NAFCU Compliance Blog

NCUA LOL on compensation and the IRS; A little privacy help from the FDIC

Posted by Anthony Demangone

Yesterday, NCUA released Legal Opinion Letter 10-0919 (September 22, 2010)  via its Express Subscription Service.   The opinion letter addresses NCUA's compensation regulation.

In short, NCUA regulations contain a general prohibition against compensating directors and other volunteer officials, not including the one paid director position as allowed by the Federal Credit Union Act. General rules often contain exceptions, as does this one.  For example, under NCUA's compensation rule, you can pay for a director's health insurance (subject to the rule's limitations), and this insurance benefit does not violate NCUA's general ban on compensation.  The same goes for training expenses.  

The exceptions, though, only pertain to NCUA's rule.  As NCUA indicates in its legal opinion:

The use of the term “compensation” in §701.33 is only for the purpose of describing the kind and amount of payment or reimbursement an FCU is permitted to provide to a board officer. NCUA’s use of that term does not in any way affect an FCU’s obligation to issue a Form 1099 to an individual when the IRC requires it.

So, there really is a two-step process.  First, when conferring a benefit or reimbursing expenses for a volunteer, the payment or benefit first must be able to pass through NCUA's compensation regulation.  If the payment can pass through the rule's requirements, a credit union must then determine if it must issue an appropriate 1099, in the name of the director. 

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The FDIC issued FIL-60-2010 to help supervised banks comply with the new model privacy notice requirements.  The guidance does a nice job of framing the issue.  While the guidance applies to banks, I believe credit unions will find it to be a useful overview.

Chicago: Day 2; Other Stuff

Posted by Anthony Demangone

5:15 a.m.  What is that sound?  Oh yeah.  It's my alarm.  Sigh. 

7:30 a.m.  NAFCU holds a staff meeting  to go over the day's events.  The events involve Mike Ditka. Nice. 

8:30 - 11 a.m.  NAFCU's morning agenda involves speeches by NAFCU's Chair, Brad Beal, NAFCU CEO Fred Becker, and Mike Ditka.  The talks discuss opportunities, challenges, and the characteristics of leadership.  It's a great morning.

11 a.m. to 1:30 p.m.  I work the NAFCU booth at our convention hall.  We're doing a demo for NAFCU's online training program.  We're offering a free trial until the end of this month for attendees to try out the training program.  If you are interested in a free trial, email me at ademangone @ nafcu.org. I'll get you the log-in information. 

1:30- 2:30 p.m.  I sit in a panel with my NAFCU colleagues Carrie Hunt and Dillon Shea. We discuss regulatory changes, which involves into a wonderful discussion involving the fiduciary duties of credit union officials.  

2:45-3:45 p.m. I deliver a talk that addresses the changing landscape for credit union officials.  NAFCU members: I'm more than happy to shoot you copy of the PowerPoint presentation, as well as a transcript of my remarks. Just email me at ademangone @ nafcu.org.  (Please allow me some time to respond, as I'm working away from the office this week.)  

4 - 5 p.m. Fred Becker delivers his "private conversation with Fred Becker."  It is a frank discussion of what is going on in our industry.  If you get to a NAFCU annual conference, this is a must-attend session.

That ended our formal day.  Which was a long one!

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In other news:

• As expected, President Obama signed the regulatory reform legislation into law.
• The word on the street is that the SAFE Act registration system will not be up and running until early 2011.  Once it goes live, we'll have 180 days to register our mortgage loan underwriters per the SAFE Act requirements. Stay tuned. 
• HUD has released a new RESPA settlement cost booklet.
• Welcome to HUD's first issue of the RESPA Roundup. 

IRS Backup Withholding; BSA Civil Money Penalty; Fiduciary Duties; Seminar Snapshot

Posted by Anthony Demangone

Happy Friday, everyone!  Here's some info to help start the weekend.

Backup Witholding.  The IRS has issued Announcement 2010-41  regarding new procedures for backup withholding.  The announcement applies only when a credit union receives a second notice from the IRS that a member has provided an incorrect taxpayer identification number (TIN) or name.  Under IRS rules, when the second notice is received the credit union must obtain validation of the TIN from the Social Security Administration (SSA) or the IRS, but to do that, the member must authorize the SSA to send the now discontinued Form SSA-7028 to the credit union.  The announcement outlines how the credit union needs to notify the member on providing the credit union with validation of the SSN.

