Referral of Known or Suspected Criminal Violations

FARM CREDIT ADMINISTRATION

12 CFR Part 617

RIN 3052-AB33

Referral of Known or Suspected Criminal Violations

AGENCY: Farm Credit Administration (FCA).

ACTION: Proposed rule; resolicitation of comments.

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SUMMARY: The Farm Credit Administration (FCA), by order of the FCA

Board (Board), reproposes a rule amending its regulations governing the

referral of known or suspected criminal violations. The proposed

regulation was originally published in the Federal Register on October

13, 1992 (57 FR 46819). The objective of this reproposed regulation is,

in part, to promote efficiencies and timeliness in reporting,

investigating, and prosecuting known or suspected criminal activities

within Farm Credit System (FCS or System) institutions. Therefore, this

reproposed regulation would require System institutions to notify law

enforcement agencies of known or suspected criminal violations that

meet the threshold reporting limits. Generally, a criminal violation

must be reported under this part if the borrower/shareholder or insider

has an intent to ``defraud'' a System institution.

The reproposed regulation would also mandate the continued use of

the existing criminal Referral Form. System institutions should expect

this form to be replaced with a new FCA Criminal Referral Form in the

future. The existing criminal Referral Form or any replacement form is

referred to hereinafter as Referral Form.

The FCA believes that the regulation should be reproposed due to

the lapse of time since the proposed rule was originally published in

the Federal Register (October 13, 1992). Although the reproposed rule

incorporates many of the comments received in response to the proposed

rule, the FCA Board also believes that the public should be given

another opportunity to comment due to the number of changes proposed

and the level of interest in the issues. To the extent that commenters

wish to comment on the dollar thresholds for reporting known or

suspected criminal activities or an institution's cost of complying

with the regulation, the FCA requests that commenters provide pertinent

empirical data in support of their comments.

DATES: Comments should be submitted on or before August 19, 1994.

ADDRESSES: Comments should be mailed or delivered (in triplicate) to

Patricia W. DiMuzio, Associate Director, Regulation Development, Office

of Examination, Farm Credit Administration, McLean, VA 22102-5090.

Copies of all comments will be available for examination by interested

parties in Regulation Development, Office of Examination, Farm Credit

Administration.

FOR FURTHER INFORMATION CONTACT:

Eric Howard, Policy Analyst, Regulation Development, Office of

Examination, Farm Credit Administration, McLean, VA 22102-5090,

(703) 883-4498,

or

Jane Virga, Senior Attorney, Administrative Law and Enforcement

Division, Office of General Counsel, Farm Credit Administration,

McLean, VA 22102-5090, (703) 883-4020, TDD (703) 883-4444.

SUPPLEMENTARY INFORMATION:

I. Decision to repropose

The proposed regulation was published (57 FR 46819) in the Federal

Register on October 13, 1992. The comment period for the proposed

regulation amending part 617 closed on November 12, 1992. The FCA

received two letters on the proposed regulation. The Farm Credit

Council (Council), on behalf of its membership, provided comments and

suggestions on the wording and requirements of the proposed regulation.

The FCA also received a letter from the Farm Credit Bank of Baltimore

adopting the Council's comments. Many of the commenters' suggestions

were incorporated to improve clarity.

The Council requested, among other things, that the FCA Board

republish the proposed regulation. The FCA Board agrees that the

proposed regulation should be republished to afford the public another

opportunity to comment. All comments submitted to date have been

considered and responded to concerning the proposed regulation.

Responses to these comments are detailed below, and corresponding

changes were made to the proposed regulation in many instances. The

commenters also addressed whether the dollar thresholds for reporting

known or suspected criminal activities should be increased. One of the

stated reasons to raise the thresholds was to limit the perceived

reporting burden that would result from implementation of the proposed

thresholds. It was believed that if the reporting thresholds were

increased, the reporting burden would decrease.

