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FDIC Enforcement Decisions and Orders
{{10-3-05 p.C-12300.1}} A cease and desist order was issued, based on findings by the FDIC that
it had reason to believe that Respondent was engaged in unsafe and
unsound practices. (This order was terminated by order of the
FDIC dated 10-3-05; see ¶ [.1] ManagementQualifications Specified [.2] Bank Secrecy ActCompliance Program [.3] Bank Secrecy ActCompliance ProgramIndependent Testing Required [.4] Violations of LawCorrection of Violations Required [.5] ShareholdersDisclosure of Cease and Desist Order Required [.6] Progress ReportWritten Report Required In the Matter of
First Community Bank, Vanceburg, Kentucky ("Bank"), having been advised of its right to a NOTICE OF CHARGES AND OF HEARING detailing the unsafe or unsound banking practices and violations of law, rule, or regulation alleged to have been committed by the Bank, and of its right to a hearing on the charges under section 8(b) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. §1818(b), and under section 287.690 of the Kentucky Revised Statutes, Ky. Rev. Stat. Ann. §287.690 (Michie 1981), regarding hearings before the Office of Financial Institutions for the Commonwealth of Kentucky ("KOFI"), and having waived those rights, entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF AN ORDER TO CEASE AND DESIST ("CONSENT AGREEMENT") with representatives of the Federal Deposit Insurance Corporation ("FDIC") and KOFI, dated September 17, 2004, whereby, solely for the purpose of this proceeding and without admitting or denying the charges of unsafe or unsound banking practices and violations of law, rule, or regulation, the Bank consented to the issuance of an ORDER TO CEASE AND DESIST ("ORDER") by the FDIC and KOFI. The FDIC and KOFI considered the matter and determined that they had reason to believe that the Bank had engaged in unsafe or unsound banking practices and had violated laws, rules, or regulations. The FDIC and KOFI, therefore, accepted the CONSENT AGREEMENT and issued the following: ORDER TO CEASE AND DESIST IT IS HEREBY ORDERED, that the Bank, its institution-affiliated parties, as that term is defined in section 3(u) of the Act, 12 U.S.C. §1813(u), and its successors and assigns, cease and desist from the following unsafe or unsound banking practices and violations of law, rule, or regulations: A. Operating the Bank without effective supervision by the board
of directors and executive management to prevent unsafe or unsound
practices and violations of law and regulations related to the Bank
Secrecy Act, 31 U.S.C. §ยง 5311-5330, and regulations implementing
the Bank Secrecy Act, including 12 C.F.R. Part 326, Subpart B, and 31
C.F.R. Part 103 hereinafter collectively, "Bank Secrecy Act");
B. Operating the Bank with an ineffective
system of independent testing
for compliance with the Bank Secrecy Act;
C. Operating the Bank with an ineffective system of internal controls
to ensure ongoing compliance with the Bank Secrecy Act;
D. Failing to implement effective customer identification procedures;
E. Operating the Bank with an ineffective training program for
appropriate Bank personnel to ensure compliance with the Bank Secrecy
Act;
F. Operating in violation of section 326.8, of the FDIC's Rules and
Regulations, 12. C.F.R. 326.8, and the Treasury Department's Financial
Recordkeeping Regulations, 31 C.F.R. Part 103, more fully described on
pages 7 through 10 of the FDIC's Report of Examination dated June 21,
2004;
G. Operating with management whose policies and practices have resulted
in violation of law and regulation relating to Bank Secrecy Act
compliance; and
H. Operating with a board of directors which has failed to provide
adequate supervision over and direction to the management of the Bank
to prevent violations of law and regulation relating to Bank Secrecy
Act compliance.
IT IS FURTHER ORDERED that the Bank, its institution-affiliated
parties, and its successors and assigns, take affirmative action as
follows:
[.1] 1. During the life of this Order, the Bank shall have and thereafter
retain qualified management. Each member of management with
responsibilities relating to section 326.8 of the FDIC Rules and
Regulations, 12 C.F.R. §326.8, or the Treasury Department's
Financial Recordkeeping Regulations, 31 C.F.R Part 103, shall have the
qualifications and experience commensurate with his or her duties and
responsibilities under those regulations.
[.2] 2. Within 60 days of the effective date of this ORDER, the Bank shall
develop, adopt and implement a written compliance program, as required
by the applicable provisions of section 326.8 of the FDIC's Rules and
Regulations, 12 C.F.R. §326.8, designed to, among other things,
ensure and maintain compliance by the Bank with the Bank Secrecy Act
and the rules and regulations issued pursuant thereto. Such program and
its implementation shall be in a manner acceptable to the Regional
Director of the Chicago Regional Office ("Regional Director") and
Executive Director of KOFI ("Executive Director") as determined
at subsequent examinations and/or visitations of the Bank. At a
minimum, the program shall:
(a) Require the Bank to develop, adopt and implement a written plan
designed to ensure compliance with all provisions of the Bank Secrecy
Act.
