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FDIC Enforcement Decisions and Orders



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[12,403] In the Matter of Muskegon Commerce Bank, Muskegon, Michigan, Docket No. 05-031b (5-12-05).

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. (This order was terminated by order of the FDIC dated 6-7-05; see ¶16,423.)

[.1] Management—Qualifications Specified

[.2] Compliance Program—Written Compliance Plan Required

[.3] Bank Secrecy Act—Compliance Program—Independent Testing Required

[.4] Violations of Law—Corrections of Violations Required

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

[.6] Progress Report—Written Report Required

In the Matter of
MUSKEGON COMMERCE BANK
MUSKEGON, MICHIGAN
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST

FDIC-05-031b

The Muskegon Commerce Bank, Muskegon, Michigan ("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, rule, 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 under section 2304 of the Banking Code of 1999, Mich. Laws §487.12304, regarding hearings before the Office of Financial and Insurance Services, for the State of Michigan ("OFIS"), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with representatives of the Federal Deposit Insurance Corporation ("FDIC") and OFIS, dated April 18, 2005, 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, rule, or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC and OFIS.

The FDIC and OFIS considered the matter and determined that they had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws, rules, or regulations. The FDIC and OFIS, therefore, accepted the CONSENT AGREEMENT and issued the following:

ORDER TO CEASE AND DESIST

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 following unsafe or unsound banking practices and violations of law, rule, or regulations:

    A. Operating the Bank without effective supervision by the board of directors and executive management to prevent unsafe or unsound practices and violations of law and regulations related to the Bank Secrecy Act, 31 U.S.C. §§ 5311–5330, and regulations implementing the Bank Secrecy Act, including 12 C.F.R. Part 326, Subpart B, and 31 C.F.R. Part 103 (hereinafter collectively, "Bank Secrecy Act");

    B. Operating the Bank with an ineffective system of independent testing for compliance with the Bank Secrecy Act;

    C. Operating the Bank with an ineffective system of internal controls to ensure ongoing compliance with the Bank Secrecy Act;

    D. Failing to implement effective customer identification procedures;

    E. Operating the Bank with an ineffective


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    training program for appropriate Bank personnel to ensure compliance with the Bank Secrecy Act;

    F. Operating in violation of section 326.8, of the FDIC's Rules and Regulations, 12 C.F.R. §326.8, and the Treasury Department's Financial Recordkeeping Regulations, 31 C.F.R. Part 103, more fully described on pages 13 through 20 of the FDIC Report of Examination dated December 1, 2004;

    G. Operating with management whose practices have resulted in violations of law and regulation; and

    H. Operating with a board of directors which has failed to provide adequate supervision over and direction to the management of the Bank to prevent violations of law and regulation.

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

MANAGEMENT

[.1] 1. During the life of this ORDER, the Bank shall have and thereafter retain qualified management. Each member of management with responsibilities relating to section 326.8 of the FDIC Rules and Regulations, 12 C.F.R. §326.8, or the Treasury Department's Financial Recordkeeping Regulations, 31 C.F.R. Part 103, shall have the qualifications and experience commensurate with his or her duties and responsibilities under those regulations.

WRITTEN COMPLIANCE PROGRAM

[.2] 2. Within 60 days of the effective date of this ORDER, the Bank shall develop, adopt and implement a written compliance program, as required by the applicable provisions of section 326.8 of the FDIC's Rules and Regulations, 12 C.F.R. §326.8, designed to, among other things, ensure and maintain compliance by the Bank with the Bank Secrecy Act and the rules and regulations issued pursuant thereto. Such program and its implementation shall be in a manner acceptable to the Regional Director of the Chicago Regional Office ("Regional Director") and Commissioner of OFIS ("Commissioner") as determined at subsequent examinations and/or visitations of the Bank. At a minimum, the program shall:

    (a) Require the Bank to implement a written plan designed to ensure compliance with all provisions of the Bank Secrecy Act.

    (b) Establish a system of internal controls to ensure compliance with the Bank Secrecy Act and the rules and regulations issued pursuant thereto, including policies and procedures to detect and monitor all transactions to ensure that they are not being conducted for illegitimate purposes.

    (c) Provide for independent testing of compliance with all applicable rules and regulations related to the Bank Secrecy Act, and ensure that compliance audits are performed at least annually, are fully documented, and are conducted with the appropriate segregation of duties. Written findings of each audit shall be presented to the Board.

    (d) Designate a senior Bank official to be responsible for overall Bank Secrecy Act compliance. This designated senior official shall be in a position, and have the authority, to make and enforce policies with respect to Bank Secrecy Act compliance, and ensure that full and complete corrective action is taken regarding previously identified violations and deficiencies.

