(This order was terminated by order of the FDIC dated 5-10-04; see ¶16,382.)
[.1] Management—Qualifications Specified
[.2] Board of Directors—Review Bank Affairs
[.3] Capital—Maintain Tier 1 Capital
[.4] Loan Loss Reserve—Establishment of or Increase Required
[.5] Assets—Charge-off or Collection
[.6] Assets—Total Assets, Limitations Imposed on Increase of
[.7] Business Plan—Preparation Required
[.8] Violations of Law—Correction of Violations Required
[.9] Funds Management and Liquidity—Preparation or Revision of Funds
Management Policy Required
[.10] Dividends—Dividends Restricted
[.11] Bank Operations—Internal Routine and Control Procedures—Written Plan
Required
[.12] Bank Secrecy Act—Compliance
[.13] Bank Secrecy Act—Compliance Program—Independent Testing Required
[.14] Bank Secrecy Act—Compliance Program—Written Plan Required
[.15] Customer Due Diligence Program—Minimum Requirements
[.16] Due Diligence Program—Internal Monitoring—Program Required
[.17] Bank Secrecy Act—Compliance—Board of Directors to Oversee
[.18] Suspicious Activity Report—Policy Required
[.19] Shareholders—Disclosure of Cease and Desist Order Required
In the Matter of
SAEHAN BANK
LOS ANGELES, CALIFORNIA
(Insured State Nonmember Bank)
ORDER TO CEASE AND DESIST
FDIC-02-100b
Saehan Bank, Los Angeles, California ("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 ("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 June 19, 2002, 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 Bank had engaged in unsafe or unsound banking
practices and had committed violations of law and/or regulations. The
FDIC,
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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 Act, 12 U.S.C. §1813(u)), and
its successors and assigns cease and desist from the following unsafe
and unsound banking practices and violations:
a. operating with inadequate management;
b. operating with inadequate equity capital and reserves;
c. operating with inadequate provisions for liquidity and funds
management;
d. operating with inadequate internal routine and controls policies;
e. operating in such a manner as to produce low earnings;
f. operating with a board of directors which has failed to provide
adequate supervision over and direction to the active management of the
Bank; and
g. operating in violation of sections 326 and 353 of the Rules and
Regulations of the Federal Deposit Insurance Corporation, 12 C.F.R.
§326, 12 C.F.R. §353 as more fully described on pages 24 through
41 of the FDIC's Report of Examination of the Bank as of December 31,
2001.
IT IS FURTHER ORDERED that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
follows:
[.1]1.(a) During the life of this ORDER, the Bank shall have and retain
qualified management. Each member of management shall have
qualifications and experience commensurate with his or her duties
and responsibilities at the Bank. 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) restore all aspects of the Bank to a safe and sound condition,
including capital adequacy, earnings, management effectiveness,
sensitivity to market risk, 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") in writing when it proposes to add any
individual to or replace any member of the Bank's board of directors;
employ any individual as a senior executive officer; or change the
responsibilities of any senior executive officer, so that the person
would assume a different senior officer position. The notification must
be received at least 30 days before such addition, replacement
employment, or change in responsibilities is intended to become
effective and should include a description of the background and
experience of the individual or individuals involved.
(d) The Bank may not add any individual to or replace a member of its
board of directors, employ or change the responsibilities of any 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. The Board of Directors shall maintain a high level of participation
in the affairs of the Bank and regular attendance at Board meetings.
The Board shall assume full responsibility for the approval of sound
policies and objectives for the Bank, and for the supervision of all of
the Bank's activities, consistent with the role and expertise commonly
expected for directors of banks of comparable size. The Board's
participation shall include attendance at regular Board meetings to be
held at least once a month. The Board at a minimum shall discuss,
review, and approve at each meeting the following: reports of income
and expenses; new, overdue, renewal, insider, charged-off, and
recovered loans; investment activity; operating policies; and
individual committee actions. Board minutes shall be kept for each
meeting which accurately reflect the deliberations, discussions, review
and approval of these items along with any other business discussed by
the Board. Board minutes shall also reflect the names of all directors
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agreeing or dissenting to any reviews, approvals or other actions taken
by the Board.
[.3]3.(a) From the effective date of this ORDER, the Bank shall have and
maintain Tier 1 capital in such an amount as to equal or exceed eight
(8.0) percent of the Bank's total assets.
