Pub. 7 2018 Issue 4

June2018 17 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s both situations, FCA examiners failed to detect the serious accounting and credit management problems at those associations. Additionally, the FCS banks providing most of the funding for these associations — CoBank for FCS Southwest and Farm Credit Bank of Texas for Lone Star — failed to adequately monitor their credit-risk exposure to these associations. Perhaps a more serious case of the ball being dropped is the apparent lack of diligence by the FCA in ensuring that every FCS institution fully complies with the Bank Secrecy Act (BSA) and its anti-money laundering (AML) provisions. The FCA’s examination guidance, for example, is sketchy at best in discussing steps FCA examiners must take in ensuring BSA/ AML compliance by every FCS institution. Non-compliance has become increasingly likely as the FCS’s deposit-taking activities have increased, a topic I have discussed in prior FCWs. In surveying the websites of the four FCS banks as well as the larger FCS associations, I found just one reference to AML — a one-page Anti-Money Laundering & USA Patriot Act Certification on CoBank’s website. What is almost comical is this statement in the certification, “it is the policy of CoBank and its subsidiary . . . to comply with AML laws and regulations, including the Bank Secrecy Act, the USA Patriot Act, and the Office of Foreign Asset Control (OFAC) regulations.” The word “policy” suggests that CoBank’s compliance with these laws and regulations is voluntary — compliance certainly should be mandatory, as it should be for every FCS institution, as it is for commercial banks. The FCA will be deeply embarrassed when news erupts that an FCS institution has been utilized to launder illicit funds to, for example, purchase a farm or ranch or an agriculturally related business. How should the FCS be restructured? As I have previously reported, most recently in the Feb. 2018 FCW, FCA Chairman Dallas Tonsager has repeatedly urged FCS institutions to consider how the FCS should be restructured, specifically “the relationship between the funding bank and its associations.” CoBank echoed that call in its 2017 annual report, posing this question: “How will the FCS evolve to ensure it is optimally configured to serve customers and fulfill its vital mission going forward?” An excellent question, but not one to be addressed solely by the FCS. To move the debate forward, Tonsager, CoBank, and others within the FCS should put specific restructuring proposals on the table. For example, should larger associations be able to obtain their funding directly from the Federal Farm Credit Banks Funding Corporation? Experienced Member FDIC f n b h u t c h . b a n k | 8 0 0 . 2 9 3 . 0 6 8 3 | Our dedicated sta members are here to help you with a broad array of nancial expertise for you and your customers. Pictured (left to right) Mike Pritchett, Curtis Overton, Rod Jones, Dustin Stull, Mike Fahrbach and Shane McCall C M Y CM MY CY CMY K 17_FNB6987_ks_banker_mag_ad_experienced_01.pdf 1 11/21/17 11:23 AM