Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Bank Examinations > FDIC Enforcement Decisions and Orders



FDIC Enforcement Decisions and Orders

ED&O Home | Search Form | Text Search | ED&O Help


{{01-31-05 p.C-12331.1}}

[12,331] In the Matter of Liberty Bank of New York, New York, New York, Docket No. 04-253b (11-30-04).

A cease and desist order was issued, based on findings by the FDIC that it had reason to believe that respondent was engaged in unsafe and unsound practices.

[.1] Bank Secrecy Act— Compliance Officer Required

[.2] Bank Secrecy Act— Consultant Required

[.3] Accountants—Independent Accountant Required

[.4] Business Plan—Preparation Required

[.5] Bank Operations— Staffing—Notify Regional Director of Terminations/Resignations

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

[.7] Disaster Recovery Plan—Required

[.8] Cease and Desist Orders—Banking Practices Unsafe and Unsound—Compliance Committee Established by Board

[.9] Shareholders—Disclosure of Cease and Desist Order Required

[.10] Progress Report—Written Report Required

In the Matter of
LIBERTY BANK OF NEW YORK
NEW YORK, NEW YORK
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-04-253b

Liberty Bank of New York, New York, New York ("Bank"), 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 Bank and of its right to a hearing on the alleged charges under section 8(b)(1) of the Federal Deposit Insurance Act ("FDI 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 November 30, 2004, 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 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 committed violations of laws and/or regulations. The FDIC, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

IT IS HEREBY ORDERED, that the Bank, its directors, officers, employees, agents, and other institution-affiliated parties, as that term is defined in section 3(u) of the FDI 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 of law, rules and/or regulations.

A. Operating the Bank in violation of the Bank Secrecy Act, as amended, 12 U.S.C. §1829b, 12 U.S.C. §§ 1951-1959, and 31 U.S.C. §§ 5311-5332, and implemented by rules and regulations issued by the U.S. Department of the Treasury, 31 C.F.R. Part 103, and by section 326.8 and Part 353 of the FDIC Rules and Regulations, 12 C.F.R. §326.8 and 12 C.F.R. Part 353, (hereinafter collectively "BSA"), and 3 N.Y.C.R.R. Part 300, as more fully described on pages 14 through 27 of the FDIC and State of New York Banking Department Joint Report of
{{01-31-05 p.C-12331.2}}

Examination of the Bank as of March 31, 2004 (the "Joint Examination Report");

B. Operating the Bank with inadequate internal BSA routines and controls, including but not limited to, inadequate audit procedures;

C. Operating the Bank with ineffective policies, procedures and system of internal controls to ensure ongoing compliance with the rules and regulations of the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury, 31 C.F.R. 500 et seq., as more fully described on pages 20 through 22 of the Joint Examination Report;

D. Failing to maintain accurate shareholder records;

E. Operating the Bank in such a manner so as to produce unsatisfactory earnings;

F. Operating the Bank with management whose policies and practices are detrimental to the Bank;

G. Failing to implement adequate information technology systems controls;

H. Operating without an adequate contingency and disaster recovery plan; and

I. Operating the Bank without adequate oversight of the Bank's audit committee.

IT IS FURTHER ORDERED that the Bank, its institution-affiliated parties, and its successors and assigns take affirmative action as follows;

[.1] 1. (a) Within fifteen (15) days from the effective date of this ORDER, the Bank shall designate a qualified officer ("BSA Officer") responsible for managing, coordinating and monitoring the Bank's BSA and OFAC compliance programs. The BSA officer shall have the responsibility and necessary authority to ensure the Bank's compliance with the BSA and OFAC rules and regulations and related matters, including, without limitation, the identification of timely, accurate and complete reporting to law enforcement and supervisory authorities of unusual or suspicious activity or known or suspected criminal activity perpetrated against or involving the Bank.

