Twitter is all the rage right now. What is Twitter? Well, it’s a website where you enter in information as to what you’re doing at any given moment. You can even send an SMS message from your cell phone to Twitter to update it. What’s that you say? You don’t get it? Don’t worry, you’re not alone. No one I’ve talked to gets it, but they still do it anyway.
So why am I writing about a site that is of the same nature and longevity as mood rings and pet rocks? Because I think there may be an unintended use here for business. Think about it managers: Twitter is a way to keep track of employees! Want to know what your employees are doing at any given minute? Check Twitter! You think Joe is spending too much time at the water cooler? Now you have a log! People are voluntarily doing this. Heck, in the workplace, we can mandate it!
Can’t you see how the conversation would go?
Manager: Joe, you’ve been spending too much time playing poker in the lunchroom!
Joe: Me? No, not me, I… I… I’m always at my desk!
Manager: Joe, here is a copy of your Twitter log.
Joe: You’ve got me boss. (‘sniff).
It could revolutionize employee tracking, I tell you! The next step would be to slap RFID tags on our employees and then put sensors around that update the employees’ location automatically to Twitter, saving them the time to do it manually!
Of course, I am kidding.
And for fun, you can check out my Twitter account to see what I’m doing today. Disclaimer: I’m only going to update it until I get bored, which will probably happen ten minutes from now.
Filed under: bank secrecy act, credit unions, currency transaction reports, Fraud Prevention, structuring, suspicious activity reports
Structuring is “the breaking up of transactions for the purpose of evading the Bank Secrecy Act reporting and recordkeeping requirements.” See FinCen Ruling 2005-6 – Suspicious Activity Reporting (Structuring). A member might try to deposit funds over a period of days or go to multiple branches of the credit union to try to hide the total amount of the transaction. The member might also enlist the help of friends to make multiple deposits to the member’s account (smurfing). For credit unions, structuring can pose unusual problems for bank secrecy reporting.
When a credit union member deposits cash in such a way to attempt to prevent the triggering of Currency Transaction Report (CTR) filing on the part of the credit union, the member is actually committing a crime. It is illegal to structure. See 31 USCS § 5324 and 31 CFR 103.63. Courts have held that in order to prove structuring, the government must show that the defendant knew of relevant reporting requirements, that he structured his transaction for the purpose of evading those reporting requirements, and that he acted with knowledge that his conduct was unlawful. See United States v. Gabel (1997, CA 7 Ill) 85 F3d 1217. The penalties for structuring are significant: up to five years in prison and substantial fines.
When a member attempts an illegal act at the credit union, a credit union needs to file a Suspicious Activity Report (SAR) when the amount is $5,000.00 or more. Thus, in trying to avoid a CTR filing, the member will instead trigger a SAR filing.
Thus it is very important that credit unions be able to identify structuring transactions and perform manual transaction monitoring to police for structuring. This is not always easy. For example, in shared branching transactions, sometimes reports are aggregated and it is difficult to separate out cash and non-cash transactions. Non-cash transactions do not trigger CTR filings. A credit union needs to be able to separate out cash and non-cash transactions to properly identify structuring attempts.
Sadly, this is easier said than done. With any luck, new advances in data processing will help in this regard. Otherwise, this reporting requirement can hinder shared branching and other credit union remote cash services.
It’s no secret that NCUA and state regulators are committed to enforcing the Bank Secrecy Act(BSA). Credit unions must be ready to comply before their examiner walks in the door. Are you in the Ohio area and looking to get a more in-depth look at the BSA? Next week, Rob will be teaming up with CUNA and the Ohio Credit Union System to present a seminar on the “Bank Secrecy Act” on April 3 in Dublin, OH and on April 4 in Dayton, OH. The seminar will focus on the purpose of the BSA, identifying appropriate due diligence and internal control procedures, learning how to complete Currency Transaction Reports and Suspicious Activity Reports, understanding the “safe harbor” provisions of the BSA and the penalties that regulators could impose on your credit union. If you’re in the Dublin/Dayton areas, you should consider joining us! For more information visit:
The following is an article reprinted with permission from The WWR Letter:
You’ve Got Mail (and Title)
By: Matthew Young, Esquire
In most states, repair garages and places of storage have certain remedies where a vehicle remains unclaimed by its owner for a certain period of time. In Ohio, this period of time is fifteen (15) days or more. One remedy is the ability to obtain an abandoned motor vehicle title clear of all liens and encumbrances, including those liens a credit union might have on the vehicle. However, prior to obtaining such a title, the repair garage or place of storage must undertake certain procedures. For example, in Ohio, the facility must send notice to any owner or lienholder stating where the vehicle is located and the value of the vehicle. It is important for a credit union to identify these letters and respond to them timely as failure to do so can result in the forfeiture of the credit union’s lien.
