Trust Updates Archive

tuTRN0502 In response to subscriber requests, attached please find a
summary of the February issue of Trust Regulatory News:

* Bank Held Liable for Beneficiary’s Estate Taxes
* CIBC Mellon’s “Deficient” Compliance Key to Securities Fraud
* Outsourcing: A Growing But Manageable Risk
* BofA—$515 Million SEC Settlement; Need to Improve Compliance
* Failure to Archive E-mail Costs Bank $2.1 Million
* Employees Don’t Know When to Archive E-Mail, Survey Finds
* 314(a) Internet Distribution System
* Trust Funds—Use of NOW Accounts

Please note that TRN is published at the end of each month.
Subscriber feedback is always encouraged as part of our
ongoing efforts  to provide the best source of fiduciary
risk management news.


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Bank Held Liable for Beneficiary’s Estate Taxes
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The fiduciary function has been called the greatest achievements in the field of jurisprudence. The day-to-day administration of trusts, on the other hand, has been compared to a walk through a minefield.
        The Wisconsin Supreme Court in January agreed to hear a case asserting that Wells Fargo, then Norwest Wisconsin, is liable for the estate taxes of a trust beneficiary. The case highlights the need to follow very specific steps when raising trust construction problems with powerholders. The question before Wisconsin’s supreme court is whether the bank can be held liable even though it had no duty under the law to review the trust agreement for accuracy. The bank was found to have been liable by both Wisconsin’s trial and appeal courts.

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CIBC Mellon’s “Deficient” Compliance Key to Securities Fraud
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Off-shore or across the border, financial institutions need to ensure compliance with Securities and Exchange Commission rules. CIBC Mellon’s failure to register as transfer agent and broker-dealer combined with what the SEC terms “deficient” compliance procedures has cost the bank $5 million in fines and over $1 million in disgorgement.

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Outsourcing: A Growing But Manageable Risk
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Over the next five years, U.S. financial services companies are expected to outsource 15 percent of their workload, estimated at $356 billion, according to a report issued in February by the Bank of International Settlement. Much of that will go to offshore third-party providers, including affiliates. Regulators acknowledge the cost savings and increases in productivity gained by outsourcing but are concerned that increased reliance on outsourcing may negatively impact an institution’s ability to manage its risks and monitor compliance.

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BofA—$515 Million SEC Settlement; Need to Improve Compliance
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Bank of America on February 9 agreed to pay $515 million to settle a Securities and Exchange Commission investigation into fraudulent trading practices. In related action, the bank has agreed to enter into formal agreements with the Federal Reserve and the OCC to improve its compliance oversight. These agreements, say compliance sources, address an industry-wide weakness: unchecked sales personnel and inadequate training.

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Failure to Archive E-mail Costs Bank $2.1 Million
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E-mails have been a prime source of evidence in cases brought by federal and state regulators and are playing a significant role in civil litigation. Despite highly visible lawsuits, companies are not taking note. A 2004 survey by the American Management Association finds that only 35 percent of respondents had a retention policy, up a scant 1 percent from the previous year. On February 14, 2005, the SEC reached a $2.1 million settlement with J.P. Morgan Securities, a subsidiary of JPMorgan Chase, for its failure to retain company e-mails.

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Employees Don’t Know When to Archive E-Mail, Survey Finds
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The risk to employers is that their employees do not know the difference between “electronic business records” that must be retained versus “insignificant messages” that can be deleted, according to the 2004 Workplace E-Mail and Instant Messaging Survey. The annual survey of e-policies and practices is conducted by the American Management Association and the ePolicy Institute. The 2004 survey findings suggest substantial compliance weaknesses in how regulated entities are archiving e-mail and instant messages (IMs).

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314(a) Internet Distribution System
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Effective March 1, 2005, the Financial Crimes Enforcement Network will fully implement its web-based USA PATRIOT Act section 314(a) secure communication system. Currently, FinCEN distributes “314(a)” lists of suspects to financial institutions every two weeks either via e-mail or fax. For access to the new system, banks need to register at https://www.fincen.gov/314a/. To contact FinCEN staff call 800-949-2732.

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Trust Funds—Use of NOW Accounts
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In an interpretive letter, the OCC has concluded that interest-bearing negotiable order of withdrawal (“NOW”) accounts may be established at national banks for the purpose of receiving and holding qualified trust funds deposited under the Pennsylvania Supreme Court’s Interest on Trusts Account Program for the Minor Judiciary.  

-- Copyright ©2005 A.M. Publishing, Inc., Trust Regulatory News
 

No statement in this issue is offered as or should
be construed as legal opinion or advice.

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