Legal and Disciplinary Actions Pertaining to Variable Annuity Sales and Related Matters
In July 2005, in our capacity as a broker-dealer, we agreed with the Commonwealth of Massachusetts to allow all customers over 75 from 2003-2004 to redeem their variable annuities without incurring surrender charges. We also agreed to retain and independent consultant in order enhance our policies and procedures concerning variable annuity sales practices, gifts and gratuities, and books and records. In addition, we agreed to pay an administrative fine of $3,000,000. This matter arose from allegations by the Commonwealth of Massachusetts, Securities Division, regarding violations of Massachusetts securities laws in connection with the sale of variable annuities in Massachusetts branch offices, a failure to supervise such activity, and a failure to maintain and preserve books and records relating to gifts, gratuities and business entertainment.
In April 2006, in our capacity as a broker-dealer, we also settled administrative matters with the State of Rhode Island and FINRA (formerly NASD) relating to the same or substantially similar issues raised by the Commonwealth of Massachusetts. We agreed to pay an
administrative fine of $800,000 to the State of Rhode Island for the same or similar issues previously identified by the Commonwealth of Massachusetts and to waive certain surrender charges for variable annuity clients.
In August 2006, we entered into a Letter of Acceptance, Waiver and Consent (“AWC”) with FINRA (formerly NASD) relating to allegations by FINRA that we had failed during the period beginning October 25, 2003 through March 29, 2005 to maintain and enforce a supervisory system including, but not limited to, written procedures concerning product suitability reviews, telemarketing, internal inspections, and correspondence review, registration of offices and review and approval of 529 plans. We agreed to a censure and a fine of $850,000, and also agreed to conduct a review of certain supervisory systems and procedures.
In June 2007, the State of New Hampshire fined us $375,000 in connection with the same pattern of alleged violations identified by Massachusetts, Rhode Island and FINRA. This included failure to adequately monitor variable annuity sales practices to customers 75 years and older as well as failure to retain e-mail communications under broker dealer rules.
Civil and Criminal Proceedings Pertaining to LIBOR
During February 2013, The Royal Bank of Scotland plc (“RBS plc”) entered into settlements with the United States Commodity Futures Trading Commission (“CFTC”) and the United Kingdom Financial Services Authority (“FSA”). We are an indirect, wholly owned
subsidiary of RBS plc.
The CFTC alleged that RBS plc engaged in false reporting, attempted manipulation and manipulation with respect to the submission of London Interbank Offered Rate (“LIBOR”) for Swiss Franc and Japanese Yen. For further information, please see CFTC release
PR6510-13. On February 6, 2013, RBS plc reached a settlement with the CFTC in relation to investigations into submissions, communications and procedures around the setting of LIB OR in which RBS plc neither admitted nor denied the findings. RBS plc agreed to cease and desist violating Sections 6(c), 6(d) and 9(a)(2) of the Commodity Exchange Act and paid a penalty of $325,000,000 to the CFTC to resolve charges arising from the investigations. As part of the agreement with the CFTC, there was a finding that from at least mid-2006 through late 2010, RBS plc frequently attempted to manipulate Yen LIBOR, made false reports on numerous occasions in furtherance of those attempts and at times was successful in
manipulating Yen LIBOR. There was also a finding that from late 2006 through late 2009, RBS plc frequently attempted to manipulate Swiss France LIB OR, made false reports on a number of occasions in furtherance of those attempts and at time was successful in
manipulating Swiss Franc LIBOR. RBS plc also agreed to institute certain undertakings designed to ensure the integrity and reliability of benchmark interest rate submissions, and to identify, construct and promote effective methodologies and processes for setting benchmark interest rates.
The FSA alleged that RBS plc sought to manipulate the LIB OR for Swiss Franc and Japanese Yen. The FSA also alleged that RBS plc inappropriately considered the impact of LIB OR submissions on the profitability of transactions in its money market trading books as a factor when making (or directing others to make) Japanese Yen, Swiss Franc and U.S.
Dollar LIBOR submissions. For further information see FSA/PN/011/2013. On February 6, 2013, RBS plc reached a settlement with the FSA in relation to an investigation into
submissions, communications and procedures around the setting of LIBOR. As part of the settlement, RBS plc paid a penalty of £87,500,000 (approximately $136,958,068) to the FSA to resolve the investigation, and the FSA found that RBS plc breached Principle 3 and 5 of the FSA’s Principles for Businesses. RBS plc did not admit the FSA’s findings. The FSA found that RBS plc breached principle 3 between January 2006 and March 2012 by (i) failing to identify and manage all of the risks of inappropriate submissions until March 2012; (ii) failing to have any submissions-related systems and controls until March 2011; (iii) failing to have adequate transaction monitoring systems and controls to detect wash trades until March 2012; and (iv) the failures of management oversight until April 2009. The FSA found that RBS plc breached principle 5 between October 2006 and November 2010 by seeking to manipulate Swiss Franc LIB OR and Yen LIBOR, and by inappropriately considering the impact of LIBOR submissions on the profitability of transactions in its money market trading books as a factor when making (or directing others to make) Yen, Swiss Franc and U.S.
Dollar LIB OR submissions.
On April 12, 2013, the Fraud Section of the Criminal Division and the Antitrust Division of the United States Department of Justice (together, the “Department of Justice”) filed a two-count criminal information against RBS plc in the United States District Court – District of Connecticut (“District Court”). The criminal information charged one count of wire fraud in violation of Title 18, United States Code, Section 1343 in relation to a Swiss Franc LIBOR submission made by RBS plc on December 4, 2008, and one count of price-fixing in violation of Title 15, United States Code, Section 1 in relation to Japanese Yen LIB OR between approximately 2007 and 2010. Pursuant to a deferred prosecution agreement, RBS plc will, among other things, pay a fine of One Hundred Fifty Million Dollars ($150,000,000), less any criminal penalty imposed by the District Court on RBS Securities Japan Limited in
connection with its guilty plea and plea agreement. The Department of justice has agreed, pursuant to the deferred prosecution agreement, to defer the prosecution of RBS plc for the conduct at issue.
