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#59538 - 02/06/03 12:50 PM BSA and Reg O - should I report ?
Anonymous
Unregistered

Here's my problem, and I am looking for specific sites in regs that I can use to back my opinion or if you think I am totally off base, I'd like to know that also.

I have the most senior member of my institution approving the paying of NSF checks on a relatives account. This relative is not an immediate family member but they are very close and one would think they were siblings. When the NSF's are paid, the NSF fee is waived and the account is forced into the negative. It might not sound too bad however, we are talking 10's of thousands into the negative and it has become a pattern. Sometimes this account is in the negative for months. As an institution,

1. we usually waive the first NSF fee and then charge all others.
2. If an customer has many NFS and a negative balance, we close the account.
3. This is only being approved by the president because of his relationship this the customer. (this reason worries me the most)
4. We have already put an overdraft on this account and it has been maxed out.
5. We have put an equity on his home and paid off a very large negitive balance.
6. The institution is paying checks that we know are NSF's and possibly cannot be repaid.

I am anger that the president has put me in this position and hasn't stopped the approving of paying these NSF checks. I feel his "power" is being abused and I don't want to be standing across from an examiner or the Board of Directors and have to explain why I didn't do anything.

Is there any specific reg I can point to and show him that if he doesn't do something now, I will be forced to?

Thanks in advance

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General Discussion
#59539 - 02/06/03 01:17 PM Re: BSA and Reg O - should I report ?
Sponge Steve Offline
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Sponge Steve
Joined: Jun 2002
Posts: 299
Midwest
I think the answer is there is no reg prohibiting the practice. Unless that bank exec is benefitting from the OD Reg O doesn't apply. Your caption mentions BSA. I can't think of anything in BSA that would apply.

Your bank's Code of Ethics might come into play if it prohibits bank officers from approving loans to family members. Then you'd have to take a look at whether this OD beneficiary falls in the right place in the family tree.

Does the OD amount exceed the limit the bank's board has given that officer for approving ODs? If so, there's the hook you can use to elevate your concerns.
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#59540 - 02/06/03 02:18 PM Re: BSA and Reg O - should I report ?
Andy_Z Offline
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Are reporting mechanisms in place to draw the attention of the board? If yes, but it doesn't matter, then look for an alternative.

Is a line of credit possible, another loan, or would these simply be exhausted and the OD used again?

If this is the case, part 1 of the problem is the customer will use whatever is available. Part 2 is that the banker will give them all they can. Either of these needs to be addressed. If you are not in a position to do so, find someone who can or just CYA.

Sometimes, what we think is a big deal, isn't. Hope for teh best.
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#59541 - 02/06/03 03:02 PM Re: BSA and Reg O - should I report ?
Anonymous
Unregistered


Andy
In reply to:

Is a line of credit possible, another loan, or would these simply be exhausted and the OD used again?





We currently have a HELOC on this individual property (which by the way, isn't in our lending area) the individual has exhauseted the HELOC. There is an OD on the account which has also been exhausted. There isn't anyway reporting in place that would bring this to the attention of the board and the balance is always paid up before any auditors come in.

I was wondering if this feel under SAR reporting at all? I believe it is unethical but I'm not sure if it is illigal.

Any known or suspected criminal violation, or pattern of criminal violations, committed against the financial institution or involving a transaction conducted through the financial institution, and the financial institution has a substantial basis for identifying one of its directors, officers, employees, agents or other institution-affiliated parties as having committed or aided in the commission of a criminal act regardless of the amount involved in the violation.

There has to be something wrong with an EO doing special "favors" for family members...

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#59542 - 02/06/03 03:40 PM Re: BSA and Reg O - should I report ?
Andy_Z Offline
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There might be a SAR warranted if you suspected kiting to cover the checks when the accounts are to be reviewed.

You also need to consider the cause and effect. Is your cause worth the effect this may have. Moral issues differ from legal issues. And you may be the ultimate loser in this deal.

I wonder why if this OD hits long timelines and tens of thousands of dollars in the negative, why accounts representing such risk are not on a board report?
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My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#59543 - 02/06/03 04:04 PM Re: BSA and Reg O - should I report ?
John Burnett Offline
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John Burnett
Joined: Oct 2000
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Cape Cod
Unless this is a case of talking to yourself, Anon, have you considered bringing this concern to your internal auditor?
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#59544 - 02/06/03 04:26 PM Re: BSA and Reg O - should I report ?
Anonymous
Unregistered

Please excuse the "Anonymous" ID, but I am sure you understand. We are a small shop, under 100,000,000, our internal auditor is a branch manager and has already spoke to me about this. If I go to our external auditors, I feel I will open a huge can of worms.

We aren't reporting ODs to our Board, because our practice is not to allow them, hence, nothing to report. (Not to mention, we wouldn't be "allowed" to report this.) We (the senior VP and myself) want to approach the president and tell him that he has put us in an awful position and has to have this debt cured immediately. I would like same fact to base my conversation on however and not just my "gut" feeling that this is wrong. In a "perfect" world, I would be able to say, "You are in violation of......"

Neither of us want to be fired, however, we also don't want to be called on the carpet by the regulators or the Board for not having taken any action.

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#59545 - 02/06/03 04:56 PM Re: BSA and Reg O - should I report ?
SMQ, CRCM Offline
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Between the lines
Sometimes it is a very thin line between what is "right" and what is "prudent". You say that it is the bank's policy to not have ODs, hence no report. Well, if it is the bank's policy, then you could occasionally pull a report to insure that the bank is in compliance with its own policy and submit your findings to your audit comm. or BOD, whichever you report to. I would probably just do this as part of my regular report. You might also check the personnel policy to see if there is something in the policy that prohibits transactions for family members. Once you have brought it to the attention of whoever you report to, it will be the committee's or board's decision to pursue.