(b) The level of Tier 1 capital to be maintained during the life of
this ORDER pursuant to Subparagraph 3(a) shall be in addition to a
fully funded allowance for loan and lease losses, the adequacy of which
shall be satisfactory to the Regional Director as determined at
subsequent examinations and/or visitations.
(c) Any increase in Tier 1 capital necessary to meet the requirements
of Paragraph 3 of this ORDER may be accomplished by the following:
(i) the sale of common stock; or
(ii) the sale of noncumulative perpetual preferred stock; or
(iii) the direct contribution of cash by the board of directors and/or
shareholders of the Bank; or
(iv) any other means acceptable to the Regional Director; or
(v) any combination of the above means.
Any increase in Tier 1 capital necessary to meet the requirements
of Paragraph 3 of this ORDER may not be accomplished through a
deduction from the Bank's allowance for loan and lease losses.
(d) If all or part of the increase in Tier 1 capital required by
Paragraph 3 of this ORDER is accomplished by the sale of new
securities, the board of directors shall forthwith take all necessary
steps to adopt and implement a plan for the sale of such additional
securities, including the voting of any shares owned or proxies held or
controlled by them in favor of the plan. Should the implementation of
the plan involve a public distribution of the Bank's securities
(including a distribution limited only to the Bank's existing
shareholders), the Bank shall prepare offering materials fully
describing the securities being offered, including an accurate
description of the financial condition of the Bank and the
circumstances giving rise to the offering, and any other material
disclosures necessary to comply with the Federal securities laws. Prior
to the implementation of the plan and, in any event, not less than
fifteen (15) days prior to the dissemination of such materials, the
plan and any materials used in the sale of the securities shall be
submitted to the FDIC, Registration and Disclosure Section, 550 - 17th
Street, N.W., Washington, D.C. 20429, for review. Any changes requested
to be made in the plan or materials by the FDIC shall be made prior to
their dissemination. If the increase in Tier 1 capital is provided by
the sale of noncumulative perpetual preferred stock, then all terms and
conditions of the issue, including but not limited to those terms and
conditions relative to interest rate and convertibility factor, shall
be presented to the Regional Director for prior approval.
(e) In complying with the provisions of Paragraph 3 of this ORDER, the
Bank shall provide to any subscriber and/or purchaser of the Bank's
securities, a written notice of any planned or existing development or
other changes which are materially different from the information
reflected in any offering materials used in connection with the sale of
Bank securities. The written notice required by this paragraph shall be
furnished within ten (10) days from the date such material development
or change was planned or occurred, whichever is earlier, and shall be
furnished to every subscriber and/or purchaser of the Bank's
securities who received or was tendered the information contained in
the Bank's original offering materials.
(f) For the purposes of this ORDER, the terms "Tier 1 capital"
and "total assets" shall have the meanings ascribed to them in
Part 325 of the FDIC Rules and Regulations, 12 C.F.R. §§ 325.2(t)
and 325.2(v).
[.4]4.(a) During the life of this ORDER, the Bank shall maintain an
adequate reserve for loan and lease losses.
(b) Additionally, during the life of this ORDER, the Bank shall fully
implement policies for determining the adequacy of the loan and lease
reserve. The policies shall provide for a review of the loan and lease
reserve at least once each calendar quarter. Said review shall be
completed at least ten (10) days prior to the end of each quarter, in
order that the findings of the Board of Directors with respect to the
loan and lease reserve may be properly reported in the quarterly
Reports of Condition and Income. Any deficiencies in the loan and lease
reserve shall be remedied in the calendar quarter
{{8-31-02 p.C-5495}}
they are discovered,
prior to submitting the Report of Condition and Income, by a charge to
current operating earnings. The minutes of the Board of Directors
meeting at which such review is undertaken shall indicate the results
of the review. Upon completion of the review, the Bank shall increase
and maintain the loan and lease reserve consistent with the established
policies. Such policy and its implementation shall be satisfactory to
the Regional Director as determined at subsequent examinations and/or
visitations. Furthermore, the Bank shall not decrease the amount of the
loan and lease reserve without the approval of the Regional
Director.
[.5]5. Within 45 days of the effective date of this ORDER, the Bank shall
eliminate from its books, either though charge-off or collection all
assets classified as "Loss" in the FDIC Report of Examination as
of December 31, 2001. Reduction of these assets through proceeds of
other loans made by the Bank is not considered collection for purposes
of this paragraph.
