Former Chase Bank official convicted of taking bribes and disclosing existence of a Suspicious Activity Report

A former official with Chase Bank has been found guilty of disclosing the existence of a suspicious activity report (SAR) filed with federal officials, and then soliciting thousands of dollars in bribes to help the borrower deal with a possible criminal investigation related to the illegally disclosed SAR.

Frank E. Mendoza, 45, has been convicted on three counts of bank bribery and one count of unlawfully disclosing a SAR. The federal jury deliberated about 30 minutes before issuing its verdict, which included a not guilty finding on a charge of attempted economic extortion.

Following a one-week trial in United States District Court, the jury determined that Mendoza demanded a $25,000 bribe, ultimately accepted $10,000 in bribes from the customer, and disclosed the existence of a SAR. The Financial Crimes Enforcement Network (FinCEN), a bureau within the Treasury Department that receives SARs from financial institutions around the country, believes Mendoza is the first bank official in the nation to be convicted of criminal charges for revealing the filing of a SAR.

The evidence presented during the trial showed that Mendoza, who worked as a loss mitigation specialist for Chase Bank, conducted an investigation of a delinquent borrower on mortgage loans made in relation to seven properties in Palmdale. In the fall of 2008, Mendoza reported to Chase that he suspected fraud in relation to the mortgages, and the bank in late November 2008 filed a SAR with FinCEN.

Several months later, Mendoza approached the borrower and suggested that he pay $25,000 in exchange for Mendoza’s assistance with Chase and a possible federal criminal investigation related to the loans. In these conversations, Mendoza disclosed the filing of the SAR and asserted that a federal criminal investigation of the borrower was imminent.

Mendoza’s bribery solicitation in May 2009 caused the borrower to contact the FBI. After the borrower delayed paying any bribe money, Mendoza ultimately agreed to accept $10,000 in cash. During two meetings in the borrower’s car in the parking lot of the Mall of Victor Valley, the borrower made two $5,000 payments to Mendoza. Following the second payment on June 29, 2009, special agents with the FBI arrested Mendoza, recovered the second $5,000 payment, and recovered from Mendoza’s wallet two $100 bills that were part of the first bribe payment.

Steven Martinez, Assistant Director in Charge of the FBI in Los Angeles, said: “Dishonest practices by bank employees corrode our banking system and, as evidenced by Mr. Mendoza’s conviction, can have serious consequences.”

Mendoza is scheduled to be sentenced on May 25. As a result of yesterday’s guilty verdicts, Mendoza faces a statutory maximum penalty of 95 years in federal prison.

“Suspicious activity reports filed by financial institutions with FinCEN provide some of the most useful information available to government authorities in criminal, tax or regulatory investigations or proceedings,” according to FinCEN Director James H. Freis, Jr. “This flow of highly confidential information among financial professionals, FinCEN, and law enforcement depends on the training and trust placed on industry and government officials alike. This case demonstrates the severe consequences that come with betraying that trust, disregarding the Bank Secrecy Act, and ignoring one’s duty as an employee of a financial institution.”

The Financial Crimes Enforcement Network is a bureau within the Treasury Department charged with partnering with the financial industry, law enforcement and regulators to protect the U.S. financial system from criminal abuse. FinCEN administers the Bank Secrecy Act, which is the federal anti-money laundering and counter-terrorism financing statute. The Bank Secrecy Act and FinCEN regulations require certain financial institutions, including all banks, to have Anti-Money Laundering programs in place and to report suspicious transactions and large currency transactions. FinCEN receives approximately one million SARs every year.

Royal Bank of Scotland and NatWest fined £2.8m over poor complaint handling

The Financial Services Authority (FSA) has fined Royal Bank of Scotland (RBS) and National Westminster Bank (NatWest) £2.8m for multiple failings in the way they handled customers’ complaints, responding inadequately to more than half the complaints reviewed by the FSA.

