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Legal Issues, Investment and SARS

By: Bill Poquette

Why it is important to be well prepared for litigation, to have a high-performing investment portfolio and to file suspicious activity reports were among nuggets of advice shared by speakers with members of the Community Bankers Association of Kansas at their annual convention last month in Wichita.

Attorney Bruce Woner of Woner, Glenn, Reeder & Girard P.A. in Topeka, warned the CBA members that they are vulnerable because they are perceived as having plenty of money. “People will come after you,” he said. “Be prepared, be very well prepared.”

When facing litigation, be aware that written or spoken words will be “twisted by someone — knowingly or unknowingly,” Woner said. Thus, it is advisable to make sure your words are firm, fair, friendly, accurate and even more concise.

Another thing to keep in mind is that “all legal arguments have to be so simple that a smart sixth-grader will understand them.” And burning bridges is a mistake, in Woner’s view. “If we burn every bridge we may have no escape or back channel. And remember that sometimes bridges are burned and we do not even know or suspect it, nor do we even know how it happened.”

Woner also warned the bankers to beware of the lawyer or other professional “who thinks he knows the absolute path to victory or the desired outcome.” The best lawyers do not mind being second guessed or shopped, he explained. “They make allowances for doubting as part of the process that a client needs.”

Another helpful and vital tactic is surrounding yourself with smart, loyal directors “who are capable of entertaining absolutely opposite ideas while still remaining fully functional.”

Explaining why it is important to have a high-performing investment portfolio in the current economic environment, Jim Reber, president of Memphis-based ICBA Securities, noted that net interest margins are under pressure, having fallen more or less steadily from 4.20 percent in 2000 to 3.40 percent in 2009. During the same period bank investment portfolios as a percent of assets, which stood at 23.5 percent in 2000 and hit a low of 21.5 percent in 2007, rose steeply to 28.5 percent in 2009.

Click here to view photos from this convention.

There is still a lot of stimulus in the banking system, Reber explained, and the market expects little change in rates for the next year. In addition, new products and rules will affect the municipal market. Given these factors, “Portfolio management will remain critical to bank performance,” he said.

The importance of SARs was explained for the CBA members by Ashley Schrag, special activities case manager in the FDIC’s Kansas City regional office. He advised that they identify potential and actual illegal activities including money laundering, terrorist financing and other fraud and abuse; detect and prevent the flow of illicit funds; establish emerging threats through analysis of patterns and trends; and they are required by law.

The number of SARs filed nationally has grown from a low of 520 in 2,000 to 3,400 in 2009, according to Financial Crimes Enforcement Network data. The recent trend in Kansas is up as well, from 2,097 in 2008 to 2,611 in 2009. BSA/money laundering SARS are by far the most common type.

Important SAR disclosure requirements were listed by Schrag. A bank may not notify any person involved in a transaction for which a SAR has been filed; provide the SAR to anyone other than FinCEN, law enforcement or a bank supervisory agency; provide it in response to a subpoena except from law enforcement. In addition, Schrag pointed out, SARs cannot be referenced in an affidavit to support a search or seizure warrant; shown to a witness during an interview; given to anyone outside of the investigation; or used in the discovery process.

At the annual business meeting during the convention, the following officers were named for 2010–2011: chairman, Barry J. Linnens, Cottonwood Valley Bank, Cedar Point; chairman-elect, Roger F. Brown, Citizens State, Cheney; vice chairman, Brad E. Yaeger, Legacy Bank, Wichita; and secretary/treasurer, Jay Kennedy, First National, Frankfort.

Elected directors were: northwest, one-year, Michael Johnson, Swedish-American State, Courtland; northwest, three years, Tammera Marrs, Citizens State, Miltonvale; south central, three years, Jon Ott, State Bank of Conway Springs; south central, two years, Gerald E. Meng, Home State, McPherson; and southwest, three years, Greg R. Wartman, Johnson State, Ulysses.

The 2011 CBA convention is scheduled for July 13–16 at the Sheraton Overland Park Hotel.

Bill Poquette is editor-in-chief of BankNews.

Copyright © August 2010 BankNews Media


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