Specifically, upon receipt of such a letter, the credit union must make a claim to the motor vehicle at issue as soon as possible. In Ohio, a credit union is required to respond within fifteen (15) days from the mailing of the notice in order to maintain the credit union’s lien interest in the vehicle. Like most states, Ohio law mandates that the repair garage or place of storage search the Bureau of Motor Vehicle records to determine whether an outstanding lien exists on a motor vehicle. If such a lien exists, the repair garage or place of storage must notify the lienholder via certified mail (return receipt requested) and must indicate where the motor vehicle is located and the value of the motor vehicle. In Ohio, the ability to obtain an abandoned motor vehicle title is limited to vehicles with a value of less than $2,500.00. Despite this limitation, repair garages and places of storage routinely attempt to obtain abandoned motor vehicle titles for vehicles with the value in excess of $2,500.00, in violation of the statute. In other states the value of the vehicle may be irrelevant. Therefore, it is important to timely respond to an abandoned motor vehicle letter irrespective of the vehicle’s value.
If a vehicle remains unclaimed beyond a certain time, the owner of the repair garage or place of storage may execute an affidavit stating that it has complied with all notice requirements. Thereafter, they may obtain a certificate of title free of all liens and encumbrances.
If the party seeking an abandoned motor vehicle title fails to properly follow the relevant statute and obtains title anyway, that party may be liable in conversion to the lienholder and owner of the vehicle. A common example of this in Ohio is where a party applies for an abandoned vehicle title on a vehicle with a value greater than $2,500.00 or fails to include the value of the vehicle in the notice sent to the lienholder or owner of the vehicle. However, litigating such a matter can be costly and time consuming. Therefore, it is important to recognize an abandoned motor vehicle letter when you receive it and respond to it timely. If you have questions regarding your rights or the proper way to claim the vehicle, you should immediately contact your legal counsel.
Matt Young is an Associate in the Credit Union department in the Brooklyn Heights operations center. He can be reached at (216) 739-5726 or firstname.lastname@example.org.
Filed under: directors
Imagine having a job that involves setting the course of a financial institution, supervising a manager, and understanding and approving financial reports, policies and other business. Add in the responsibilities of developing an understanding of regulatory compliance as well as vendor contracts and it’s almost overwhelming. While meetings for this job are generally only monthly, there is plenty of homework in between. What does the job pay? Why nothing of course!
It’s a challenging job, but someone has to do it.
Keeping up on what’s happening in the credit union movement can help a director succeed. Because credit union directors are volunteers, most of them don’t come from the Credit Union Movement. A director might not be aware of the credit union news available to him or her. I would recommend subscribing to Credit Union Times to any director or at least reading the web page and the other sources of news in the Credit Union Movement.
Otherwise, a director might not even hear about things such as the Wings Financial FCU attempted takeover of Continental Federal Credit Union. Credit union nerds like you and me might wonder how that could be and I’m sure that some directors have heard about it. However, directors often have day jobs. It’s hard to keep up.
It’s important then for managers to include credit union news in the information distributed in the board packet. These are, for better or worse, exciting times to be a credit union director. What with the challenges of conversions, purchases, mergers and now hostile takeovers, it’s a unique time in credit union history. Directors, as much as anyone involved in the movement, need to keep abreast of what’s going on in this dynamic era.
Understanding the realities of the Board of Directors’ role within today’s credit union movement & being able to blend their resources with career personnel is vital for a credit union’s success. Boards are accountable for a credit union regardless of how well directors understand their role or responsibility. Next week, Rob will be teaming up with CUNA and the Maryland/DC Credit Union Association to present a seminar on “Board of Director Duties & Responsibilities” on March 21 in Columbia, MD and on March 22 in Washington, DC. The seminar will focus strictly on defining what a Board should be doing and will cover Board of Director’s duties and responsibilities, Board structure, the Director’s job description, working with Credit and Supervisory committees, Board/CEO partnership and Board training. If you’re in the Columbia, MD/Washington, DC areas, you should consider joining us! For more information visit:
Most credit unions work with Representative Payees on Social Security or Social Security Income fairly frequently. In the case of a minor or a person who is legally incompetent, a Representative Payee is required. State law typically creates a mechanism for guardians to be appointed for incompetents. However, Social Security will sometimes appoint a Representative Payee for someone without a legal adjudication of incompetency. This gets tricky for the financial institution when the beneficiary wants to take funds out of his or her account on his or her own without input from the Representative Payee.