The FSA’s investigation found that there was an unacceptably high risk that customers may not have been treated fairly due to a number of failings within the banks’ approach to routine complaint handling, including:

• delays in responding to customers
• poor quality investigations into complaints, with complaint handlers failing to obtain and consider all the appropriate information when making their decision
• issuing correspondence that failed to fully address all of the concerns raised by customers and failed to explain why complaints had been upheld or rejected, and

• customers not receiving their Financial Ombudsman Service (Ombudsman) referral rights within the appropriate time period.

Of the complaint files reviewed by the FSA, 53% showed deficient complaint handling; 62% showed a failure to comply with FSA requirements on timeliness and disclosure of Ombudsman referral rights; and 31% failed to demonstrate fair outcomes for consumers.

The FSA’s investigation also found that:

• the banks did not give complaint handling staff adequate training and guidance on how to properly investigate a complaint,
• the monitoring of complaint handling in branches and the management information produced was ineffective in assessing whether customers were being treated fairly, and
• the banks failed to ensure that complaint handlers properly reviewed complaints taking account of all relevant factors.

Margaret Cole, the FSA’s managing director of enforcement and financial crime said:

“We expect firms to treat customers fairly and that consumers can be confident that their complaints will be dealt with properly. The failure of these two high street banks to deal adequately with complaints put consumers at unacceptable risk and the fine of £2.8m reflects this.

“The poor complaints procedure of RBS and NatWest came to light during our review of complaint handling in major banks. The review showed that banks need to make major changes to handle consumer complaints fairly and the FSA will continue to take appropriate action to ensure these changes are put in place.”

The failings in the complaints handling processes of RBS and NatWest were uncovered during the FSA’s review of complaints handling in the UK’s major retail banks. As a result of the thematic review, five banks have undertaken significant action to improve their complaint handling. The FSA subsequently published a consultation paper on 30 September 2010 on changes to complaint handling requirements, which aims to increase the quality of complaints handling across the industry and increase senior management accountability for complaints.

RBS and NatWest have co-operated fully with the investigation, accepting the findings at an early stage and have agreed to make significant changes to their complaints handling arrangements. The FSA has required RBS and NatWest to work with an independent skilled person to undertake an extensive review of all parts of their complaint handling arrangements. The FSA is also working closely with the banks to ensure that the changes will lead to effective improvements.

The banks agreed to settle at an early stage in the investigation and therefore qualify for a 30% reduction in penalty. Were it not for this discount the FSA would have sought to impose a financial penalty of £4m on the firms.

Safaricom expands M-PESA

East Africa's largest mobile operator, Safaricom, is expanding its M-PESA mobile money transfer service across Africa, a move likely to heighten competition for mobile money-transfer services in the region.

The rollout of the mobile money transfer service by Safaricom comes less than two months after MTN and Western Union partnered to introduce international remittance services in 21 countries where MTN has a presence. Meanwhile, the Zap service - formerly run by Zain and now operated by Bharti Airtel - has also been expanding steadily over the past year. MTN's mobile money transfer already boasts over 1 million registered customers in Uganda alone.

The rollout of the service by operators is threatening the continued existence of traditional money transfer services. Most Africans are now using mobile financial services to buy goods, pay utility bills, buy mobile airtime as well as receive funds from abroad.

The M-PESA service is currently available in Africa and the Middle East including South Africa, Kenya, Tanzania and Afghanistan and is currently being piloted in India. The service will allow users to send and receive money across the continent using a mobile phone. Safaricom is in partnership with Vodafone of UK for the provision of mobile commerce services in the region. Plans are under way by the companies to expand the service to the Democratic Republic of Congo, Mozambique and Lesotho.

Former Safaricom CEO Michael Joseph who chairs the board of directors of both Safaricom and Vodacom is expected to lead the expansion of the M-PESA service across Africa. Vodafone owns 65 percent stake in Vodacom Group, based in South Africa. Joseph was instrumental in making M-PESA a success when he was at the helm of Safaricom and is expected to drive the regional expansion program. The M-PESA mobile commerce was launched by Safaricom in 2007 and has since been expanding, with more than 13 million subscribers at this point.

Last year, Zain Africa - now Bharti Airtel - expanded the Zap mobile money commerce to Malawi, Nigeria and Sierra Leon after a successful rollout of the service in Kenya, Uganda and Tanzania and claimed 10 million people subscribe to the service.

