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[¶11,782] In the Matter of Chohung Bank of New York, New York, New York, Docket
No. 01-032b (4-10-01).
A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that respondent had engaged in unsafe and
unsound practices. (This order was terminated by order of the FDIC dated 3-22-02; see ¶16,307.)
[.1] ManagementQualifications Specified
[.2] Bank Secrecy ActCompliance
[.3] Bank Secrecy ActComplianceAudit
[.4] Profit PlanPreparation of Plan Required
[.5] EthicsWritten Policy Required
[.6] Loan PolicyPreparation or Revision of Policy Required
[.7] Loan CommitteeReview Policy
[.8] Violations of LawCorrection of Violations Required
[.9] Funds Management and LiquidityPreparation or Revision of Funds
Management Policy Required
[.10] Bank OperationsInternal Routine and Control ProceduresWritten Plan
Required
[.11] LoansSpecial Mention
[.12] Board of DirectorsCommittee to Review Compliance with Cease and
Desist Order Required
In the Matter of
CHOHUNG BANK OF NEW YORK
NEW YORK, NEW YORK
(Insured State Nonmember Bank)
ORDER TO
CEASE AND DESIST
FDIC-01-032b
CHOHUNG BANK OF NEW YORK, NEW YORK, NEW YORK ("Insured
Institution"), having been advised of its right to a Notice of
Charges and of Hearing detailing the unsafe or unsound banking
practices and violations of law and/or regulations alleged to have been
committed by the Institution and of its right to a hearing on the
alleged charges under section 8(b)(1) of the Federal Insurance Act
("Act"), 12 U.S.C. §1818(b)(1), 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 April
10, 2001, whereby solely for the purpose of this proceeding and without
admitting or denying the alleged charges of unsafe or unsound banking
practices and violations of law and/or regulations, the Insured
Institution 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 Insured Institution had engaged in unsafe or unsound
banking practices and had committed violations of law and/or
regulations. The FDIC, therefore, accepted the
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CONSENT AGREEMENT and
issued the following:
ORDER TO CEASE AND DESIST
IT IS HEREBY ORDERED that the Insured Institution, its directors,
officers, employees, agents, and other 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
following unsafe or unsound banking practices and violations:
(a) operating with management whose policies and practices are
detrimental to the Insured Institution and jeopardize the safety of its
deposits;
(b) operating with a Board of Directors that has failed to provide
adequate supervision over and direction to the active management of the
Insured Institution;
(c) engaging in violations of applicable Federal laws and regulations
including the Bank Secrecy Act, 31 U.S.C. §§ 5311-5330, and 31
C.F.R. Part 103 (hereinafter "BSA"), section 326.8 of the FDIC
Rules and Regulations, 12 C.F.R. §326.8, Part 353 of the FDIC Rules
and Regulations, 12 C.F.R. Part 353, and Part 300 of the
Superintendent's Regulations, 3 NYCRR Part 300 ("Part 300"), as
more fully described on pages 26 through 29 of the joint Report of
Examination of the Insured Institution by the FDIC and the New York
State Banking Department ("Banking Department") as of June 30,
2000 ("ROE");
(d) engaging in hazardous lending and lax collection practices;
(e) operating with inadequate provisions for liquidity; and
(f) operating with inadequate internal routine and controls policies.
IT IS FURTHER ORDERED that the Insured Institution, its
institution-affiliated parties, and its successors and assigns, take
affirmative action as follows:
[.1]1. (a) During the life of this ORDER, the Insured Institution shall
have management qualified to restore the Insured Institution to a sound
condition. Such management shall include a chief executive officer and
an experienced senior lending officer responsible for supervising the
Insured Institution's overall lending function.
(b) Present management shall be assessed on its ability to:
(i) Comply with the requirements of this ORDER;
(ii) Improve and thereafter maintain the Insured Institution in a safe
and sound condition, including asset quality, management effectiveness,
capital adequacy, liquidity adequacy, and earnings adequacy; and
(iii) Comply with all applicable State and Federal laws, regulations
and FDIC and Federal Financial Institutions Examination Council
("FFIEC") policy statements.
