Banking Department Issues Consent Order to Cease and Desist to Liberty Bank of New York
STATE OF NEW YORK BANKING DEPARTMENT
NEW YORK, NEW YORK
In the Matter of
|ORDER TO CEASE AND DESIST
ISSUED UPON CONSENT
WHEREAS, LIBERTY BANK OF NEW YORK the (“Bank”) is a New York state-chartered insured nonmember bank having its principal place of business at 11 West 32nd Street, New York, New York 10001,and is at all times mentioned herein subject to the New York Banking Law and related rules and regulations thereunder; and
WHEREAS, in recognition of their common goals to ensure compliance with all applicable federal and state laws, rules and regulations by the Bank, the State of New York Banking Department (the “Banking Department”) and the Bank mutually have agreed to enter into this Order to Cease and Desist Issued Upon Consent (the “Order”); and
WHEREAS, the Banking Department together with the Federal Deposit Insurance Corporation (the “FDIC”) have concluded a joint examination of the Bank, as of March 31, 2004 (the “Joint Examination”); and
WHEREAS, as a result of said Joint Examination, the Banking Department has identified certain supervisory concerns relating to the conduct of the Bank’s business, including the following unsafe or unsound banking practices and violations:
(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 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 United States Department of the Treasury, 31 C.F.R. 500 et seq., as more fully described on pages 21 and 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 the Bank without an adequate contingency and disaster recovery plan; and
(i) Operating the Bank without adequate oversight of the Bank’s audit committee; and
WHEREAS, the Superintendent of Banks of the State of New York (the “Superintendent”) has determined that the Bank has failed to establish the controls necessary to ensure that the Bank operates in a safe, prudent and lawful manner; and
WHEREAS, given the foregoing, the Superintendent is concerned that the Bank has failed to conduct its operations in a safe and sound manner by failing to take appropriate steps to assure that its employees act consistently in compliance with all applicable laws and regulations; and
WHEREAS, the Superintendent possesses the authority under Section 39 of the New York Banking Law to issue an order to the Bank to discontinue unlawful or unauthorized or unsafe practices; and
WHEREAS, the Superintendent believes that prompt enforcement action is necessary to address numerous supervisory concerns with regard to the Bank and believes further that additional enforcement action may be necessary to address any other supervisory concerns which may come to the attention of the Banking Department; and
WHEREAS, on November ____, 2004, at a duly constituted meeting, the board of directors of the bank (the “Board” adopted resolutions:
(a) Authorizing and directing _________________ to enter into this Order on behalf of the Bank and consenting to compliance by the Bank and each of its insiders, as defined in Part 11, with each and every provision of this Order; and
(b) Waiving any and all rights that the Bank may have pursuant to Sections 39 and 44 of the New York Banking Law with respect to:
(1) the issuance of a notice of charges and of hearing on any matter set forth in this Order;
(2) a hearing for the purpose of taking evidence on any matters set forth in this Order;
(3) judicial review of this Order; and
(4) the challenging or contesting of, in any manner, the basis, issuance, validity, terms, effectiveness or enforceability of this Order or any provision thereof.
NOW, THEREFORE, before the taking of any testimony or the making of any findings of fact or conclusions of law, and without this Order constituting an admission or denial of any allegation made or implied by the Banking Department in connection with this proceeding, and solely for the purpose of settlement of this proceeding without a protracted or extended hearing, and pursuant to the aforesaid resolutions:
IT IS HEREBY ORDERED, that, where applicable, the Bank and each of its insiders, as defined in Part 11, shall cease and desist from committing any further violations of the nature described herein and shall take the following affirmative actions to correct the deficiencies described above:
1. (a) Within fifteen (15) days from the effective date of this Order, the Bank shall designate a qualified officer (the “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 perpetuated 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 such review. In addition, the BSA Officer shall contact the appropriate supervisory authority regarding the refiling of inaccurate or incomplete CTRs and SARs and shall provide requested written material to complete and file information on any inaccurate or incomplete CTRs and SARs. Documentation supporting any determination made pursuant to this subparagraph 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 based upon this review. Documentation supporting the determination 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 the 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 CTRs and SARs filed to the Regional Director of the New York Regional Office of the FDIC (the “Regional Director”) and to the Superintendent.