BSA Civil Money Penalty.  Yesterday, FinCEN announced a $1 million civil money penalty against Pamrapo Savings.

Pamrapo’s lack of internal controls combined with unqualified BSA compliance personnel, relatively non-existent training and deficient independent testing resulted in a wholly ineffective BSA compliance program which, in turn, resulted in the failure to file a substantial number of currency transaction and suspicious activity reports in an accurate and timely manner. Pamrapo Savings Bank, without admitting or denying the allegations, consented to payment of the civil money penalty.

So, yes, BSA is still an issue for regulators.  Did I mention that NAFCU will host a BSA-related webcast on July 14th?  (Shameless, shameless plug, I know.)

Fiduciary Duties.   NAFCU recently sent this comment letter to NCUA on the fiduciary duties proposal.  I like reading comment letters, because they can highlight issues that you may have missed when reading a proposal.   If you look at NCUA's proposal rules homepage, they have links where you can read the comments.

Speaking of fiduciary duties, many folks have been asking if NAFCU's online training program satisfies the proposal's requirements on board training.  Since I created the training program, I tend to get those questions. Here's my take:

1. First, the proposal is just a proposal. We won't know what the final rule requires until it is issued.
2. Assuming that the final rule will mirror the proposal (which is a huge assumption), there appears to be two major areas where directors may need training.  First, the proposal appears to require that, within 90 days of joining the board, directors need to have training on financial issues so that they can read a financial statement and raise appropriate questions.  Second, directors have to be able to ensure that the credit union runs its affairs within all applicable laws and regulations.  Both of these areas likely will need training.

Does our training meet these requirements?  That's a tough call, because I'm not the final judge.  We do have an ALM session that addresses some aspects of financial reports.  We do talk about how credit unions are regulated and examined.  And we address BSA.  But ultimately, you'll have to ensure that the training program you select meets your needs.  In other words, do your due diligence.  With that in mind, take a look of the outline of our training program for directors and officials.  And here is the training homepage, which includes a demo.

Flood.  The FDIC recently issued more than $16,000 in civil money penalties against two different banks for alleged flood insurance violations.  This really worries me, because banks get clobbered for flood insurance deficiencies all the time. Don't believe me?  Look at this page at BankersOnline to see the list of flood CMPs.  More than 25 banks have received civil money penalties this year. But for some reason, credit unions do not get these CMPs, even though the requirements are the same.  This keeps me up at night.  With that in mind, we'll have someone at this year's NAFCU Compliance Seminar to address flood insurance issues. Here's a description of the session.

Stemming the Tide of Flood Compliance Issues
This presentation will provide insight into credit unions’ compliance obligations under the federal flood regulations with a focus on changing requirements under recently revised regulatory guidance. You will learn about the regulators’ “Questions and Answers Regarding Flood Insurance”, challenges related to resolving flood determination discrepancies, and NFIP reform and how it impacts credit unions and their members.  Opportunities for asking questions will be provided to allow you to bring your compliance issues to the table. Presented by Scott Giberson, CFM, Compliance Manager, CoreLogic Flood Services.

OK, that's enough for today.  Enjoy your weekend, everyone!

Another Material Loss Review

Posted by Anthony Demangone

Last week, NCUA's Office of Inspector General issued its latest Material Loss Review.  The latest MLR reviewed the reasons behind the failure of Eastern Financial Florida Credit Union.  The document is 36 pages long, and it breaks down the various weaknesses which lead to the credit unions demise.  Here are some observations made by the Office of Inspector General.

• The credit union's board and management whiffed on risk management, especially with its investments.
• Its growth strategy was unsustainable.
• Management allowed numerous regulatory violations in relation to member business loans. 
• State and federal (NCUA) examiners missed or miscalculated the investment risk.   

