Saturday, February 8, 2014

SECRETARY KERRY'S REMARKS ON INTERNATIONAL COURT OF JUSTICE NOMINEE

FROM:  STATE DEPARTMENT 
Statement on the Nomination of Joan E. Donoghue to the International Court of Justice
Press Statement
John Kerry
Secretary of State
Washington, DC
February 8, 2014

I am delighted to announce the formal nomination of Joan E. Donoghue by the U.S. National Group to serve a second term as Judge on the International Court of Justice, an institution that plays a vital role in international dispute resolution and in the development of international law.

Judge Donoghue has had a long and distinguished career in international law.

From 2007 to 2010, she was the State Department’s senior career lawyer, serving as the Acting Legal Adviser for the first six months of the Obama Administration. She has taught at several U.S. law schools and has lectured widely on international law and adjudication.

Since joining the Court in 2010, Judge Donoghue has demonstrated exceptional intelligence, integrity and independence in addressing the diverse and complex issues that come before the Court. Her knowledge, temperament, and commitment to the rule of law make her an outstanding choice for this important position.

I strongly support her election for a second term.

SHORT- MEDIUM TERM FINANCE OPENED IN BURMA BY EX-IM BANK

FROM:  EXPORT-IMPORT BANK 
Ex-Im Bank Opens for Short-Term and Medium-Term Financing in Burma

Washington, D.C. – The Export-Import Bank of the United States (Ex-Im Bank) announced today that it will open for business in Burma to help finance short-term and medium-term U.S. export sales.

“Today the Export-Import Bank is sending a strong signal that we are committed to strengthening economic ties with Burma as the nation continues its transition,” said Ex-Im Bank Board Chairman and President Fred Hochberg. “After a diligent review, the Bank's Board reached this decision--which will improve trade flows between our two countries and help reintegrate Burma into the global economy. Furthermore, this decision will open an important new market for American exports and support American jobs.”

Ex-Im Bank can now provide export-credit insurance, loan guarantees and direct loans for creditworthy export sales to Burma starting February 6, 2014.  Short-term insurance is available for sovereign transactions with repayment terms of 180 days or less, and up to 360 days for capital goods. Medium-term insurance, loan guarantees and loans are available for sovereign transactions with terms typically up to five years.

The Bank's working capital guarantees, which help U.S. exporters or their suppliers to obtain funds to produce or buy goods or services for export, will be available to support exports to Burma as well.

The Bank is also able to provide long-term support in Burma, provided there are financing arrangements that eliminate or externalize country risks, such as asset-backed financings and structures that earn revenues offshore in a third country.


EDUCATION DEPARTMENT TO GIVE AWARDS TO TURN AROUND LOWEST-PERFORMING SCHOOLS

FROM:  EDUCATION DEPARTMENT 

U.S. Department of Education Announces Awards to 6 States and District of Columbia to Continue Efforts to Turn Around Lowest-Performing Schools

FEBRUARY 7, 2014

U.S. Secretary of Education Arne Duncan today announced that six states and the District of Columbia will receive more than $38 million to continue efforts to turn around their persistently lowest-achieving schools through new awards from the Department's School Improvement Grants (SIG) program. Those receiving these new awards are: Delaware, District of Columbia, Georgia, Mississippi, Nebraska, Virginia, and West Virginia.

"When schools fail, our children and neighborhoods suffer," Duncan said. "Turning around our lowest-performing schools is hard work but it's our responsibility, and represents a tremendous opportunity to improve the life chances of children. We owe it to our children, their families and the broader community. These School Improvement Grants are helping some of the lowest-achieving schools provide a better education for students who need it the most."

School Improvement Grants are awarded to State Educational Agencies (SEAs) that then make competitive subgrants to school districts that demonstrate the greatest need for the funds and the strongest commitment to provide adequate resources to substantially raise student achievement in their lowest-performing schools.

Under the Obama Administration, the SIG program has invested up to $2 million per school at more than 1,500 of the country's lowest-performing schools. Early findings show positive momentum and progress in many SIG schools. Findings also show that many schools receiving SIG grants are improving, and some of the greatest gains have been in small towns and rural communities.

States announced today and their grant amounts are:

Delaware $1,454,995
District of Columbia $1,424,316
Georgia $16,476,501
Mississippi $5,645,842
Nebraska $2,453,597
Virginia $7,593,473
West Virginia $3,177,082

TRENDNET, INC. SETTLES HOME SECURITY-PRIVACY CASE WITH FTC

FROM:  FEDERAL TRADE COMMISSION 

Following a public comment period, the Federal Trade Commission has approved a final order settling charges that electronics company TRENDnet, Inc.’s lax security practices led to the exposure of the private lives of hundreds of consumers on the internet for public viewing.

The FTC’s complaint alleged that TRENDnet marketed its SecurView cameras for purposes ranging from home security to baby monitoring, and claimed in numerous product descriptions that they were “secure.”  In fact, the cameras had faulty software that left them open to online viewing, and in some instances listening, by anyone with the cameras’ Internet address.

In settling the complaint, TRENDnet is prohibited from misrepresenting the security of its cameras or the security, privacy, confidentiality, or integrity of the information that its cameras or other devices transmit. In addition, the company is barred from misrepresenting the extent to which a consumer can control the security of information the cameras or other devices store, capture, access, or transmit.

TRENDnet also is required to establish a comprehensive information security program designed to address security risks that could result in unauthorized access to or use of the company’s devices, and to protect the security, confidentiality, and integrity of information that is stored, captured, accessed, or transmitted by its devices.  The company also is required to obtain third-party assessments of its security programs every two years for the next 20 years.

The settlement requires TRENDnet to notify customers about the security issues with the cameras and the availability of a software update to correct them, and to provide customers with free technical support for the next two years to assist them in updating or uninstalling their cameras.

The Commission vote approving the final order was 4-0.

WEEKLY ADDRESS FOR FEBRUARY 8, 2014

FROM:  THE WHITE HOUSE 

Weekly Address: Expanding Opportunity for the American People

WASHINGTON, DC— In this week’s address, President Obama said he will do everything he can to make a difference for the middle class and those working to get into the middle class, so that we can expand opportunity for all and build an economy that works for the American people.
Remarks of President Barack Obama
As Prepared for Delivery
The White House
February 8, 2014
Hi, everybody.  In my State of the Union Address, I talked about the idea of opportunity for all. 
Opportunity is the idea at the heart of this country – that no matter who you are or how you started out, with hard work and responsibility, you can get ahead.
I ran for President to restore that idea, and I’m even more passionate about it today.  Because while our economy has been growing for four years, and those at the top are doing better than ever, average wages have barely budged.  Too many Americans are working harder than ever just to get by, let alone get ahead – and that’s been true since long before the recession hit.
We’ve got to reverse those trends.  We’ve got to build an economy that works for everyone, not just a fortunate few.  And the opportunity agenda I laid out last week will help us do that. 
It’s an agenda with four parts.  Number one: more new jobs.  Number two: training folks with the skills to fill those jobs.  Number three: guaranteeing every child access to a world-class education.  And number four: making sure that hard work pays off, with wages you can live on, savings you can retire on, and health insurance that’s there when you need it. 
I want to work with Congress on this agenda where I can. But in this year of action, whenever I can take steps without legislation to expand opportunity for more American families, I will.  I’ve got a pen and a phone – a pen to take executive action, and a phone to rally citizens and business leaders who are eager to create new jobs and new opportunities.  And we’ve already begun.
In Wisconsin, I ordered an across-the-board reform of our training programs to train folks with the skills employers need, and match them to good jobs that need to be filled right now.
In Pittsburgh, I directed the Treasury to create “my-RA,” a new way for working Americans, even if you’re not wealthy, to start your own retirement savings.
In Maryland, I rallied the leaders of some of America’s biggest tech companies to help us make sure all our kids have access to high-speed internet and up-to-date technology to help them learn the skills they need for the new economy.
And at the White House, I brought together business leaders who’ve committed to helping more unemployed Americans find work, no matter how long they’ve been looking.  And I directed the federal government to make hiring decisions the same way – based on whether applicants can do the job, not when they last had a job.
So when you hear me talk about using my pen and my phone to make a difference for middle class Americans and those working to get into the middle class, that’s what I mean.  And I’m going to keep asking students and parents and business leaders to help – because there are millions of Americans outside Washington who are tired of stale political arguments, ready to move this country forward, and determined to restore the founding vision of opportunity for all.
And so am I.  Thanks, have a great weekend, and to our Olympians in Sochi, go Team USA! 

RECENT U.S. DEFENSE DEPARTMENT PHOTOS

FROM:  U.S. MARINE CORPS 

U.S. Marine Corps Sgt. Rush, a military working dog, searches for explosives during a patrol near Patrol Base Boldak in Helmand province, Afghanistan, Jan. 30, 2014. U.S. Marine Corps photo by Lance Cpl. Zachery B. Martin.

A U.S. Marine and his military working dog take a break during a patrol near Patrol Base Boldak in Helmand province, Afghanistan, Jan. 30, 2014. U.S. Marine Corps photo by Lance Cpl. Zachery B. Martin. 

ATTORNEY GENERAL HOLDER'S REMARKS TO PARLIAMENT OF SWEDEN

FROM:  JUSTICE DEPARTMENT 
Attorney General Eric Holder Delivers Remarks at the Parliament of Sweden
~ Tuesday, February 4, 2014

Thank you, Minister [Birgitta] Ohlsson, for those kind words – and thank you all for such a warm welcome.  First Deputy Speaker [Suzanne] Eberstein; Deputy Secretary General Claes Martensson; Ambassador [Mark] Brzezinski; honorable members of Parliament; distinguished guests; ladies and gentlemen; and future leaders of this great country – it is a privilege, and a great pleasure, to be with you today in this beautiful city.

I would like to thank the government of the Kingdom of Sweden for your hospitality during my visit.  And I’d like to thank all of the leaders and the citizens of this country – both in and far beyond this room – for their commitment, their dedication, and their steadfast partnership with the United States and other leading democracies in confronting the most pressing challenges of our time.