[.6]6. During the life of this ORDER, the Bank shall not increase its
average assets by more than fifteen (15.0) percent per year (not
compounded) measured from the FDIC's Report of Examination as of
December 31, 2001. Average asset size of the Bank, for purposes of this
paragraph, shall be determined on a quarterly basis, and contained in
the written progress reports required in paragraph 19.
[.7]7. Within 90 days from the effective date of this ORDER, the Bank shall
formulate and fully implement a written business plan. This plan shall
address, at a minimum, the following:
(a) goals and strategies consistent with sound banking practices
for improving and sustaining the earnings of the Bank, including:
(i) an identification of the major areas in, and means by which,
the board of directors will seek to improve the Bank's operating
performance;
(ii) an identification of the major areas in and means by which the
Board will seek to improve the Bank's net interest margin, increase
interest income, and reduce discretionary expenses;
(iii) a realistic and comprehensive budget for all categories of income
and expense;
(iv) a budget review process to monitor the income and expenses of the
Bank to compare actual figures with budgetary projections;
(v) a description of the operating assumptions that form the basis for,
and adequately support, major projected income and expense components;
(b) coordination of the Bank's loan, investment, and operating
policies, and budget and profit planning, with the funds management
policy;
(c) the need for additional capital, potential sources of capital, and
an action plan for obtaining additional capital; and
(d) methods for handling exposure to increasing contingent liabilities
including the losses due to the activities detailed on page 3 of the
FDIC Report of Examination as of December 31, 2001.
The business plan, its implementation, and any revisions thereto,
shall be in a form and manner acceptable to the Regional Director as
determined at subsequent examinations and/or visitations.
[.8]8. Within 45 days from the effective date of this ORDER, the Bank
shall eliminate and/or correct all violations of law and contraventions
of policy which are set out on pages 20, 21, 24, 25, 27 through 32, and
pages 39 through 41 of the Report of Examination of the Bank as of
December 31, 2001. Within 90 days of the effective date of this ORDER,
the Bank shall eliminate, and/or correct all violations of law and
contraventions of policy which are set out on pages 22, 23, 26, and 33
through 38 of the Report of Examination of the Bank as of December 31,
2002. In addition, the Bank shall henceforth comply with all applicable
laws, regulations, and policies.
[.9]9. Within 60 days of the effective date of this ORDER, the Bank
shall revise, adopt, and implement a written liquidity and funds
management policy. Such policy shall include a strategy for reducing
exposure to interest rate risk, and shall address the concerns
contained in the FDIC Report of Examination dated December 31, 2001, at
pages 13 through 17. 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.
[.10]10. The Bank shall not pay cash dividends without the prior written
consent of the Regional Director.
{{8-31-02 p.C-5496}}
[.11]11. Within 60 days of the effective date of this ORDER, the Bank shall
formulate, adopt and implement a policy and procedures that adequately
address the Bank's internal routine and controls. In addition the
Board shall review and monitor compliance with the policy on a
quarterly basis. 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.
[.12]12. Within 45 days of the effective date of this ORDER, the Bank
shall comply in all material respects with the Bank Secrecy Act and its
rules and regulations, and Part 353 of the FDIC's Rules and
Regulations.
[.13]13. Within 45 days of the effective date of this ORDER, the Bank shall
provide for independent testing of compliance with the Bank Secrecy
Act, Part 353 of the FDIC's Rules and Regulations, 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, should include the following:
(i) a test of the Bank's internal procedures for monitoring BSA;
(ii) a sampling of large currency transactions followed by a review of
the Currency Transaction Reports filings;
(iii) a test of the validity and reasonableness of the customer
exemptions granted by the Bank;
(iv) a test of the Bank's recordkeeping system for compliance with the
BSA; and
(v) documentation of the scope of the testing procedures performed and
the findings of the testing. Written reports should be prepared which
document the testing results and provide recommendations for
improvement and shall be presented to the Bank's Board of Directors.
[.14]14.(a) Within 45 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 BSA
and the rules and regulations issued pursuant thereto. The program
shall ensure that clear and comprehensive BSA compliance reports are
provided to the board on a monthly basis. Such program and its
implementation shall be in a manner acceptable to the Regional Director
as determined at subsequent examinations and/or visitations of the
Bank. At a minimum, the program shall:
(i) Require the Bank to develop, adopt and implement a written
plan designed to ensure compliance with all provisions of the BSA.
(ii) Establish a system of internal controls to ensure compliance with
the BSA 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 and that there is full compliance with all
applicable laws and regulations.
