 Wednesday, June 17, 2009 ( 12:29 AM ) Andy Zavoina Honoring Loan Commitments What was signed may be less important than what was "intended." Sanjiv and Indubala Narula were customers of Bank of America in Kansas. Beginning in 1986, they operated Promotional Resources Inc. out of their home. They sold advertising and promotional products, and by 1996 annual sales were $3.75 million. It was suggested that they build a separate facility for the business which is what they were doing. They had a construction loan that was to be converted to a permanent loan upon completion, targeted to be October 2001. But the bank began to have second thoughts and didn't want to make the permanent loan. At that time, all loan payments were being paid as agreed. Bank of America offered to modify the current construction loan. The Narulas were told that if they failed to do this, the $1.32 million owed would be due immediately. With little alternative, and believing the modification extended their existing terms, they signed. As it turned out, the offer of a permanent mortgage was removed from the modification. The Narulas liquidated personal assets to satisfy a line of credit. The bank demanded on the construction loan after allowing several extensions, in 2003. The business itself failed in 2005. The Narulas have sued Bank of America. As a result Johnson County District Judge J. Charles Droege found that the business lost customers because of the demands placed by the bank, though the business didn't fail exclusively because of the bank. Still, the bank violated its duty as a trusted financial advisor and reneged on the loan commitment that was depended on. Bank of America was ordered to pay $750,000. # Friday, May 1, 2009 ( 11:20 AM ) Andy Zavoina Privacy, It Matters A Long Island, NY dentist is suing Chase Bank. The bank cold called the home to inform Nazita Aminpour of a better earnings opportunity for her $800,000 that was on deposit at Chase. The rep spoke with her husband, David Shamash, about the opportunity, but Shamash was not on the account and until the call, didn't know about it. Shamash "harassed" his wife for some of this money to meet a margin call he was facing on his stock account. Aminpour decided that to save her marriage she needed to give her husband $155,000. Now she is suing the bank to recover those funds based on the bank violating privacy laws which prohibit disclosures of non-public, personal information. # Thursday, February 26, 2009 ( 5:50 PM ) John Burnett BOL's 2009 BSA/AML Conference -- Day 3 A presentation on SAR narrative completion, a demo of Internet search tips, a discussion of efiling and some last comments from FinCEN's Tom Fleming closed out the final sections of BOL Conferences' Top Gun conference here in Las Vegas. Mary Beth Guard kicked off this morning's sessions in high gear as she delivered a rapid-fire series of tips for using Internet search tools to "find almost anything." In spite of a reluctant Internet connection, she offered tips on researching real estate, locating customers, verifying addresses, make more effective use of Google and other search engines, and lots more. Included were ideas for research using the "hidden Internet," and finding out more about local government web resources. Forced to quit after a half-hour due to scheduling conflicts, Mary Beth included a lot more information in her handouts for the session. Ken Golliher walked attendees through the completion of a SAR narrative. Key in his presentation was a reminded to remember who uses SARs. Knowing one's audience can help guide SAR authors to create more helpful SARs. Law enforcement, FinCEN, and bank examiners all look at SARs for different reasons, and with different expectations. The effective SAR narrative addresses each group's needs. Ken's presentation used FinCEN's SAR narrative preparation training tool as its basis, augmented with Ken's terrific ability to make them even more relevant to the audience. Three conference attendees related their experiences with efiling of BSA reports and documents in the final section of the morning. It was good to hear that the system is working in and for their banks, and that it makes CTR filing, in particular, more efficient. It seemed fitting that Tom Fleming from FinCEN would follow with some additional remarks, including a clarification of his Wednesday comments on the revised exemption process. Banks can rely on knowledge of activity in a customer's current accounts and/or accounts held by the customer at the bank earlier in determining whether the customer qualifies for the five/year large transaction threshold test (Tom, I hope that is a reasonable summary of what you said!) The final session ended with a Q&A opportunity covering any BSA/AML topic. Not surprisingly, most of those questions were directed to Tom (it isn't every day, after all, that you get to meet with a FinCEN representative face-to-face and ask that burning question that's been bugging you for weeks!) So now I'm sitting at Las Vegas's McCarran Airport, waiting for