In every corner of the globe, Sweden is recognized as a champion of human rights.  You stand at the forefront of efforts to combat climate change and increase energy efficiency.  And you – and your fellow members of the European Union – are moving in a variety of ways to bolster the institutions of democracy in Eastern Europe, to expand transatlantic trade, and to provide critical developmental assistance and other support to stop the spread of infectious diseases like AIDS, tuberculosis, and malaria.  The fact that Sweden is America’s primary development assistance partner in the world speaks volumes about your awareness of the importance of sharing.  America and Sweden today share not only common values, but also an awareness of common responsibilities for humanity’s future.

From the districts and villages of Afghanistan, to the towns and refugee camps of Syria; from the offices of the United Nations, to the chambers of this Parliament – your partnerships with other nations, including the United States; your leadership of the international community; and your vital military, humanitarian, and diplomatic contributions – are delivering not just hope for a better future, but tangible progress toward the safer and more inclusive world we seek for ourselves and our citizens.

Throughout my tenure as Attorney General of the United States, I have repeatedly seen the significant, positive difference that Swedish engagement brings to the international stage.  I’ve had opportunities to work closely with key leaders from Sweden to reinforce – and to enhance – cooperation to combat terrorism; to crack down on transnational organized crime; to fight against human trafficking; and to root out the scourge of corruption.  Today, I am proud to stand with you once again in strengthening the ties that bind our nations together.  And I am grateful for your enduring commitment to work with my colleagues in the American government to foster renewed and widespread consensus on the need for collective action in the face of shared challenges.

As President Obama said during his stay here in September – on the first-ever bilateral visit by a United States President to Sweden – “We share a belief in the dignity and equality of every human being; that our daughters deserve the same opportunities as our sons; that our gay and lesbian brothers and sisters must be treated equally under the law; that our societies are strengthened by diversity.”

“. . . [W]e stand,” he said, “for universal human rights, not only in America and Europe, but beyond, because we believe that when these rights are respected, nations are more successful and our world is safer and more just.”

We understand, in short, that the values that define our nations – values that give rise to dignity, equal opportunity, and justice for every segment of our people – are anything but novel concepts.  They are written into our nations’ founding documents.  They are etched into our pasts.  And they are woven throughout our histories.  They are part of our collective consciousness.  Over the centuries, they have inspired untold millions – seemingly ordinary, but all extraordinary – to stand up, and speak out, and even lay down their lives to improve the countries they love.

As a result – especially in recent decades – our nations have together made historic strides in the long march toward freedom and justice for all of our citizens.  And Sweden has in many respects led the way.  By enacting parental leave laws in the 1970s, members of this Parliament enabled mothers and fathers to share fully in the lives of their young children.  By adopting and strengthening workplace nondiscrimination legislation over the course of the last three decades, you’ve allowed people of all backgrounds, genders, and ethnic origins to contribute to the success and prosperity of this nation.

By passing the Discrimination Act of 2008, you’ve freed countless people to achieve whatever their dreams, their talents, and their own hard work will allow – without fear of discrimination on the basis of sex, ethnicity, religion or other belief, disability, age, gender identity or expression, or sexual orientation.  By becoming the seventh nation in the world to extend the right to marry to gay and lesbian couples, you’ve stabilized families and expanded individual liberty.  And by building on Sweden’s remarkable history as a safe haven for the oppressed and the persecuted – including the thousands of Jewish migrants who were granted asylum here in and around the time of the Second World War and, in more recent years, those who have come from some of the world’s most troubled regions – you’ve shown that, although it is seldom easy, it is both noble and, more importantly, right to fight the short term comfort of indifference; to welcome those who flee from persecution; and to shelter those who struggle to survive in the lands where they were born.

As we’ve seen in the United States – throughout our history – these and other markers of progress do not come without trials of their own.  Over the years, they’ve tested your institutions and your citizens, just as similar advances have tested ours.  They’ve demanded levels of understanding and acceptance that may come slowly to individual communities and courts of law – just as we’ve witnessed across the United States.  But through years of struggle and sacrifice – by consistently choosing understanding over fear, diversity over intolerance, and inclusion over division – these advancements and many others have brought our respective nations closer to the democratic ideals and the cherished principles that have defined us for centuries, and that must continue to push us forward even today.

Over the last two and a quarter centuries, the United States has confronted the evils of slavery and racial segregation.  We have expanded the voting franchise to include people of color, women, and young people.  And this coming May, we will commemorate sixty years since the United States Supreme Court ordered an end to racial segregation in our public schools.

This landmark legal opinion was written by Chief Justice Earl Warren – one of the most distinguished jurists in our history, and a man of proud Swedish heritage.  The decision he forged helped ignite the modern Civil Rights movement, giving rise to the advancements that defined the 1960s and infusing generations of Americans with the energy – and the optimism – to bring about once-unimaginable progress.

From the Equal Pay Act of 1963, to the Civil Rights Act of 1964, and the Voting Rights Act of 1965 – the resulting legal protections and institutional transformations forever altered the course of the 20th century for my country.  Pioneers like Rosa Parks; President John F. Kennedy; my predecessor as Attorney General Robert F. Kennedy; Medgar Evers; Thurgood Marshall; and Dr. Martin Luther King, Jr. helped build the fight for civil rights into a national movement and a shared moral crusade.  And countless passionate citizens and courageous young people like the Little Rock Nine – who, in 1957, braved bigotry and threats of violence to become the first African-American students to attend Little Rock Central High School, in Arkansas – and one of whom, Gloria Ray Karlmark, we are honored to have with us today – helped to open a new, but too long in coming, age of inclusion and opportunity.

Their achievements, and their stories, truly belong to the ages.  All of this progress has been remarkable.  All of it is worth celebrating.  But the reality is that our work – in the United States, in Sweden, and around the world – is far from over.  Now, more than ever, we need to be increasingly conscious of our interdependent responsibilities.  Progress is not inevitable. It is built by commitment, by hard work, and by sacrifice.

In every nation that has confronted difficult questions of human and civil rights, the echoes – and, in many cases, the direct effects – of past struggles remain all too apparent.  In so many ways, the promises of our respective Constitutions have yet to be fully realized.  Democracy rests on the rule of law, and democracies are strengthened when we work together.  This is particularly important as we move more deeply into the 21st century – a century characterized by opportunity, but also turbulence and discontinuity.  Our histories have led us here – to this moment.  And as we gather today, it’s clearer than ever before that – as President Obama said in his second Inaugural address – “Our journey is not complete until our gay brothers and sisters are treated like anyone else under the law – for if we are truly created equal, then surely the love that we commit to one another must be equal as well.”

Just as our forebears came together to overcome tremendous adversity – and to forge the more just and more equal societies in which we now live – so, too, must the current generation rise to the causes that have become the struggles of our day; the defining civil rights challenges of our time.  I believe one of these struggles is the fight for equality for our lesbian, gay, bisexual, and transgender – or LGBT – citizens.  And that is why my colleagues and I are working alongside leaders like you and people around the world to make a positive difference.  I am particularly impressed by the formulation that the United States Embassy in Stockholm used as it engaged in the annual Pride festival last July:  U.S. Embassy Stockholm is “anti-anti-gay.”

In 2010, the Obama Administration collaborated with the United States Congress to repeal the military’s “Don’t Ask, Don’t Tell” policy, ensuring that those who courageously serve their country in uniform need no longer hide their sexual orientation.  Today, these brave men and women can live openly, honestly, and without fear of punishment.

Last year, Justice Department officials and other leaders helped to strengthen a law known as the “Violence Against Women Act” – by adding robust new protections for LGBT survivors of domestic abuse.  Today, these Americans have access to the same services as other survivors of partner violence, allowing them to get the help they desperately need.

And last June – in a historic decision known as United States v. Windsor – the U.S. Supreme Court struck down the federal government’s ban on recognizing gay couples who are legally married.  This marked a major victory for the cause of equal protection under U.S. law, and a significant step forward for committed and loving couples throughout the country.  Today, these couples and their families are one step closer to the equal treatment, and the full recognition, to which they, their loved ones, and their children are entitled.  And as we speak, my dedicated colleagues – led by the Justice Department’s Civil Division – are working tirelessly to implement this ruling in both letter and spirit – by expanding critical benefits like health insurance for federal employees in same-sex marriages; by ensuring equal treatment under tax and immigration laws; and by adjudicating visa applications for same-sex married couples on the same terms as applications for opposite-sex spouses.

At the same time, our Civil Rights Division is fighting to achieve justice for victims of hate crimes, and to safeguard those who are targeted just because of their sexual orientation or gender identity.  And countless Americans from all backgrounds and walks of life are proudly standing alongside Sweden and other democratic nations in calling for the protection of our LGBT citizens; in working to secure recognition for the equal love and equal humanity of all people; in supporting local advocates in other countries so they can bring about change from within; and in speaking out for the fundamental truth that no matter where you live, who you love, or who you are – whether you’re a public servant or a businessperson; an educator, a scientist, or an athlete competing at the highest level and on a world stage – every human being is, and must be, free and equal in both dignity and rights.

Neither tradition nor fear of change can absolve us of the obligation we share: to identify and eradicate discrimination in all its forms.  And although I am gratified to note that we have traveled a long way together along the path to inclusion and equality, no one can deny that the road ahead is paved with uncertainty or that a great deal of work remains to be done.

As we continue to move forward, we will undoubtedly encounter resistance and opposition both at home and around the world.  But as long as we keep learning from one another, supporting one another, and standing together as a community of nations, I believe that – if history is any guide – there is good reason for confidence in where our efforts will lead us from here.

Fifteen years ago next month, in his final days as the first democratically-elected President of South Africa, the late Nelson Mandela spoke in this august chamber to thank the people of Sweden for their support in ending apartheid.  It is worth remembering that Sweden was the first country outside Africa that Mandela visited after being released from an excruciating 27-year long imprisonment.  He reminded the world – in this very chamber – that “[t]he achievement of our goals depends also on others achieving the same goals.”  And he urged us to remember that, “In this modern world, whatever happens in one country has an impact elsewhere, even across the globe.”

