Pub. 13 2018-2019 Issue 1

WWW.NEBANKERS.ORG 24 Bert Ely — continued from page 23 Who Dropped the Ball? Responsible parties within the FCS have been dropping the ball in recent years with regard to important supervi- sory and regulatory responsibilities of the FCA and FCS banks, apart from the repeated instances where FCS institu- tions have lent to borrowers ineligible to borrow from the FCS or for purposes not authorized by the Farm Credit Act. Two glaring examples of inept oversight by the FCA and FCS banks that I have reported in the FCW have been the accounting problems, and possible lending fraud, at two FCS associations—FCS Southwest, which served most of Arizona and a small portion of California, and Lone Star Ag Credit, which serves a portion of Texas. Each association had to withdraw its financial statements and call reports, pending a restatement of them. FCS Southwest was later forced to merge with Farm Credit West; the fate of Lone Star Ag Credit has not yet been determined. In 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’ deposit-taking activities have increased, a topic I have discussed in prior FCWs. In surveying the web- sites 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 (go to http://bit.ly/CoBankAML ). 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. Compli- ance certainly should be mandatory, as it should be for every FCS institution, and 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, pur- chase a farm or ranch or an agriculturally related business. How Should the FCS Be Restruc- tured? As I have previously reported, most recently in the February 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 go- ing 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 as- sociations be able to obtain their funding directly from the Federal Farm Credit Banks Funding Corporation? ReformFarmCredit Website Refreshed As part of the American Bankers As- sociation’s effort to reach inf luential groups involved in agricultural policy, ReformFarmCredit.org has been re- freshed. Originally created three years ago to increase awareness of the risks posed by the Farm Credit System, the new website continues to build on the success of the reform campaign by bet- ter showcasing the latest research and Responsible parties within the FCS have been dropping the ball in recent years with regard to important supervisory and regulatory responsibilities of the FCA and FCS banks, apart from the repeated instances where FCS institutions have lent to borrowers ineligible to borrow from the FCS or for purposes not authorized by the Farm Credit Act.