Federal Deposit
Insurance Corporation

{{9-30-96 p.C-3728}}
   [¶11,018] In the Matter of Bank of Waukegan, Waukegan, Illinois, Docket No. FDIC-94-99b (7-28-94).

   Bank to cease and desist from such unsafe or unsound practices as operating in violation of applicable laws or regulations; operating with officers and employees who lack adequate knowledge of consumer laws; operating without adequate policies and routines for consumer law compliance; and failing to provide adequate supervision over consumer law compliance. [This order was terminated pursuant to an order of the FDIC dated 7-22-96. See ¶16,108.]

[.1] Violations of Law—Eliminate/Correct
[.2] Consumer Laws—Compliance Officer Required
[.3] Consumer Laws—Compliance Program Required
[.4] Bank Secrecy Act—Compliance Program Required
[.5] Consumer Laws—Compliance Audit Required
[.6] Board of Directors—Committee to Review Compliance with Cease and Desist Order
[.7] Shareholders—Disclosure—Cease and Desist Order

In the Matter of

BANK OF WAUKEGAN
WAUKEGAN, ILLINOIS
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-94-99b
   Bank of Waukegan, Waukegan, Illinois ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or {{9-30-94 p.C-3729}}unsound banking practices and violations of law or regulation alleged to have been committed by the Bank, and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with counsel for the Federal Deposit Insurance Corporation ("FDIC"), dated July 27, 1994, whereby solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC.
   The FDIC considered the matter and determined that it had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

   IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. § 1813(u), and its successors and assigns, cease and desist from the unsafe or unsound banking practices and violations of law or regulation listed below. For purposes of this ORDER, "Consumer Laws" means those laws and regulations referenced in the FDIC Manual for Compliance Examinations, including the laws and regulations referred to in the FDIC Compliance Report of Examination of the Bank as of October 29, 1993 ("Compliance Report").
   A. Violating laws or regulations as described on pages 3 through 4 of the Compliance Report;
   B. Operating with directors, officers and employees who lack adequate knowledge of or training in the Consumer Laws;
   C. Operating with deficient policies and internal routines and controls addressing compliance with the Consumer Laws; and
   D. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank in the Consumer Laws.
   IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:

   [.1] 1. Within 90 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law or regulation described on pages 3 through 4 of the Compliance Report. In addition, the Bank shall implement procedures to ensure future compliance with the Consumer Laws.

[.2] 2. (a) Within 60 days from the effective date of this ORDER, the Bank shall have and thereafter retain a qualified compliance officer who shall be given written authority by the Bank's board of directors to implement and supervise the Bank's compliance program, including but not limited to, providing training for the Bank's employees in the Consumer Laws, establishing internal controls and procedures reasonably designed to prevent violations of the Consumer Laws, and performing or supervising periodic internal audits to ascertain compliance with the Consumer Laws and/or the Bank's compliance program. The compliance officer shall report directly to the Bank's board of directors. The Bank shall provide the compliance officer with training in the Consumer Laws, and said training shall be reported to, and recorded in the minutes of, a meeting of the board of directors each calendar quarter.
   (b) The Bank shall promptly notify the Regional Director of the Chicago Regional Office of the FDIC ("Regional Director") of the identity of the compliance officer. If the compliance officer is to be added as a director of the Bank or employed as a senior executive officer, the Bank shall comply with the requirements of section 32 of the Act, 12 U.S.C. § 1831i, and section 303.14 of the FDIC Rules and Regulations, 12 C.F.R. § 303.14, prior to the addition of the compliance officer to such position.
   (c) The assessment of whether the Bank has a qualified compliance officer shall be based upon the officer's record of achieving compliance with the requirements of this ORDER and with the Consumer Laws.