(b) Within sixty (60) days from the effective date of this ORDER, the BSA Officer shall review the BSA and OFAC compliance program deficiencies and violations set forth on pages 14 through 27 of the Joint Examination Report and the Cash Transaction Reports (CTRs) and Suspicious Activity Reports (SARs) filed by the Bank for the period March 31, 2003 through September 30, 2004, and prepare and file with the appropriate supervisory authority any additional CTRs and SARs necessary based upon the review. In addition, the BSA Officer shall contact the appropriate supervisory authority regarding the refiling of inaccurate or incomplete SARs and CTRs, and shall provide requested written material to complete the file information on any inaccurate or incomplete SARs and CTRs. Documentation supporting the determination made pursuant to the subparagraph (b) shall be retained in the Bank's records for such period of time as may be required by any applicable rules or regulations.

(c) Within seventy-five (75) days from the effective date of this ORDER, the BSA Officer shall review all high-risk accounts and high-risk transactions, including but not limited to a review of the Bank's large currency transaction report, cash purchases of monetary instruments, wire transfer activity, and foreign exchange services for the period March 31, 2003 through September 30, 2004, and shall prepare and file any additional CTRs and SARs necessary based upon the review. Documentation supporting any determination made pursuant to this subparagraph (c) shall be retained in the Bank's records for such period of time as may be required by any applicable rules or regulations.

(d) Upon completion of the reviews required pursuant to subparagraphs (b) and (c) above, the Bank shall submit the findings of the review and copies of any additional SARs and CTRs filed to the Regional Director of the New York Regional Office of the FDIC ("Regional Director") and to the Superintendent of Banks of the State of New York ("Superintendent").

[.2] 2. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall obtain the services of an independent consultant (the "BSA Consultant"), acceptable to the Regional Director and to the Superintendent, who is knowledgeable in the areas of compliance with the requirements of the BSA and OFAC.

(b) Within sixty (60) days from the effective date of this ORDER, the BSA Consultant shall review the Bank's policies, procedures and operations for BSA and OFAC compliance and the deficiencies identified on pages 14 through 27 of the Joint Examination Report and make written review recommendations ("Review Recommendations")
{{01-31-05 p.C-12331.3}}

to the board of directors of the Bank to revise, establish and enhance the Bank's BSA and OFAC policies, procedures and operations. Such Review Recommendations also shall include policies, procedures and operations to improve the Bank's internal controls to assure ongoing compliance.

(c) Within thirty (30) days of delivery of the Review Recommendations from the BSA Consultant to the board of directors, the board of directors shall adopt said Review Recommendations, which approval shall be noted in the official minute books of the board of directors.

(d) The board of directors shall provide a copy of the Review Recommendations to the Regional Director and Superintendent promptly upon adoption. If the board of directors fails to adopt any of the Review Recommendations, the board of directors shall provide to the Regional Director and Superintendent a written comprehensive explanation of its rationale for failing to do so.

(e) The Bank's revised and enhanced BSA and OFAC compliance programs shall ensure the Bank's future compliance with the BSA and OFAC rules and regulations, section 326.8 and Part 353 of the FDIC Rules and Regulations, 12 C.F.R. §326.8 and 12 C.F.R. Part 353, and with any related rules and regulations. At a minimum the revised and enhanced compliance programs shall include the following:

    (i) procedures for the Bank's customer identification program and account opening procedures;

    (ii) policies and procedures with respect to high-risk accounts and customers, including the adequacy of methods for identifying and conducting due diligence on high-risk accounts and customers at account opening and thereafter, and for monitoring high-risk client relationships on a transaction basis as well as by account and customer;

    (iii) policies, procedures, and systems for identifying, evaluating, monitoring, investigating and reporting suspicious activity, particularly including transactions involving high-risk customers or accounts, and/or high-risk jurisdictions, and the appropriateness of the Bank's criteria for designating an account as high-risk and assessing the Bank's procedures and systems for identifying and monitoring customer transactions in accordance with rules and regulations of the BSA and OFAC.

    (iv) policies and procedures regarding the identification and reporting of cash transactions;

    (v) policies and procedures with respect to wire transfer recordkeeping requirements.

    (vi) policies and procedures for transactions involving non-customers, including, but not limited to, wire transfer services, traveler's check services, and foreign exchange services;

    (vii) independent annual testing for compliance with the BSA in accordance with the procedures described in section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. §326.8; and

    (viii) establishment and documentation of training on a regular and on-going basis for management and Bank personnel on all relevant aspects of laws, regulations, and Bank policies and procedures relating to the BSA and OFAC compliance programs, with a specific concentration on the currency and monetary instruments reporting requirements and the reporting requirements associated with SARs and CTRs and processing requirements of OFAC.