my flight back to frigid New England (it should be 36 degrees when I land there at midnight tonight), with about 75 minutes before my flight is due to board. It's been a fast-paced, informative week. And in this case, I am confident that, to paraphrase, what was learned in Las Vegas won't stay in Las Vegas, and hopeful that each of the conference's participants makes it home safely and without incident. # Wednesday, February 25, 2009 ( 8:50 PM ) John Burnett BOL's BSA/AML Conference -- Day 2 Before reporting on Wednesday's sessions, I wanted to add a note about yesterday's presentation on OFAC, delivered remotely by Jerry LiVigni. You'll recall that Jerry advocated a reasonable approach to OFAC compliance, with reason based in a careful OFAC risk analysis. Perhaps the most memorable evidence of Jerry's advocacy of reasonableness was his response to a question about the "25 year old teller" who is confronted with a definite OFAC match in the form of an individual at her window, who makes known his desire to complete a transaction notwithstanding his notoriety as a member of the SDN list (listed not once, but ten different times, to include all of his aliases). Jerry made it clear that OFAC does not want the teller, or any one else, to put herself in harm's way by insisting on strict compliance with the OFAC blocking requirements. It was refreshing to hear someone from OFAC offer that common-sense type of reply to an important question. On to today's sessions: Wednesday morning featured two sets of three breakout sessions. The first group included Ken Golliher's session on the new BSA CTR exemption rules (the ones that became effective 1/5/2009). Even this session was not without some controversy, as Tom Fleming (from FinCEN) introduced some doubt as he suggested that a bank can form a reasonable belief that a relatively new customer will meet the new five/year large currency transaction count and, if it is otherwise qualified, grant an exemption to that customer. There is still some question on that point, and Ken is working to get a clarification. In another of the first breakouts, Kathleen Blanchard, Randy Carey and David Dickinson held forth on "Writing or Evaluating Independent Reports of Examination." And in the third of the early breakouts, Mary Beth Guard and I offered our take on the "BSA/AML Implications of Remote Deposit Capture." In that session, we found bankers who were already fully immersed in RDC activity, who were glad to share the lessons they had already gleaned from their experience. Mary Beth and I agreed that we had learned as much from conducting the session as we had hoped to impart. Some of the fraud examples we heard from participants were truly eye-opening! The second group of breakout sessions included presentations on "Prepaid Cards" conducted by Brenda Canterbury and Mary Beth; "Transaction Testing: When and How Much," presented by Kathleen, Randy and David; and "Banking MSBs," presented by Michelle Hemerley (with intermittent assistance from yours truly). Michelle's bank has more than 500 upper tier MSB customers (those for whom MSB activity is their primary business), and it doesn't use sophisticated BSA/AML transaction monitoring systems. She said that her bank goes well beyond requirements and works with their MSB customers to help the MSBs stay in business and comply with BSA/AML regulations, while at the same time protecting the bank from BSA/AML risk in banking the MSBs. After lunch, BSA veteran expert attorney Peter Djinis offered suggestions on "When Things Go South: Salvaging or Responding to an On-Site Examination Gone Wrong." Peter likened working with BSA/AML examinations to painting the Golden Gate Bridge. As soon as you finish working from one end of the bridge to the other, it's time for you to go back and start again. As soon as one exam is completed and its fallout cleaned up, preparation begins for the next exam. The afternoon's second session found Peter back on the dais, joined by Ken, Michelle and Brenda, to discuss "Conducting an AML Investigation." Michelle and Brenda in particular shared real-world suggestions based on their current banking experience. Michelle offered two "secret tips": Watch out for customer-owned and -operated ATMs, which present money laundering opportunities; and monitor cashier's checks that are older than one year (that may be sitting in safe deposit boxes to hide assets from tax authorities). An overriding theme in the presentation was a suggestion to form a big picture of a target customer's activities in an investigation, including any activity in other business group silos, such as trust, investments, or insurance. Michelle recommended using a simple checklist for each investigation to ensure that all areas are reviewed. The afternoon was capped off by IRS Special Agent Maurice Clark's presentation on "IRS CID and SAR Review Teams." These are regional teams that review SARs filed by reporters in their regions, who use the SARs in their investigations (or to start investigations) into wrongdoing. While