(iii) Provide for independent testing of compliance with all applicable
rules and regulations related to the BSA and the reporting of
suspicious transactions required to be reported pursuant to Part 353 of
the FDIC's Rules and Regulations, 12 C.F.R. Part 353, and ensure that
compliance audits are performed at least annually, are fully
documented, and are conducted with the appropriate segregation of
duties. Compliance audits shall include all branches and written
findings of each audit shall be presented to the Board.
(iv) Ensure that the Bank's BSA compliance program is managed by a
qualified officer who shall have responsibility for all BSA compliance
and related matters, including, without limitation, (A) 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, and (B) monitoring the Bank's compliance and
ensuring that full and complete corrective active is taken with respect
to previously identified violations and deficiencies.
(v) Provide and document training by competent staff and/or independent
contractors of all board members and 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 to the BSA,
with a specific concentration on accurate recordkeeping,
{{8-31-02 p.C-5497}}
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.
[.15]15. Within 45 days of the effective date of this ORDER, the Bank shall
develop, adopt and implement a written customer due diligence program.
Such program and its implementation shall be in a manner acceptable to
the Regional Director, as determined at subsequent examinations and/or
visitations of the Bank. At a minimum, the customer due diligence
program shall provide for the following:
(a) A risk focused assessment of the customer base of the Bank to
determine the appropriate level of enhanced due diligence necessary for
those categories of customers that the Bank has reason to believe pose
a heightened risk of illicit activities at or through the Bank.
(b) For those customers whose transactions require enhanced due
diligence, procedures to:
(i) determine the appropriate documentation necessary to confirm
the identity and business activities of the customer;
(ii) understand the normal and expected transactions of the customer;
and
(iii) reasonably ensure the identification and timely, accurate and
complete reporting of known or suspected criminal activity against or
involving the Bank to law enforcement and supervisory authorities, as
required by the suspicious activity reporting provisions of Part 353 of
the FDIC's Rules and Regulations, 12 C.F.R. Part 353.
[.16]16. Within 45 days of the effective date of this ORDER, the Bank shall
develop, adopt and implement a written due diligence program to monitor
employee and directors accounts. Such program and its implementation
shall be in a manner acceptable to the Regional Director as determined
at subsequent examinations and/or visitations of the Bank. At a
minimum, the program shall provide for the following:
(a) A risk focused assessment of the employee and directors
accounts of the Bank to:
(i) identify the routine and usual nature of their banking
activities; and
(ii) determine the appropriate level of enhanced due diligence
necessary for those employee or directors accounts that the Bank has
determined have unusual activity.
(iii) reasonably ensure the identification and timely, accurate and
complete reporting of known or suspected criminal activity against or
involving the Bank to law enforcement and supervisory authorities, as
required by the suspicious activity reporting provisions of Part 353 of
the FDIC's Rules and Regulations, 12 C.F.R. Part 353.
[.17]17. Within 45 days of the effective date of this ORDER, the Board shall
oversee the Bank's compliance with BSA, and Part 353 of the FDIC's
Rules and Regulations. The Board shall receive reports from the
qualified officer appointed in paragraph 14(a)(iv), regarding
compliance with BSA and Part 353 at least monthly.
[.18]18. Within 45 days of the effective date of this ORDER, the Bank shall
establish and implement policies and procedures to advise the Board of
Significant Suspicious Activity Reports ("SAR"). At a minimum,
the Board should be advised in detail of all SAR's involving
employees, contractors, officers and members of the Board. The policies
and procedures shall also include guidelines to determine what SAR's
are significant.
19. Within 30 days of the end of the calendar quarter, commencing with
the quarter ending September 30, 2002, and within 30 days of the end of
each calendar quarter thereafter, the Bank shall furnish written
progress reports to the Regional Director detailing the form and manner
of any actions taken to secure compliance with this ORDER, the results
thereof, and contemplated future actions necessary to comply. Such
reports may be discontinued when the Regional Director has released the
Bank in writing from making further reports.
[.19]20. Following the effective date of this ORDER, the Bank shall send to
its shareholders a copy of this ORDER in conjunction both with the
Bank's next shareholders communication and with its notice and/or
proxy statement preceding the Bank's next shareholder meeting. If the
Bank sends its shareholders a description of this ORDER rather than a
copy of it, the description shall fully describe this ORDER in all
respects.
{{8-31-02 p.C-5498}}
This ORDER shall become effective ten (10) days from the date of 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, terminated, suspended, or set
aside by the FDIC.
Pursuant to delegated authority.
Dated at San Francisco, California, this 21st day of June, 2002.