(f) Within one-hundred and twenty (120) days and again within two-hundred and seventy (270) days from the date of adoption by the board of directors of the revised and enhanced BSA and OFAC compliance programs, the Bank shall arrange for an independent test and sampling of the Bank's BSA and OFAC compliance programs to ensure the Bank's ongoing compliance. A copy of the independent test results shall be provided promptly to the Regional Director and Superintendent.

[.3] 3. (a) Within ten (10) days from the effective date of this ORDER, the Bank shall obtain the services of an independent certified public accounting firm (the "Accountant"), acceptable to the Regional Director and to the Superintendent, to conduct an examination to determine the shareholders of the Bank and the number of Bank stock shares owned by each respective shareholder as of October 31, 2004.

(b) Within forty-five (45) days from the
{{01-31-05 p.C-12331.4}}

effective date of this ORDER, the Accountant shall obtain written positive confirmation of the shareholder's name, address and number of Bank stock shares owned or otherwise controlled, directly or indirectly, and the nature of such ownership or control interest, and reconcile the responses received to the Bank's shareholder record book and shall provide a written report on the results of the examination to the board of directors and to the Regional Director and to the Superintendent regarding the shareholders of the Bank and the number of shares owned or otherwise controlled.

(c) The board of directors shall take such additional steps as necessary to investigate and resolve any discrepancies between the shareholder confirmations received pursuant to subparagraph (b) above and the Bank's shareholder record book to ensure its accuracy. In addition, the board of directors shall adopt such policies and procedures to ensure that the Bank's shareholder record book accurately identifies the Bank's shareholders, share certificates outstanding; and the number of shares owned, and that the Bank's records accurately reflect the voting record of each shareholder of the Bank and the number of shares voted, and that the bank's shareholder records are updated timely.

[.4] 4. (a) Within thirty (30) days from the effective date of this ORDER, the board of directors of the Bank shall develop and submit to the Regional Director and the Superintendent for review and comment, a comprehensive three-year Strategic Business Plan ("Business Plan"), which includes at a minimum:

    (i) identification of the major areas in, and means by which the board of directors will seek to improve the Bank's operating performance;

    (ii) objectives and specific strategies with respect to the Bank's lending program;

    (iii) strategies for managing the various types of risks facing the Bank;

    (iv) a minimum of three years of pro-forma quarterly financial statements, supported by the underlying financial and economic assumptions;

    (v) projections as to growth, capital, deposit sources, and general investment plans; and

    (vi) a realistic estimate of the date by which the Bank shall achieve satisfactory profitability (earnings that are sufficient to support operations and maintain adequate capital and allowance levels after consideration is given to asset quality, growth, and other factors affecting the quality, quantity, and trend of earnings).

(b) No more than thirty (30) days after receipt of any comments from the Regional Director or from the Superintendent, the board of directors shall approve the written Business Plan, which approval shall be noted in the official minute books of the board of directors. Thereafter, the bank, its directors, officers, and employees shall follow the written Business Plan and any subsequent modification.

(c) The board of directors of the Bank shall assess, on at least a quarterly basis, the Bank's performance in relation to the Business Plan, shall determine the cause and implications of any substantial deviations therefrom, and shall amend the Business Plan on an ongoing basis as appropriate.

(d) During the life of this ORDER, the Bank shall immediately notify in writing the Regional Director and the Superintendent of any material adverse developments affecting the Bank's condition, performance or substantial deviation from the Business Plan.

[.5] 5. During the life of this ORDER, the Bank shall notify in writing the Regional Director of any resignations and/or terminations of any members of its board of directors and/or any of its executive officers. In addition, the Bank shall comply with section 32 of the FDI Act, 12 U.S.C. §1831i, which includes a requirement that the bank shall notify the Regional Director in writing at least 30 days prior to any individual assuming a new position as a senior executive officer or any additions to the board of directors of the Bank.