Those commenters who wish to comment again on the dollar thresholds

are requested to provide any pertinent empirical information that would

indicate that the thresholds should be increased. Commenters who

address the cost of complying with the proposed regulation, e.g., time

and cost of investigating and completing the Referral Form under

existing thresholds in part 617 and the proposed thresholds, should

also provide pertinent empirical information in support of their

comments.

II. Background

Pursuant to the Farm Credit Act of 1971, as amended, the FCA

regulates and examines FCS institutions for safety and soundness and

for compliance with Federal laws and regulations. Violations of Federal

laws and regulations may affect the safety and soundness of FCS

institutions and could undermine public confidence in the FCS. System

institutions have the responsibility to establish and maintain

safeguards to detect, deter, and report criminal activity involving the

assets, operations, or affairs of the institution. Law enforcement

agencies need to receive timely and specific information from FCS

institutions on known or suspected criminal violations to determine

whether investigations and prosecutions are warranted.

The Interagency Bank Fraud Working Group (Working Group), a task

force consisting of the Office of the Comptroller of the Currency, the

Board of Governors of the Federal Reserve System, the Federal Deposit

Insurance Corporation, the Office of Thrift Supervision, the National

Credit Union Administration, the Farm Credit Administration, the

Federal Bureau of Investigation, the U.S. Secret Service, the

Department of Justice, and the U.S. Department of the Treasury, was

formed to facilitate the reporting of criminal activity by financial

institutions and to enhance the law enforcement agencies' ability to

investigate and prosecute the matters reported. To accomplish these

objectives, the Working Group developed uniform reporting standards and

processes for filing criminal referrals and is in the process of

developing a uniform criminal referral form.

Pursuant to the proposed regulation and consistent with the Working

Group's recommendations, FCS institutions would be required to make a

criminal referral and file a Referral Form when a criminal violation of

the United States Code involving the institution's assets, operations,

or affairs appears to have occurred and one of the circumstances listed

in Sec. 617.2(a) exists. However, the proposed regulation should not be

construed as reducing in any way an institution's responsibility to

otherwise report criminal activities when these circumstances do not

exist. The referrals would be made to the appropriate investigatory

and/or prosecuting authorities, whether Federal, State, or local.

Originally, the FCA proposed the use of a uniform criminal Referral

Form which was designed by the Working Group. A uniform criminal

Referral Form was expected to aid law enforcement agencies in

determining whether investigations and/or prosecutions are warranted by

standardizing requests for information and documentation. The FCA

planned to incorporate this form's standards and procedures in its own

criminal Referral Form. When first published, the proposed regulation

indicated that the Referral Form, with instructions explaining how to

complete, file, and distribute the form to the appropriate

investigatory agency, would be obtained from the FCA's Office of

General Counsel (OGC) or from the FCA Examination Manual. Due to

unforeseen circumstances affecting all the Federal financial regulatory

agencies, the Working Group has not yet promulgated a uniform criminal

referral form. Consequently, the new Referral Form has not been

developed. As now contemplated under the proposed rule, System

institutions would continue to use the existing criminal Referral Forms

found in the FCA Examination Manual. However, System institutions

should expect the distribution of the new Referral Form after the

Working Group completes the standardized uniform criminal referral

form.

III. Analysis of Changes and Comments by Section

A. Section 617.1--Purpose and Scope

The Council noted that the proposed regulations did not include a

sample of the Referral Form and, as a result, it could not determine

whether System banks would maintain any role in the criminal referral

process. As previously stated, the FCA did not publish the Referral

Form with the proposed regulation because the uniform criminal referral

form, which the FCA intends to incorporate, had not, and has not yet,

been promulgated by the Working Group. The existing Referral Form,

which may be obtained from the FCA Examination Manual, does not create

any substantive requirements, nor will the new Referral Form. The

Referral Form merely serves as a vehicle for ensuring that System

institutions report the information necessary to make a criminal

referral. The new Referral Form is not expected to require System

institutions to submit any more information than they previously have

been required to submit using the existing Referral Form. For these

reasons, the FCA believes even if the new Referral Form were available

at this time, its publication would not be necessary. If the uniform

criminal referral form ultimately promulgated by the Working Group

creates new and previously-unanticipated requirements, the FCA will

reconsider whether to incorporate it in its entirety into the System's

Referral Form.

