Under Consideration for SEC Seat: The President is rumored to be considering Allison Lee, who previously served as an enforcement attorney at the SEC, to replace her former boss Commissioner Kara Stein in a Democratic seat on the panel.

THE COURTS

Challenge to SEC’s Paperless Reporting Rule Pending Before D.C. Circuit: In Twin Rivers Paper Company LLC et al. v. SEC, groups representing the paper and printing industry are asking the court to deem the SEC’s recently approved Rule 30e-3 unlawful. The rule provides an optional “notice and access” method to allow funds to satisfy their obligations to transmit shareholder reports electronically. In the suit, plaintiffs decry the rule as “arbitrary and capricious and otherwise not in accordance with the law, and promotes neither protection of consumers nor efficiency, competition and capital formation.”

OTHER NOTEWORTHY ITEMS

U.K. Launches Fintech Collaboration Network: The U.K.’s Financial Conduct Authority announced the creation of the Global Financial Innovation Network, building on the FCA’s proposal earlier this year to create a ‘global sandbox’. The network will seek to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. It will also create a new framework for co-operation between financial services regulators on innovation related topics, sharing different experiences and approaches.

Ohio Passes Law to Legally Recognize Blockchain Data: Ohio Governor John Kasich signed into law an amended Uniform Electronic Transactions Act, which now states that “a record or contract that is secured through blockchain technology is considered to be an electronic form and to be an electronic record.”

Contributors

Image: Dina Ellis Rochkind
Dina Ellis Rochkind
Of Counsel, Corporate Department