NCUA summed up the reasons behind the failure thusly (and yes, I just used thusly in a sentence):

Eastern Financial’s failure can be attributed to inadequate management and Board of Directors (Board) oversight that exposed the credit union to excessive amounts of risk due to investments in complex private-placement Collateralized Debt Obligations (CDOs), weak business loan underwriting and credit administration, poor earnings resulting from an aggressive growth strategy, and an inadequate strategic plan.

This is the latest example of how NCUA is pointing to weak management by a credit union's board of directors and management.  If you've been keeping score, there have been a number of these reviews.  Taken in concert with recent LUAs, NCUA's message is clear: credit union boards and management must adequately manage whatever they are doing.  The more complicated the process, the higher the level of internal controls and management that will be needed.

With that in mind, it may be a good time to review the NCUA Examiner's Guide chapter on Management.  That would be Chapter 7. 

LUA; Board Development; Newsletters

Posted by Anthony Demangone

Yesterday, NCUA published an LUA that was issued to a small federal credit union in Texas.  The LUA indicates that the credit union's recordkeeping and lending practices were not up to NCUA expectations.  The credit union has roughly $750,000 in assets.  My general thoughts:

• An NCUA official told me that NCUA would be taking a tougher stance with credit union problems for the foreseeable futures.  Cease and desist orders. Public LUAs.  Conservatorships.  I cannot say for sure that the publication of this LUA is part of this new way of handling problems, but it did get my attention. 
• Small credit unions do not get a break when it comes to regulatory requirements.  A credit union is a credit union, so NCUA's requirements apply to all. In other words, "but we're small" is not necessarily a good defense to a problem.
• Usually, an LUA or a cease and desist order addresses an issue that has been festering between the credit union and NCUA.  NCUA officials have indicated that LUAs or cease and desist orders usually start as a finding following an NCUA exam.  If the credit union does not address the finding adequately, then NCUA escalates its response. 

***

Here's a very good article on board development from the most recent issue of  The Metropolitan Corporate Counsel.   It is a short read, but it may give you a number of good ideas on how you can increase the effectiveness of your credit union's board of directors. 

***

Here's a tip. Law firms often publish a ton of nice, free information.  It is a way for them to show their expertise. In a perfect world, an article they write saves your day, and you reach out to that attorney for additional help.  Here are a few sources for this wonderful information, in no particular order:

• Credit union newsletters from Weltman, Weinberg and Reis.
• Newsletters from Farleigh Wada Witt.  
• Articles from Messick and Weber, P.C.  
• The Kaufman and Canoles credit union legal update.

Why would we point you to other sources of information?  Here's why:

1. NAFCU's compliance team is not afraid to say the following: we do not know everything.  We probably do not know everything about any one thing.  We may know a few things about a lot of things, but we don't know something about everything.   We also are not afraid to admit the following: we are not the only people in this game. We try to be honest with you, and point you to sources of information that can make your job less grindyourteethandwaily.  If that is not a word, it should be.
2. There is no better way to get a great answer than to hear a number of good answers from a number of different people. When our thoughts are challenged and we listen to those with different ideas and positions, we get better results.
3. Let's be honest.  Now these guys owe me.  And I take payments in baseball tickets and pints of brew.  Seriously, though, all of the firms listed above know credit unions.  I think you'll see that knowledge reflected in their materials. 

The Snow Must Go On; NAFCU's Offices Closed Again; Great NCUA Legal Opinion Letter

Posted by Anthony Demangone

NAFCU's offices are closed again, as the federal government has decided to close its Washington, D.C.-area offices.  We're getting hammered again with another winter storm.  This one appears to have less snow but more wind. 

NAFCU members - if you need compliance assistance, email us at [email protected].  We'll do our best to respond remotely.

Here's a photo of Lake Yellowstone at sunrise, taken during my honeymoon.  The thought of another snow photo just seems too depressing right now.

 

***

NCUA recently released legal opinion letter 09-1039.  This is a great legal opinion, as it touches upon a number of important issues: conflicts of interest, disqualification, and voting issues.  Here's the portion dealing with conflicts.

The FCU Bylaws prohibit a director, committee member, officer, agent, or credit union employee from participating, directly or indirectly, in matters affecting his or her pecuniary or personal interest. The provision also covers matters affecting the pecuniary interests of an organization in which a director, or the others enumerated in the provision, is directly or indirectly interested. FCU Bylaws, Article XVI, Section 4.