"I used to travel to the village to pay my workers. But now I send the money through a phone because there are centers nearby where my workers collect money," said Lawrence Banda, a mobile commerce user in Zambia.

Zap is part of Airtel's One Network Platform, which allows subscribers to call countries where the service is available without paying roaming charges. The platform also allows travelling customers to make calls and SMS messages at local rates as well as recharge their mobile phones will locally purchased top-up cards. Using the platform, travelling customers are also able to send money back to their families and business from those countries where the Zap service is enabled.

Generally, most Africans do not have banks accounts and customers typically have to travel long distances to access traditional bank facilities. As a result, Africa is experiencing an explosion in mobile money transfer services as banks and mobile providers compete for customers who would otherwise not have a bank account.

Research and Markets publishes new forecasts for South African Telecoms, Mobile, Broadband for 2011

Research and Markets has announced the addition of the "South Africa - Telecoms, Mobile, Broadband and Forecasts" report to their offering. This annual report provides a comprehensive overview of trends and developments in South Africa’s telecommunications market.

South Africas telecom sector boasts the continent’s most advanced networks in terms of technology deployed and services provided. In a virtually saturated voice market, four mobile networks Vodacom, MTN, Cell C and Telkom SA who are competing for market share in the next growth wave, mobile broadband. 3G/HSPA mobile broadband services now rival available DSL fixed-line offerings in terms of both speed and price, and consequently subscriber numbers. 2010 also saw the first trials of the next generation of mobile technology, LTE (also referred to as 4G) in South Africa.

While emerging as the country’s leading broadband providers, the major mobile operators are also branching out into fixed-lines, fibre backbone networks, international fibre connectivity, mobile banking and entertainment in a rapidly converging environment. Fixed-line incumbent Telkom SA has reacted by launching its own 3G mobile network and the country’s first commercial WiMAX service, but various competitors are hard on its heels rolling out the same technology, including second national operator Neotel.

Following years of delays with its licensing, Neotel is gaining traction in the market in competition with Telkom. This, in combination with other sweeping liberalisation measures, also delayed by years, has changed the country’s telecoms landscape fundamentally and brought prices down. In addition, the government has created Broadband InfraCo, a national infrastructure company to provide cheap backbone network capacity to service providers. Despite the significantly increased competition between different service providers, many municipalities in South Africa, including the country’s largest cities, are implementing their own fibre and wireless broadband networks.

Under a converging regulatory regime, hundreds of alternative service providers are now pushing into the market with converged services. The legalization of VoIP Internet telephony in 2005 marked the beginning of a fundamental change in the country’s telecoms landscape. Billions of dollars are being invested into IP-based next-generation networks that are capable of delivering converged services more efficiently. Telecom carriers and ISPs are moving into delivering audio and video content over their networks, while in turn the traditional electronic media carriers have discovered the potential of their infrastructure for telecommunications service delivery.

Key regulatory events shaping the market in 2011 will be the complete unbundling of the local loop, the staged reduction of interconnect charges, the auctioning of WiMAX and LTE spectrum, and a deadline for mobile subscribers to register their personal details with service providers under new legislation, which could lead to a significant drop in mobile penetration.

All of the major players are involved in the various international submarine fibre optic cables that have reached the country in the past two years. Following the end of Telkoms monopoly on international submarine fibre-optic cables, the arrival of Seacom as the second international cable in 2009 has brought down the cost of international bandwidth dramatically. A third international cable, EASSy landed in 2010, and more are scheduled to go live in 2011 and 2012.

South Africas Internet and broadband market has finally taken off after years of stagnation due to an expensive operating environment created by Telkom SAs dominance in the fixed-line and international bandwidth market. The new converged licensing regime has created hundreds of companies licensed to offer Internet services. There has been consolidation in the sector which is expected to continue.

