What must a bank do to protect itself against the risk that accounts held at the bank, or, more importantly, assets in which the bank has a security interest, will be seized and forfeited to the State? Banks should heighten their awareness of their loan customers, especially new relationships and those borrowers that deal in cash and cash equivalent assets.
Should the bank find itself in a seizure and forfeiture situation, the extent of that knowledge, and due diligence that is evidenced, will be critical. When necessary, bankers should adequately document the origin of loan collateral to the fullest extent possible. Supporting documentation could include a bill of sale, purchase money invoice, or a closing settlement statement for real property.
Certificates of deposit, equitable securities, and bonds held by third party institutions can present special challenges in determining the nature of their genesis. Additionally, bank statements may need review to ascertain the extent of cash transactions. Understand the use of loan proceeds. Purchase money loans should be well documented with invoices and when possible, bank checks made payable to the selling party and the borrower.
Borrower accounts that receive deposited loan proceeds should be periodically reviewed in order that the intended use of the proceeds can be collaborated with their disposition. The Board and management should formulate policies and procedures in the event that the bank is served a notice of seizure. At a minimum the policy should address the following:. Who is responsible for coordinating and interfacing with law enforcement officials includes branch locations ;. How will different assets be segregated and who will be responsible for monitoring the segregated accounts should the bank chose to retain, and not immediately turn funds over to law enforcement, the amount of funds held by the bank and verified by the bank at the time of inquiry, should be the same amount the bank has provided credit to the customer, i.
Article Subsections c through g , Article A was, at the time that the interest in the property was acquired, an owner or interest holder for value; and. B was without reasonable cause to believe that the property was contraband and did not purposefully avoid learning that the property was contraband. Subsection a , Article Subsection b , Article The attorney representing the state must attach to the notice the peace officer's sworn statement under Article Except as provided by Subsection c of this article, the attorney representing the state shall cause certified copies of the notice to be served on the following persons in the same manner as provided for the service of process by citation in civil cases:.
Chapter 59, Code of Criminal Procedure, is amended by adding Articles Except as otherwise provided by this article, a transaction involving an account or assets, other than the deposit or reinvestment of interest, dividends, or other normally recurring payments on the account or assets that do not involve distribution of proceeds to the owner, is not authorized unless approved by the court that issued the seizure warrant or, if a forfeiture action has been instituted, the court in which that action is pending.
An attorney representing the state who discloses information as permitted by this subsection is not subject to contempt under Article The sharing of information under Subsection a by a representative of the state is not considered a waiver by the state of any privilege or claim of confidentiality. The change in law made by this Act applies only to a seizure that occurs on or after the effective date of this Act.
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A seizure that occurs before the effective date of this Act is covered by the law in effect when the seizure occurred, and the former law is continued in effect for that purpose. I hereby certify that S. Under Texas law, the holder of a bona fide security interest in property other than real property may lose that lien or security to forfeiture even though the lienholder is innocent, not knowing or having reason to suspect that the property constitutes contraband. This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency. Subdivisions 9 - 11 , to define "depository account," "primary state or federal financial institution regulator," and "regulated financial institution.
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Amends Articles Provides that the forfeiture provisions of this chapter apply to contraband as defined by. Amends Article Provides that a transaction involving an account or assets, other than the deposit or reinvestment of interest and except as otherwise provided by this article, or other normally recurring payments on the account or assets that do not involve distribution of proceeds to the owner is not authorized unless approved by the court that issued the seizure warrant or, if a forfeiture action has been instituted, the court in which that action is pending.
Provides that an attorney representing the state who discloses information as permitted by this subsection is not subject to contempt under Article Provides that the sharing of information under. Subsection a by a representative of the state is not considered a waiver by the state of any privilege or claim of confidentiality. Bentley, located in Paoli, Pennsylvania, allegedly committed fraud in the sale of securities to financial institutions, including banks, thrifts, and credit unions, and to individual investors.