(b) Establish a system of internal controls to ensure compliance with
the Bank Secrecy Act and the rules and regulations issued pursuant
thereto, including policies and procedures to detect and monitor all
transactions to ensure that they are not being conducted for
illegitimate purposes and that there is full compliance with all
applicable laws and regulations.
(c) Provide for independent testing of compliance with all applicable
rules and regulations related to the Bank Secrecy Act, and ensure that
compliance audits are performed at least annually, are fully
documented, and are conducted with the appropriate segregation of
duties. Written findings of each audit shall be presented to the Board.
(d) Ensure that the Bank's Bank Secrecy Act compliance program is
managed by a qualified officer who shall have responsibility for all
Bank Secrecy Act compliance and related matters, including, without
limitation, monitoring the Bank's compliance and ensuring that full
and complete corrective action is taken with respect to previously
identified violations and deficiencies.
(e) Establish a customer identification program.
(f) Establish procedures to ensure customers are being compared to
current Office of Foreign Assets Control (OFAC) listings.
(g) Establish guidelines for sharing information with Federal law
enforcement consistent with Section 314 of the USA Patriot Act.
(h) Establish updated procedures for granting customer exemptions.
(i) Establish and maintain records to document sales of monetary
instruments in increments from $3,000 to $10,000 made in currency.
(j) Provide and document training by competent staff and/or independent
contractors
of all appropriate personnel, including, without
limitation, tellers, customer service representatives, lending
officers, private and personal banking officers and all other customer
contact personnel, in all aspects of regulatory and internal policies
and procedures related to the Bank Secrecy Act, with a specific
concentration on accurate recordkeeping, form completion and the
detection and reporting of known and/or suspected criminal activity.
Training shall be updated on a regular basis to ensure that all
personnel are provided with the most current and up-to-date
information.
[10] Within 60 days of the effective date of this ORDER the Bank shall
provide for independent testing of compliance with the Bank Secrecy Act
and 31 C.F.R. Part 103. The independent testing should be conducted on
an annual basis in compliance with the procedures described in the
FDIC's "Guidelines for Monitoring Bank Secrecy Act Compliance."
The testing, at a minimum, should include the following:
(a) A test of the Bank's internal procedures for monitoring Bank
Secrecy Act compliance;
(b) A sampling of large currency transactions followed by a review of
the currency Transaction Reports filings;
(c) A test of the validity and reasonableness of the customer
exemptions granted by the Bank;
(d) A test of the Bank's customer identification procedures;
(e) A test of the Bank's recordkeeping system for compliance with the
Bank Secrecy Act; and
(f) 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.
[.4] 4. Within 60 days from the effective date of this ORDER, the Bank shall
eliminate and/or correct all violations of law detailed on pages 7
through 10 of the FDIC's June 21, 2004 Report of Examination.
[.5] 5. Following the effective date of this ORDER, the Bank shall send to
its shareholders and to the shareholders of Lewis Bancshares, Inc.,
Vanceburg, Kentucky ("Bank Holding Company") a copy or
description of this ORDER: (1) in conjunction with the Bank's and the
Bank Holding Company's next shareholder communications; and (2) in
conjunction with the Bank's and the Bank Holding Company's notice or
proxy statement preceding the Bank's or their next shareholder
meetings. The description shall fully describe this ORDER in all
material respects. The description and any accompanying communication,
notice or statement shall be sent to the FDIC Registration and
Disclosure Section, 550 17th Street, N.W., Washington, D.C. 20429 and
to the Kentucky Office of Financial Institutions, 1025 Capital Center
Drive, Suite 200, Frankfort, Kentucky 40601, for review at least 20
days prior to dissemination to shareholders. Any changes requested to
be made by the FDIC and KOFI shall be made prior to dissemination of
the description, communication, notice or statement.
[.6] 6. Within 30 days from the end of each calendar quarter following the
effective date of this ORDER, the Bank shall furnish to the Regional
Director and Executive Director written progress reports signed by each
member of the Bank's board of directors, detailing the actions taken
to secure compliance with the ORDER and the results thereof. Such
reports may be discontinued when the corrections required by this ORDER
have been accomplished and the Regional Director and Executive Director
have, in writing, released the Bank from making further reports.
The effective date of this ORDER shall be the day of its issuance
by the FDIC and KOFI.
The provisions of this ORDER shall be binding upon the Bank, its
institution-affiliated parties, and any successors and assigns thereof.
The provisions of this ORDER shall remain effective and enforceable
except to the extent that, and until such time as, any provision has
been modified, terminated, suspended, or set aside by the FDIC and
KOFI.
Pursuant to delegated authority,
Dated. October 4, 2004.
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