part of Clark's presentation touted the IRS's lead role in addressing filed SARs, the true message of the session was the importance of SAR filings in the effort to investigate and prosecute alleged criminal activity, including money laundering and terrorist financing. Agent Clark got the attention of FinCEN's Tom Fleming when he recommended eliminating transaction detail from SAR narratives (including instead a statement that the detail is available in the documentation for the SAR). The IRS, said Clark, doesn't have time to wade through the details in an extended essay, and would prefer simpler narratives. Tom reminded the audience that the SAR instructions call for that detail and the detail has provided the fodder for much of the analytical work that FinCEN does with SARs. David Dickinson sagely suggested that the narrative include a summary of the key information in the first sentence or two, with detail following, so that the gist of the narrative can be readily seen by SAR review teams, and details are there too for those who want to read them. Agent Clark wrapped his presentation with a series of actual cases (scrubbed for anonymity) that stemmed from SAR filings. From the dentist's wife who laundered funds skimmed from her husband's practice to a serial murderer running through funds from life insurance proceeds from his three deceased wives, the cases painted vivid examples of how SAR filings can help put criminals in jail and separate them from some of their ill-gotten gains. After the day's sessions, BOL management hosted the conference speakers for dinner. Between sessions of Michele and Mary Beth showing off the merits of their Amazon Kindle readers (truly and amazing tech-tool/toy for the right people), the beginnings of a post-conference evaluation were already in the air, along with hints of planning for future BSA/AML conferences. That review and planning will continue in the coming weeks as the evaluations supplied by attendees are digested. But in the meantime, there is still Thursday morning, with three more valuable sessions to be offered. I'll work on my blog of those sessions on the plane Thursday evening as I wend my weary way back home to Cape Cod. Watch for it Friday morning. # Tuesday, February 24, 2009 ( 7:33 PM ) John Burnett BOL Conferences 3rd Annual BSA/AML Conference (Top Gun) Bally's, Las Vegas Day 1 -- Tuesday, February 24 I'm in Las Vegas for much of this week, participating in BOL Conferences' BSA/AML Top Gun conference. This is the third annual event, and it shows early signs of being the best of the series. Mary Beth Guard and Ken Golliher welcomed to the conference over 150 attendees from all over the country (and two from outside the US).  FinCEN Update FinCEN's Thomas Fleming started his presentation by suggesting that there needs to be a balance between reactions to the current economic crisis and BSA/AML compliance. With limited -- often shrinking -- resources, bankers have to decide where they must focus, and what they can let go. From the government's perspective, BSA/AML/OFAC compliance continues to be a national security concern. That suggests, he said, that bankers should fine-tune their approach to compliance by focusing on higher risk activities, customers and products, remembering that customer behavior will change in troubled economic times, particularly with regard to the safety of their dwindling funds. Tom next recapped the events leading up to the recent revision to the CTR exemption process, and followed with a list of current and pending FinCEN initiatives affecting the industry. The first of those was today's FinCEN release of a new customer education brochure regarding CTR filings and structuring (the agency's email alert of the release hit my BlackBerry at 7:56 a.m. PST). Other releases on the horizon include --
OFAC Technology was stretched a bit as Mary Beth and her iPhone became the go-betweens for OFAC's Jerry LiVigni, who had to "call in" his presentation from his office. Jerry's message advocated a reasonable approach to OFAC compliance, based on a bank's risk analysis. ID Theft and CIP Implications Pat Cashman, Ken Golliher and I compressed our impressions on this topic into a 30-minute slot just before lunch. We illustrated the connections between compliance with ID theft "Red Flags" regulations and CIP rules, and then listed some of the pros and cons of merging Red Flags and CIP policies and procedures.  CSI -- Common Slip-up Investigations The presentation slot right after lunch is always a challenge. Pat Cashman and Dave Dickinson were up to the task, though, with their entertaining look at common screw-ups (if it's good enough for the president, it's good enough for me) that can get banks into trouble at audit or exam time. Mortgage Loan Fraud Mary Beth gave us all a quick overview of the huge problem of mortgage loan fraud that has been a major contributor to the global economic recession and continues to threaten banks and other mortgage investors. She punctuated her remarks with examples of the many varieties of mortgage fraud that have been involved, and encouraged bankers to develop methods and procedures designed to identify and prevent fraud in the loan application process.  