Let us recommit ourselves – here and now – to the legacy of cooperation that brought President Mandela to Sweden that day.  Let us renew our enduring faith in the inherent dignity and value of every human being – a faith that has for generations driven Swedes and Americans and countless others to stand up for freedom throughout the world.  And let us celebrate the spirit of both friendship and partnership that has drawn our nations together over the years; that has united our citizens in the unrelenting pursuit of justice; and that must always shape our words, guide our deeds, and define our future progress.

I am proud to join you in pledging my own best efforts, and the commitment of the United States government, to keep advancing the cause of civil rights.  I am honored to count you as colleagues in this important work.  I thank you, once again, for your leadership in driving these efforts into the future.  Democracies are strengthened when we work together.  And I look forward to all that the United States and Sweden must and will achieve together in the months and years to come.

Thank you.

STANDARDS SET FOR INFANT FORMULA

FROM:  FOOD AND DRUG ADMINISTRATION 
FDA Sets Standards for Infant Formula
February 6, 2014

The Food and Drug Administration today released an interim final rule that sets standards for manufacturers to produce safe infant formula that supports healthy growth.

While breastfeeding is strongly recommended and many mothers hope to breastfeed, most U.S. infants rely on infant formula for some portion of their nutrition. The interim final rule applies only to infant formulas represented for use by healthy infants without unusual medical or dietary problems.

The interim final rule amends FDA's quality control procedures, requirements about how and when manufacturers must notify the agency about new formulas and changes to formulas, and requirements concerning what manufacturing and related records and reports must be established and maintained. It establishes current good manufacturing practices specifically designed for infant formula, including required testing for contamination from harmful bacteria such as Salmonella. In addition, the interim final rule will help ensure that infant formula contains all federally required nutrients, such as protein, fat, and certain vitamins and minerals, and that the formula supports healthy growth.

Companies currently manufacturing infant formula in the U.S. have been producing safe infant formula in compliance with requirements of the Infant Formula Act, and these firms voluntarily conduct many of the current good manufacturing practices and quality control procedures included in the interim final rule. Following publication of the rule, FDA will accept and review comments on issues or information not previously considered.

FDA is also publishing two draft guidance documents to provide industry with additional information related to the interim final rule. One draft guidance document addresses the manufacture of infant formula products made for infants with unusual medical or dietary problems, such as infants who are born extremely premature and have special dietary needs; this type of formula is not the subject of the interim final rule. The other draft guidance document explains how manufacturers of currently and previously marketed infant formulas can demonstrate that their products meet the quality factor requirements of the interim final rule.

DOD OFFICIAL TELLS CONGRESS NARCOTICS IN AFGHANISTAN CONTRIBUTES TO INSECURITY

FROM:  DEFENSE DEPARTMENT 
Afghanistan Counternarcotics Efforts Continue, Official Says
By Claudette Roulo
American Forces Press Service

WASHINGTON, Feb. 6, 2014 – The United States has made an extraordinary investment in both blood and treasure to eradicate terrorist safe havens and narcotics production in Afghanistan, the Defense Department’s principal director for counternarcotics and global threats told a House Foreign Affairs Committee panel yesterday.

More than 2,000 Americans have died in Operation Enduring Freedom, and another nearly 20,000 have been wounded, Erin M. Logan said in prepared remarks for the subcommittee on the Middle East and North Africa.
In addition, the Defense Department has invested $2 billion for dedicated counternarcotics training and programs, out of the nearly $570 billion spent on the war since 2001.

“We believe that $2 billion has been well spent in developing specialized [counternarcotics] units and capabilities that have begun to achieve concrete results,” Logan said.

Despite this progress, the gains are not yet irreversible, she said. Likening the programs to a seedling, Logan said Afghanistan’s counternarcotics organizations will require care and nurturing before they are ready to stand on their own.
“Stepping back from our efforts now would jeopardize the further development of these units that have become reliable partners for U.S. and international law enforcement efforts,” she said. It’s impossible to envision a successful future for Afghanistan without sustaining an Afghan capability to fight violence and corruption created by the drug trade, she added.

The production and distribution of narcotics contributes to the country’s insecurity, she said, leading to corruption, poor governance and stagnation of economic development. “Addressing the drug trade and its effects is essential to the successful transition of security responsibility to the government of Afghanistan,” Logan said.

According to the United Nations Office on Drugs and Crime, Afghanistan’s opium poppy cultivation was up 36 percent in 2013, she said. “The link between insecurity and opium cultivation is well established in Afghanistan,” she added. “Most of the opium poppy cultivation is concentrated in southern and western provinces, where the narcotics trade continues to fuel criminal and insurgent networks.

“The trade in Afghan-produced opiates has become an increasingly global phenomenon,” she continued, “with drugs and illicit proceeds flowing to the Persian Gulf and the Middle East, East Africa, Europe, Russia and North America, with a small percentage of the heroin consumed in the United States coming from Afghanistan.”

The Defense Department’s counternarcotics efforts in Afghanistan have two goals, Logan said: “to counter and disrupt drug-related funding to the insurgency, and … to strengthen the Afghan government’s capacity to combat the drug trade during and after the security transition.”

The form those efforts take include building the capacity of the Counternarcotics Police of Afghanistan, improving border security, promoting information sharing and fostering regional and international cooperation, she said, including with other U.S. government agencies.

The Defense Department’s post-2014 counternarcotics strategy prioritizes programs that disrupt, degrade, and dismantle illicit narcotics networks, Logan said. It has three aims: to contain and reduce the flow of drugs from Afghanistan, to disrupt and dismantle transnational criminal organizations, and to reduce the flow of illicit proceeds that finance insurgent and terrorist activities globally, she said.
“The government of Afghanistan must be able to control narco-trafficking to advance the security of its population and allow room for lawful economic growth,” Logan added.

To meet the goals outlined in the strategy, Logan said, the department must focus on three areas: continued support for vetted units, continued aviation capacity building, and continued leveraging of international and interagency capabilities.
Afghanistan’s specialized counternarcotics units have shown that they are willing and able to do the job, she said.

“More and more specialized units are now able to plan, execute, and follow through on [counternarcotics] missions on their own,” Logan said. “For example, in December, the DOD-supported and [Drug Enforcement Agency]-mentored Sensitive Investigative Unit was able to use judicially authorized wire intercepts to build a case that led to the arrest of two criminals and the seizure of 660 grams of heroin, 500 boxes of ammunition, 40 remote control IEDs, and 75 rocket-propelled grenades.”

Afghanistan’s terrain makes developing its aviation capability vital -- not just for counternarcotics operations, but for any security effort, she said.
“Afghan forces must have adequate air mobility to operate in the remote areas where insurgents and illicit drug networks operate,” Logan said.

This won’t be a rapid process, she noted. “Our experiences in Colombia and elsewhere illustrate that it can take a decade or more for an aviation capability to become truly self-sustaining. In a nation like Afghanistan where budgetary pressures will be high, it may take longer.”

Interagency and international partnerships will become increasingly important as U.S. and coalition forces in Afghanistan draw down over the coming year, Logan said. “The worldwide breadth of the Afghan heroin trade will require working across numerous ‘seams’ between the geographic combatant commands, and building upon existing international partnerships to disrupt the flow of drugs and other illicit commodities,” she said.

To facilitate this cross-agency and cross-border collaboration, Logan said, her office is working with combatant commands, U.S. law enforcement and intelligence agencies and interested international partners to create a regional targeting and intelligence center. The center would be able to “coordinate and facilitate international efforts to disrupt the flow of heroin, target illicit sources of revenue, and dismantle criminal organizations that pose the greatest threat to U.S. and international security,” she noted.

To begin, Logan said, the agency will expand Operation Riptide, which is located in Bahrain and leverages the capabilities of U.S. and international law enforcement and national intelligence agencies to facilitate interdictions, seizures, investigations and prosecutions.

“Naval interdictions from Combined Maritime Forces in Bahrain, notably by Canada’s HMCS Toronto and by Australia’s HMAS Melbourne, have proven the international community’s ability to identify, track, board, and seize illicit cargo on the high seas,” she said.

In 2013, HMCS Toronto conducted seven seizures, Logan said. The value of the cargo it seized during that time is estimated to be equal to the amount of funding necessary to outfit 100 platoons of insurgents, she noted.

“DOD plans to continue its successful and effective partnership with the interagency and international partners to disrupt the sources of revenue for terrorists and insurgents, and reduce the corrosive, corruptive, and destabilizing impact of illicit narcotics,” Logan said.

DEFENDANTS IN PENSION FUND FRAUD CASE TO PAY $9.5 MILLION JUDGEMENT

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains $9.5 Million Money Judgment Against Onyx Capital Advisors, LLC, Roy Dixon, Jr. and Michael A. Farr

The Securities and Exchange Commission announced that on January 31, 2014, the Honorable Denise Page Hood of the United States District Court for the Eastern District of Michigan entered a final judgment against Defendants Onyx Capital Advisors, LLC, Roy Dixon, Jr. and Michael A. Farr. The final judgment orders the Defendants to pay over $5.4 million in disgorgement and more than $4.1 million in civil penalties.

In its Complaint, the Commission alleged that Detroit-based Onyx Capital Advisors and its founder, Dixon, raised approximately $23.8 million from three public pension funds for a start-up private equity fund and then illegally withdrew money invested by the pension funds to cover personal and other business expenses. The Complaint further alleged that Dixon's friend, Farr, assisted Dixon in the scheme. Specifically, the Commission alleged that Dixon and Onyx Capital misappropriated money from the pension funds' investments under the guise of management fees and illegally obtained additional funds by diverting money from purported investments into used car companies controlled by Farr.

The Court's final judgment, along with its order setting monetary sanctions, followed its earlier decisions to grant the Commission's motion for summary judgment against Onyx Capital Advisors and Dixon and to enter a consent judgment against Farr. The Court found that Dixon and Onyx Capital Advisors took more than $2.06 million is excess management fees and misappropriated nearly $1.05 million through Farr and his companies. The Court also found that Farr illegally received approximately $2.3 million that Onyx Capital Advisors ostensibly invested in his companies.