With its relatively well-developed and diverse infrastructure, South Africa is also taking a regional lead role in the convergence of telecommunication and information technologies with the media and entertainment sector, promising reductions in telecommunication costs and better availability of information and services. Digital media and social media have reached a level of development to foster an associated advertising and marketing industry. The FIFA World Cup held in the country in 2010 has showcased these developments. While South Africa lags behind other countries on the continent in the development of e-government, e-health and e-learning applications, it is a regional leader in the areas of electronic banking and mobile banking services.

Glitch leads to double charges

More than 200,000 people in Britain may have been double-charged on New Year's Eve because of a glitch in a Lloyds Bank payment system, bank officials said.

The bank said the problem was a system error in Lloyds TSB Cardnet terminals, and could affect anyone who paid with a credit card at a restaurant, bar or nightclub using the system to process credit card payments.

Lloyds released a statement saying cardholders would be reimbursed for any overcharges.

Director fined and banned over £2 million insurance fraud

The Financial Services Authority (FSA) has fined Barry Williams £25,000 and banned him from working in regulated financial services for his part in a scheme that defrauded leading London market insurers of more than £2 million.

Whilst not a participant in the fraud, as a director of Surety Guarantee Consultants Limited (SGC), Williams deliberately ignored his responsibilities as an approved person, turning a blind eye despite clear warnings about the true nature of the scheme.

SGC was established in 2004 to write a form of insurance known as surety bonds. Between January 2005 and August 2006 SGC held binding authorities with London market insurers, Markel and QBE (through its agent Amalfi) and wrote business that exceeded its authorised limits, exposing Markel and QBE to greater liabilities than they had agreed. In doing so, SGC made secret profits and withheld over £2 million that should have been paid to the insurers.

When SGC was audited by the insurers it produced false documents intended to show that it had kept within the terms of the binding authorities.

Williams did not profit directly from the fraud, however, he deliberately ignored serious concerns about signing surety bonds on behalf of the insurers in excess of the agreed limits. He was also found to have lied to the insurers to hide the scheme, allowing himself to become involved in the fraud.

Margaret Cole, FSA director of enforcement and financial crime, said:

"In believing that he could be a 'sleeping director' without incurring any responsibility, Williams did not take his accountability as an approved person seriously. He recklessly abused the trust and confidence placed in him by leading London market insurers and by doing so enabled secret profits to be made from the fraud by his colleagues.

"The London market relies on the trust and integrity of those who work in it. This sort of breach of fiduciary duty and lack of integrity amounts to very serious misconduct and will not be tolerated in the insurance industry or anywhere else in financial services. We will continue to take action against anybody else tempted to act in this way."

From a proposed fine of £50,000, The Upper Tribunal (Tax and Chancery Chamber) reduced the penalty to £25,000 in light of Williams' personal circumstances. It upheld the decision to ban Williams and withdraw his existing approval.

In July last year Timothy Higgins and Clifford Felstead of SGC and Ralph Brunswick of Templeton Insurance were banned from working in regulated financial services for their role in the fraud. The action against Barry Williams brings the FSA's enforcement action against all those active in the fraud to a close.

PayPal scammers targeted in US

US authorities have raided the house of two foreign exchange students suspected of involvement in a Vietnam-based crime ring that uses stolen credit card numbers, eBay and PayPal to con retailers out of millions of dollars.

According to an affidavit filed supporting a search warrant request, Winona State University students Tram Vo and Khoi Van are suspected of participation in the scam that has hit Amazon, Apple and Rosetta Stone among others.

The pair are accused of setting up over 150 eBay, and more than 300 PayPal, accounts using stolen identities. The accounts were used to sell items such as video games and iTunes gift cards worth over $1.2 million on the auction site.

To obtain the items they were selling, the men are alleged to have bought them directly from manufacturers using stolen credit card details, shipping the goods directly to the eBay buyers.

The stolen funds were then transferred from PayPal to dozens of bank accounts with banks such as Wells Fargo and HSBC before being moved on to Vietnam and Canada.

The affidavit, connecting Vo and Van to identity theft, money laundering and wire fraud is related to a US Department of Homeland Security investigation dubbed Operation eMule that has been running since 2009.

According to local press reports the search warrant was issued and computers seized from the men but charges have yet to be laid.