Money Matters: This Week in Washington
This Week in Washington for October 22, 2018
By Dina Ellis
THE BIG PICTURE
The fallout from the disappearance and suspected murder of U.S.-based Saudi journalist Jamal Khashoggi continued to dominate headlines. Early in the week President Trump suggested that “rogue killers” might be responsible, and sent Secretary of State Mike Pompeo to Saudi Arabia to meet with King Salman. On Thursday, Treasury Secretary Steven Mnuchin announced that he would not attend the upcoming Future Investment Initiative summit in Riyadh, joining other high profile business leaders who had withdrawn following the controversy. Over the weekend, amid mounting international pressure, Saudi Arabia admitted for the first time that Mr. Khashoggi was dead, but claimed that he had been killed in a fight at the embassy in Turkey, an explanation which drew bipartisan skepticism.
Senator Elizabeth Warren (D-MA) released a video detailing her Native American ancestry, including the results of a DNA test, which seemed meant to undercut President Trump’s frequent criticism of her as “Pocahontas”, and pave the way for a potential 2020 run. The move garnered criticism from some Democrats who took umbrage with Senator Warren’s timing, arguing that the video was an unwelcome distraction with less than three weeks to go before the crucial November midterms. Some Native American groups, including the Cherokee tribe, were also unhappy with her claim, and said that genetic testing was “useless” in determining tribal membership. However, Senator Warren called for the President to make good on his bet, and donate a million dollars to the National Indigenous Women’s Resource Center.
The Justice Department announced on Friday that they had charged a Russian woman for attempts to interfere in the 2018 midterm elections. The woman, Elena Khusyaynova, resides in Russia and so will likely never face trial on the charges in the US. Ms. Khusyaynova was accused of working as an accountant for an internet troll farm coordinating spending upwards of US$10M on an “information warfare” campaign “to sow division and discord in the U.S. political system.”
Other highlights of last week include:
A heated argument between White House Chief of Staff John Kelly and National Security Advisor John Bolton, reportedly over a recent surge in border crossings, led some to wonder if a resignation could be forthcoming.
The Interior Department’s Inspector General released a report on Thursday criticizing Secretary Ryan Zinke and his wife for improperly utilizing taxpayer resources for personal travel.
White House Counsel Don McGahn officially departed the administration on Wednesday. The President announced that he had selected Pat Cipollone to succeed Mr. McGahn. Mr. Cipollone joins the administration from a D.C. area law firm, having served in the George H. W. Bush Justice Department earlier in his career.
In an interview on Wednesday, the President strongly criticized the Federal Reserve, calling it his “biggest threat,” due to his view that the central bank has raised interest rates “too fast.”
LAST WEEK ON THE HILL
Congress remains in recess through the November midterms.
CFTC Chairman Criticizes EU Derivatives Oversight Proposal: In a speech on Wednesday, CFTC Chairman Giancarlo called a European Union proposal to oversee U.S. derivatives clearinghouses “completely irresponsible” and noted that he has consulted with EU leaders and urged them to reconsider. He told the audience “the CFTC will not allow U.S. market participants to be put in the completely untenable position of having to choose between violating domestic laws and regulations or violating foreign laws and regulations.”
CFTC and ASIC Sign FinTech Cooperation Arrangement: The CFTC and the Australian Securities and Investments Commission (ASIC) signed an arrangement to cooperate and support innovation through each other’s financial technology initiatives—CFTC’s LabCFTC and ASIC’s Innovation Hub. CFTC Chairman Giancarlo said, “This arrangement will encourage the development of emerging financial and compliance technologies and continue to enhance global awareness of the critical role of regulators in 21st century digital markets.”
SEC Releases Investigative Report Entitled “Public Companies Should Consider Cyber Threats When Implementing Internal Accounting Controls”: On Tuesday, the SEC issued an investigative report cautioning that public companies should consider cyber threats when implementing internal accounting controls. The report is based on the SEC Enforcement Division's investigations of nine public companies that fell victim to cyber fraud, losing millions of dollars in the process. The SEC's investigations focused on "business email compromises" in which perpetrators posed as company executives or vendors and used emails to dupe company personnel into sending large sums to bank accounts controlled by the perpetrators.
SEC Launches New Strategic Hub for Innovation and Financial Technology: On Thursday, the SEC announced the launch of the agency's Strategic Hub for Innovation and Financial Technology (FinHub). The FinHub will serve as a resource for public engagement on the SEC's FinTech-related issues and initiatives, such as distributed ledger technology (including digital assets), automated investment advice, digital marketplace financing, and artificial intelligence/machine learning. The FinHub also replaces and builds on the work of several internal working groups at the SEC that have focused on similar issues.