Specifically, the SEC alleges that Bentley was representing to investors that they Bentley were selling federally-insured certificates of deposit CDs when, in fact, they were selling uninsured securities issued by Bentley. The SEC also alleges that Bentley had to attract new investors in order to repay previous investors. The FDIC has advised that institutions holding any funds, securities or other assets in the name of or for the benefit of Bentley should take steps necessary to comply with the terms of the Temporary Restraining Order.
The Receiver may be reached at The purpose of this regulatory guidance is to reemphasize the importance of closely scrutinizing all aspects of a financial transaction, including those perceived to contain little or no risk.
In the case of Bentley, investors may have failed to follow fundamental safety and soundness principals. Discussed below are principal areas of concern regarding brokered CD activity.
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Fluctuations in the equity markets over the last year have prompted many investors to search for lower-risk investments; however, declining interest rates have complicated efforts to maintain satisfactory yields. CDs have traditionally filled this demand, offering safety and a rate of return higher than other types of deposit accounts. While insured depository institutions directly offer CDs, many brokerage firms and independent salespeople also offer these types of deposits. These individuals and entities, known as " deposit brokers ", can sometimes negotiate a higher rate of interest by promising to bring a certain amount of deposits to the institution.
The deposit broker then offers these " brokered CDs " to their customers.
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Many investors do not realize that there are no federal or state licensing requirements for deposit brokers. Anyone from a person working alone at home to someone affiliated with a major financial services firm can be a deposit broker.
This situation places a greater burden upon the potential investor to fully investigate the credentials and qualifications of the deposit broker and the credibility of the transaction. Banks that rely on third parties for the purchase, settlement, or holding of any type investment should perform routine screening checks into the qualifications and backgrounds of these individuals or entities.
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The CRD can be accessed via the Internet at www. Additional information may also be available from the State Securities Board at or www. How will the investment be held and who is the issuer? The Board needs to approve the type and nature of ownership for brokered CDs, which can be held individually by the institution or by a group of unrelated investors. As a general rule, banks should only use an unregistered firm or individual as a finder if the bank purchases the CD directly from the issuing depository institution.
The purchasing institution should insist that account records of the issuing bank reflect that the broker is merely acting as an agent for the institution and the other owners Example - "XYZ Brokerage as Custodian for Customers". In other instances, brokered CD purchases present a different concern and may involve one or more jumbo CDs which are federally insured, but are resold as " fractionalized " investments using the pool of CDs as collateral. Investors may be misled into believing that they are buying the CDs themselves when in fact they are simply making an investment with the broker.
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In this case, the broker may be selling investments which require him or her to have a securities broker dealer license. Often, this fact is not disclosed. The responsibility for verifying the specific nature of ownership resides with the investor. Additionally, the Board should require an unaffiliated third party "safekeeper" be used to record legal ownership rights when investments entail master CDs or fractionalized interests. The investment itself brokered CD may carry unique characteristics.
Unscrupulous brokers attempt to cover these undesirable features by omitting certain information, using small print, or even offering to repurchase the investment to indicate liquidity. Listed below are some of the basic characteristics of a brokered CD that should be determined through documented confirmation or verification with the issuer:.
Maturity Date - Investors should confirm the maturity date and require verification in writing. Many brokered CDs reflect maturity dates of five, ten, or even twenty years. Call Feature s - Callable CDs give the issuing bank the right to terminate or "call" or redeem the CD after a set period of time. Withdrawal Penalties - Deposit brokers often tout the fact that their CDs have no penalty for early withdrawal. While technically true, these claims can be misleading. If the investment is shared with other investors, the broker will have to find a buyer for investors wishing to sell their portion before maturity.
If interest rates have risen, the broker may be able to sell the investment only at a discount, impacting the value received. Interest Rate - The investor should require a disclosure statement that specifies the interest rate and whether it is fixed or variable. Interest rates should be thoroughly analyzed and understood. Decisions between investment options are difficult to analyze if yields are not comparable.