Whether a conflict of interest exists requiring a director to be disqualified depends on the particular facts and circumstances involved. Sometimes the determination is obvious, for example, a director should not vote on whether a credit union should enter into a contract with a company of which the director is the sole or majority owner. But, for example, if a director has a modest investment in a publicly traded corporation, like Intel, that director need not be disqualified from voting on a contract with Intel to purchase computers. While any new contract for Intel would likely benefit the corporation –its pecuniary interest will be affected -- that director’s interest in the corporation is likely so attenuated that his interest in the corporation will not be affected. The director need not be disqualified.

The conflict of interest analysis under the bylaw provision is, first, whether the board’s decision will affect a director’s own private (pecuniary or personal) interests. Second, where an organization is involved in which a director has an interest, the analysis is: (a) whether a decision will affect the organization’s pecuniary interest and, also, (b) whether the decision regarding the organization will affect the director’s interest in the organization. Note that the conflict of interest provision in the bylaws requires a real or actual effect, not a hypothetical or speculative effect, on the individual or organization’s interest in order for a conflict to exist. Also, as noted in the example above, not all board decisions affecting an organization’s pecuniary interest will affect a director’s interest in the organization.

Directors make many decisions for a credit union that may affect their interests, and even the pecuniary interest of organizations in which they have an interest, but the decisions are not of the type that raises a conflict of interest requiring disqualification. For example, the directors establish dividend rates and, as members, will benefit. The decision, however, is affecting all members, not affecting particularly the directors’ personal or pecuniary interests. Also, a director may be able to vote on policies affecting an organization in which the director has an interest. For example, a board may be considering a policy to provide payroll deductions as a member benefit in cooperation with employer sponsors. A director may be an employee of a sponsoring entity. Because the policy will affect all employer sponsors, most likely, a director who is also a sponsor’s employee should not be disqualified.

That, my friends, is how legal opinions should be written.  First, it is clearly written.  Perhaps more importantly, though, it not only answers the question presented - the letter also provides an overview of the subject matter to illuminate other related areas.  The hypotheticals are a simple, yet effective way, to clarify the subject.

FDIC on the MDIA; ODP; Online Training

Posted by Anthony Demangone

On Friday, Sarah wrote a nice post on the changing mortgage requirements brought about by the Mortgage Disclosure Improvements Act. (MDIA).  As she pointed out, back in 2008, the Fed issued changes to Regulation Z that amended some disclosure requirements for closed-end mortgages.  In 2009, as mandated by the MDIA, the Fed had to issue additional changes and move up compliance deadlines. 

On Monday, the FDIC issued a Financial Institution Letter that does a GREAT job of highlighting all of these changes.  Access the guidance here.   And this supplement provides a side-by-side comparison of the 2008 and 2009 Reg Z amendments to closed-end mortgage disclosures. 

If only someone would create such a chart that compares the Reg Z changes with the credit card bill.

***

Representatives Carolyn Maloney, Barney Frank and Luis Gutierrez issued a strongly-worded letter to the Federal Reserve asking that the agency implement strong controls on overdraft protection programs.  Specifically, they are seeking an opt-in requirement for consumers and a rule that prohibits issuers to order transactions in a way that maximize ODP fees.  Access the letter here.

***

NAFCU's Online Training for volunteers and new employees is now available for purchase.  Read all about it here.  If you've seen me lead a training session, you'll have a good idea regarding the quality and substance of the sessions.   Let me know if you have any questions about the new product, which is available to all credit unions - even those who do not belong to NAFCU. 

Mortgage Fraud; NCUA BOD Legal Opinion Letter

Posted by Steve Van Beek

As the Compliance Guy mentioned in this post, FinCEN has been actively studying the issue of mortgage loan fraud and recently issued a Mortgage Fraud Report which detailed SAR filing trends of mortgage loan fraud from July 1, 2007 to June 30, 2008 for depository institutions.

