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Your Weekly Report on the Discord from Washington, D.C.

In Partnership with the Eris Group

Happy New Year! 2018 is off to a frozen start on most of the Eastern Seaboard, but we at Eris are not deterred, as long as the electricity stays on.

CFIUS thwarts MoneyGram, Ant Financial merger agreement — Citing their inability to obtain clearance from the Committee on Foreign Investment in the United States (CFIUS), MoneyGram and Ant Financial Services Group announced Tuesday that they had agreed to cancel their agreement to merge. “Despite our best efforts to work cooperatively with the U.S. government, it has now become clear that CFIUS will not approve this merger,” said MoneyGram CEO Alex Holmes. Instead, he said, MoneyGram and the China-based Ant Financial will explore ways to cooperate in improving money transmitter services to customers in China, India, and the Philippines. The House Financial Services Subcommittee on Financial Institutions and Consumer Credit has announced a hearing on CFIUS’s role for Tuesday.

Federal Reserve seeks comment on risk management guidance for large financial institutions — As part of its initiative to develop a new rating system for large financial institutions, the Federal Reserve Board is asking for comment on proposed guidance that would clarify the Fed’s risk management expectations for these organizations. The proposal lays out core principles for effective senior management, business line management, and independent risk management. It would apply to domestic bank holding companies and foreign banks operating in the US with $50 billion or more in assets, and to nonbank financial companies designated for Fed supervision by the Financial Supervisory Oversight Council. Comments are due by March 15.

SEC signals concern about cryptocurrencies — All three members of the Securities and Exchange Commission issued a joint statement Thursday commending the North American Securities Administrators Association (NASAA) for its recent guidance on crypto currencies, initial coin offerings (ICOs), and similar investment products. The commissioners noted that “cryptocurrencies, while touted as replacements for traditional currencies, lack many important characteristics of traditional currencies,” and recommended that investors read the NASAA guidance as well as seven earlier SEC statements and alerts, most recently Chairman Jay Clayton’s remarks of December 11. Clayton said last month that he had asked the SEC’s Division of Enforcement to “police vigorously” the question of whether ICOs need to register as securities.

Mork moves from HFSC to CFPB, McGahn returns to HFSC— Kirsten Sutton Mork, Staff Director of the House Financial Services Committee since early last year, will be moving to the Consumer Financial Protection Bureau to serve as the agency’s Chief of Staff. Mork has worked for HFSC Chairman Jeb Hensarling (R-TX) since 2009, first in the personal officer as Financial Services Policy Advisor and then as Deputy Staff Director of the Financial Services Committee, beginning in 2013. “While I am sad to lose such exceptional talent, I know she will do an outstanding job as Chief of Staff for the CFPB and be a tireless advocate for American consumers,” said Hensarling. Shannon McGahn, who had been Staff Director of the Committee from 2013 to 2017, will return to that role after a year as Counselor to the Secretary of the Treasury.

Attorneys General reach $45 million settlement with PHH Mortgage — PHH Mortgage Corporation, a mortgage lender and servicer, agreed to a settlement with 49 state attorneys general (all but New Hampshire) and 40 mortgage regulators last week over allegations that PHH improperly serviced mortgages between 2009 and 2012. More than $30 million of the settlement will go to affected borrowers. PHH agreed to follow comprehensive mortgage servicing standards, conduct audits, and provide audit results to a committee of states. The settlement does not clear PHH of liability for any improper activity in 2013 or later.

NY will sue over federal tax bill — New York Governor Andrew M. Cuomo announced Wednesday that the state of New York will sue the federal government over the tax bill passed last month. In his annual State of the State address, Cuomo called the new law unconstitutional and especially harmful to New York. The elimination of deductions for state and local taxes, he said, would amount to a 20% increase in state income and property taxes, “an assault” on New York.

Fannie, Freddie pay Treasury $2.9 billion — On the last business day of 2017, Fannie Mae and Freddie Mac transferred a total of $2.9 billion to the Treasury, while keeping $3 billion apiece as capital buffers. The payment reflected a December 21 deal with Treasury and the Federal Housing Finance Agency.

