Pub. 3 2014 Issue 8

Recently, a person visited a bank to discuss the opening of a new IRA with $2,000 in cash. The bank obtained the customary “know your customer” documentation. Two days later, the new customer dropped in with a $72,000 check drawn on a well- known brokerage firm. The brokerage firm had previously handled her IRA account, she explained, and she simply wanted to move her IRA funds to her account at the bank. The check was deposited. The next day, the customer visited another branch of the bank and asked to withdraw $45,000 from her IRA. The customer explained that she was aware of all of the potential IRS tax consequences but emphasized her need to withdraw funds from the IRA, in cash. After the bank employee followed the appropriate processes and completed the necessary paperwork - in this case, since the withdrawal was in cash, a Currency Transaction Report - the customer left the branch with $45,000 in cash. New Scam exploits ira withdrawals Two days passed before the bank learned that the $72,000 deposited check was drawn on an account without funds and was worthless. The bank suffered a $43,000 loss from the new ira transactions. Carefully checking for uncollected funds when withdrawals are made from typical checking and savings accounts is standard bank practice. IRAs, however, usually involve funds intended to be deposited for retirement – and historically, withdrawals from an IRA do not involve funds that have been on deposit for only a few days. The procedures for handling IRA withdrawals are complicated, and as our case study illustrates, criminals are developing new scams to take advantage of this complexity. Banks that fail to verify whether IRA funds are collected during the IRA withdrawal process are particularly vulnerable. Moreover, this type of loss is likely not covered by your bank’s Financial Institution Crime Bond. If your bank does not already verify that funds being withdrawn from an IRA account are collected funds, now is the time to implement such a process in your IRA withdrawal procedures. By-word by email! Ask our experts Gain access to enhanced KBS content. Subscribe at kbsforbanks.wufoo.com/forms/kbs Blue sheet Two other banks in different states reported similar events involving IRA deposits within a 30 day period. Call KBS (785) 228-0000 to discuss this article, other loss prevention topics, or products to help protect your bottom line.