On Tuesday, FinCEN released another report on Mortgage Fraud.  This report highlights the connections between mortgage fraud and other financial crimes.  As the press release indicates, the report:

"shows subjects reported for suspected mortgage loan fraud may also be involved in other financial crimes such as check fraud, money laundering, stock manipulation, structuring to avoid currency transaction reporting requirements and others. From depository institution Suspicious Activity Reports (SARs), FinCEN identified approximately 156,000 mortgage fraud subjects, and found that 2,360 were reported for suspicious activity in 3,680 of the other SAR types.

“This study analyzes the possible interrelationship of illicit activity occurring across different financial sectors. Criminal actors may attempt to exploit any vulnerability to commit fraud and launder money through a range of financial institutions,” said FinCEN Director James H. Freis, Jr. “The interconnected nature of suspicious activity across multiple financial sectors covered by FinCEN’s Bank Secrecy Act regulations underscores the immense value of combining insights from the different sectors for the purpose of detecting and thwarting criminal activity.”

FinCEN identified mortgage loan fraud subjects ("MLF subjects") from the depository institutions SARs and analyzed these MLF subjects financial transactions with non-depository institutions.  FinCEN summarizes its process here:

"To better understand how mortgage loan fraud may relate to other financial crime, FinCEN identified subjects reported in depository institution SARs (SAR-DIs) for suspected mortgage loan fraud and evaluated activities of these MLF subjects reported in non-depository financial institution SARs1: those filed by money services businesses (SAR-MSBs); securities brokers, securities dealers, or insurance companies (SAR-SFs); and casinos or card clubs (SAR-Cs)."

The report provides insight on how SARs filed by depository institutions are interrelated with SARs filed by other institutions regulated by BSA.  In other words, mortgage loan fraudsters are using multiple channels to conduct their operations and their activity at depository institutions is just one piece of the pie.  This NAFCU Today article provides a good summary of the report's findings.    

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Last week, NCUA released Legal Opinion Letter 09-0238 (March 6, 2009).  The letter addresses two different issues.  First, it discusses conflict of interest issues for credit unions boards.  Second, it clarifies that two-thirds of authorized board members must vote for charter amendments.

You have asked if the disqualification of two directors from a vote on a proposed FCU charter amendment was appropriate, and if so, whether a two-thirds vote by the remaining directors was sufficient to approve the charter amendment. Disqualification from a board vote is necessary only if the director has a conflict of interest in the matter before the board. Based on the facts you describe, it does not appear that a prohibited conflict of interest exists. Additionally, a charter amendment requires an affirmative vote of two-thirds of the total authorized number of members of the board, not merely two-thirds of the qualified directors eligible to vote.

Access the letter here.  It is a good read, especially if you work on board issues at your credit union.

NCUA LOLs; Yoga

Yesterday, NCUA released two legal opinion letters.

• NCUA released NCUA Legal Opinion Letter 09-0108 (January 26, 2009) to clarify that the Freedom of Information Act (FOIA) does not apply to federal credit unions.  That's nothing new.  But here are a few thoughts.  While members cannot FOIA federal credit unions, they can make formal requests for information pursuant to 12 C.F.R. Part 701.3.  Understand that process, as you have a short timeline to respond.  Also, access NCUA's FOIA page here. 

• NCUA also released NCUA Legal Opinion Letter 08-1024 (January 30, 2009).  This one deals with conflict of interest provisions.  NCUA stated the following:

You have asked if the conflict of interest provision in the National Credit Union Administration’s (NCUA’s) general lending regulation would preclude a credit union from selling loans to a bank in which one of the credit union’s directors owns stock. 12 C.F.R. 701.21(c)(8). We conclude the conflict of interest provisions prohibiting credit union officials from receiving any compensation in connection with making loans does not apply when a credit union sells loans it previously made but, nevertheless, we recommend that, in the circumstances you described, an interested director should recuse himself from deliberating or voting on the transaction.

***

After putting together the second bouncy seat yesterday, I decided to get some exercise . (For those who don't know what a bouncy seat is, it seems to be a plastic, colorful child containment system that bounces.  I guess "bouncy seat" sounds nicer than my description.)  My wife suggested that I work through this short yoga booklet that she uses.   This is how it progressed.

Cocky Compliance Guy: This is pretty simple.
Loving Wife:  Just wait.

10 minutes later...

Compliance Guy:  Umm.  This one is pretty hard. 
Laughing, Loving Wife:  Just wait.