(c)(i) During the life of this ORDER, the Insured Institution
shall notify the Regional Director of the New York Regional Office
("Regional Director") in writing of any resignations and/or
terminations of any members of its Board of Directors and/or any of its
senior executive officer(s) within 15 days of the event.
(ii) The Insured Institution shall comply with section 32 of the Act,
12 U.S.C. §1831i, and Subpart F of Part 303 of the FDIC Rules and
Regulations, 12 C.F.R. §303.100 et seq.
(d)(i) To ensure both compliance with this ORDER and qualified
management for the Insured Institution, the Board of Directors, within
60 days from the effective date of this ORDER shall develop, adopt and
implement a written policy ("Management Policy") that shall
incorporate an analysis of the Insured Institution's management and
staffing requirements and shall, at a minimum, provide: (1) a
description of both the number and types of positions needed to
properly manage the Insured Institution; (2) a clear and concise
description of the needed experience for each job; (3) an evaluation of
present management; (4) a plan to recruit, hire or replace personnel
with requisite ability and experience; (5) for an annual evaluation of
each individual's job performance; and (6) procedures to periodically
review and update the Management Policy.
(ii) The Management Policy and any subsequent modifications thereto
shall be submitted to the Regional Director for review and comment.
[.2]2. Within 30 days from the effective date of this ORDER, the Insured
Institution shall establish an adequate plan to comply in all material
respects with BSA, Part 353 and section 326.8 of the FDIC Rules and
Regulations, 12 C.F.R. Part 353, §326.8, and Part
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300. Thereafter,
the Insured Institution shall comply in all material respects with the
plan. Such plan shall include, at a minimum, taking the following
measures:
(a) eliminate and/or correct the violations of BSA, Part 353 and
section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. Part 353,
§326.8, and Part 300, as cited in the ROE;
(b) establish and maintain an effective internal compliance program and
system of internal controls pursuant to section 326.8 of the FDIC Rules
and Regulations, 12 C.F.R. §326.8;
(c) test for compliance with BSA pursuant to section 326.8 of the FDIC
Rules and Regulations, 12 C.F.R. §326.8, using a qualified, trained,
and experienced third party, such as an independent public accountant
or specialist in this subject matter, who is not, in any manner,
affiliated with the Insured Institution. Thereafter, such independent
testing shall be conducted on an annual basis. Written reports
documenting the testing results and providing recommendations for
improvements shall be prepared and presented to the Insured
Institution's Board of Directors and noted in official board minutes;
(d) designate a qualified individual or individuals responsible for
coordinating and monitoring day-to-day compliance with BSA pursuant to
section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. §326.8.
Such individual or individuals shall: (i) have sufficient executive
authority to monitor and ensure compliance with BSA and section 326.8
of the FDIC Rules and Regulations, 12 C.F.R. §326.8; (ii) report
directly to the Insured Institution's Board of Directors; (iii) be
completely independent of the Insured Institution's senior management;
and (iv) be responsible for assuring the proper filing of Currency
Transaction Reports, Reports of International Transportation of
Currency or Monetary Instruments, and Suspicious Activity Reports
relating to BSA;
(e) provide training for appropriate personnel pursuant to section
326.8 of the FDIC Rules and Regulations, 12 C.F.R. §326.8. This
training shall ensure that all appropriate personnel are aware of, and
comply with, the requirements of BSA including the currency and
monetary instruments reporting requirements and the reporting
requirements associated with Suspicious Activity Reports; and
(f) The Board of Directors shall monitor and confirm the completion of
actions taken by management to comply with the terms of this paragraph.
The Board of Directors shall certify in writing to the Regional
Director when all of the above actions have been accomplished. All
actions taken by the Board of Directors pursuant to this paragraph
shall be duly noted in the minutes of its meetings.
[.3]3. Within 30 days from the effective date of this ORDER, the Insured
Institution shall amend its audit policies, procedures, and practices,
both with regard to internal audits and with regard to external audits,
so that the Insured Institution's compliance with BSA, Part 353 and 31
C.F.R. Part 103 become subject to periodic review as part of the
Insured Institution's routine auditing. As long as this ORDER shall
remain in effect, the Insured Institution's internal and external
audits shall include reviews of these areas, with significant
exceptions reported directly to the Insured Institution's Board of
Directors.