    (e) Implement a customer identification program for safe deposit box customers.

    (f) Establish procedures to ensure customers are being compared to current Office of Foreign Assets Control (OFAC) listings.

    (g) Establish guidelines to document which records were searched in responding to Section 314(a) requests from the Financial Crimes Enforcement Network ("FinCEN").

    (h) Establish procedures to ensure timely review of customers granted reporting exemptions.

    (i) Establish and maintain records in accordance with Section 103.29 of the Financial Recordkeeping regulations to document sales of monetary instruments between $3,000 to $10,000 made in currency.

    (j) Provide and document training by competent staff and/or independent contractors of all appropriate personnel, including, without limitation, tellers, customer service representatives, lending officers, private and personal banking officers and all other customer contact personnel, in all aspects of regulatory and internal policies and procedures related


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    to the Bank Secrecy Act, with a specific focus on accurate recordkeeping, form completion and the detection and reporting of known and/or suspected criminal activity. Training shall be updated on a regular basis to ensure that all personnel are provided with the most current and up to date information.

INDEPENDENT TESTING

[.3] 3. Within 60 days of the effective date of this ORDER, the Bank shall provide for independent testing of compliance with the Bank Secrecy Act and 31 C.F.R. Part 103. The independent testing should be conducted on an annual basis in compliance with the procedures described in the FDIC's "Guidelines for Monitoring Bank Secrecy Act Compliance." The testing, at a minimum, shall include the following:

    (a) A test of the Bank's internal procedures for monitoring Bank Secrecy Act compliance;

    (b) A test to ensure all reportable transactions have been identified and Currency Transaction Reports have been filed within the prescribed time frames;

    (c) A test to ensure the bank is reviewing all applicable reports;

    (d) A test to ensure bank personnel are reviewing monitoring reports for structuring activities and, if applicable, that appropriate Suspicious Activity Reports are filed in a timely manner with the appropriate law enforcement agencies;

    (e) A sampling of large currency transactions followed by a review of the Currency Transaction Report filings;

    (f) A test of the validity and reasonableness of the customer exemptions granted by the Bank;

    (g) A test of the Bank's customer identification procedures;

    (h) A test of the Bank's recordkeeping system for compliance with the Bank Secrecy Act;

    (i) Written reports shall be prepared documenting the scope of testing procedures performed, the findings and results made, and providing recommendations for improvement based on those findings, which reports shall be presented to the Bank's Board of Directors; and,

    (j) Ensuring that the Bank is in compliance with rules and regulations related to:

      (i) Identifying and reporting suspicious activities;

      (ii) Funds transfer operations;

      (iii) On-going training of appropriate personnel;

      (iv) Office of Foreign Asset Control (OFAC) compliance;

      (v) High-risk activities related to customers and other areas of the Bank;

      (vi) Compliance with information sharing requirements;

      (vii) Testing of the accuracy and validity of the automated large transaction identification system; and

      (viii) Confirming the integrity and accuracy of management information reports used in the anti-money laundering compliance program.

      (ix) Retention of required records.

CORRECTION OF VIOLATIONS

[.4] 4. Within 60 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law or regulation detailed on pages 13 through 20 of the FDIC Report of Examination dated December 1, 2004.

DISCLOSURE TO SHAREHOLDERS

[.5] 5. Following the effective date of this ORDER, the Bank shall send to its shareholders a copy or 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 this ORDER in all material respects. The description and any accompanying communication, notice or statement shall be sent to the FDIC Registration and Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429, and to the State of Michigan, Office of Financial and Insurance Services, 611 West Ottawa, 3rd Floor, Lansing, Michigan 48909, for review at least 20 days prior to dissemination to shareholders. Any changes requested to be made by the FDIC and OFIS shall be made prior to dissemination of the description, communication, notice or statement.

PROGRESS REPORTS

[.6] 6. Within 30 days from the end of each calendar quarter following the effective date of this ORDER, the Bank shall furnish to the Regional Director and Commissioner written progress reports signed by
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each member of the Bank's board of directors, detailing the actions taken to secure compliance with the ORDER and the results thereof. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and Commissioner have, in writing, released the Bank from making further reports.

CLOSING PARAGRAPHS

The effective date of this ORDER shall be the day of its issuance by the FDIC and OFIS.

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 provision has been modified, terminated, suspended, or set aside by the FDIC and OFIS.

Pursuant to delegated authority.

Dated: May 12, 2005.



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Last Updated 10/24/2005 legal@fdic.gov