Next morning.

Sore Compliance Guy: (Grunts as he gets out of bed.)
I Told You So Wife:  (Giggles.)

Removal of Directors; 5300 Hiccup

NCUA recently released a letter to clarify when a federal credit union can declare a board seat vacant.  As you may recall, NCUA’s model bylaws allow a board of directors to declare a director’s seat vacant if the director regularly fails to attend board meetings or fails to perform the duties of a director. 

But what does "fails to perform the duties" really mean?  In the letter, NCUA clarified that abstaining from board votes or disagreeing with other board members does not constitute "failing to perform" the duties of a director.

Read all about it here.  The letter does a great job of discussing the two different scenarios involving the removal of directors.  Good stuff.

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We've had a few calls from credit unions having problems when trying to submit their December 2008 5300 data.  Many of the problems were due to a glitch in the software.  Read about it here.  NCUA does a good job of explaining the situation and providing a quick fix.

Flood Insurance Q and A Proposal; NAFCU Seeks Comments on NCUA ANPR

Last week, financial regulators, including NCUA, issued proposed revisions to the Interagency Questions and Answers Regarding Flood Insurance.  The goal is to help financial institutions better understand their responsibilities in this arena.  I've paged through them, and personally, I think the new version is better organized.  You can view the proposed Q and A guidance document here.

Comments are due May 20, 2008. 

Here's some food for thought.  Quite a few banks have been hit with civil money penalties for alleged violations of flood insurance requirements in the past few years.  Don't believe me?  Go here (maintained by Banker's Online) to see a running list of banks that have been hit with civil money penalties for flood issues.  The list is fairly long. 

The high number of civil money penalties leads me to believe that there is some basic confusion regarding financial institution responsibilities.  Building on that, one would think that the clarifications/amendments to the Q and A guidance would be designed to eliminate some of that confusion.  (At least that's my take.)  I'd forward the proposed Q and A to the person at your credit union that handles flood insurance issues.   (Keep in mind that it is a proposal.)

***

Here ye, here ye.  NAFCU would love to here your comments on NCUA's advance notice of proposed rulemaking on mergers, conversions from credit union charter, and account insurance termination. Comments due to NCUA by April 30.   Here is a link to the NAFCU Regulatory Alert. (Member log-in needed.)

The ANPR covers very important issues.  For example, here are two of the issues on which we'd love to hear your thoughts:

• Currently, NCUA has no rules regarding the merger or conversion of a federally insured credit union (FICU) into a financial institution other than a mutual savings bank (MSB). In your opinion, should NCUA promulgate new regulations for credit union mergers or conversions into financial institutions other than an MSB? If so, please indicate what these regulations should cover.
• While it is clear that a fiduciary duty exists, neither the FCU Act nor NCUA regulations establish a standard of care for credit union boards of directors. Should NCUA establish, by regulation, a uniform federal standard of care for credit union boards of directors who are considering the types of transactions discussed in the ANPR? Please explain your response.

Feel free to contact Pamela Yu at [email protected] with your thoughts, concerns and feedback.

NAFCU Book of Answers Updated; March Madness

In support of the idea that one should refrain from reinventing the wheel whenever possible, NAFCU has updated its Book of Answers.  NAFCU members can access it here. (Log-in information needed.)  For you non-NAFCUers, here's a taste of what's inside.

Question: We are aware that credit unions may pay for the travel costs incurred by volunteers and their guest. Is there a limitation on how many trips the credit union may cover in a given year?

Answer: No. The Federal Credit Union Act allows credit unions to compensate one board official for his or her duties. Credit unions may not compensate any other credit union volunteer. NCUA regulations, however, define "compensation" in a way that allows credit unions to benefit volunteers in certain situations without violating the general prohibition against compensation. See 12 C.F.R. § 701.33. As you noted in your question, the definition of compensation excludes the payment or reimbursement of certain travel expenses incurred by a credit union volunteer and his or her guest. 12 C.F.R. § 701.33(b)(2)(i). The regulatory exclusion covers "reasonable and proper" travel-related costs "incurred by an official in carrying out the responsibilities of the position to which that person has been elected or appointed, if the payment is determined by the board of directors to be necessary or appropriate in order to carry out the official business of the credit union, and is in accordance with written policies and procedures, including documentation requirements, established by the board of directors." Id. The regulation contains no explicit limitations on the number of trips or the dollar amount of travel-related costs that credit unions may cover. Instead, the regulation permits each credit union's board of directors to determine what is reasonable and proper, as outlined above.
(Appeared in the November 2006 NAFCU Regulatory Compliance Newsletter.)