The Court imposed the following relief against Dixon and Onyx Capital Advisors: 1) permanent injunctions prohibiting future violations of Section 17(a) of the Securities Exchange Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; 2) an order requiring them to jointly disgorge more than $3.1 million plus prejudgment interest; and 3) an order requiring them to jointly pay a civil penalty of more than $3.1 million. The Court further ordered Farr to disgorge more than $2.3 million plus prejudgment interest and to pay a civil penalty of $1 million. The Court previously had entered a permanent injunction, by consent, against Farr prohibiting him from aiding and abetting future violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.

ENGINEER LOOKS AT DIABETES AND HEART DISEASE

FROM:  NATIONAL SCIENCE FOUNDATION 
Mechanical engineer studies flow of blood vessels related to diabetes and resulting heart disease
Research could lead to development of new drugs and tissue engineering applications

People with diabetes develop early and severe heart disease, specifically atherosclerosis, a condition in which plaque builds up inside the arteries. Alisa Clyne, a mechanical engineer by training, wants to better understand the biomechanics of this process.

"We know people with diabetes get these plaques but not why they are more severe with diabetes," says Clyne, an associate professor of mechanical engineering and mechanics at Drexel University. "Could there be a mechanical aspect to it?"

The National Science Foundation (NSF)-funded scientist specifically is studying the behavior of endothelial cells, which form the inner layer of blood vessels, and which "sense the mechanics of their environment and respond to it," she says. "They are exposed to a variety of mechanical forces, mostly from blood flow."

Moreover, blood flow, specifically shear stress--the force of flowing blood on the endothelial surfaces--cause the cells to react in multiple ways. "Atherosclerosis occurs in locations where there are disturbances in the blood flow," she says. "We want to know if the relationship between atherosclerotic plaque development and endothelial response to fluid flow is altered in diabetic conditions."

With normal flow, "your endothelial cells should not be dysfunctional, and you should not get plaque," she adds. "So the question for us is, if you change the endothelial cell environment to simulate a diabetic condition, such as high blood sugar, would there be a change in the way the cells are able to respond to fluid flow?"

Insights into the role of these cells in plaque development potentially could provide new ideas for drug development, as well as tissue engineering applications, such as designing new blood vessels.

"This information about how the cell mechanisms respond to blood flow is important," Clyne says. "For example, you could tissue engineer a better blood vessel for coronary artery bypass surgery by understanding how the endothelial cells respond to flow in a diabetic environment."

Clyne is conducting her research under an NSF Faculty Early Career Development (CAREER) award, which she received in 2009. The award supports junior faculty who exemplify the role of teacher-scholars through outstanding research, excellent education, and the integration of education and research within the context of the mission of their organization. NSF is funding her work with about $400,000 over five years.

Endothelial cells align and elongate in the direction of the shear stress, and change some of their functions as well. For example, in response to increased shear stress, endothelial cells produce more nitric oxide, a vasodilator which causes the blood vessels to expand. This physiological response decreases blood velocity and thereby reduces shear stress down to the original level. Nitric oxide also scavenges reactive oxygen species and reduces inflammation, both of which are factors that contribute to atherosclerotic plaque development. If endothelial cells do not produce nitric oxide in response to shear stress in a diabetic environment, this could contribute to atherosclerosis in people with diabetes.

In her experiments, Clyne cultures endothelial cells in a parallel plate flow chamber, which allows her to put "flow" over the cells to simulate the stresses they would experience in the human body. "We added high sugar levels to see how the cells would respond in normal flow," she says.

"One thing high sugars do is change the structure of proteins," she explains. "There are proteins underneath the endothelial cells, and the cells attach to them. The one we study in particular is collagen. As we age, or if you have high sugar levels, the collagen becomes glycated, meaning that sugar attaches to one of the collagen amino acids. When the cells are attached to glycated collagen, rather than normal collagen, it changes how they respond to fluid flow. "

The researchers measured the responses, including the release of nitric oxide, and found that the cells "don't align in the flow direction or release nitric oxide when they are on glycated collagen," she says. " The way in which cells adhere to the substrate proteins changes many signaling pathways in the cells. Our cells adhere to glycated collagen in a different way from native collagen, and this changes the way that they are able to respond to mechanical forces from fluid flow."

The researchers also looked at the effects of increasing sugar levels in the cultured cells and found that high sugar levels--and low sugar levels--also changed the way the cells respond to fluid flow. "So if you are at either extreme, you're in trouble," she says. "Sugar can either directly affect the cells or affect the proteins the cells adhere to, so it has two effects."

As part of the CAREER educational component, Clyne's lab is conducting an outreach program with the Girl Scouts, including a "Science Saturdays" program at Drexel, bringing in junior high school-age scouts for up to six Saturdays to teach them about different kinds of engineering, and how engineering applications can solve human health problems. The scouts are paired with mentors, who are Drexel engineering undergraduate students.

They engage in hands-on activities that relate to engineering. For example, they constructed robot cars (mechanical engineering), made lip gloss (chemical engineering) and participated in a water filtration project (civil engineering).

"Over the course of the program, they also worked on a design project related to biomedical engineering. One year, the girls created solutions that would help soldiers coming home from the war without a limb," she says. "One group made a gripper hand to help with eating, whereas another group made a device to improve balance using a prosthetic leg. The girls learned about how engineering contributes to helping others, which hopefully will encourage them to consider engineering careers."

-- Marlene Cimons, National Science Foundation
Investigators
Alisa Morss Clyne

Friday, February 7, 2014

LABOR SECRETARY PEREZ'S STATEMENT ON JANUARY 2014 EMPLOYMENT NUMBERS

FROM:  LABOR DEPARTMENT 
Statement of Labor Secretary Perez on January employment numbers

WASHINGTON — U.S. Secretary of Labor Thomas E. Perez issued the following statement about the January 2014 Employment Situation report released today:
"The U.S. economy's recovery continued in the first month of 2014 — 142,000 new jobs created in the private sector and 113,000 overall. January was the 47th consecutive month of private-sector job growth, with 8.5 million new jobs over that period. The unemployment rate (6.6 percent) maintained its downward trend, reaching its lowest level since October 2008. Manufacturing continued to rebound and has now generated 93,000 jobs over the last six months. Construction experienced its largest month-to-month job growth since March 2007. The labor force participation rate inched upward by .2 percent.

"But President Obama isn't satisfied with a modest recovery. In his State of the Union address ten days ago, he laid out an agenda that would quicken the pace of economic growth and job creation, an agenda based on the principle of opportunity for all. Through hard work, anyone should be able to succeed in America, to realize their dreams and secure a foothold in the middle class.

"To restore the promise of opportunity, the president has offered concrete proposals on everything from preschool education to infrastructure investments to retirement security. He is committed to making sure our skills and training programs prepare people for good jobs. He stands ready to work with members of both parties on immigration reform that would grow the economy by $1.4 trillion over the next two decades.

"To reward hard work with fair pay, he will sign an executive order increasing the minimum wage for federal contractors to $10.10 per hour, and he urges Congress to extend that same raise to all workers. He recently secured commitments from more than 300 companies to develop best practices for recruiting and hiring the long-term unemployed. But too often, Congress remains a roadblock to progress. Just yesterday, a minority of senators blocked an extension of unemployment benefits that represent a lifeline for 1.7 million Americans struggling to find work through no fault of their own.

"Regardless of where you come from, you deserve a fair shot to get ahead and leave a better life for your children — that is what we mean by opportunity for all. Let's all work together to make it happen."

U.S. DEFENSE DEPARTMENT CONTRACTS FOR FEBRUARY 7, 2014

FROM:  DEFENSE DEPARTMENT  
CONTRACTS

ARMY

Aaski Technology Inc.*, Ocean, N.J. (W15P7T-14-D-A218); Nexagen Networks Inc., Marlboro, N.J. (W15P7T-14-D-A219J); Linquest Corp., Los Angeles, Calif. (W1PP7T-14-D-A220); Systems Technologies Inc., West Long Branch, N.J. (W15P7T-14-D-A221) were awarded a $497,000,000 cost-plus-fixed-fee, indefinite-delivery/indefinite-quantity contract for technical administrative operations support services in the development and integration of command, control, communications, computers, intelligence, surveillance, and reconnaissance.  Funding and work performance location will be determined with each.  Estimated completion date is Feb. 7, 2019.  Bids were solicited via the Internet with four received.  Army Contracting Command is the contracting activity.

Snap-On, Kenosha, Wis., was awarded a $37,718,703 firm-fixed-price, indefinite-delivery/indefinite-quantity contract for aviation tool kits for maintenance services.  Funding and work performance location will be determined with each order.  Estimated completion date is Feb. 12, 2019.  Bids were solicited via the Internet with four received.  Army Contracting Command, Redstone Arsenal, Ala., is the contracting activity (W58RGZ-14-D-0052).

DEFENSE LOGISTICS AGENCY

Federal Contracts Corp.*, Tampa, Fla., has been awarded a maximum $157,500,000 fixed-price with economic-price-adjustment contract for the procurement of commercial type environmental equipment.  This contract is a competitive acquisition and 16 offers were received.  This contract is one of up to nine contracts being issued against solicitation number SPM8EC-11-R-0006 and with requirements that specifically call for environmental equipment within the product line and will be competed amongst other contractors who receive a contract under this solicitation.  This is a five-year base contract.  Locations of performance are Florida and Iowa with a Feb. 6, 2019 performance completion date.  Using military services are Army, Navy, Air Force, Marine Corps, and federal civilian agencies.  Type of appropriation is fiscal 2014 through fiscal 2019 defense working capital funds.  The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa.; (SPE8EC-14-D-0010).

Gentex Corporation, Carbondale, Pa., has been awarded a maximum $14,580,000 firm-fixed-price contract for procurement of advanced combat helmets.  This contract is a competitive acquisition and two offers were received.  Location of performance is Pennsylvania with an Apr. 15, 2015 performance completion date.  Using military services are Army, Navy, Air Force, and Marine Corps.  Type of appropriation is fiscal 2014 defense working capital funds.  The contracting activity is the Defense Logistics Agency Troop Support, Philadelphia, Pa.; (SPE1C1-14-C-0004).

