CRIMINAL VIOLATIONS
Introduction
-Fraud and embezzlement losses harm individual banks and, through fidelity insurance premiums, raise overall costs in the banking system
-Insider abuse and fraud are major contributing factors in about 1/3 of bank failures
Bank Management
-Management is responsible for preventing fraud and insider abuse
-Banks systems should be designed to detect crimes
-Part 353 – requires banks to report apparent crimes to FinCEN within 30 days of their discovery on a standard form, the Suspicious Activity Report (SAR)
-Code of Conduct/Code of Ethics policy should be adopted and approved to govern each bank officer's dealings and transactions with outside parties. (Code should provide guidance for the receipt of gifts and gratuities and delineate acceptable business practices)
Examiners Role
-Responsible for evaluating the bank’s internal controls and management systems
-Examiners concerned with internal and external crimes
Disclosure of Confidential Information to Law Enforcement Authorities
-Examiner may disclose confidential information obtained during an examination to law enforcement authorities after obtaining permission from the RD
-Part 309 – authorizes examiners to appear and testify before a grand jury or at a criminal trial
Criminal Referrals
-Banks to report crimes to FinCEN on SAR
-FDIC is to prepare and file SAR directly with FinCEN when:
-The referral made by the bank is deemed inadequate OR
-The suspected criminal conduct discovered by the FDIC has not been reported by the bank
-Referrals are to be made when the examiner first obtains evidence to support a belief that a crime has been committed
-Copies of documents that prove or support the violation should not be attached to the referral
-Supporting documents should be segregated and stored (……5 years I think……..)
Communication
-After being authorized by the RD, the examiner may communicate the details of a SAR directly to federal law enforcement agents
Parallel Proceedings
-Referral of suspected criminal conduct to other federal agencies does not restrict the FDIC from continuing its own examination or investigation into the same conduct, unless requested to cease or suspend such activity by the Justice Department
Criminal Statues
Bank Bribery
-Bank Bribery Act encourages banks to adopt Code of Conduct policies to provide guidance and alert bank officials to inappropriate activity
Theft, Embezzlement, and Misapplication of Funds
-Typically willful, with intent to injure or defraud the bank (intent can be inferred (reckless disregard))
-Embezzlement – unlawful taking of monies by a person or conversion to his or her own use
-Abstraction – wrongful taking or withdrawing of funds with the intent to injure or defraud the bank or some other person without the knowledge or consent of the bank or its Board
-Misapplication – willful and unlawful misuse of bank funds to the benefit of the wrongdoer or some person other than the bank
False Advertising or Misuse of FDIC Name
-Misuse unauthorized words such as national, reserve, federal deposit, or deposit insurance to convey impression of federal agency affiliation
False Statements or Entities
-Covers oral or written false statements knowingly or willingly made to influence a determination of any federal department or agency
False Entries
-False entries and reports or statements (including material omissions) made by a bank to (intent) injure or defraud the FDIC or other individuals
-False answer to a question on an FDIC Officer’s Questionnaire
Federal Deposit Insurance Corporation Transactions
-False statements made to the FDIC in connection with an application
-False or misleading statements made to an FDIC examiner during an examination
False Statements on a Loan or Credit Application
-Covers oral or written false statements (statements must have been capable of influencing the bank’s credit decision)
Fraud and Related Activity in Connection with Access Devices
Computer Fraud
-Knowingly access a computer without authorization or who, having accessed a computer with authorization, use it for unauthorized purposes
Mail Fraud
Wire Fraud
Bank Fraud
-Applies to check kites
Racketeer Influenced and Corrupt Organizations (RICO)
-Investment in any enterprise affecting interstate commerce if the funds are derived from such things as murder, drug dealing, bribery, robbery, extortion, counterfeiting, mail fraud, embezzlement from pension funds, etc.
Laundering of Monetary Instruments
-Illegal to conduct or attempt to conduct a financial transaction knowing that the property involved in the transaction represents the proceeds of some form of illegal activity
-Avoid a transaction reporting requirement under state or federal law
Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity
-(Value of over $10M)
Bank Robbery and Incidental Crimes
Foreign Corrupt Practices
Securities Laws
Currency Transactions/BSA
Structuring Transactions to Evade Reporting Requirements
Aiding and Abetting
Misprison of Felony
-Covers the failure to report a felony
Bribery of Public Officials
Conspiracy to Defraud
-Defraud the US or any agency thereof
Fictitious Name or Address
Transportation of Stolen Goods, Securities, etc.