***

March Madness has arrived!  I'm sure quite a few folks in your offices caught the flu today.  Well, NAFCU has quite a few tournament connections.  Here's who we're rooting for.

• Dr. Tun Wai, NAFCU's Economics Guru is a graduate of Georgetown.  All other things being equal, and assuming that there are no major injuries, he believes Georgetown should do well.
• The George Mason Mafia (which includes Steve, Tessema, Sarah, Pamela, et moi) is looking for another Cinderella run from the Patriots.
• Our very own Kristina Kennedy is a proud graduate (and former cheerleader) for the Mount Saint Mary's Mountaineers.  They play North Carolina first.  Ouch.
• Brad Thaler has his Michigan State shirts all ironed in preparation for a Spartan run to the final four.
• Many of our lobbyists (Jenn, Amanda and Eddie) all love Da Burgh.  They'll be rooting for Pitt.  I'd make fun of Pitt, but seeing how Penn State seemingly has given up playing men's basketball, I have very little ground to stand on.
• Our Regulatory Intern Josh hails from American University's School of Law.  He's proud, but indicated in a meek voice that they are a 14 seed.  But with a name like American, how can you not root for them?  Rooting against them is almost....un-American.

Board of Director Lawsuit Based on BSA Violations

As you may remember, FinCEN and others hammered AmSouth for an allegedly poor BSA/AML program.  Recently, disgruntled AmSouth shareholders sued its board, alleging that the board violated its fiduciary duties with its lax oversight of BSA-related matters.  The case is Stone v. Ritter.

Here's a link to a very good article from the Metropolitan Corporate Counsel that discusses the case in detail.  Here's a link to the case itself.

The board was ultimately vindicated in this case.  The court held:

With the benefit of hindsight, the plaintiffs’ complaint seeks to equate bad outcome with bad faith. The lacuna in the plaintiffs’ argument is a failure to recognize that the directors’ good faith exercise of oversight responsibility may not invariably prevent employees from violating criminal laws, or from causing the corporation to incur significant financial liability, or both, as occurred in Graham, Caremark and this very case. In the absence of red flags, good faith in the context of oversight must be measured by the directors’ actions “to assure a reasonable information and reporting system exists” and not by second-guessing after the occurrence of employee conduct that results in an unintended adverse outcome.

This case or the article might be an interesting case study during BSA training for your board of directors.  Just a thought.

A Little ODP, from the BOA

NAFCU has a wonderful service for members.  It is our Book of Answers. (NAFCU Log-in needed.) We took the questions and answers from our monthly Compliance Newsletter and BSA Blast, and we organized them by subject matter.  We have quite a few questions and answers. Fifty-two pages worth, to be exact. The Compliance Guy can't give this stuff away, as it is a NAFCU member benefit.  And their dues help pay my salary, which pretty much all goes for popcorn at Nationals games. But for you non-NAFCU folks, here's a snippet of what the Book of Answers, a.k.a.  BOA.

Question: Does my credit union’s board of directors need to approve our credit union’s overdraft protection (bounce protection) program?

Answer: According to NCUA’s Automated Integrated Regulatory Examination Software (AIRES), yes. NCUA’s regulations permit credit unions to establish bounce protection programs. 12 C.F.R. § 701.21(c)(3). While this regulation does not indicate whether a credit union’s board of directors must approve such programs, NCUA clarified its expectations in this area when it issued Letter to Credit Unions 05-CU-21. The guidance introduced the new AIRES Payment of Overdrafts (Bounce Protection Questionnaire. Cell A-14 directs NCUA examiners to ask the following question: “Has the board of directors established a written policy addressing the payment of overdrafts through bounce protection?” You can access 05-CU-21 at: http://www.ncua.gov/letters/letters.html.
(February 2007.)