[.6] 6. (a) Within thirty (30) days from the effective date of this ORDER, the Bank shall review its written loan policy (the "Loan Policy") and make such changes as may be necessary to provide for the safe and sound administration of all aspects of the Bank's lending function and to address the deficiencies noted on pages 8 through 10 of the Joint Examination Report.

(b) Specific procedures shall include guidelines for the approval and processing of all overdrafts.

(c) The Bank shall ensure that its audit policies, procedures, and practices with respect
{{01-31-05 p.C-12331.5}}

to its Loan Policy, including overdrafts, are amended and updated, and are reviewed periodically as part of the Bank's routine auditing in order to ensure compliance with Bank's Loan Policy, as amended, and that exceptions are reported directly to the board of directors of the Bank.

[.7] 7. (a) Within ninety (90) days from the effective date of this ORDER, the Bank shall comply with the requirements of Appendix B to Part 364 of the FDIC Rules and Regulations, 12 C.F.R. Part 364, "Interagency Guidelines Establishing Standards for Safeguarding Customer Information," including, but not limited to, implementing and maintaining data security measures to ensure that appropriate access rights and capabilities, virus protection, and periodic updates of all information systems have been performed.

(b) Within ninety (90) days from the effective date of this ORDER, the Bank shall develop a comprehensive contingency and disaster recovery plan (the "Recovery Plan"). The Recovery Plan and backup site shall be tested on an annual basis. The results of the annual testing shall be reported to the board of directors.

(c) The Recovery Plan shall be adopted by the Board of Directors of the Bank which approval shall be noted in the official minute books of the board of directors and implemented by the Bank within thirty (30) days of adoption by the board of directors.

(d) Within ninety (90) days from the effective date of this ORDER, the Bank shall review and update its information technology policies and procedures to provide adequate operational guidance and shall also provide for an annual audit of the Bank's information technology related areas. The results of the annual audit shall be reported to the board of directors.

(e) The board of directors shall adopt the revised information technology policies and procedures within thirty (30) days of receipt and the revised policies and procedures shall be noted in the official minute books of the board of directors.

(f) Within one-hundred and twenty (120) days from the effective date of this ORDER, the Bank shall take all necessary steps, consistent with the other provisions of this paragraph 7, to address and correct all other deficiencies set forth in the FDIC's Information Technology Report of Examination of the Bank as of June 7, 2004.

[.8] 8. Within thirty (30) days from the effective date of this ORDER, the board of directors shall establish a committee of the board ("Board Compliance Committee") that is charged with the responsibility of ensuring compliance with the provisions of this ORDER. At least two-thirds of the members of said Board Compliance Committee shall be independent, outside directors. The Board Compliance Committee shall report monthly to the entire board of directors, and a copy of the report and any discussion relating to the report, the ORDER, BSA or OFAC compliance shall be noted in the official minute books 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.

[.9] 9. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER (i) in conjunction with the Bank's next shareholder communication, and also (ii) 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, statement, or notice shall be sent to the FDIC, Accounting and Securities Disclosure Section, 550 17th Street, N.W., Room F-6043, Washington, D.C. 20429 for review at least 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.

[.10] 10. Within fifteen (15) days of the end of each calendar quarter following the effective date of this ORDER, and while this ORDER is in effect, the Bank shall furnish written progress reports to the Regional Director and to the Superintendent detailing the form and manner of all actions taken to secure compliance with this ORDER and the Bank's BSA and OFAC compliance programs and the results thereof. Such reports may be discontinued only when the actions required by this ORDER have occurred and the Regional Director and the Superintendent release the Bank in writing from making further reports. All progress reports and
{{01-31-05 p.C-12332.1}}

other written responses to this ORDER shall be reviewed by the board of directors and be noted in the official minute books of the board of directors.

11. The provisions of this ORDER shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other institution-affiliated parties of the Bank.

12. This ORDER shall be effective upon the date of issuance as set forth below.

13. 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 in writing by the FDIC.

Pursuant to delegated authority.

Dated: November 30, 2004.



ED&O Home | Search Form | Text Search | ED&O Help






Last Updated 4/16/2005 legal@fdic.gov