B. Section 617.2--Referrals

The Council questioned whether or not the proposed regulation

adequately addressed ``borrower transgressions.'' The FCA believes that

the proposed regulation provides for the referral of all known or

suspected violations of Federal criminal laws, including both insider

and borrower transgressions. In Sec. 617.2(a) (2) and (3), the proposed

regulation specifically addresses borrower transgressions and would

require a criminal referral when known or suspected criminal activity

occurs if certain circumstances are met. Section 617.2(a)(2) applies

when the suspect is not an employee, officer, director, agent, or other

person participating in the affairs of an institution, i.e., a

borrower. Section 617.2(a)(3) applies when there is no substantial

basis for identifying a suspect, which may include a borrower.

Therefore, no amendment is believed to be necessary. For instance, a

referral would be required when known or suspected criminal activity

involving actual or potential losses of $1,000 or more occurs and the

institution has a substantial basis for identifying a possible suspect

or group of suspects as a borrower(s). A referral would also be

required when known or suspected criminal activity involving actual or

potential losses of $5,000 or more occurs and the institution has no

substantial basis for identifying a possible suspect or group of

suspects. In this latter instance, the possible suspect or group of

suspects could be a borrower(s). Also, Sec. 617.2(a)(1) addresses

insider transgressions and would require a criminal referral,

regardless of the amount of an actual or potential loss, where an

institution employee, officer, director, agent, or other person

participating in the affairs of the institution is suspected.

The Council was concerned that the dollar thresholds for reporting

known or suspected criminal activities as described in Sec. 617.2(a)(2)

and (3) were too low. It also stated that the respective $1,000 and

$5,000 thresholds would result in reporting known or suspected criminal

activities that law enforcement agencies would not prosecute, and that

the thresholds were a radical departure from prior practice. The

Council also commented that some district banks have been advised by

U.S. Attorneys that criminal activities involving collateral conversion

or misrepresentation of financial information are not prosecuted when

the diversion or misrepresentation is less than $25,000 to $50,000 or

if the institution does not incur an actual loss. As a result, the

Council believes that the thresholds should be increased to higher

levels.

The Working Group, which included the FCA, established the same

thresholds for all Federal financial regulatory agencies. The Working

Group believes that uniform thresholds will enhance the ability of the

Federal financial regulatory agencies and the law enforcement agencies

to detect, investigate, and prosecute known or suspected criminal

activities. The Working Group also believes that the lower thresholds

are necessary to ensure the reporting of potential multiple criminal

violations by one individual at several different institutions. The

Department of Justice, as a member of the Working Group and oversight

agency for the Offices of the U.S. Attorneys, assisted in the

establishment of the thresholds. Therefore, as a participant in the

Working Group and in concurrence with the Department of Justice's

judgment on this matter, the FCA continues to support the Working Group

and proposes the regulation with these thresholds. The FCA will

reconsider this issue should the Working Group modify the threshold

levels in the future.

It is important to note, however, that only a known or suspected

criminal violation (meeting the dollar threshold requirements of

Sec. 617.2(a)) must be reported. Generally, a criminal violation that

must be reported under this part involves a determination that a

borrower or insider intended to ``defraud'' an institution in violation

of a Federal criminal statute. Institutions, therefore, must make an

initial determination of whether a misrepresentation of assets or a

collateral conversion, for example, was done inadvertently or with the

intent to defraud the institution. Accordingly, in ascertaining whether

a criminal referral is appropriate, an institution should consider all

facts and circumstances, including evidence of intent, to determine

whether there is a known or suspected criminal violation. If the

institution is persuaded that there is no evidence of intent and,

hence, no criminal violation, then it need not make a criminal

referral. Thus, System institutions are vested with considerable

discretion. Should they feel the need for guidance in exercising this

responsibility, they may consult legal counsel.