Sale or Receipt of Stolen Goods, Securities, etc.
Federal Election Campaign Act of 1971
-Prohibits banks from making any contributions to or expenditures on behalf of any candidate for federal elective office
-HOWEVER, banks may make on behalf of candidates or committees for state or local elective offices
-(A loan is not a contribution if it is made in accordance with applicable banking laws and is made in the ordinary course of business)
Criminal Referrals
-Part 353 – banks to report, on a SAR, criminal violations that involve or affect the assets or the affairs of such banks to FinCEN
-SAR shall be filed when:
-Employee, officer, director, agent or other IAP is suspected of committing or aiding in the commission of a crime involving the institution
-Known or suspected crime is committed against the institution, there is actual or potential loss to the institution of $5M or more, and a possible suspect or group of suspects can be identified
-Known or suspected crime is committed against the institution, there is actual or potential loss to the institution of $25M or more, and a potential suspect or group of suspects cannot be identified
-Financial transaction of $5M or more was conducted or attempted using the institution as a conduit for criminal activity. Funds involved in the transaction were derived from illicit activity, the purpose of the transaction was to hide or disguise funds from illicit activities, or the purpose of the transaction was to evade the BSA requirements
Reporting by Examiners
-Apparent criminal violations that are detected by examiners should be brought to the bank’s attention for reporting by bank management
-HOWEVER, if senior management is being implicated, examiner may not want to report findings to the Board because of the possibility of evidence being destroyed. In these cases, the examiner should complete a SAR and consult the RO
-Examiners may be called to prepare SAR where:
-The examiner suspects that a criminal statue has been violated but bank management disagrees and elects not to submit a SAR, OR
-The bank’s report has been prepared inadequately
Notifying the Bank’s Board
-With the concurrence of the RO, the examiner should report the discovery of a significant apparent criminal violation directly to the bank’s Board
Reporting Promptly to Law Enforcement Officials
-SAR should be completed, processed, reviewed by the RO and forwarded to FinCEN as soon as possible (do not hold to end of exam or hold till report is finalized in RO)
Preparing and Filing the SAR
-Management responsible for preparing and filing SARs
-Form requires information on the suspected violation(s), the suspect(s), any witness(es), and the individual(s) authorized to discuss the referral with authorities
-Information is requested in two forms: statistical and detailed explanation (narrative)
-Banks are required to file the SAR within 30 days of detecting the criminal activity HOWEVER if management is unable to identify a suspect within 30 days, reporting may be delayed an additional 30 days or until a suspect is identified, whichever is sooner (never exceed 60 days)
-Management must notify the Board of any SAR filed
-Board must record such notification in the minutes of the directors meetings
-Copies of related supporting documentation must be maintained by the institution and made available to law enforcement authorities upon request
-Copy of SAR and supporting documentation should be retained for 5 years
Safeguarding and Documenting Evidence
-Photocopy evidence
-Copies should be initialed and dated by the examiner in case the originals are misplaced or destroyed
-Document the flow of funds, approvals and employees responsible for handling each transaction
Notification To The Bonding Company
-Bank must notify its fidelity insurer when SARs are filed on employees
-Bank may not provide a copy of the SAR to the insurer
-Standard financial institutions bond contains a termination clause which automatically cancels coverage of any employee as soon as there is knowledge of any dishonest or fraudulent act on the part of such employee
-If bank does not terminate employee, must receive assurance that employee is covered under insurance
Other Matters of Importance
-When allegations of wrong doing come to the attention of an examiner during the course of an examination, the examiner should immediately notify the RO. All investigations of allegations should be well documented
-If informants wish to remain anonymous, examiner should explain will try to keep identify anonymous but,
-Inquiry into situation may cause employees to deduce the informants identity
-Information may be referred to another agency which may request the informants identity
-Court may order disclosure of the informants identity to the defendant