Financial Conduct Authority Proceedings Relating to Transaction Reporting by Certain Affiliates
On July 16, 2013, The Royal Bank of Scotland plc (“RBS plc”) and The Royal Bank of Scotland N.V. (“RBS NV”) reached a settlement with the Financial Conduct Authority (“FCA”) in relation to accusations that the entities failed to accurately report approximately 44.8 million transactions between November 5, 2007 and February 1, 2013, and failed to entirely report approximately 804,000 transactions between November 5, 2007 and February 2012 in violation of FCA SUP 17 (Transaction Reporting) and Principle 3 (Management and Control). The RBS entities agreed to pay a fine of £5,620,300 to resolve charges arising from the matter.
Regulatory Proceedings Relating to Bank Secrecy Act. OFAC. Anti-Money Laundering Requirements and Similar Matters
Board of Governors of the Federal Reserve System (“FRB”) Proceedings Against The Royal Bank of Scotland Group plc (“RBS Group”) and The Royal Bank of Scotland plc (“RBS plc”). On December 11, 2013, the FRB and RBS Group and RBS plc entered into a settlement that resulted in the FRB issuing an Order to Cease and Desist Issued Upon Consent Pursuant to the Federal Deposit Insurance act, as Amended, and an Order of Assessment of a Civil Money Penalty Issued Upon Consent Pursuant to the Federal Deposit Insurance Act, as Amended (collectively, the “FRB Order”). The FRB Order resulted from investigations into the practices of RBS plc concerning the transmission of funds to and from the United States through unaffiliated U.S. financial institutions, including by and through entities and individuals subject to the Bank Secrecy Act, the rules and regulations issued thereunder by the U.S. Department of the Treasury, the anti-money laundering requirements of Regulation K of the FRB; and with applicable U.S. sanction laws, including the
International Emergency Economic Powers Act and Trading with the Enemy Act, and
implementing regulations administered by the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC Regulations”). The FRB Order identified that RBS Group and RBS place lacked adequate risk management and legal review policies and procedures to ensure the activities conduct at offices outside the United States comply with applicable OFAC Regulations and identified issues with relevant policies and procedures from at least 2005 to 2008. The FRB Order was entered into without any adjudication of or finding on any issues of fact or law. The FRB Order requires RBS Group and RBS plc to submit a compliance program, submit written progress reports regarding compliance with the FRB Order, and retain an independent consultant. The FRB Order also required RBS Group and RBS plc to pay an amount of $50,000,000, which was paid on December 16, 2013.
Office of Foreign Assets Control of the U.S. Department of Treasury (“OFAC”) Proceedings Against The Royal Bank of Scotland plc (“RBS plc”). On December 11,2013, OFAC and RBS plc entered into a settlement agreement (“OFAC Agreement”) providing that RBS plc processed US dollar payment transactions through the United States in apparent violation of
the Burmese Sanctions Regulations, the Cuban Assets Control Regulations, the Iranian Transactions Regulations, the Sudanese Sanctions Regulations, the Tom Lantos Block Burmese JADE Act of 2008, Executive Orders and/or regulations promulgated pursuant to the International Emergency Economic Powers Act, and the Trading with the Enemy Act (“Sanction Requirements”). By its terms, the OFAC Agreement was entered into without it constituting an admission or denial by RBS plc of any allegation made or implied by OFAC and without a final agency finding that a violation has occurred. The OFAC Agreement required payment in the amount of $33,122,307 arising out of the apparent violations by RBS plc of the Sanction Requirements, which was deemed satisfied by RBS plc’s payment to the FRB on December 16,2013. In addition, the OFAC Agreement requires RBS plc to provide OFAC with copies of all submissions to the Board of Governors of the Federal Reserve System for the same pattern of conduct.
New York Department of Financial Services (“NYFS”) Proceedings Against The Royal Bank of Scotland plc (“RBS plc”). On December 11, 2013, NYFS and RBS plc settled an investigation by the NYFS resulting in the issuance of the Consent Order under New York Banking Law Section 44 (“NYFS Consent Order”). The NYFS Consent Order alleges RBS plc processed US dollar transactions for customers and beneficiaries from the Sudan, Iran, Burma, Cuba, and Libya in a non-transparent manner at odds with U.S. national security and foreign policy and raised serious safety and soundness concerns for regulators. The NYFS Consent Order required RBS plc to make payment of a civil money payment in the amount of
$50,000,000, which was paid on December 16, 2013.
Miscellaneous Legal and Disciplinary Proceedings
In February 2008, the State of New York fined the firm $1,500 for providing material incorrect information on its application of our insurance license and for failure to notify the State of New York within 30 days of matters concerning the Rhode Island and FINRA actions described above under “Legal and Disciplinary Actions Pertaining to Variable Annuity Sales and Related Matters.”
In January 2009, we concluded a Consent Order in the State of Florida related to an inadvertent failure to comply with Florida insurance licensing regulations and paid and administrative penalty of $1,000.
In June 2009, we paid an administrative penalty of $200 to the State of Delaware related to a failure to notify the insurance department within 30 days of an administrative matter in another jurisdiction.
In September 2011, we paid an administrative penalty of $2,500 to the State of New Jersey related to a failure to notify the insurance department within 30 days of administrative matters in other jurisdictions.