Proposed Changes to Volcker Rule Draw Criticism: Wednesday marked the final day in the comment period for proposed changes to the Volcker Rule, including one which would revamp the trading account definition. The financial regulators received sharp criticism from bank and trade industry groups, who argued that the changes would end up making things worse for banks, and urged them to rework or scrap entirely parts of the proposal.
Treasury Targets Iraq-based Money Services Business Supporting ISIS: On Wednesday, The U.S. Department of the Treasury’s Office of Foreign Assets Control imposed sanctions on Afaq Dubai, an Iraq-based money services business (MSB) that has been moving money for the Islamic State of Iraq and Syria (ISIS). “This Iraq-based MSB is a part of ISIS’s complex network of money services businesses, hawalas, and financial facilitators funding terrorism across the Middle East. We are targeting this network in concert with the Department of Defense as part of this Administration’s ongoing campaign to cut off ISIS’s ability to launder money and move illicit funds,” said Sigal Mandelker, Treasury Under Secretary for Terrorism and Financial Intelligence.
FDIC Advisory Committee on Economic Inclusion to Meet Next Week: The Federal Deposit Insurance Corporation Advisory Committee on Economic Inclusion (ComE-IN) will meet on Wednesday, October 24 to discuss the 2017 FDIC Household Survey data results, review of UK-Financial Conduct Authority (FCA) mobile study, and youth employment programs and deposit accounts.
FDIC Enhances Tool to Prevent Elder Financial Exploitation: On Monday, the FDIC announced the release of a Spanish-language version of Money Smart for Older Adults. The curriculum, now offered in English and Spanish, has been updated to provide new information and resources to help older adults and their caregivers recognize and prevent fraud, scams, and other types of financial exploitation. The curriculum also includes information to help older adults plan for a secure financial future and make informed financial decisions.
Comptroller Otting Discusses Fintech Charters and Banking for Marijuana Businesses: On Wednesday, Comptroller of the Currency Joseph Otting announced that the OCC would likely be able to issue charters for fintech companies by next year saying, “I would guess by mid-2019 we'll be in a position to approve or decline a charter.” He also discussed his view that a legislative solution is needed for banks who wish to serve marijuana businesses, which an increasing number of states have legalized. He noted that it’s “not healthy” to cut businesses off from banking, and added that he was “hopeful there's enough momentum in that direction.”
FHFA Releases Report on Challenges for 2019: The Federal Housing Finance Agency’s Office of Inspector General released a report detailing the “serious management and performance challenges” that the regulator faces which could hamper their mission. Following the release, House Financial Services Chairman Jeb Hensarling (R-TX) released a statement saying “this country’s government-run housing finance system is broken” and that “Taxpayers deserve far better.”
Federal Reserve Official Optimistic on Productivity Growth: Randal Quarles, who serves as Vice Chairman of Supervision at the Fed, said in a speech at the Economic Club of New York that he is optimistic that productive capacity could accelerate in the next few years, but cautioned that “I also think there is enough doubt about current inflation as an infallibly reliable measure of current resource constraints that the continued gradual removal of accommodation is appropriate.”
COMINGS AND GOINGS AT THE AGENCIES
Senate to Vote on Michelle Bowman’s Fed Nomination: Senate Majority Leader Mitch McConnell (R-KY) filed cloture on Ms. Bowman’s nomination, and a vote has been scheduled for November 14th when the Senate is back in session following the midterm elections.
District Court Judge Ruling Paves Way Forward for Obama-Era Student Loan Protection Regulation: In a setback to Education Secretary Betsey DeVos’ agenda, on Tuesday U.S. District Judge Randolph Moss denied a request by a group of for-profit colleges to further postpone Obama-era student loan borrower protections, which were originally due to go into effect in July 2017. Judge Moss had ruled last month that Secretary DeVos’ delay in implementing the rule was unlawful.
New Lawsuit Alleges Discrimination and Harassment at American Bankers Association: A lawsuit recently filed by a former employee of the American Bankers Association alleges discrimination and sexual harassment at the association, claiming an “old boys club” atmosphere. Christine Walika worked at ABA for 25 years, most recently as an executive vice president, and says in her suit that the group violated the DC Human Rights Act and the DC Family and Medical Leave Act.
OTHER NOTEWORTHY ITEMS
Senators Call for EU to Scrap Digital Services Tax Proposal: On Thursday, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) sent a letter to European Union leaders urging them to abandon their proposed digital services tax, saying it “has been designed to discriminate against U.S. companies and undermine the international tax system, creating a significant new transatlantic trade barrier that runs counter to the newly launched U.S. and EU dialogue to reduce such barriers.” They also noted that the proposal “violates the long-held principle that taxes on multinationals should be profit-based, not revenue-based” and “will undoubtedly lead to double taxation of multinational companies.”