Exam Prep David and Ken teamed up to discuss tips for preparing for regulatory exams. Strategies and tactics to make the exam process smoother and more efficient were high on their list. They ran from making sure that issues identified in prior exams and audits are addressed, to ensuring that staff members are prepared for the exam, to preparing and delivering pre-exam information, to a follow-up "party" to thank staff members for exam successes. The day wrapped up with a Q&A session and reception. I'll be back with an update covering Day 2 of the 2009 Top Gun Conference.  --JB Labels: BOL Conferences, BSA/AML, conference #Sunday, November 23, 2008 ( 1:56 PM ) Andy Bank catches real problem in survey This is one of those unbelievable stories that make you glad there are procedures to follow. In Killeen, Texas, a family wanted their dream home. They found a 5 acre lot with a For Sale sign and they bought it. They cleared the lot, and on it they constructed a 5,300 sqft home with six bedrooms, five baths, a two car garage and a rooftop deck. Now the real kicker, the builder went to a bank for a loan. The bank wanted a survey. Turns out the Realtor put the For Sale sign in the lot next the one that was purchased. The house was built on the WRONG LOT. I don't know how this could have happened, but it did as the builder and buyer based everything on where the sign was, but the legals were for the next property over. The family sold their existing home which is already rented out. They may live in a hotel for awhile. They have to see if the other property owner will trade 5 acre tracts or sell them their property. If you are the other property owner, I suppose you have a great improvement, and your property taxes will reflect this whether you like it or not. Always, always, always get that survey. # Tuesday, November 11, 2008 ( 12:56 PM ) Andy Is Reg B Compliance Really Necessary if Fair Lending Isn't a Problem? You bet it is. But you knew that. In case you need any support for your case, read more below. According to JSOnline, the Milwaukee Journal Sentinel, the FDIC questioned compliance with Reg B at an Elkhorn bank. The directors there "failed to provide adequate supervision over, and direction to, the active management of the bank in the area of consumer compliance." One issue was the clarity of why applicants were refused loans. The bank had to complete a file search of adverse actions from August 20, 2007 until February 20, 2008. While only for a six month period, this could still be an expensive task. Those notices that were not compliant had to be produced properly and re-delivered. It was noted that the bank was sound financially, but lacking in compliance. The issues were being rectified. # Tuesday, September 23, 2008 ( 10:53 AM ) Andy Mortgage Fraud - Is the smoke Going to Clear As mortgage lending slows, the smoke should begin to clear, exposing more of the mortgage mess. It will give us a chance to slap our heads and wonder how much better off we'd be if we just had a V8; case in point, WaMu. In July 2007 Vijay and Supriti Soni bought a home for $440,000 in Santa Ana, CA. Five weeks later, while prices were falling in the area, they sold that property for $660,000 to their gardener and handyman. WaMu made both loans. The property was actually worth $377,137 when foreclosed in July 2008. In all, it is reported that the Soni family had 43 mortgages with WaMu for $24.5 million since 2007. 22 have sold but six of them are problems. Four were foreclosed on, one is in default now and the sixth is up for sale at a $260,000 loss. WaMu's has $2.7 million in problem loans from this bunch. Property values have fallen more than 40 percent in the Santa Ana area since the 2006 peak. The public records on 22 of the Sonis transactions show that in the past two years they had a total gain on sale of $3.7 million. They never had a property loss. Their average gain was 48 percent and flips were completed in 92 days. Some of these flips went from one family member to another. And the transaction was used as a comp on another of their flips to support rising values in the area. There is also doubt about the down payments that were supposedly made by buyers. In one case the buyer said he paid nothing down, but the records show $64,200 was paid. Lohia Soni was the escrow agent. WaMu is investigating the loans as mortgage fraud. At what point would red flags have gone up and more attention been given at your bank? The FHA banned financing flips less than 90 days after a sale. WaMu wasn't following that rule here. The FHA also requires second appraisals when there is a 100 percent gain on sale after less than six months. The Sonis also had convictions for real estate fraud in 2003. I can't wait until the next season of Flip this House comes on. That will be reality TV. # |
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