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[¶11,713] In the Matter of First Continental Bank, Rosemead, California, Docket No. 00-060b (5-16-00)
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 8-6-01; see ¶16,285.)
[.1] Management—Qualifications Specified
[.2] Deposits—Deposits Restricted
[.3] Cash Transactions—Aiding in the Structuring of Cash Transactions Prohibited
[.4] Straw Accounts—Procedures to Detect and Prevent Specified
[.5] Signature Stamps—Use Restricted
[.6] Bank Secrecy Act—Implement Policy
[.7] Checks—Holding Blank Checks—Policy Required
[.8] Related Depositor List—Establishment of Required
[.9] Violations of Law—Correction of Violations Required
[.10] Currency Transactions—Filing of Report Required
[.11] Suspicious Activity Report—Filing of Required
[.12] United States Custom Service—Contact of Specified
[.13] Monetary Instruments—Track Cash Purchases
[.14] Internal Revenue Service—Contact of Specified
[.15] Bank Secrecy Act—"Knowing Your Customer" Policies
[.16] Bank Secrecy Act—Policy and Procedures for Independent Testing
[.17] Funds Management and Liquidity—Preparation or Revision of Funds Management Policy Required
[.18] Brokered Deposits—Notification Required
[.19] Shareholders—Disclosure of Cease and Desist Order Required
In the Matter of
FIRST CONTINENTAL BANK
ROSEMEAD, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO
CEASE AND DESIST
FDIC-00-060b
First Continental Bank, Rosemead, California ("Bank"), having been advised of its right to a Notice of Charges and of Hearing detailing the unsafe or unsound banking practices and violation of laws 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 ("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 May 15, 2000, whereby solely for the purpose of this proceeding and without admitting or denying the alleged charges of unsafe or unsound banking practices and violation of laws 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 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
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cease and desist from the following unsafe and unsound banking practices and violations of laws and/or regulations:
(a) operating with inadequate management;
(b) operating with inadequate provisions for liquidity and funds management;
(c) aiding in the structuring of cash transactions at the Bank;
(d) aiding in the use of "straw accounts" at the Bank, as defined in paragraph 6(c) of this ORDER;
(e) engaging in deposit-taking activities at locations other than approved branch offices of the Bank; and
(f) operating in violation of the following laws and/or regulations:
(i) section 103.21 of the Rules and Regulations of the Department of the Treasury, 31 C.F.R. § 103.21, as more fully described on pages 30 through 32 of the FDIC's Report of Examination of the Bank dated January 10, 2000;
(ii) section 103.22(b)(1) of the Rules and Regulations of the Department of the Treasury, 31 C.F.R. § 103.22(b)(1), as more fully described on pages 32 and 33 of the FDIC's Report of Examination of the Bank dated January 10, 2000;
(iii) section 103.27(d) of the Rules and Regulations of the Department of the Treasury, 31 C.F.R. § 103.27(d), as more fully described on page 33 of the FDIC's Report of Examination of the Bank dated January 10, 2000;
(iv) section 103.29(a) of the Rules and Regulations of the Department of the Treasury, 31 C.F.R. § 103.29(a), as more fully described on page 33 of the FDIC's Report of Examination of the Bank dated January 10, 2000;
(v) section 103.63 of the Rules and Regulations of the Department of the Treasury, 31 C.F.R. § 103.63, as more fully described on pages 29 and 30 of the FDIC's Report of Examination of the Bank dated January 10, 2000; and
(vi) section 326.8 of the FDIC's Rules and Regulations, 12 C.F.R. § 326.8, as more fully described on page 34 of the FDIC's Report of Examination of the Bank dated January 10, 2000.
IT IS FURTHER ORDERED, that the Bank, its institution-affiliated parties, and its successors and assigns, take affirmative action as follows:
[.1] 1. The Bank shall have and retain qualified management.
(a) Each member of management shall have qualifications and experience commensurate with his or her duties and responsibilities at the Bank. Management shall include a chief executive officer with proven ability in managing a bank of comparable size. Each member of management shall be provided appropriate written authority from the Bank's board of directors to implement the provisions of this ORDER.
(b) The qualifications of management shall be assessed on its ability to:
(i) comply with the requirements of this ORDER;
(ii) operate the Bank in a safe and sound manner;
(iii) comply with applicable laws and regulations; and
(iv) maintain all aspects of the Bank in a safe and sound condition, including asset quality, capital adequacy, earnings, management effectiveness, and liquidity.
(c) During the life of this ORDER, the Bank shall notify the Regional Director of the FDIC's San Francisco Regional Office ("Regional Director") and the Commissioner of the Department of Financial Institutions for the State of California ("Commissioner") in writing when it proposes to add any individual to the Bank's board of directors or employ any individual as a senior executive officer. The notification must be received at least 30 days before such addition or employment is intended to become effective and should include a description of the background and experience of the individual or individuals to be added or employed.