OCC fines Citibank $70 million for BSA, AML deficiencies— The Office of the Comptroller of the Currency (OCC) announced Thursday that it has assessed civil penalties of $70 million against Citibank for failing to comply with a 2012 consent order dealing with Bank Secrecy Act and anti-money laundering violations. The OCC cited Citibank in 2012 for failing to file suspicious activity reports and other compliance deficiencies, including weak controls over their correspondent banking relationships. The agency has determined that Citibank is still not in compliance with the terms of the 2012 cease and desist order.

This Week in Washington:

January 9
House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “Evaluating CFIUS: Challenges Posed by a Changing Global Economy.” 10:00 a.m., 2128 Rayburn House Office Building.

January 9
Senate Committee on Banking, Housing, and Urban Affairs holds a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement.” The witnesses will be Mr. Greg Baer, President of The Clearing House Association; Mr. Dennis Lormel, former Chief of the FBI Financial Crimes Program, now President and CEO of DML Associates; and Ms. Heather Lowe, Legal Counsel and Director of Government Affairs for Global Financial Integrity. 10:00 a.m., SD-538 Dirksen Senate Office Building.

January 9
House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on “Legislative Proposals for a More Efficient Federal Financial Regulatory Regime: Part III.” 2:00 p.m., 2128 Rayburn House Office Building.

January 10
House Financial Services Subcommittee on Monetary Policy and Trade holds a hearing on “A Further Examination of Federal Reserve Reform Proposals.” 2:00 p.m., 2128 Rayburn House Office Building.

The Ellis Insight. Jim Ellis reports on political news:

> Senate

Michigan:  Former state Supreme Court Chief Justice Bob Young (R), who launched his Senate challenge to incumbent Sen. Debbie Stabenow (D) months ago, announced he is ending his campaign. Unable to raise sufficient funds to compete in a large state, the former jurist will presumably retire from elective politics. This likely leaves manufacturing business owner and retired Army Ranger John James and venture capital firm owner Sandy Pensler to battle for the party nomination. The Michigan primary won’t be held until August 7th. Sen. Stabenow is favored to win a fourth term.

Minnesota:  Sen. Al Franken (D) officially left office on January 2nd, and Lt. Gov. Tina Smith (D) was sworn in the next day as his replacement. Sen. Smith has already announced that she will compete in the 2018 special election to fill the balance of the current term. While former Gov. Tim Pawlenty (R) is not yet closing the door on running for the Senate, US Rep. Tom Emmer (R-Delano) is saying people are calling for him to run. Mr. Emmer was the Republican gubernatorial nominee in 2010, losing to Democrat Mark Dayton by just under 9,000 votes statewide, or half a percentage point. State Sen. Karin Housley (R-St. Mary’s Point/Washington County) also says she will enter the special election contest. Sen. Housley is the wife of Phil Housley, the head coach of the Buffalo Sabres NHL hockey club.

North Dakota:  State Rep. Rich Becker (R), who competed in the 2016 state Republican Convention for the Governor’s nomination, said Thursday that he will not become a US Senate candidate. Mr. Becker had been openly considering running for the party nomination to oppose first-term North Dakota Sen. Heidi Heitkamp (D). At-large US Rep. Kevin Cramer (R-Bismarck) still maintains he is contemplating a Senate bid, but the only person to actually come forward to declare his candidacy is state Sen. Tom Campbell (R-Grafton).

Texas:  We now see the first released US Senate poll since the New Year began, and it contains good news for the Lone Star State’s first-term Republican Senator, Ted Cruz. According to WPA Intelligence, polling for the Cruz Campaign (12/12-14; 600 TX likely voters), the Senator would have a 52-34% opening advantage over US Rep. Beto O’Rourke (D-El Paso). The latter man appears to have become the consensus Democratic candidate; therefore, he should easily win the March 6th Democratic primary without a run-off. Though Mr. O’Rourke is capable of running a strong campaign and will attract national liberal funding, Sen. Cruz begins this race as a heavy favorite to secure a second term.

Utah:  Sen. Orrin Hatch (R) finally ended speculation about his 2018 political plans since the holidays ended and will not seek an eighth term during this campaign season, thus ending a Senate career that will span 42 years when this Congress adjourns. On the heels of his retirement announcement, the Senator again made a public pronouncement that he favors Republican former presidential nominee and ex-Massachusetts Gov. Mitt Romney to succeed him.