NAVY

Navmar Applied Sciences Corp.*, Warminster, Pa., is being awarded a $12,500,411 cost-plus-fixed-fee contract for development of a Biometric Identity Approval Sentinel that produces technology that rapidly processes individuals for threat detection and biometric matching.  This project will provide a fully integrated, highly accurate, configurable, and deployable solution that combines current and new technologies to dramatically increase the safety, speed, and efficiency of access control.  Work will be performed in Patuxent River, Md., and is expected to be completed in February 2017.  Fiscal 2013 research, development, test and evaluation, Navy funds in the amount of $3,000,000 will be obligated at time of award, all of which will expire at the end of the current fiscal year.  This contract was competitively procured via a Broad Agency Announcement.  The Naval Air Warfare Center, Lakehurst, N.J., is the contracting activity (N68335-14-C-0023).

*Small Business

U.S. CONGRATULATES PEOPLE OF GRENADA, CARRIACOU AND PETITE MARTINIQUE ON THEIR INDEPENDENCE DAY

FROM:  STATE DEPARTMENT 
Grenada's Independence Day
Press Statement
John Kerry
Secretary of State
Washington, DC
February 7, 2014

On behalf of President Obama and the people of the United States, I congratulate the people of Grenada, Carriacou, and Petite Martinique on the 40th anniversary of your independence on February 7.

The United States is proud of what our peoples and governments have achieved together through forty years of bilateral cooperation.

This year’s Independence Day theme, “Uniting Our People, Restoring Hope for a Brighter Tomorrow,” reflects the aspirations that our peoples share for freedom, opportunity, and peace.

As Grenadians celebrate 40 years of independence from Beaulieu to Beausejour and throughout the tri-island state, I wish you a joyous celebration and a peaceful and prosperous year to come.

REMARKS BY SECRETARY OF STATE KERRY, JAPANESE FOREIGN MINISTER KISHIDA

FROM:  STATE DEPARTMENT    
Remarks With Japanese Foreign Minister Fumio Kishida After Their Meeting
Remarks
John Kerry
Secretary of State
Benjamin Franklin Room
Washington, DC
February 7, 2014

SECRETARY KERRY: I’m really delighted to welcome my friend, Foreign Minister Kishida, back to the State Department this afternoon and to return the favor after Fumio hosted Secretary Hagel and me last October in Tokyo when we had our meetings of Defense and State Department jointly in what we call the 2+2.

The United States and Japan relationship has really long been the cornerstone of the regional peace and security of that region, and it’s also a cornerstone of President Obama’s Asia rebalance. And I share the President’s goal for a stronger renewed presence throughout the Asia Pacific. The President and I share the belief that we simply cannot achieve the goals that we want to achieve in that region and globally without ironclad guarantees between the United States and Japan, between our governments, and just as importantly, between our peoples.

Last fall when Secretary Hagel and I traveled to Tokyo to meet with our Japanese counterparts, we agreed to update our bilateral defense guidelines, which, it is worth noting, had not been done since 1997. Today, Fumio and I had the opportunity to continue discussing how we will modernize our security alliance and set out a roadmap for decades to come. This process will help us continue to respond quickly to natural disasters the way that our nations delivered aid to the Philippines very soon after the Haiyan typhoon hit. And closer security collaboration will also help our nations to continue countering the threat from North Korea, and to address our regional security challenges.

This morning, I also underscored that the United States remains as committed as ever to upholding our treaty obligations with our Japanese allies. That includes with respect to the South China Sea – the East China Sea. The United States neither recognizes nor accepts China’s declared East China Sea ADIZ, and the United States has no intention of changing how we conduct operations in the region. We are deeply committed to maintaining the prosperity and the stability in the Asia Pacific, and that won’t be possible without respect for international law, including freedom of navigation and overflight as set out in the international Law of the Sea.

We’ve been very grateful for Japan’s partnership, not only in the region but increasingly around the world. Japan is helping in Afghanistan, in South Sudan, in Syria, in Haiti, in our efforts to be able to try to prevent a nuclear-armed Iran, and elsewhere. And we addressed these issues in our discussions today.

I’m also very grateful personally for Prime Minister Abe’s commitment, made when we were there, and for Fumio following through, on efforts to help with the Palestinian economic initiative. And Japan has made a very serious commitment to help develop the livelihood and economic opportunity for people in the Palestinian territories.

This morning I also congratulated the foreign minister on Japan’s recent ratification of The Hague Abduction Convention. Japan has made some remarkable strides when it comes to supporting human rights and also promoting women’s empowerment. And this is another area that we’re very proud and pleased to be able to partner with them on.

And just earlier this week, some of our folks at the USAID and their Japanese counterparts came together to focus on ways that they could help develop skills and connections among African female entrepreneurs. And this month, our two governments will initiate a development dialogue to search for areas of development cooperation in places like the Pacific Islands or Southeast Asia and Africa.

We also spent time discussing our economic partnership, which is as strong as ever. The United States welcomes Japan’s economic rejuvenation. And we view Japan as a critical trading partner for us, and also their success in this rejuvenation as a model, a positive model, for the rest of Asia. Japanese businesses have long been a top investor in the United States economy, setting up corporate headquarters and stores and factories throughout our country and creating American jobs in the process. Every day, 650,000 people in the United States go to work for Japanese companies.

But we also know there is still untapped potential for growth. This afternoon, we discussed significantly our number-one economic priority, which is the Trans-Pacific Partnership. And as the world’s two largest free market economies, the United States and Japan clearly have a strategic stake in getting the TPP off the ground. We believe that the TPP, this agreement, will help us prevent a race to the bottom among businesses, and instead promote innovation, transparency, fairness, and a set of rules that raise the standards by which people do business, and also raise the opportunities for citizens throughout Asia who benefit as a result of those standards.

Both Fumio and I agreed today that finalizing the TPP is one of the most important things that we can do for our countries’ economic futures. And there are still a few issues left where we need to work through them. We talked about those today. But once we do it, that agreement will mean more jobs, more growth, greater stability, and greater security not just for the United States and Japan but throughout the Asia Pacific region.

So it’s a great pleasure for me to have Foreign Minister Kishida here today to build on our close working relationship. And between our economic opportunities, our security collaboration, a redoubled focus on human rights, a commitment to international rules of the road, and growing people-to-people ties, particularly among our nations’ students, I believe this could be really a transformative year, certainly a transformative period, for the U.S.-Japan global partnership. And I am looking forward to continuing to work on our shared goals and vision. Thank you very much.

Fumio.

FOREIGN MINISTER KISHIDA: (Via interpreter) I am visiting Washington, DC after a one-year interval. I just had a bilateral meeting with John, Secretary of State Kerry. I would like to express my gratitude for the warm hospitality accorded to me by the Government of the United States. We discussed Japan-U.S. bilateral issues, regional affairs in the Asia Pacific and the Middle East, and the global agenda. We covered extensive grounds in exchanging our views, and we confirmed the direction of enhancing of the Japan-U.S. alliance.

In terms of the Japan-U.S. relationship, we talked about Vice President Biden’s visit to Japan in December of last year, and NSC Secretary General Yachi visited the United States subsequently, and Deputy Secretary of State Mr. Burns also visited Japan, and I am visiting Washington, DC at this time. So we have been having close communications, and we welcome these communications. And we have agreed to have seamless exchanges at a high level going forward. And concerning President Obama’s upcoming visit to Japan, we are inviting the President as state guest. But when the United States makes its decision, the Japanese side will cooperate so that we will be able to make sure that President Obama’s visit to Japan is a great success.

In terms of security, I have provided explanation about the concrete promotion of proactive contribution to peace. And we concurred that Japan and the United States will cooperate with each other to make a more proactive contribution to the peace and stability in the region and the international community.

Concerning relocation of Futenma Marine Corps Air Station and amongst others, we welcome that there is steady progress being achieved in terms of realignment of U.S. forces in Japan. So in that context, we confirm the holding of the first round of negotiations on February 11th with regard to the supplementing agreement on the environment for SOFA, the Status of Forces Agreement, and we will be making the efforts for the early conclusion of these negotiations.

On the economic front, we had discussion on the TPP, and we concurred that Japan and the United States will cooperate with each other towards the prompt conclusion of the TPP negotiations.

Concerning Asia Pacific regional situation, first we had an exchange of views on the situation pertaining to North Korea and towards the goal of denuclearization of North Korea. We confirmed that there will be collaboration amongst the countries of Japan, United States, and Republic of Korea. And I expressed gratitude for the U.S. understanding and cooperation towards the abduction issue, and that we will continue to make the effort to resolve this problem.

And in terms of responding to North Korea, the relationship with the Republic of Korea is important. There are difficult issues in the relationship between Japan and the Republic of Korea, but Republic of Korea is an important neighbor for Japan, so going forward, we will make tenacious efforts in order to build our cooperative relationship with the Republic of Korea from a broad perspective.

Concerning the relationship between Japan and China, there is no change in the major direction that (inaudible) for a mutually beneficial relationship based on common strategic interests. However, with regard to China’s attempt to change the status quo by coercion or intimidation in Senkaku Islands and South China Sea, we agreed that we will respond calmly and with resolve. Particularly with regard to announcement of the Air Defense Identification Zone, we will not be able to accept this, and that we can never condone actions which threaten the safety of civilian aircraft. And bearing in mind the possibility of expanding similar measures to other regions, we agreed to continue close monitoring and surveillance of the situation.

We also had an exchange of views on Southeast Asia as well as in the Middle East, and confirmed the Japan-U.S. cooperation on global agenda. We agreed to have further concrete cooperation in terms of development cooperation and assistance to Myanmar. Such Japan-U.S. cooperation goes beyond the bilateral agenda, but it also covers Asia-Pacific regional affairs and the Middle East situation and global agenda. And – but the whole thing of this bilateral meeting today, we have been able to confirm that the Japan-U.S. alliance is a unfaltering and robust one. So the future Japan based on the proactive contribution to peace. We’d like to continue to cooperate with the United States over broad areas so that we will be able to contribute to peace and stability in the region and the international community. Thank you for your attention.