[.4]4. (a) Within 60 days from the effective date of this ORDER, the Board
of Directors shall develop, adopt and implement a written profit plan
consisting of goals and strategies for improving the earnings of the
Insured Institution for each calendar year. The written profit plan
shall include, at a minimum:
(i) The identity of the major areas and means by which the Board
of Directors will seek to improve the Insured Institution's operating
performance;
(ii) Realistic and comprehensive budgets;
(iii) A budget review process to monitor the income and expenses of the
Insured Institution to compare actual figures with budgetary
projections on not less than a quarterly basis; and
(iv) A description of the operating assumptions that form the basis
for, and adequately support, major projected income and expense
components.
(b) Within the first 30 days of each subsequent calendar year, the
Board of Directors shall review and modify, as appropriate, the written
profit plan. The written profit plan and any subsequent modifications
thereto shall be submitted to the Regional Director for review and
comment.
[.5]5. Within 60 days from the effective date of this ORDER, the Insured
Institution shall develop, adopt and implement a written
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ethics policy
and procedure with regard to the ethical conduct and other standards of
conduct and responsibilities of its directors, officers, employees,
agents and other persons participating in the conduct of the affairs of
the Insured Institution ("Ethics Program"). At a minimum the
Ethics Program shall address the following:
(a) Ethical and other conduct and responsibilities of individuals in
the acceptance of gifts, entertainment, favors and loans; the use of
official information; employment of relatives; use of Insured
Institution property; travel expenses; and indebtedness to the Insured
Institution or any other financial institution;
(b) The financial interests and obligations of individuals that appear
to conflict with that individual's duties and responsibilities such
as:
(i) Participating in any manner in any transaction or loan in
which the individual, the individual's spouse, child, partner, or
organization is involved; or in which the individual serves as an
officer, director, trustee, partner, or employee, or has a financial
interest;
(ii) Purchasing of Insured Institution property;
(iii) Providing goods or services to the Insured Institution; and
(iv) Outside employment and other activities; and
(c) An annual written method of reporting each individual's
compliance with the Ethic Program to an Ethics Counselor and/or
committee who shall review compliance with the Ethics Program and
report its findings to the Board of Directors.
[.6]6. Within 60 days from the effective date of this ORDER, the Insured
Institution shall review its written loan policy and make whatever
changes may be necessary to provide for the safe and sound
administration of all aspects of the lending function. Specific
procedures shall be included for prior approval of loans to directors,
officers and principal shareholders and their related interests in
compliance with applicable laws and regulations. Loan documentation,
repayment programs, collection and charge-off procedures and internal
loan review shall also be included as a part of the review. The Insured
Institution shall adopt changes it considers necessary and appropriate
and management shall reaffirm its intent to comply with the policy, as
amended. Evidence of management's reaffirmation shall be reduced to
writing. The policy and its implementation shall be in a form and
manner acceptable to the Regional Director as determined at subsequent
examinations and/or visitations.
[.7]7. (a) Within 30 days of the effective date of this Order, the
Insured Institution shall adopt and implement written policies and
procedures to ensure that all extensions of credit and/or renewals,
including the acquisition of any form of indirect indebtedness in an
amount in excess of $100,000 shall be reviewed by the Insured
Institution's Loan Committee. The Insured Institution's Loan
Committee shall ensure that the loan, renewal, or acquisition complies
with the Insured Institution's loan policies including, but not
limited to, current financial statements and current appraisals. Any
exceptions to, or deviations from, the Insured Institution's
established direct or indirect lending policies, shall be noted in
writing along with the name of the loan's originating officer. A copy
of the Insured Institution Loan Committee review shall be made a part
of the Insured Institution's loan file. The Insured Institution's
Loan Committee shall submit a written report monthly to the Insured
Institution's Board of Directors concerning the Insured Institution's
adherence to the loan policies, noting any exceptions to or deviations
from the loan policies established by the Insured Institution's Board
of Directors, the loan officer responsible for the exception or
deviation, and the date the exception or deviation received the Insured
Institution board of director's approval. The report shall be made a
part of the minutes of the board meeting.
(b) Evidence of the review and establishment of procedures to ensure
compliance with the loan policy shall be reduced to writing. The policy
and its implementation shall be in a form and manner acceptable to the
Regional Director as determined at subsequent examinations and/or
visitations.
