ABA Banking Journal - June 2008 - (Page 54)

COMPLIANCE CLINIC MIB X AL O Can letters of credit trigger BSA rules? We are a U.S. bank that also has international branches and customers. One of our customers exports goods to China and has obtained a letter of credit from a foreign bank. The customer wants to use this letter of credit to secure a loan with our bank. We assessed the risk and decided that we can grant our customer a $5 million loan on this basis. Our internal auditors have now told us that giving the customer this loan makes the customer a foreign correspondent for Bank Secrecy Act purposes. Is this true? I do not believe that this transaction makes your customer a “foreign correspondent” for BSA/AML purposes. The foreign bank issuing the letter does not currently have, and has no intention of maintaining, an account with your bank. The BSA regulations define a foreign correspondent account as “an account established for a foreign financial institution.” (See 31 CFR §103.175 Definitions.) (http://www.ffiec.gov/ bsa_aml_infobase/pages_manual/regulations/31CFR103.htm) However, you may want to review the Trade Finance Section of the 2007 BSA/AML Examination Manual, from the Federal Financial Institutions Examination Council, beginning on page 241, as well as the Trade Finance Red Flags in section F-5. Your bank must have a complete understanding of this LOC and how it works in order to assess your risk and exposure. ily mean that Joe is authorized to sign on behalf of the corporation on the bank account held at your bank. A signature card is a form, executed by an account holder, establishing account ownership and setting forth some of the basic terms of the account and provisions of the deposit contract. In addition, a signature card is your bank’s contract with its customer, while the corporate resolution is the corporation’s own document. Q. Tracking down “tract” We have a prospective borrower who requested the following financing: 1. One loan to finance construction of a model home on a lot that has all permits in place, and 2. Another loan to finance development of four more lots in the same location Would the project be considered a tract development? You can find the Interagency Q&A on Tract Development at: http://www.fdic.gov/news/news/financial/2005/ fil9005a.html Based on this information, the appraisal regulations define a “tract development” as a project with five or more units that is constructed, or is to be constructed, as a single development, which is what you say you have. A. Q. A. Resolutions versus signature cards Does a resolution supersede the signature card? If we have new resolutions when organizations change officers year to year, will a resolution alone be okay or do we need a new signature card? You should consult with legal counsel in your state if you want to treat the resolution as if it were a modification to the original signature card. Although most banks require both a resolution and a signature card, you need to consider that a resolution and a signature card are two different things and serve two different purposes. A corporate resolution is a legal document defining which individuals are authorized to act on behalf of a corporation. You need to know this when establishing an account. Just because the board of a company passes a resolution to make Joe Smith an officer of the corporation, this does not necessar- Torn between two pieces of collateral We are doing two loans for a borrower. One will be to purchase a home at 80% LTV; secured by the dwelling being purchased; and where the customer will reside. The other loan will be to secure the difference, but the collateral offered will be a different, mixed-use commercial/residential property. The proceeds from this second loan will be used to make up the 20% difference of the first loan, with any additional proceeds used for improvements for the new home. Are both loans reportable under the Home Mortgage Disclosure Act? If yes, would both loan application register entries be coded for “owner occupied” property? You need to look at the property being purchased, not the property securing the loan. In your scenario, you would report the same property twice as home purchase (because you have two loans) with separate identifiers for the 80% loan and the 20% loan. The purpose of both loans is to purchase one property, so that is the only property you would list on your LAR. For more, see the Commentary to Regulation C, at Sect. 203.2(h) (6): “Second mortgages that finance the down payments on first mortgages. If an institution making a first mortgage loan to a home purchaser also makes a second mortgage loan to the same purchaser to finance part or the entire home purchaser’s down payment, the institution reports each loan separately as a home purchase loan. Q. A. Q. A. Leslie Callaway, CRCM, and Mark Kruhm, CRCM, ABA compliance analysts, and other ABA experts, answer member questions here. Submit questions to: compliance@aba.com. Disclaimer: Our answers do not provide, nor are they intended to substitute for, professional legal advice. 54 JUNE 2008/ABA BANKING JOURNAL http://www.ffiec.gov/bsa_aml_infobase/pages_manual/regulations/31CFR103.htm http://www.ffiec.gov/bsa_aml_infobase/pages_manual/regulations/31CFR103.htm http://www.fdic.gov/news/news/financial/2005/fil9005a.html http://www.fdic.gov/news/news/financial/2005/fil9005a.html

Table of Contents Feed for the Digital Edition of ABA Banking Journal - June 2008

ABA Banking Journal - June 2008 Contents Editor’s Column Do Fee-based Services Have an Edge? Snapshot: Net Interest Margins Vary Sharply with Size 100th Anniversary: Then & Now Letters ABA Resources ABA Chairman’s Position "What? No Annual Surprise Bonus?" Pass the Aspirin Cover Story: Top Community Banks: How They Did... ...And How They Did It Charter Bank First East Side Savings Bank Mackinac Financial Corp. The Peoples Bank Managing the E-mail Monster In Brief Handling PEPs in the Age of "L'affaire Spitzer" Mailbox Banker’s Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - June 2008

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