(d) The Bank may not add any individual to its board of directors or employ any individual as a senior executive officer if the Regional Director issues a notice of disapproval pursuant to section 32 of the Act, 12 U.S.C. § 1831i.
[.2] 2. Upon the effective date of this ORDER, the Bank shall not receive or accept cash, checks, or any other type of monetary instrument for deposit to a deposit account at the Bank at any location other than approved branch offices of the Bank, or as
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otherwise specifically authorized by federal or state law.
[.3] 3. Upon the effective date of this ORDER, the Bank shall take the following actions to prevent its directors, officers, and employees from aiding the structuring of cash transactions:
a. No director, officer, or employee of the Bank shall act as power of attorney on any deposit accounts at the Bank held by any individual or entity other than an immediate family member;
b. The Bank shall not receive or accept any cash or other type of monetary instrument for deposit from or through any Bank employees other than tellers and new accounts representatives;
c. The Bank shall not receive or accept any cash or other type of monetary instrument for deposit in any areas or offices of the Bank other than the Bank's branch lobbies, except as specifically authorized by federal or state law;
d. No director, officer, or employee of the Bank shall use the night deposit drop to make deposits for Bank customers;
e. No director, officer, or employee of the Bank shall hold cash, monetary instruments, or other valuables for safekeeping for Bank customers, except in an official capacity in connection with the transport of the same to or from a vault or other authorized safekeeping location;
f. No director, officer, or employee of the Bank shall sign documents or endorse items on behalf of a Bank customer;
g. No director, officer, or employee of the Bank shall maintain deposit receipts on behalf of a Bank customer; and
h. Any and all requests for extensions of credit which are secured by time certificates of deposit must be processed by the Bank's Loan Department.
[.4] 4. a. Upon the effective date of this ORDER, the Bank shall take the following actions to detect and prevent the use of "straw accounts" at the Bank:
i. Any and all identification provided by customers when opening a new account shall be photocopied and a copy of the identification maintained with the signature card for the account, unless the customer refuses, without any prompting to do so by Bank personnel, to authorize such photocopying;
ii. Any and all signature cards and other forms used to open accounts shall be executed either exclusively in branches of the Bank, in the presence of at least two directors, officers, or employees of the Bank, or notarized by a valid notary public. For foreign customers, the signatures of depositors may be authenticated by duly authorized diplomatic or other official staff of an Embassy of the United States or its equivalent (including the American Initiative in Taiwan);
iii. Any and all powers of attorney used by Bank customers shall be executed either exclusively in branches of the Bank, in the presence of at least two directors, officers, or employees of the Bank, or notarized by a valid notary public. For foreign customers, the signatures of depositors may be authenticated by duly authorized diplomatic or other official staff of an Embassy of the United States or its equivalent (including the American Initiative in Taiwan).
b. Within 60 days from the effective date of this ORDER, the Bank's BSA Officer or her designee shall compare the signatures on signature cards for all existing deposit accounts with the signatures on any photocopies of identity documents maintained by the Bank. A list of any discrepancies shall be maintained by the Bank for review at subsequent examinations and/or visitations of the Bank.
c. For the purposes of this ORDER, "straw accounts" are defined as follows:
i. fictitious deposit accounts;
ii. accounts used by a person under a valid or invalid power of attorney where the agent purports to be the principal but deposits fund not the property of the principal; or
iii. any other account opening schemes designed to avoid state or federal information reporting requirements.
[.5] 5. No director, officer, or employee of the Bank shall use stamps of Bank customers' signatures on behalf of said customers, except that a director may use facsimile signatures on checks as an employee of a depositor when done pursuant to a valid, written facsimile signature agreement.
[.6] 6. Within 10 days from the effective
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date of this ORDER, the Bank shall revise, adopt and implement the Bank's Bank Secrecy Act ("BSA") Policy to include provisions which implement the requirements of Paragraphs 3, 4 and 5 of this ORDER. The Bank's Board of Directors and senior management shall fully implement the provisions of the revised BSA Policy. The revised BSA Policy, and its implementation, shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations of the Bank.
[.7] 7. Within 60 days from the effective date of this ORDER, the Bank shall develop, adopt and implement a plan governing the holding of blank checks on behalf of a Bank customer by the Bank's employees and officers. Such plan shall, at a minimum, include the following:
a. procedures identifying the employees and/or officers, by position, who are allowed to hold blank checks on behalf of Bank customers;
b. procedures requiring the maintenance of a list by the Bank's chief executive officer of each customer who has requested that the Bank hold checks on his, her or its behalf, and the employees and/or officers who have been assigned to hold blank checks on such customer's behalf, and the reasons for this arrangement; and
c. appropriate dual control procedures for the handling of such blank checks. Such plan, and its implementation, shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations of the Bank.