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”) to the Board 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”), the Board shall adopt said Review Recommendations, which approvals shall be noted in the official minute books of the Board.
(d) The Board shall provide a copy of the Review Recommendations to the Regional Director and to the Superintendent promptly upon adoption. If the Board fails to adopt any of the Review Recommendations, the Board shall provide to the Regional Director and to the 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, 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, 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 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 to the Superintendent.
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 effective date of this ORDER, the Accountant shall obtain written positive confirmation of each 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 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 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 the accuracy of the latter. In addition, the Board shall adopt such written 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. (a) Within thirty (30) days from the effective date of this Order, the Board shall develop and submit to the Regional Director and to the Superintendent for review and comment, a written 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 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 shall approve the Business Plan, which approval shall be noted in the official minute books of the Board. Thereafter, the Bank, its directors, officers, and employees shall follow the Business Plan and any subsequent modification thereto.
(c) The Board 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 immediately shall 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. During the life of this Order, the Bank shall notify in writing the Superintendent of any resignations or terminations of any Board members or any of its executive officers. In addition, the Bank shall comply with section 32 of the FDI Act, 12 U.S.C. § 1831i, including the 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.
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 to the 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.
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 “Disaster Plan”). The Disaster Plan and backup site shall be tested on an annual basis. The results of the annual testing shall be reported to the Board.
(c) The Disaster Plan shall be adopted by the Board, which approval shall be noted in the official minute books of the Board. The Disaster Plan shall be implemented by the Bank within thirty (30) days of adoption by the Board.
(d) Within ninety (90) days from the effective date of this Order, the Bank shall revise and update its information technology polices 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.
(e) The Board shall adopt the revised information technology polices 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.
(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. Within thirty (30) days from the effective date of this Order, the Board shall establish a committee of the Board (the “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 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. Nothing contained herein shall diminish the responsibility of the entire Board to ensure compliance with the provisions of this Order.
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 Banking Department for review at least twenty (20) days prior to dissemination to shareholders. Any changes requested to be made by the Banking Department shall be made prior to dissemination of the description, communication, notice or statement.
10. Within fifteen (15) days of the end of each calendar quarter following the effective date of this Order, 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 other written responses to this Order shall be reviewed by the Board and be noted in the official minute books of the Board.
11. The provisions of this Order shall be binding upon the Bank, its directors, officers, employees, agents, successors, assigns, and other insiders, as defined by Part 11 of the Bank.
12. 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 Regional Director or by the Superintendent.
13. All communications regarding this Order shall be sent to:
(a) Mr. Anthony Calabrese
Deputy Superintendent of Banks
New York State Banking Department
One State Street
New York, New York 10004
Liberty Bank of New York
11 West 32nd Street
New York, New York 10001.
14. Upon any event of noncompliance with any provision of the Order, the Bank shall notify the Banking Department in writing within one (1) day of such event. Such written notification shall include a description of the event, the circumstances precipitating such event, all actions taken to correct the noncompliance and a date by which full compliance will be achieved.
15. Each provision of this Order shall remain effective until modified, terminated or suspended in writing by the Banking Department. Each provision of this Order shall be binding upon the Bank, its directors, officers, employees, agents, and its insiders, as defined in Part 11, and their successors and assigns.
16. The provisions of this Order shall not bar, estop or otherwise prevent the Banking Department or any other federal or state agency or department from taking any other action affecting the Bank, or any current or former insiders, as defined in Part 11, and their successors and assigns.
17. This Order shall become effective immediately upon execution by the Banking Department.
Diana L. Taylor
State of New York Banking Department
Liberty Bank of New York