SECRETARY KERRY: Fumio, thank you very, very much. A very comprehensive summary, I think. And I’d just say at the end as we – unfortunately, we don’t have time to take questions, either of us today, unfortunately. But we both agreed that there is enough on the table and that some of these issues require some further discussion, so we will make certain that we’re going to meet before too much time passes so we can continue this conversation. There are a lot of issues, obviously, that – and I’m going out next week to the region. I will be visiting China, among other countries, and we talked about that relationship and the need to accentuate and articulate the road forward with respect to North Korea. We are both in agreement on that.

So a lot that we agreed on, but we have a continuing dialogue. And I’m very grateful to the effort that Fumio made to be here today, and this conversation will continue. Thank you all very, very much. Thank you. Thank you, my friend.

FOREIGN MINISTER KISHIDA: Thank you.

JP MORGAN WILL PAY $614 FOR FALSE CLAIMS ACT VIOLATIONS

FROM:  JUSTICE DEPARTMENT 
Tuesday, February 4, 2014
JPMorgan Chase to Pay $614 Million for Submitting False Claims for FHA-insured and VA-guaranteed Mortgage Loans

The Department of Justice today announced that JPMorgan Chase (JPMC) will pay $614 million for violating the False Claims Act by knowingly originating and underwriting non-compliant mortgage loans submitted for insurance coverage and guarantees by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).  JPMC is a bank and financial services company headquartered in New York.
 
“The resolution announced today is a product of the Justice Department’s continuing efforts to hold accountable those whose conduct contributed to the financial crisis,” said Associate Attorney General Tony West.  “This settlement recovers wrongfully claimed funds for vital government programs that give millions of Americans the opportunity to own a home and sends a clear message that we will take appropriately aggressive action against financial institutions that knowingly engage in improper mortgage lending practices.”

“The Department of Justice will continue to hold accountable financial institutions whose irresponsible mortgage lending undermines the housing market and costs the taxpayers many millions of dollars,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “I thank U.S. Attorney Bharara and his team for their stellar efforts in this case and look forward to our coordinated efforts in these cases.”

As part of the settlement, which was handled by the U.S. Attorney’s Office for the Southern District of New York, JPMC admitted that, for more than a decade, it approved thousands of FHA loans and hundreds of VA loans that were not eligible for FHA or VA insurance because they did not meet applicable agency underwriting requirements.  JPMC further admitted that it failed to inform the FHA and the VA when its own internal reviews discovered more than 500 defective loans that never should have been submitted for FHA and VA insurance.

“For years, JPMorgan Chase has enjoyed the privilege of participating in federally subsidized programs aimed at helping millions of Americans realize the dream of homeownership,” said U.S. Attorney for the Southern District of New York Preet Bharara.  “Yet, for more than a decade, it abused that privilege.  JPMorgan Chase put profits ahead of responsibility by recklessly churning out thousands of defective mortgage loans, failing to inform the government of known problems with those loans and leaving the government to cover the losses when the loans defaulted.  With today’s settlement, however, JPMorgan Chase has accepted responsibility for its misconduct and has committed to reform its business practices.  This settlement adds to the list of successful mortgage fraud cases this office has pursued.”

Beginning as early as 2002, JPMC falsely certified that loans it originated and underwrote were qualified for FHA and VA insurance and guarantees.  As a consequence of JPMC’s misrepresentations, both the FHA and the VA incurred substantial losses when unqualified loans failed and caused the FHA and VA to cover the associated losses.

“This settlement with JP Morgan Chase will enable HUD to recover funds lost due to Chase’s past unacceptable mortgage underwriting practices,” said HUD’s Acting General Counsel Damon Smith.  “In addition, Chase must now institute new and tighter controls to prevent abuses of FHA’s automated underwriting system.  HUD will continue working with the Department of Justice to ensure that lenders are held accountable and are required to institute practices that will benefit both borrowers and the FHA insurance fund.”

“The agreement reached with JPMC was possible due to the dedication of the U.S. Attorney’s Office for the Southern District of New York and the hard work of the talented staff at the Office of Inspector General,” said Inspector General of the Department of Housing and Urban Development David A. Montoya.  “It also demonstrates the combined commitment of the Justice Department and the Office of Inspector General to continuing efforts to enforce FHA mortgage insurance requirements.”

The FHA’s Single Family Mortgage Insurance Program enables low- and moderate- income borrowers to purchase homes by insuring qualified loans made by participating lenders, such as JPMC, against losses if the loans later default.  A participating lender may only submit to the FHA creditworthy loans meeting certain requirements and must maintain a quality control program that can prevent and correct any deficiencies in the lender’s underwriting practices.  The VA’s Loan Guaranty Program provides similar assistance to veterans, service members and qualifying surviving spouses.

“I commend the efforts of the United States Attorney’s Office for the Southern District of New York to hold lenders accountable for conduct that defrauds the government and deserving veterans who rely on VA’s Loan Guaranty Program to purchase their homes,” said Acting Inspector General for the Office of Inspector General, Department of Veterans Affairs Richard J. Griffin.

The settlement resolves allegations in a complaint filed by a private whistleblower.

Today’s settlement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorney’s Offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants.  For more information on the task force, visit www.stopfraud.gov .

This settlement was the result of a coordinated effort among the U.S. Attorney’s Office for the Southern District of New York , the department’s Civil Division, the Department of Housing and Urban Development’s Inspector General and the Department of Veterans Affairs’ Inspector General.

DECEPTIVE SPAM MESSAGE SENDER SETTLES FTC CHARGES

FROM:  FEDERAL TRADE COMMISSION 

Marketer Settles FTC Charges He Sent Millions of Deceptive, Unwanted Text Messages

An affiliate marketer has agreed to settle Federal Trade Commission charges that he was responsible for sending millions of unwanted text messages to consumers that deceptively promised “free” gift cards and electronics.

The marketer, Jason Q. Cruz of West Bend, Wisc., was a subject in a series of FTC complaints targeting the senders of deceptive spam text messages. In its complaint against Cruz, the FTC alleged that he sent text messages to consumers around the country offering free merchandise, such as $1,000 gift cards to major retailers or free iPads, to those who clicked on links in the messages. A typical message read, “You have been selected for a $1,000 Walmart GiftCard, Enter code ‘FREE’ at [website address] to claim your prize: 161 left!”

Consumers who clicked on the links did not receive the “free” merchandise. Instead, consumers were taken to websites that requested personal information and required them to sign up for multiple risky trial offers to qualify for the supposedly “free” merchandise. Most of those trial offers were for questionable products and services that cost money and included recurring monthly charges.

“When scammers use unwanted text messages to entice consumers with deceptive offers, that’s a significant problem,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Banning a serial spammer like Mr. Cruz from sending unsolicited text messages helps the FTC take a huge cut out of scammers’ efforts to target consumers in this way.”

Under the terms of the stipulated final order, Cruz is permanently banned from sending or assisting others in sending unsolicited text messages to consumers. The order also bans Cruz from deceptively presenting an offer as “free,” and from misleading consumers about the use of their personal information.

The order also includes a judgment of more than $185,000, which represents all of the money Cruz received in connection with the scam. Under the terms of the order, all but $10,000 of the monetary judgment is suspended based on Cruz’s inability to pay the full amount.

In addition, Cruz is required to destroy all consumer information he may have acquired over the course of the scam and cooperate with any further FTC investigations.

The Commission vote approving the proposed stipulated final judgment was 4-0. The FTC filed the stipulated final judgment in the U.S. District Court for the Northern District of Illinois, Eastern Division. The District Court judge signed and approved the order on Jan. 16, 2014.

NOTE: Stipulated final judgments have the force of law when approved and signed by the District Court judge.

WINTER SNOWSTORM HITS BAGRAM AIRFIELD, AFGHANISTAN




FROM:  U.S. DEFENSE DEPARTMENT 

U.S. Army Sgt. Travis Stover clears snow off a CH-47 Chinook helicopter after a winter storm blankets the airfield on Bagram Airfield, Afghanistan, Feb. 6, 2014. Stover is assigned to 101st Airborne Division's 159th Combat Aviation Brigade. U.S. Army photo by Capt. John Giaquinto.




A U.S. Air Force airman defrosts a C-130J Super Hercules aircraft on Bagram Airfield, Afghanistan, Feb. 6, 2014. U.S. Air Force photo by Senior Airman Kayla Newman.


CFTC CHAIRMAN WETJEN'S TESTIMONY BEFORE SENATE COMMITTEE

FROM:  COMMODITY FUTURES TRADING COMMISSION  

Testimony of Acting Chairman Mark P. Wetjen Before the U.S. Senate Committee on Banking, Housing & Urban Affairs, Washington, DC

February 6, 2014

Good morning Chairman Johnson, Ranking Member Crapo and members of the Committee. Thank you for inviting me to today’s hearing on the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) and customer information security. I am honored to testify as Acting Chairman of the Commodity Futures Trading Commission (“CFTC”). I also am pleased to join my fellow regulators in testifying today.

Now is a good time for not only this Committee, but all stakeholders in the CFTC to reflect on the agency’s progress in implementing financial reform and what the future might bring for this agency and the markets it oversees.

Due to Dodd-Frank and the efforts of my colleagues and staff at the CFTC, today there is both pre-trade and post-trade transparency in the swaps market that did not exist before. The public now can see the price and volume of swap transactions in real-time, and the CFTC’s Weekly Swaps Report provides a snapshot of the swaps market each week. The most liquid swaps are being traded on regulated platforms and exchanges, with a panoply of protections for those depending on the markets, and regulators themselves have a new window into the marketplace through swap data repositories (“SDRs”).

Transparency, of course, is helpful only if the information provided to the public and regulators can be usefully employed. Therefore, the CFTC also is taking steps to protect the integrity of that data and ensure that it continues to be reliable and useful for surveillance, systemic risk monitoring, and the enforcement of important financial reforms.

These transparency rules complement a number of equally important financial reforms. For example, the counterparty credit risks in the swaps market have been reduced as a large segment of the swaps market is now being cleared – as of last month, about 70 percent of new, arm’s-length swaps transactions were being cleared. Additionally, nearly 100 swap dealers and major swap participants (“MSPs”) have registered with the CFTC, bringing their swaps activity and internal risk-management programs under the CFTC’s oversight for the first time. We also have strengthened a range of futures and swaps customer protections.