[.8] 8. Within 60 days from the effective date of this ORDER, the Bank shall establish and thereafter maintain a comprehensive "Related Depositor List." Such list shall include all deposit accounts which share common signers, common addresses, and/or common individuals designated as power of attorney. Such list shall also include any other related depositors which any bank director, officer, or employee has reason to believe are related. Such list shall be updated and distributed to all operations personnel monthly. The significance of such list shall be discussed in quarterly BSA training sessions, along with instructions on how to use it to identify structured transactions.
[.9] 9. Within 30 days from the effective date of this ORDER, the Bank shall eliminate and/or correct all violations of law which are more fully set out on pages 29 through 34 of the FDIC's Report of Examination of the Bank dated January 10, 2000. In addition, the Bank shall take all necessary steps to ensure future compliance with all applicable laws and regulations.
[.10] 10. The Bank shall hereafter file complete and accurate Currency Transaction Reports (Form 4789) for all applicable transactions.
[.11] 11. The Bank shall hereafter file complete and accurate Suspicious Activity Reports, including all relevant details. In addition, any Suspicious Activity Reports filed by the Bank shall include information on any related deposit accounts, as determined under paragraph 8 of this ORDER, with suspicious activity, and any history of suspicious activity on the deposit account which is the subject of the Suspicious Activity Report. Copies of any and all Suspicious Activity Reports filed by the Bank shall be submitted to the Regional Director.
[.12] 12. The Bank shall hereafter contact the United States Custom Service regarding all deposits of more than $10,000 in currency or monetary instruments when any director, officer or employee of the Bank has any reason to believe that the currency or monetary instruments were transported into the United States from a foreign country without compliance with 31 C.F.R. §103.23.
[.13] 13. Upon the effective date of this ORDER, the Bank shall maintain all required information on cash purchases of monetary instruments in amounts between $3,000 and $10,000.
[.14] 14. The Bank shall hereafter contact the Criminal Investigation Division of the Internal Revenue Service and the Regional Director each time any director, officer or employee of the Bank has reason to believe that the Bank is being misused for deposit structuring activity.
[.15] 15. Within 90 days from the effective date of this ORDER, the Bank shall review the files of all account holders at the Bank who have been accorded "W-8" tax exempt status in order to determine compliance with the Bank's Know Your Customer policy. In the event that the Bank finds any abuse of the "W-8" tax exempt status by any of its customers, the Bank shall immediately file a Suspicious Activity Report.
[.16] 16. Within 90 days from the effective date of this ORDER, the Bank shall
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provide a system for independently testing its policies, procedures, and practices for compliance with the Bank Secrecy Act and the Financial Recordkeeping regulations set forth in 31 C.F.R. Part 103. The independent testing is to be conducted on an annual basis in compliance with the procedures described in the FDIC Statement of Policy entitled "Guidelines for Monitoring Bank Secrecy Act Compliance." The independent testing should be conducted by qualified, trained and experienced third parties, such as independent public accountants or specialists in this subject matter who are not, in any manner, affiliated with the Bank or any of the Bank's subsidiaries or affiliates. Written reports documenting the testing results and providing recommendations for improvement shall be presented to the Bank's audit committee.
[.17] 17. Within 30 days from the effective date of this ORDER, the Bank shall develop or revise, adopt, and implement a written liquidity and funds management policy. Such policy and its implementation shall be in a form and manner acceptable to the Regional Director as determined at subsequent examinations and/or visitations.
[.18] 18. While this ORDER is in effect, the Bank shall give written notice to the Regional Director at such time as the Bank intends to make use of brokered deposits. The notification should indicate how the brokered deposits are to be utilized with specific reference to credit quality of investments/loans and the effect on the Bank's funds position and asset/liability matching. The Regional Director shall have the right to reject the Bank's plans for utilizing brokered deposits. For purposes of this ORDER, brokered deposits are defined as described in section 337.6(a)(1) of the FDIC Rules and Regulations, 12 C.F.R. §337.6(a)(1).
[.19] 19. Following the effective date of this ORDER, the Bank shall send to its shareholders or otherwise furnish a description of this ORDER in conjunction with the Bank's next shareholder communication and also 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, Registration and Disclosure Section, 550 - 17th Street, N.W., Washington, D.C. 20429, at least fifteen (15) 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.
20. On August 15, 2000, and on the thirtieth day following each calendar quarter thereafter, the Bank shall furnish written progress reports to the Regional Director and the Commissioner detailing the form and manner of any actions taken to secure compliance with this ORDER and the results thereof. Such reports shall include a copy of the Bank's last Report of Condition and the Bank's Report of Income. Such reports may be discontinued when the corrections required by this ORDER have been accomplished and the Regional Director and the Commissioner has released the Bank in writing from making further reports.
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.
Pursuant to delegated authority.
Dated at San Francisco, California, this 16th day of May, 2000.
