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Mar 19, 2009
Categories: Board and Governance BSA

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.    

***

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.

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