[.8]8. Within 60 days from the effective date of this ORDER, the Insured
Institution shall eliminate and/or correct all violations of law which
are set out on pages 26 through 29 of the ROE. In addition, the Insured
Institution shall henceforth comply with all applicable laws and
regulations.
[.9]9. Within 60 days from the effective date of this ORDER, the Insured
Institution shall formulate and adopt a written liquidity
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and funds
management policy. Such policy shall include the establishment of
acceptable ranges of ratios in the following areas: volatile liability
dependence, total loans to total deposits, and temporary investments to
volatile liabilities. In addition, the liquidity policy shall
incorporate a funds management program which designates acceptable
levels for: volatile liabilities, including borrowings; asset mix,
including temporary funds and investments, long-term investment
securities and classes of obligors, and loans to deposits; and
rate-sensitive assets as a percent of rate-sensitive liabilities. The
written liquidity and funds management policy shall be submitted to the
Regional Director for review and comment.
[.10]10. Within 60 days from the effective date of this ORDER, the Insured
Institution shall adopt and implement a written policy for the
operation of the Insured Institution in such a manner as to provide
internal routine and controls consistent with safe and sound banking
practices. Such policy and its implementation shall be satisfactory to
the Regional Director as determined at subsequent examinations and/or
visitations.
[.11]11. (a) Within 30 days from the effective date of this ORDER, the
Board of Directors shall adopt and implement a written program with
regard to each asset of or in excess of $100,000 criticized in the ROE,
so as to eliminate the basis of criticism of each such asset. This
program shall include, at a minimum, an assessment of the status of
each criticized asset, the proposed action for eliminating the basis of
criticism, and the time frame for its accomplishment. Once all such
programs are adopted, a copy of the program for each criticized asset
which equals or exceeds $100,000 shall be forwarded to the Regional
Director. Furthermore, while this ORDER is in effect, the Board of
Directors shall, within 30 days following receipt of any Report of
Examination of the Insured Institution from the FDIC or the Banking
Department, adopt and implement written programs, as specified above,
for any assets criticized in said Reports, and forward copies of such
programs to the Regional Director. For the purposes of this ORDER, the
term "criticized asset" means any asset or portion thereof
(including any unfunded commitment), scheduled as "Special
Mention," "Substandard," or "Doubtful" in any Report of
Examination of the Insured Institution by the FDIC or the Banking
Department.
(b) The Bank's Board of Directors shall conduct a monthly review
of each program adopted pursuant to this paragraph to determine:
(i) the status of each criticized asset;
(ii) management's adherence to each written program;
(iii) the status and effectiveness of each written program; and
(iv) the need to revise each written program and/or take other actions.
The Board of Directors shall send quarterly reports on the status
of each criticized asset equal to or exceeding $100,000 to the Regional
Director.
[.12]12. Within 30 days from the effective date of this ORDER, the Board of
Directors shall establish a committee of the Board of Directors with
the responsibility to ensure that the Insured Institution complies with
the provisions of this ORDER. At least two-thirds of the members of
such committee shall be independent, outside directors. The committee
shall report monthly to the entire Board of Directors, and a copy of
the report and any discussion relating to the report or the ORDER shall
be included in the minutes of the Board of Directors. Nothing contained
herein shall diminish the responsibility of the entire Board of
Directors to ensure compliance with the provisions of this ORDER.
13. On the fifteenth day of the second month following the effective
date of this ORDER, and on the fifteenth day of every third month
thereafter, the Insured Institution shall furnish written progress
reports to the Regional Director detailing the form and manner of any
actions taken to secure compliance with this ORDER and the results
thereof. Such reports may be discontinued when the corrections required
by this ORDER have been accomplished and the Regional Director has
released the Insured Institution in writing from making further
reports.
The provisions of this ORDER shall be binding upon the Insured
Institution, its directors, officers, employees, agents, successors,
assigns, and other institution-affiliated parties of the Insured
Institution.
This ORDER shall be effective immediately upon its issuance.
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,
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terminated, suspended, or set
aside by the FDIC.
Pursuant to delegated authority.
Dated: 4-10-01