Evan McMullin, the Independent presidential candidate who scored 21.5% of the vote in Utah and finished just six points behind Hillary Clinton for second place, was openly considering entering a Republican primary bid against Mr. Hatch. With the Senator now officially retiring, Mr. McMullin was quoted late last week as saying he would also support former Gov. Romney, should the latter man decide to run for the Utah seat. As has been the case for months, Mr. Romney remains silent about whether he would enter a new political contest. If he declines to run, then expect Rep. Chris Stewart (R-Farmington/Salt Lake City) and possibly Rep. Mia Love (R-Saratoga Springs), along with several others, to enter the statewide campaign.

> House

AL-2:  Rich Hobson, campaign manager to failed US Senate candidate Roy Moore (R), Thursday announced that he will enter the field to challenge four-term Rep. Martha Roby (R-Montgomery) in this year’s June Republican primary. Already in the race are state Rep. Barry Moore and Iraq War veteran Tommy Amason. Though Rep. Roby only won re-election in the 2016 general election by a 49-40% count, it does not now appear that any of the three Republican challengers will be strong enough to deny her re-nomination.

AZ-7:  In an unusual twist, a Democratic congressional incumbent is drawing a primary challenge from his right. State Sen. Catherine Miranda announced Thursday that she will challenge two-term Rep. Ruben Gallego (D-Phoenix) for his heavily Democratic urban Maricopa County CD. Sen. Miranda even went so far as to cross party lines to endorse Republican Doug Ducey in the 2014 open seat battle that he would subsequently win. Rep. Gallego is favored for re-nomination in a district that is 64% Hispanic, but it will be interesting to monitor how well a credible Blue Dog can perform in a secure Democratic CD.

MS-3:  Five-term Mississippi Republican Rep. Gregg Harper (R-Pearl/Jackson) announced late last week that he will not stand for re-election, becoming the 30thcurrent Republican not to run for another term. This is in addition to 15 Democrats who have taken the same course. Less than half of the exiting group, 18 in all so far, are running for another office, either Senator or Governor with one already announcing for the 2020 presidential contest. The remainder are voluntarily retiring or have already resigned typically because of sexual harassment allegations.

The 3rd District, which occupies most of central Mississippi, has a safely Republican voting history. Therefore, the eventual party nominee will be a heavy favorite to hold the seat for the GOP.

OH-12:  Rep. Pat Tiberi (R-Galena/Franklin County), who declared last year that he would resign from Congress to accept a position as head of the Ohio Business Roundtable, stated Thursday that he will officially leave the House on January 15th. Once the seat becomes vacant, Gov. John Kasich (R) will schedule the special election to replace Mr. Tiberi. It is likely that the state’s May 8th regular primary election will serve as either the special primary or special general election. The GOP is expected to hold what has performed as a safely Republican district.

PA-9:  In November, veteran Rep. Bill Shuster (R-Hollidaysburg/Altoona) announced that he would seek re-election in 2018 even though his chairmanship of the House Transportation & Infrastructure Committee is drawing to an end when the current Congress adjourns. As 2018 begins, however, Mr. Shuster has suddenly reversed course and announced that he will not seek re-election after all. Under its present configuration, the 9th District should remain safely Republican. If the Democrats win their redistricting lawsuit, however, the district could drastically change in a re-draw, meaning this open seat could easily turn more Democratic.

> State Legislature

Virginia:  The Virginia House of Delegates’ majority has come down to one single district that ended in a tied vote. Therefore, literally one vote statewide is determining which party will control the chamber in the next legislative session. After the state three-judge panel ruled that a particular contested ballot must be counted for Republican Delegate David Yancey (R-Newport News), the 94th District House of Delegates electoral outcome officially became a tie. Democratic candidate Shelly Simonds asked for reconsideration, but the court again ruled the vote must be counted. This led to the drawing of lots to determine who would officially win the election.

On Wednesday, the process was completed and Delegate Yancey won the draw. Ms. Simonds apparently has the right to ask for yet another recount, and she already indicated that she will pursue such a course of action. So, this post-election saga will apparently continue for some time, but for now the official ruling declares that Mr. Yancey is the winner.