Examiners generally will not hold you responsible for issues such as these. The problem for you is not what he is doing, it is whether or not there are controls to catch the problem and are you reporting it to the people who have the authority to deal with it. The examiners will then be looking to management or the BOD as to why this practice is allowed. I would also be concerned about some of the other controls, "Not to mention, we wouldn't be "allowed" to report this." If I understand you correctly, the officer doing this is the President. (No, no, say it ain't so.)

His actions may not be prohibited by any policy, but then that is why we revise policies. You are right to be concerned--if it smells fishy, it's probably fish.
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#59546 - 02/06/03 05:18 PM Re: BSA and Reg O - should I report ?
John Burnett Offline
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John Burnett
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Cape Cod
If I could find a regulatory cite for the SAR violation "Abuse of Position," I would do so. But a SAR is a pretty severe thing to do, and I would understand your hesitation to employ one without knowing there's a law or regulation being broken here.
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BankersOnline.com
Fighting for Compliance since 1976
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#59547 - 02/06/03 05:35 PM Re: BSA and Reg O - should I report ?
JMB Offline
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Joined: Mar 2002
Posts: 59
Michigan
Hmmm, od in the thousands, not covered for months, paying checks that couldn't possibly be covered, a maxed out od line, a maxed out home equity. Regardelss of who is approving it, sounds like a safety and soundness concern to me. Anyone have any comments on that?

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#59548 - 02/06/03 05:45 PM Re: BSA and Reg O - should I report ?
SMQ, CRCM Offline
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Between the lines
I agree that a SAR may be appropriate, but I hesitate to go there until I get some more answers. Is the President the one that is approving these ODs?

If so, with everything else that is or is not going on, it may be time to ask oneself if they really want to continue working there.

It's one of the things that I really do love about my bank and my job. Everyone of the people in positions of top management is a very moral, ethical person. They "take care of business" but they realize that there are rules and regulations for a reason. They are also very considerate of the human element in the workplace and employees are treated as people---not cogs in the wheel. We are a large bank with multiple locations and I can honestly say that it can be done.
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#59549 - 02/06/03 07:01 PM Re: BSA and Reg O - should I report ?
Neytiri Offline
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Neytiri
Joined: Jul 2002
Posts: 645
Pandora
If he is violating bank policy on ODs then I would have the Auditor talk to him and let him know if it doesn't stop then a report will be made to the BOD. If this doesn't stop it, then the Auditor should report to the Audit Committee/BOD. Audit is supposed to be independent of operations and should feel no repercussions from this.

And change the fact that no OD report is going to the BOD; we do this monthly.


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#59550 - 02/06/03 07:19 PM Re: BSA and Reg O - should I report ?
DawgFan Offline
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DawgFan
Joined: Jul 2002
Posts: 1,678
United States
In reply to:

His actions may not be prohibited by any policy, but then that is why we revise policies. You are right to be concerned--if it smells fishy, it's probably fish.




How true. Something about this whole situation doesn't sit right with me. Anon is wise in wanting "hard regulatory facts" rather than just gut feelings, but IMHO, this appears to me to be an abuse of power. It looks like the guy is using the bank's resources to cover up for a relative's inability to manage his finances. And, yes, in that case I consider it an unsafe and unsound practice.
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#59551 - 02/06/03 07:25 PM Re: BSA and Reg O - should I report ?
Anonymous
Unregistered

Thank you all.. I guess I was looking for validation that this was as big of a problem as I thought it was. I found this on the FDIC site and thought some of you might find it interesting also.
http://www.fdic.gov/bank/individual/enforcement/5113.html


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#59552 - 02/06/03 08:01 PM Re: BSA and Reg O - should I report ?
MackenzieS Offline
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MackenzieS
Joined: Jul 2002
Posts: 1,722
Oklahoma
In reply to:

Regardelss of who is approving it, sounds like a safety and soundness concern to me. Anyone have any comments on that?




I totally agree that this is a safety and soundness issue. I don't know what your state law requires, but in Oklahoma you are required to report to the BOD monthly any OD's over a bank established limit. (for example $250.00). I find it difficult to believe that there is a bank out there with no overdrafts on any given day that wouldn't exceed even a minimal amount like that.

Anyway, you could perform a safety and soundness review of current policies and suggest a recommendation that maybe several areas need addressing, therefore not bringing this single issue to light on its own.

Historically speaking, we know that when we have employees or customers that drain their accounts, max out their credit cards, max out their LOCs, etc...where are they going to get more money? The well eventually becomes dry. If this were "just" a loan officer I would be performing loan reviews over any loans booked during this time frame to ensure that they were all legit.

I agree however that you don't want to lose your job over this issue, so either try to resolve it by including it within a group of other recommendations or let him hang himself when the safety and soundness examiners come in and ask for a system generated list of OD's for the month. I guess we don't know if what is transpiring is illegal or just bad business, but it sure throws up a red flag and it places the bank at risk for a loss of all the combined extensions you have granted this person.

Good Luck!

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#59553 - 02/06/03 08:03 PM Re: BSA and Reg O - should I report ?
SMQ, CRCM Offline
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Between the lines
Good research!!
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#59554 - 02/06/03 08:39 PM Re: BSA and Reg O - should I report ?
OnTheEdge Offline
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Joined: Apr 2002
Posts: 1,677
SmallTown, USA
Another issue to consider....If this thing ever blows-up into something really bad, your bonding company may scour through to find anyone who may have had knowledge earlier than reported. If they even THINK this occurred they will be reluctant to pay any claim. Litgating this issue could cost the bank mucho. My advise, let someone up the chain of command know what's going on!
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