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International Bank of Miami has been disciplined by federal banking regulators for violating laws aimed at curbing money laundering and has entered into a settlement that severely restricts the bank’s operations. The $1.1 billion institution based in Coral Gables, Fla., settled the charges with regulators without denying or admitting that it violated any requirements of the Bank Secrecy Act, Office of Foreign Assets Control rules and the USA Patriot Act. The settlement agreement outlines a host of deficiencies in the bank’s procedures and requires that it bring its operation into compliance within 60 days. The 41-year-old national bank entered into a 14-article consent order with the Office of the Comptroller of the Currency on Oct. 18, according to a copy of the order obtained by the Miami Daily Business Review. Dean DeBuck, a spokesman for the OCC in Washington, D.C., would not comment. “The bank just signed a consent order with us,” DeBuck said. “It hasn’t appeared in our monthly press releases.” The bank’s six directors signed the consent agreement. “I can’t get into the details with you,” said Alberto Valdes, the bank’s chairman, president and chief executive. “None of it is going to affect the bank. It is behind us.” Valdes is a director and one of the bank holding company’s six shareholders. He is a former president of the Florida International Bankers Association. He said the OCC’s order was directed at the bank’s Capital Markets Group, a broker-dealer trading in emerging market debt. He said the group was eliminated even before the order mandated that it be closed. International Bank of Miami, which is controlled by nationals of El Salvador and Colombia, is the third South Florida bank in six months to be publicly disciplined by regulators, and by far the largest in assets. The $90 million Horizon Bank in Pembroke Pines entered into a supervisory agreement and agreed to pay a $3,500 civil money penalty after being reprimanded by the Office of Thrift Supervision for allowing a pattern of “unsafe and unsound” administrative violations, including problematic loan underwriting and conflicts of interest by bank insiders. The $375 million BAC Florida Bank in Coral Gables was reprimanded in May by the Federal Deposit Insurance Corp. for deficiencies in complying with seven anti-money laundering measures under the Bank Secrecy Act and the so-called “know your customers” regulations. No formal reprimand has been announced, but BankAtlantic disclosed in its third quarter earnings report last week that federal banking regulators were looking into possible violations of the Bank Secrecy Act, anti-money laundering laws and the USA Patriot Act. The $126 million asset Beach Bank recently replaced its president and chief executive due in part to regulatory issues related to Bank Secrecy Act violations at the Miami Beach-based institution, according to sources who asked not to be identified. In these types of cases, sometimes banks are fined, but in virtually every case banks are required to sign written agreements — private and public — that spell out steps needed to resolve regulatory concerns. Regulators typically work out issues in private and resort to public reprimands only in extreme cases. In either case, it usually takes at least six months to satisfy the agreement, and during that time a bank typically won’t get regulator approval to merge, open branches or add lines of business. “On a scale from one to 10 for formal enforcement activity, it is probably in the six, seven or eight range,” said Miami banking analyst Ken Thomas after reading a copy of International Bank of Miami’s order. He is not affiliated with the bank. “As they go, it is very serious, especially with the termination of the Capital Markets Group. That we don’t normally see.” The order gives the bank until Dec. 18 to change several policies involving its clientele, employees training, products, services and strategy. The order also forces the bank to shift much of its power to the OCC. The office of Ronald G. Schneck, the comptroller’s director of special supervision, must sign off on all board policy decisions before they can take effect. Schneck oversaw the investigation of the defunct Hamilton Bank in Miami that ultimately was taken over by the FDIC in January 2002. In the order for International Bank of Miami, the OCC makes it clear that it is prepared to take additional steps if problems aren’t resolved. “It is expressly and clearly understood that if, at any time, the comptroller deems it appropriate in fulfilling the responsibilities placed upon him by the several laws of the United States of America to undertake any action affecting the bank, nothing in this modification of consent order shall in any way inhibit, estop, bar or otherwise prevent the comptroller from so doing,” the agreement states. To satisfy the OCC, the bank must hire an outside expert on the Bank Secrecy Act to review records and identify situations in which suspicious activity reports should have been filed. Regulators cited several violations during a first quarter examination that ended March 31. The violations stem from the bank’s former Capital Markets Group that operated a broker-dealer to trade emerging market debt primarily from Latin America. The group bought and sold notes with foreign banks, insurance companies and individual investors. The consent order requires the bank to eliminate its Capital Markets Group division and review its clients and customers. The bank must also file currency transaction reports related to large deposits. Valdes said the bank board shut down the Capital Markets Group in June on its own and that therefore the consent order has little bearing on the bank. He refused to specify the amount of assets the bank had under management or the percentage of bank revenues and net income that the Capital Markets Group contributed. Valdes also declined to identify the person who headed the group but said the four employees who made up the group no longer work for the bank. “It is part of history,” he said. “It will not affect the day-to-day of the commercial banking.” Valdes said elimination of the banking division should have minimal impact on the bank. Its third quarter earnings, not yet made public, will show steady growth, he predicted. The order also tells the bank to “cease and desist from destroying, altering or removing from the bank’s premises any bank documents or books or records whatsoever until further written notice.” The plan prohibits the bank’s six shareholders from issuing dividends or selling their shares before January 2007 without approval. It also requires the bank to keep capital levels at above-average levels. Among other elements of the order, the bank must: � Identify clients who may be “Politically Exposed Persons,” which is loosely defined to include heads of state, royal families and senior government officials, in order to comply with the USA Patriot Act. � “Designate individuals who have been accused, indicted, arrested or convicted of illegal activities as ‘high-risk’” and determine whether to end banking relationships with those people. � Provide the OCC with unrestricted access to the records and staff of the bank and its affiliates. � Adopt a strategic plan for the next three years and provide forecasts for how it will make up for revenue lost from closing the Capital Markets Group. � Restrict loans outside the United States to those that meet a three-point requirement. � Change its outgoing wire transfer operations so that recipients confirm getting the wire with a bank employee who is independent of the employee who placed the wire order. � Review all employment contracts and compensation arrangements with employees, principals, shareholders, directors or other related interests to ensure they have a direct relationship for the bank and compensates the individual only for providing goods and services that meet the legitimate needs of the bank.

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