When there is a guardianship in place, the credit union has a much clearer idea of what it can and cannot do. Often, an account will be restricted to require a court order for each distribution from the account and the beneficiary is prevented from having direct access to the account. The credit union, then, must deal with the Guardian.
Without a guardianship in place, the credit union needs to be more careful. Representative Payees may only control SS or SSI income. He or she has no authority earned income, pensions or any income from sources other than SS or SSI.
But how should the account be set up? Guardianships are relatively easy: “John Doe, by Sally Roe, Guardian.” Can you then set up a Representative Payee account that’s not a guardianship by using “Sally Roe, by John Doe, Representative Payee?” In Ohio, there’s not really any law on this.
In researching this issue, I also called my friend Dave Shoup at the Ohio Credit Union System. Dave had written an advisory some years ago on this issue which he shared with me. This memo has some excellent tips on dealing with Representative Payees generally, but the issue remains (at least in Ohio) that agency appointed personal fiduciaries are really not covered by Ohio credit union law.
So what’s to be done? In the case where a Representative Payee wants to set up a Representative Payee account, but where he or she is not also the guardian of the beneficiary, exercise extra caution. Make sure that they have documentation from the particular agency. Set up the account using the beneficiary’s name by the Representative Payee’s name: “Sally Roe, by John Doe, Representative Payee.” Do not let the Representative Payee control any non- Social Security or SSI assets. If you are confronted by the member beneficiary who wants you to give them the funds from the Representative Payee account directly, refer them to the Social Security Administration. Ultimately, a credit union may decide that it’s not worth it to allow a Representative Payee account without a guardianship in place. Of course this does not help the people that this program is designed to protect. This issue may be worth writing to the NCUA about.
The following is an article reprinted with permission from The WWR Letter:
An Introduction to Check Kiting
If you were to ask someone what check kiting is, most likely you would receive a response such as, “Yes, I know what that is, it has to do with bank accounts…right?” More often than not, that response will be accompanied by a blank stare. But check kiting is a real threat and it is forcing U.S. banks, credit unions and other financial institutions to take an ardent interest in exactly how their customers and members make deposits and withdrawals.
Check kiting can be defined as the consistent passing of checks among bank accounts with the sole purpose to inflate bank balances. According to the Association of Certified Fraud Examiners’ Manual, check kiting is the “process by which cash is recorded in multiple bank accounts but in reality the cash is either in transit or nonexistent.” Basically, check kiting is an ill-gotten gain in the form of an interest-free loan that the financial institution has no idea it is giving. The kiting scheme is a form of fraud generating nonexistent revenue and produces questionable account balances. The fraudster knowingly draws against these uncollected funds to pay for purchases or other various expenditures to third parties. When the fraudster is involved in such a process, he or she is committing the prosecutable offense of check kiting.
In order for the scheme to be successful, the fraudster must have a good working knowledge of the financial institution’s presentment procedures and clearing times for checks. Because a successful check kiting scheme is dependent on the “float”, (i.e. the time it takes the presenting financial institution to actually receive the funds from the issuing financial institution) check kiters usually use out-of-state financial institutions in order to extend the float time.
Let’s walk through a typical check kiting scenario:
1) A check kiter, let’s call him Jim, opens two checking accounts with two different credit unions, Credit Union 1 and 2 respectively, depositing $5,000.00 into each.
2) Jim then writes a $5,000.00 check drawn on the Credit Union 1 account and deposits it into his Credit Union 2 account.
3) Now, before Credit Union 1 is even aware that that draft has been written, Jim writes another check for $10,000.00 drawn on Credit Union 2 and deposits it into Credit Union 1.
4) The fraud will be successful and complete upon Jim writing and cashing a check for $15,000.00 from his Credit Union 2 account drawn on his Credit Union 1 account.