As it has put these reforms in place, the CFTC has consistently worked to protect liquidity in the markets and ensure that end-users can continue using them to hedge risk as Congress directed.

The CFTC, in short, has completed most of its initial mandate under Dodd-Frank and has successfully ushered in improvements to the over-the-counter derivatives market structure for swaps, while balancing countervailing objectives.

Volcker Rule

In recent weeks, the Commission finalized the Volcker Rule, which was one of our last major rules under Dodd-Frank. The Volcker Rule was exceptional on account of the unprecedented coordination among the five financial regulators.

Congress required the banking regulators to adopt a joint Volcker Rule, but it also provided that the market regulators – the Securities and Exchange Commission (“SEC”) and the CFTC – need only coordinate with the prudential banking regulators in their rulemaking efforts. One of the hallmarks of the final rule is that the market regulators went beyond the congressional requirement to simply coordinate. In fact, the CFTC’s final rule includes the same rule text as that adopted by the other agencies. Building a consensus among five different government agencies was no easy task, and the level of coordination by the financial regulators on this complicated rulemaking was exceptional.

This coordination was thanks in no small part to leadership at the Department of the Treasury. Secretary Lew, Acting Deputy Secretary Miller, and others were instrumental in keeping the agencies on task and seeing this rulemaking over the finish line. Along with the other agencies, the CFTC received more than 18,000 comments addressing numerous aspects of the proposal. CFTC staff hosted a public roundtable on the proposed rule and met with a number of commenters. Through weekly inter-agency staff meetings, along with more informal discussions, the CFTC staff and the other agencies carefully considered the comments in formulating the final rule.

Differences with Proposal

The agencies were responsive to the comments when appropriate, which led to several changes from the proposed Volcker Rule I would like to highlight.

The final Volcker Rule included some alterations to certain parts of the hedging-exemption requirements found in the proposal. For instance, the final rule requires banking entities to have controls in place through their compliance programs to demonstrate that hedges would likely be correlated with an underlying position. The final rule also requires ongoing recalibration of hedging positions in order for the entities to remain in compliance.

Additionally, the final rule provides that hedging related to a trading desk’s market-making activities is part of the trading desk’s financial exposure, which can be managed separately from the risk-mitigating hedging exemption.

Another modification to the proposal was to include under “covered funds” only those commodity pools that resemble, in terms of type of offering and investor base, a typical hedge fund.

CFTC Volcker Rule Implementation and Enforcement

The CFTC estimates that, under its Volcker regulations, it has authority over more than 100 registered swap dealers and futures commission merchants (“FCMs”) that meet the definition of “banking entity.” In addition, under Section 619, some of these banking entities may be subject to oversight by other regulators. For example, a joint FCM/broker-dealer would be subject to both CFTC and SEC jurisdiction and in such circumstances, the CFTC will monitor the activities of the entity directly and also coordinate closely with the other functional regulator(s).

In this regard, Section 619 of the Dodd-Frank Act amended the Banking Holding Company Act to direct the CFTC itself to write rules implementing Volcker Rule requirements for banking entities “for which the CFTC is the primary financial regulatory agency” as that term was defined by Congress in Dodd-Frank. Accordingly, as Congress directed, the CFTC’s final rule applies to entities that are subject to CFTC registration and that are banking entities, under the Volcker provisions of the statute.

To ensure consistent, efficient implementation of the Volcker Rule, and to address, among other things, the jurisdiction issues I just mentioned, the agencies have established a Volcker Rule implementation task force. That task force also will be the proper vehicle to examine the means for coordinated enforcement of the rule. Although compliance requirements under the Volcker Rule do not take effect until July 2015, the CFTC is exploring now whether to take additional steps, including whether to adopt formal procedures for enforcement of the rule. As part of this process, I have directed CFTC staff to consider whether the agency should adopt such procedures and to make recommendations in the near future.

Volcker Rule: Lowering Risk in Banking Entities

The final Volcker Rule closely follows the mandates of Section 619 and strikes an appropriate balance in prohibiting banking entities from engaging in the types of proprietary trading activities that Congress contemplated when considering Section 619 and in protecting liquidity and risk management through legitimate market making and hedging activities. In adopting the final rule, the CFTC and other regulators were mindful that exceptions to the prohibitions or restrictions in the statute, if not carefully defined, could conceivably swallow the rule.

Banking entities are permitted to continue market making—an important activity for providing liquidity to financial markets—but the agencies reasonably confined the meaning of the term “market making” to the extent necessary to maintain a market-making inventory to meet near-term client, customer or counterparty demands.

Likewise, the final rule permits hedging that reduces specific risks from individual or aggregated positions of the banking entity.

The final Volcker Rule also prohibits banking entities from engaging in activities that result in conflicts of interest with clients, customers or counterparties, or that pose threats to the safety and soundness of these entities, and potentially therefore to the U.S. financial system.

The final Volcker rule also limits banking entities from sponsoring or owning “covered funds,” which include hedge funds, private equity funds or certain types of commodity pools, other than under certain limited circumstances. The final rule focuses the prohibition on certain types of pooled investment vehicles that trade or invest in securities or derivatives.

Finally, and importantly, the final Volcker Rule requires banking entities to put in place a compliance program, with special attention to the firm’s compliance with the rule’s restrictions on market making, underwriting and hedging. It also requires the larger banking entities to report key metrics to regulators each month. This new transparency, once phased-in, will buttress the CFTC’s oversight of swap dealers and FCMs by providing it additional information regarding the risk levels at these registrants.

TruPS Interim Final Rule

Even with resource constraints, the CFTC has been responsive to public input and willing to explore course corrections, when appropriate. With respect to the Volcker Rule, the CFTC, along with the other agencies, last month unanimously finalized an interim final rule to allow banks to retain collateralized debt obligations backed primarily by trust-preferred securities (TruPS) issued by community banks. The agencies acted quickly to address concerns about restrictions in the final rule, demonstrating again the commitment of the agencies at this table to ongoing coordination. In doing so, the CFTC and the other agencies protected important markets for community banks, as Congress directed.

Implementation Stage of Dodd-Frank

Looking ahead through the lens of what already has been done, it is clear that the Commission and all stakeholders will need to closely monitor and, if appropriate, address the inevitable challenges that will come with implementing the new regulatory framework under Dodd-Frank.

For the CFTC, only a few rulemakings remain to be re-proposed or finalized in order to complete the implementation of Dodd-Frank. Indeed, in just a matter of days, the compliance date for perhaps the last remaining, major hallmark of the reform effort will arrive: the effective date of the swap-trading mandate.

Rules the Commission is working to address in the coming months include capital and margin requirements for un-cleared swaps, rulemakings intended to harmonize global regulations for clearinghouses and trading venues, and finalizing position limits.

There are other important matters in the months ahead as well.

Allow me to mention some of these matters before the Commission as we move forward with Dodd-Frank implementation.

Made Available to Trade Determinations

As a result of the trade execution mandate, many swaps will, for the first time, trade on regulated platforms and benefit from market-wide, pre-trade transparency. These platforms are designed to improve pricing for the buy-side, commercial end-users, and other participants that use these markets to manage risk. Additionally, SEFs, as registered entities, are required to establish and enforce comprehensive compliance and surveillance programs.

The Commission’s trade execution rules complement our other efforts to streamline participation in the markets by doing away with the need to negotiate bilateral credit arrangements and removing impediments to accessing liquidity. This not only benefits the end-users that the markets are intended to serve, but also new entrants seeking to compete for liquidity who now are able to access the markets on impartial terms. In essence, the Commission’s implementation of the trade execution mandate supports a transparent, risk-reducing swap-market structure under CFTC oversight.

In recent weeks, the “Made Available to Trade Determinations” filed by four swap execution facilities (“SEFs”) have been deemed certified, making mandatory the trading of a number of interest rate and credit default swaps on regulated platforms.

There have been some questions in this context about the trading of so-called “package transactions,” which often include a combination of financial instruments and at least one swap that is subject to the trade execution requirement. I have directed Division of Market Oversight (“DMO”) staff to hold an open-to-the-public roundtable, which will take place February 12, and to further examine these issues so that the CFTC can further consider the appropriate regulatory treatment of basis trades falling within the meaning of a “package transaction.”

Data

In order for the Commission to enforce the significant Dodd-Frank reforms, the agency must have accurate data and a clear picture of activity in the marketplace.

Last month, with the support of my fellow commissioners, I directed an interdivisional staff working group to review certain swap transaction data, recordkeeping and reporting provisions under Dodd-Frank. The working group, led by the director of DMO, will formulate and recommend questions for public comment regarding compliance with Part 45 reporting rules and related provisions, as well as consistency in regulatory reporting among market participants.

We have seen an incredible shift to a transparent, regulated swaps marketplace, and this is an appropriate review to ensure the data we are receiving is of the best possible quality so the Commission can effectively oversee the marketplace. I have asked the working group to review the incoming public comments and make recommendations to the Commission in June.

Concept Release on Risk Controls and System Safeguards for Automated Trading Environments

The CFTC’s Concept Release on Risk Controls and System Safeguards for Automated Trading Environments provides an overview of the automated trading environment, including its principal actors, potential risks, and responsive measures taken to date by the Commission or industry participants. It also discusses pre-trade risk controls; post-trade reports; system safeguards related to the design, testing and supervision of automated trading systems; and additional protections designed to promote safe and orderly markets. Within the release, the Commission asks 124 questions and is seeking extensive public input.

To give the public more time to provide comments, the CFTC extended the comment period, which continues through February 14.

Position Limits

The futures markets have a long history of embracing speculative position limits as a tool to reduce unwarranted price fluctuations and minimize the risk of manipulation, particularly in the spot month, such as corners and squeezes. Our proposed position limits rule builds on that history, increases transparency, and lessens the likelihood that a trader will accumulate excessively large speculative positions.

The Commission’s proposed rule respects congressional intent and addresses a district court decision related to the Commission’s new position-limits authority under Dodd-Frank.

