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#2150367 - 10/18/17 08:22 PM Bank Liability - Self Enrichment/Embezzlement
Wildcat Rampage Offline
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Joined: Aug 2016
Posts: 91
Kentucky - Home of the 8 time ...
I found some suspicious activity that led to a discussion that has me a bit confused and I'd like some opinions please.

John Doe is the authorized signer for Generic Charity - an unincorporated association.

Every month Mr. Doe brings a $1,200 check made payable to Generic Charity from a church in a community about 100 miles away and deposits $1,100 into Generic Charity's account and receives $100 cash back as part of a split deposit.

Later, Mr. Doe uses Internet Banking to transfer $1,100 from Generic Charity's account into his personal account. A review of the account activity shows that the funds are being used to pay personal/household expenses.

When I was making my Board report of SAR filings, this question came about, "Do we have liability for allowing Mr. Doe to conduct this activity?".

My justification for filing the SAR was that Mr. Doe is taking funds that are designated for a charitable organization and using them for his own benefit. That seems to be self-enrichment/embezzlement.

However, he is an authorized signer on the account. Legally, he could write a check from Generic Charity's account and deposit it into his personal account. He could even withdraw funds at the teller window since he's an authorized signer on the account. Does the Bank have specific liability to the stakeholders of Generic Charity because Mr. Doe is doing this through Internet Banking?
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#2150371 - 10/18/17 08:27 PM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
BrianC Offline
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Illinois
Potentially.

By enabling the activity, (allowing cash back on checks payable to a business, permitting internet banking transfers between two different entities) a good attorney could argue that the Bank is guilty of conversion and breach of fiduciary duty. There's an even better chance that a jury would agree.

By requiring charity manager to make a check payable to him/herself, there is a clear paper trail of the movement of funds.
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#2150379 - 10/18/17 08:53 PM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
rlcarey Online
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Galveston, TX
John Doe is the authorized signer for Generic Charity - an unincorporated association.

Are they even registered in your State?

https://ag.ky.gov/family/consumerprotection/charity/Documents/charity.pdf

Sounds like a total shame to me - are unincorporated associations common in your State?
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#2150384 - 10/18/17 09:03 PM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
JacF Offline

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What evidence of authority did John Doe provide at account inception to demonstrate that he is authorized to conduct business on behalf of Generic Charity?
Last edited by JacPCB; 10/19/17 04:08 PM. Reason: typo
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#2150416 - 10/19/17 11:56 AM Re: Bank Liability - Self Enrichment/Embezzlement rlcarey
Wildcat Rampage Offline
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Joined: Aug 2016
Posts: 91
Kentucky - Home of the 8 time ...
I agree Randy, but...

I should have called this "Generic Religious Charity", so it's less likely to be listed. It does have an EIN at least...

This account has also been open for 19 years, and to speak to the question of documentation - it was pre-CIP and pre-imaging (at least in west KY) so the file is pretty bare. My intuition tells me that someone knew the signer operated the charity and that was all it required in 1998.

I agree with the point on the cash back and we've already touched base to let them know that will stop.

Thanks for the insights.
Last edited by Wildcat Rampage; 10/19/17 12:06 PM. Reason: Text added
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#2150417 - 10/19/17 12:15 PM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
rlcarey Online
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Galveston, TX
Later, Mr. Doe uses Internet Banking to transfer $1,100 from Generic Charity's account into his personal account.

How does that happen? I would be pulling the plug on that. In fact, I would be pulling the plug on the whole relationship. There is no upside for the bank in continuing to bank this customer.
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#2150420 - 10/19/17 12:56 PM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
edAudit Offline
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edAudit
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You are here
I would be pulling the plug on the whole relationship. There is no upside for the bank in continuing to bank this customer.

This ^^^^^^
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#2150510 - 10/19/17 04:46 PM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
Wildcat Rampage Offline
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Joined: Aug 2016
Posts: 91
Kentucky - Home of the 8 time ...
Thank you everyone.

Do you all have the authority to unilaterally make those decisions at your bank? At best I can recommend that course of action to management (my boss).
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#2151348 - 10/26/17 10:05 PM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
Daisy Doodle Offline
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Joined: Feb 2014
Posts: 1,030
Southern U.S.
I imagine most BSA Officers are at the 'recommend' level of authority. But at least at my bank, I would not expect anyone to defend what this guy is doing and push back on this.

However, I do usually start by requesting refreshed due diligence on the whole situation (and no more checks into the charity account until it happens). From there, once we get whatever weird story the customer offers, I move to a close recommendation.

Sometimes they come back to me after talking to the customer and tell me they are closing and I don't have to.

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#2151585 - 10/28/17 12:00 AM Re: Bank Liability - Self Enrichment/Embezzlement Wildcat Rampage
TryingtoComply Online
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The West
I would do a look back to see how much money went through the account. That information along with your reasons for closing will likely make sense to management.
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