   (a) Appointment of a compliance officer, including a clear delineation of the officer's duties and responsibilities as referenced in paragraph 2(a) of this ORDER;
   (b) Education and training of Bank personnel, including training in compliance with the Consumer Laws for all Bank employees involved in lending, and for any other Bank employees whose responsibilities require knowledge of and compliance with the Consumer Laws;
   (c) Establishment of nondiscriminatory lending criteria;
   (d) Establishment of loan application procedures;
   (e) Review of forms;
   (f) Establishment of an audit program which shall include policies and procedures for monitoring the Bank's compliance with the Consumer Laws, as described in paragraph 6 of this ORDER;
   (g) Establishment of a procedure to handle consumer complaints; and
   (h) Review of consumer lending procedures for compliance with Bank policy.

   (a) At a minimum, a system of internal controls shall be designed to:

   (i) Identify reportable transactions in a timely manner in order to obtain all the information necessary to properly complete the required reporting forms;
   (ii) Ensure that all required reports are accurately completed and properly filed;
   (iii) Ensure that customer exemptions are properly granted and recorded, including the maintenance of documentation sufficient in detail so as to substantiate exemptions granted;
   (iv) Provide for adequate supervision of employees who accept currency transactions, complete reports, grant exemptions or engage in any other activity covered by the Department of the Treasury's Regulation for Financial Recordkeeping and Reporting of Currency and Foreign Transactions ("Financial Recordkeeping Regulation"), 31 C.F.R. Part 103; and
   (v) Establish dual controls and provide for separation of duties.

   (b) The Bank shall adopt and implement a system of testing, internal or external, for compliance with the BSA, 31 U.S.C. §§ 5311-5326, and the Financial Recordkeeping Regulation, 31 C.F.R. Part 103, which include, at a minimum:

   (i) A test of the Bank's internal procedures for monitoring compliance with the BSA, 31 U.S.C. §§ 5311-5326, including interviews of employees who handle cash transactions and their supervisors;
   (ii) A sampling of large currency transactions followed by a review of currency transaction report filings;
   (iii) A test of the validity and reasonableness of the customer exemptions granted by the Bank;
   (iv) A test of the Bank's recordkeeping system for compliance with the BSA, 31 U.S.C. §§ 1533–5326, and
   (v) Documentation of the scope of the testing procedures performed and the findings of the testing. Any apparent violations, exceptions or other problems noted during the testing procedures should be promptly reported to the board of directors.

   [.6] 6. Within 30 days from the effective date of this ORDER, the Bank shall establish a compliance committee comprised of at least three directors. No committee member may be an executive officer or principal shareholder, as those terms are defined in sections 215.2(d) and (1) of Regulation O of the Board of Governors of the Federal Reserve System, 12 C.F.R. §§ 215.2(d) and (1). The committee shall monitor compliance with this ORDER and within 60 days from the effective date of this ORDER, and on a monthly basis thereafter, shall submit to the board of directors for consideration at its monthly meeting a written report detailing the Bank's compliance with this ORDER, including compliance with its written loan and audit policies. The monthly compliance report shall be incorporated into the minutes of the corresponding board of directors' meeting. Establishment of this committee does not in any way diminish the responsibility of the entire board of directors for ensuring compliance with the provisions of this ORDER.
   7. On the last day of the second month following the date of issuance of this ORDER, and on the last day of every third month thereafter, the Bank shall furnish to the Regional Director written progress reports, signed by each member of the Bank's board of directors, detailing the form and manner of any actions taken to secure compliance with the ORDER. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director has, in writing, released the Bank from making further reports.

   [.7] 8. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER: (1) in conjunction with the Bank's next shareholder communication; and (2) in conjunction with its notice or proxy statement preceding the Bank's next shareholder meeting. The description shall fully describe the ORDER in all material respects. The description and any accompanying communication, notice, or statement shall be sent to the FDIC in Washington, D.C. for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the FDIC shall be made prior to dissemination of the description, communication, notice, or statement.
   The effective date of this ORDER shall be 10 days after its issuance by the FDIC.
   The provisions of this ORDER shall be binding upon the Bank, its institution-affiliated parties, and any successors and assigns thereof.
   The provisions of this ORDER shall remain effective and enforceable except to the extent that, and until such time as, any provisions of this ORDER shall have been modified, terminated, suspended, or set aside by the FDIC.
   Dated: July 28th, 1994.
   Pursuant to delegated authority.