The comment period on the re-proposed rule closes February 10, and I look forward to reviewing the public input.

International Coordination

Given that the U.S. has nearly delivered on its G20 commitments to derivatives reform, and the European Union is close behind, financial regulators recently have focused more time on the developing global market structure for swaps.

The G20 commitments were a reaction to a global financial crisis. Although the causes of that crisis are not as clear as some suggest, few would disagree that liquidity constraints at certain firms were at least exacerbated by exposures to derivatives.

The plain truth is that risk associated with derivatives is mobile and can migrate rapidly across borders in modern financial markets. An equally plain truth is that any efforts to monitor and manage global systemic risk therefore must be global in nature.

Risk mobility means that regulators in the U.S. and abroad do not have the luxury of limiting their oversight to financial activities occurring solely within their borders. Financial activities abroad may be confined to local markets in some cases, but the financial crisis, and more recent events, make clear that the rights and responsibilities that flow from these activities often are not.

Perhaps as important, Congress reacted to the financial crisis by authorizing the CFTC to oversee activities conducted beyond its borders in appropriate cases. It could have limited the CFTC’s oversight to only those entities and activities located or occurring within our shores, but it did not. In fact, Congress recognized in Dodd-Frank that even when activities do not obviously implicate U.S. interests, they can still create less obvious but legally binding obligations that are significant and directly relevant to the health of a U.S. firm; and which in the aggregate could have a material impact on the U.S. financial system as a whole.

So it is clear to me that the CFTC took the correct approach in adopting cross-border policies that account for the varied ways that risk can be imported into the U.S. At the same time, the CFTC’s policies tried to respect the limits of U.S. law and the resource constraints of U.S. and global regulators. That is in part why, last December, the CFTC approved a series of determinations allowing non-U.S. swap dealers and MSPs to comply with Dodd-Frank by relying on comparable and comprehensive home country regulations, otherwise known as “substituted compliance.”

Those approvals by the CFTC reflect a collaborative effort with authorities and market participants from each of the six jurisdictions with registered swap dealers. Working closely with authorities in Australia, Canada, the EU, Hong Kong, Japan, and Switzerland, the CFTC issued comparability determinations for a broad range of entity-level requirements. And in two jurisdictions, the EU and Japan, the CFTC also issued comparability determinations for a number of key transaction-level requirements.

It appears at this time that the substituted compliance approach has been successful in supporting financial reform efforts around the globe and a race-to-the-top in global derivatives regulation. Last month, for example, the European Union (“EU”) agreed on updated rules for markets in financial derivatives, or the Markets in Financial Instruments Directive II (“MiFiD II”), reflecting great progress on derivatives reform in the EU. Other jurisdictions that host a substantial market for swap activity are still working on their reforms, and certainly will be informed by the EU’s work and the CFTC’s ongoing coordination with foreign regulators.

As jurisdictions outside the U.S. continue to strengthen their regulatory regimes and meet their G20 commitments, the CFTC may determine that additional foreign regulatory requirements are comparable to and as comprehensive as certain requirements under Dodd-Frank.

The CFTC also has made great progress with the European Commission since both regulators issued the Path Forward statement last summer, and we are actively working with the Europeans to ensure that harmonized regulations on the two continents promote liquidity formation and sound risk management. Fragmented liquidity, and the regulatory and financial arbitrage that both drives and follows it, can lead to increased operational costs and risks as entities structure around the rules in primary swap markets.

Harmonizing regulations governing clearinghouses and trading venues, in particular, is critical to sound and efficient market structure. Even if firms are able to navigate the conflicts and complexities of differing regulatory regimes, regulators here and abroad must do what they can to avoid incentivizing corporate structures and inter-affiliate relationships that will only make global financial firms more difficult to understand, manage, and unwind during a period of market distress.

Conversely, this translates to open, competitive derivatives markets. It means efficient and liquid markets. A global regime is the best means to avoid balkanization of risk and risk management that may expose the U.S. financial system over time to risks that are unnecessary, needlessly complex, and difficult to predict and contain.

In light of the CFTC’s swaps authority, and the complexities of implementing a global regulatory regime, the Commission is working with numerous foreign authorities to negotiate and sign supervisory arrangements that address regulator-to-regulator cooperation and information sharing in a supervisory context. We currently are negotiating such arrangements with respect to swap dealers and MSPs, SDRs, SEFs, and derivatives clearing organizations.

As a final note on cross-border issues, on February 12 the Global Markets Advisory Committee (“GMAC”), which I sponsor, will meet to discuss the November 14, 2013, CFTC staff advisory on applicability of transaction-level requirements in certain cross-border situations.

The CFTC and Customer Information Security

The CFTC takes our responsibility to protect against the loss or theft of customer information seriously. However, the CFTC’s funding challenges, and thus our limited examinations staff, have an impact on the agency’s ability to examine and enforce critical rules that protect customer privacy and ensure firms have robust information security and other risk management policies in place.

The Gramm-Leach-Bliley Act was enacted in 1999 to ensure that financial institutions respect the privacy of their customers. Part 160 of the CFTC’s regulations was adopted pursuant to the Gramm-Leach-Bliley Act and addresses privacy and security safeguards for customer information. Under the law, swap dealers, FCMs and other CFTC registrants must have “policies and procedures that address administrative, technical and physical safeguards for the protection of customer records and information.” These policies and procedures are designed to protect against unauthorized access to customer records or information.

The CFTC is working to strengthen our registrants’ compliance with the law. The agency is poised to release a staff advisory to market participants outlining best practices for compliance. The advisory recommends, among other best practices, that registrants should assess existing privacy and security risks; design and implement a system of procedures and controls to minimize such risks; regularly test privacy and security controls, including periodic testing by an independent party; annually report to the board on these issues; and implement an incident response program that includes notifying the Commission and individuals whose information was or may be misused. In addition, the CFTC has recently issued new customer protection regulations that include, among other regulations, new requirements for risk management by firms. Security safeguards are an element of risk management that needs to be addressed by this new regulation.

Last year, the CFTC also issued interpretive guidance, mirroring that of other financial agencies, clarifying that reporting of suspected financial abuse of older Americans to appropriate law enforcement agencies does not violate the privacy provisions within Part 160 of the Commission’s rules.

Though enforcement of CFTC Part 160 rules is a challenge given our limited resources, we have enforced them in the past. In one instance, the CFTC settled a case with an FCM when an employee of that FCM placed files containing sensitive personally identifiable information on a public website, and the FCM did not have effective procedures in place to safeguard customer information.

In addition to Part 160, the CFTC’s Dodd-Frank rules for DCMs, SEFs and SDRs require these entities to notify the CFTC of all cybersecurity incidents that could potentially or actually jeopardize the security of information.

Last spring, the CFTC and SEC adopted final “red flags” rules under the Dodd-Frank Act requiring CFTC and SEC registrants to adopt programs to identify and address the risk of identity theft. As the law required, our rules establish special requirements for credit and debit card issuers to assess the validity of change of address, but currently, the CFTC entities that must follow these identity theft rules do not issue credit or debit cards. A number of firms, however, do accept credit and debit cards for payment, which presents a different type of risk.

The CFTC also has adopted a rule regarding the proper disposal of consumer information requiring reasonable measures, such as shredding, to protect against unauthorized access.

Retail Payment Systems

The Commission’s new customer protection rules on risk management require FCMs to develop risk management policies that address risks related to retail payment systems, such as anti-money laundering, identity theft, unauthorized access, and cybersecurity.

The CFTC currently does not have the resources to conduct any direct examinations of retail payment systems. The CFTC does indirectly look at the risks of retail payment systems through designated self-regulatory organizations (DSRO). The DSRO covers the operational aspects of the money movement through their risk-based programs. Additionally, DSROs perform a review of anti-money laundering at FCMs looking at a number of aspects of a retail payment system – source of funds, cash transactions, customer identity, money laundering and staff training.

For the vast majority of our registrants, the retail payment system is through normal banking channels, such as wire transfers. Only a few of our registrants accept credit or debit cards, and none currently accept virtual currency payment systems. Virtual currency, however, does present new risk, as a firm would be interacting outside of bank payment channels, increasing the risk of hacking or fraud, among other cybersecurity issues. The CFTC is working with registrants that are seeking to accept virtual currencies to educate them about best practices.

Data Breach Response

The CFTC’s response to a data breach incident would include immediately assessing the situation with the registrant to understand the magnitude of the breach and its implications on customers and the marketplace. We would coordinate with other regulators and law enforcement and together determine the appropriate course of action. Our response would include an analysis of the data compromised, immediate notification to affected customers (unless law enforcement prohibits that notification), supporting customers by having the firm provide free credit monitoring services, ensuring customers know how to change user IDs and passwords, and having the firm closely monitor customer activity to look for signs of identity theft.

Looking ahead, the Commission is considering implementing rules under Gramm-Leach-Bliley to expand upon our current customer protection regulations with more specificity regarding the security of customer information.

Resources

To be effective, the CFTC’s oversight of these registrants requires technological tools and staff with expertise to analyze complex financial information. On that note, I am pleased that the House and Senate have agreed to an appropriations bill that includes a modest budgetary increase to $215 million for the CFTC, lifting the agency’s appropriations above the sequestration level that has been challenging for planning and orderly operation of the agency. The new funding level is a step in the right direction. We will continue working with Congress to secure resources that match the agency’s critical responsibilities in protecting the safety and integrity of the financial markets under its jurisdiction. We need additional staff for surveillance, examinations, and enforcement, as well as investments in technology, to give the public confidence in our ability to oversee the vast derivatives markets.

Conclusion

For the CFTC, the Volcker Rule was one of the last remaining rulemakings required by Dodd-Frank. Only a few rulemakings remain to be re-proposed or finalized in order to complete the implementation of the legislation. Indeed, in just a matter of days, the compliance date for perhaps the last remaining major hallmark of the reform effort will arrive: the effective date of the swap-trading mandate. Looking forward, the agency will continue working to ensure an orderly transition to, and adoption of, the new market structure for swaps, and adjusting as necessary.

Thank you again for inviting me today. I would be happy to answer any questions from the Committee.

Last Updated: February 6, 2014

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