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FDIC Enforcement Decisions and Orders

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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] Management—Qualifications Specified

   [.2] Bank Secrecy Act—Compliance

   [.3] Bank Secrecy Act—Compliance—Audit

   [.4] Profit Plan—Preparation of Plan Required

   [.5] Ethics—Written Policy Required

   [.6] Loan Policy—Preparation or Revision of Policy Required

   [.7] Loan Committee—Review Policy

   [.8] Violations of Law—Correction of Violations Required

   [.9] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required

   [.10] Bank Operations—Internal Routine and Control Procedures—Written Plan Required

   [.11] Loans—Special Mention

   [.12] Board of Directors—Committee 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

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