As mentioned above, check kiting is a prosecutable offense as a misapplication of funds. The essential elements of misapplication are as follows: (1) the accused must be a covered person; i.e. an officer, director, agent, employee of or connected in any capacity with (2) a particular Federally connected institution, (3) the accused must willfully misapply monies, funds or credits of or entrusted to such institution (4) with the intent to injure or defraud the institution. United States v. Brock, 833 F.2d 519, 522 (5th Cir.1987).
Stated simply then, misuse of correspondent bank balances may be charged as a misapplication in circumstances in which there is a detriment to the bank and a benefit to an insider. See United States v. Mann, 517 F.2d 259 (5th Cir.1975), cert. denied, 423 U.S. 1087 (1978). Further, a check kite may also be prosecuted as a bank fraud pursuant to 18 U.S.C. §1344. United States v. Giordano, 489 F.2d 327 (2d Cir.1973); see also 18 U.S.C. §1005.
Keep in mind, while prosecuting under one of the above-mentioned statutes, knowledge or intent may be inferred from the kiter’s reckless disregard of the interests of the financial institution. United States v. Adamson, 700 F.2d 953, 965 (5th Cir.) en banc, cert. denied, 474 U.S. 833 (1983). It should also be appreciated that while it must be proven, as an essential element, that the financial institution was deprived control over its funds to have a misapplication, there is no need to prove that the institution suffered an actual loss. United States v. Cauble, 706 F.2d 1322, 1354 (5th Cir. 1983), cert. denied, 465 U.S. 1005 (1984). Typically, the mere probability of loss to the bank is enough to prove the kiter’s intent to injure or defraud and neither the possibility of some benefit to the bank or the possibility of restitution is a valid defense to misapplication. United States v. Beran, 546 F.2d 1316, 1321-22 (8th Cir.1976), cert denied, 430 U.S. 916 (1977). However, evidence of a benefit or restitution may be used to disprove the intent to injure or defraud. United States v. Riley, 550 F.2d 233 (5th Cir.1977).
Detecting a check kiting scheme is laborious and there is no one fail-safe way of preventing it. Faster presenting and clearing times (see Check Clearing for the 21st Century Act (12 CFR Part 229) and Reg. CC)) make the scheme harder to pull off, but not impossible. Enforcing check holds can be helpful in stopping kiting. Remember to file a Suspicious Activity Report for non-employee check kiting schemes involving $5,000.00 or more.
If caught and successfully prosecuted, the check kiter spends time in jail, but the credit union is the one left holding the bag…and the bag is empty. Therefore, credit unions need to establish greater controls to identify the fraudulent activity and institute frequent reviews and assessments of such procedures. This is essential to reducing the credit union’s risk of loss caused by check kiting schemes.
Jim Doran and Benjamin M. Turk are both Associates in the Legal Action Recovery department of the Cleveland office. Jim can be reach at (216) 685-4289 or email@example.com and Benjamin can be reached at (216) 685-1122 or firstname.lastname@example.org.
I had heard about Kiva some months ago. It sounded like an interesting concept. In essence, it’s peer-to-peer lending for small businesses and entrepreneurs in developing countries. You need a PayPal account and at least $25, although when I tried it, Kiva seemed to take credit cards too. I don’t know if there’s a fee for that because I used my PayPal account that’s tied to one of the credit unions to which I belong.
I wanted to give it a shot because I’m very interested in peer-to-peer lending and I wanted to see how different it is from other foreign sponsorship programs. It appeals to me because it’s not a one-way street. The borrowers have to pay the money back. Granted, these are no-interest loans, but the repaid loan money can be put back into the system and lent to other entrepreneurs.
The site is brain dead easy to use. I picked Nataliya Bhanderovskaya. She was looking to buy bedding for children. I made my contribution and it shows up in my portfolio. That’s that. She’s got 6-12 months to pay the lenders back. Simple.
At least one credit union has written about Kiva and Filene has covered it too. This kind of program is terrific for credit unions to advertise. Kiva is definitely a kindred spirit to the credit union movement because it’s people helping people.
This is such a neat concept that I don’t want to express anything cynical about it. That being said, I did wonder about the potential for fraud. I also wondered at the default rate. At this point, it seems like the repayment percentage is amazingly high (they say that they’ve had no defaults yet) and that borrowers are being screened carefully against fraud.
My experience with Kiva was quick, easy, and, frankly, fun. It would be a kick to put a few hundred dollars into this and watch what happens. In any event, I’ll write again about my experiences with this site as things develop.