Insider Dealing and Conflicts of Interest: NCUA's Letter to Credit Unions from 1986
Samantha: Hello, this is Samantha Shares.
This episode covers N C U Aâs letter
to credit unions number Eighty six
dash C U dash eighty four on Insider
Dealing and Conflicts of Interest
The following is an audio version of
that advisory and the press release.
This podcast is educational
and is not legal advice.
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And now the letter.
Insider Dealing and Conflicts of Interest
Much has been said recently within the
credit union movement about an unpleasant
subject for credit unions - insider
dealing and conflicts of interest.
We are addressing this subject now
for two reasons: first, to set the
record straight on the nature of
this problem; and second, to tell you
what the agency is doing about it.
The agency recently completed a
comprehensive report, including case
reviews of insider dealing and conflicts
of interest in federally-insured credit
unions over the last two years, and
of the laws, rules and procedures
in place to prevent these cases and
to resolve them when they do occur.
The first thing you should know
is that the number of such cases,
as a percentage of the 15,000
federally insured credit unions in
the United States, is very small.
Thus, the existence of a limited number
of cases does not impart a bad name to
the credit union movement, or to the
vast majority of honest, hard-working
volunteers and employees in credit unions.
It is true, however, that a limited
number of cases have resulted in
millions of dollars in financial
costs to your insurance fund.
A review of ten of the major cases over
the last two years, for example, indicates
potential aggregate costs to the Insurance
Fund from these cases alone in the range
of fifty to seventy five million dollar.
The problems include the following:
embezzlement, preferential and substandard
loans to officials and employees,
substandard commercial loans to management
officials and their business interests,
refinancing of nonperforming loans to
cover up past-due principal and interest,
conversion of credit unions' assets
(businesses, and real and personal
property) to personal use and benefit,
ownership by management officials of
fixed assets that are leased by the credit
union on less than arms-length terms,
and receipt by credit union officials and
employees of commission and fee income in
connection with the business transactions
of the credit union and its members.
Obviously, these practices have no
place in the credit union movement,
and it is incumbent upon the National
Credit Union Administration to consider
every reasonable means of prevention.
Remember, every dollar in financial
costs to the Insurance Fund reduces by
one dollar the amount available to pay
dividends on your deposit in the Fund.
In our review of these cases, we
determined that virtually every problem
we encountered was a violation of a
law or regulation already on the books,
ranging from provisions of the U.S.
Criminal Code to the rules of N C U A
and the State Supervisors, to the Common
Law doctrine of fiduciary responsibility.
We concluded, therefore, that the
solution does not lie in promulgating
new restrictions, but rather in
improving our efforts at education,
investigation and enforcement.
In that connection, we are taking a
number of positive steps at agency
that we want you to be aware of:
⢠We have adopted new criminal referral
forms and procedures that will
improve the ability of the U.S.
Department of Justice to investigate
and prosecute criminal activity in
federally-insured credit unions.
We are reinstituting an examiner
workpaper on "insider transactions"
that will improve our ability
to detect conflicts of interest.
⢠We have recently hired one litigation
specialist and authorized hiring
another to deal primarily with
enforcement actions and recovering
claims in problem-case credit unions.
⢠We are working with the National
Association of State Credit Union
Supervisors (NASCUS) to develop
a so-called "model exam" - a
core set of examination forms
and procedures to be used by the
agency and the state regulators.
⢠We have reached agreement with NASCUS
on the circumstances under which N C U
A will participate in the examination
of problem-case state credit unions.
(We believe that N C U A, the state
regulators and all credit unions
are bound to benefit from improved
coordination of examinations.)
⢠We are reviewing N C U A's statutory
enforcement powers (cease and
desist, prohibition, removal, etc.)
and may develop proposed legislation
enhancing our ability to use those powers.
⢠Finally, we are developing a chapter for
inclusion in a forthcoming officials'
handbook providing comprehensive
guidelines on the subjects of conflict
of interest and the responsibilities of
credit union officials and employees.
In the interim, this letter should remind
everyone of the responsibility we all
bear in maintaining the integrity and the
reputation of the credit union movement.
In closing, we would suggest, as a
basic rule of thumb, that all officials
and employees of federally-insured
credit unions avoid situations where
they would derive personal gain from
the business of the credit union,
other than normal salary, benefits and
permissible, nonpreferential loans.
Finally, all officials and employees
should be mindful of their responsibility
to report all suspected criminal
activities to the N C U A Regional Office.
If you have questions about a particular
situation, do not hesitate to call
upon your Regional Office or State
Supervisor, as the case may be.
Sincerely,
ROGER W.
JEPSEN
Then Chairman National credit
Union Administration Board
This concludes the N C U A Letter on
Insider Dealing and Conflicts of Interest
If your Credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and
we Thank you for listening.