Due to expressed concerns about the referral threshold, the FCA

reviewed the Systemwide criminal referrals for calendar years 1992 and

1993. In 1992, there were 47 criminal referrals, of which 30 reported

no dollar loss or an unknown dollar loss. In 1993, there were 53

criminal referrals of which 30 reported no dollar loss or an unknown

dollar loss. In addition, the FCA received 7 criminal referrals in 1992

and 17 criminal referrals in 1993 reporting dollar losses over $50,000.

Of the criminal referrals received, there was a total of four insider

transgressions in 1992 and 1993. It appears from these statistics that

System institutions may already be reporting criminal referrals

consistent with the proposed thresholds and that the thresholds are not

a radical departure from current practices. Accordingly, the FCA

proposed regulation contains the same thresholds as originally

contemplated. Commenters who continue to have concerns that the

thresholds are too low are requested to provide empirical data

indicating to what extent the thresholds would result in a departure

from their current reporting practices.

The Council remarked that the proposed regulation did not

adequately define ``potential'' loss. In further explanation of the

proposed regulation, it should be noted that the regulation (and

Federal law) does not require that an institution sustain an actual

loss; the potential for a loss satisfies the regulation (and Federal

criminal law). Furthermore, the proposed regulation specifically states

that the loss or potential loss is to be determined before

reimbursement or recovery. In other words, whether or not the loan is

adequately collateralized has no bearing on the determination of

whether there is a loss or potential loss. For example, if a borrower

with a loan that appears to be adequately collateralized converts

$10,000 of secured property or makes a false statement by omitting a

$10,000 liability from a financial statement, the institution would be

required to report this known or suspected criminal violation to the

appropriate authorities. This is necessary because the institution has

a potential loss of $10,000 before it receives actual payment on the

loan or recovers on the secured property. Although the loan may appear

to be adequately collateralized notwithstanding the conversion of

$10,000, the institution nonetheless has a potential loss before

reimbursement or recovery. The loss need not actually have occurred for

a reportable violation to exist. The FCA believes the foregoing

explanation should adequately address the potential loss concept. It is

further noted that, in attempting to clarify this section, the language

of Sec. 617.2(a)(2) and (3) has been amended to clarify that a

situation involving a potential loss could arise through the use of a

false statement or other fraudulent means.

The Council further commented that the proposed regulation did not

adequately address criminal acts that do not specifically require a

monetary loss, e.g., false statements under 18 U.S.C. 1014. As

discussed above, such a criminal act has a potential for monetary loss

and should be reported in all situations where the threshold is met and

it is reasonable to believe that a criminal act occurred. The proposed

regulation has been amended to clarify that a referral would be

required when there is a false statement that meets the threshold

amounts.

The Council expressed concern that the standard for reporting

noninsider transgressions was vague and difficult to apply. The Council

noted that determining when a substantial basis exists for identifying

a suspect can be complex and raises questions as to whether criminal

intent can be inferred. The Council suggested that this determination

should be vested in System general counsels or their attorney

designees. The FCA expects that, in reporting noninsider

transgressions, an institution will often be able to use its own

judgment in determining whether it appears that a criminal violation

has occurred. In complex cases, however, institutions should continue

to feel free to obtain advice, legal or otherwise, as necessary. A

System association may always consult with its affiliated district bank

during consideration of all the facts and circumstances to determine

whether it is more probable than not that a criminal activity occurred.

The Council also commented that an institution should have

discretion on whether to report known or suspected criminal activities

of State criminal laws to State law enforcement authorities. In

response to this comment, the proposed regulation was amended to

provide that nothing in this part shall be construed as reducing, in

any way, an institution's general responsibility to report criminal

activities to the appropriate investigatory and/or law enforcement

agencies, whether Federal, State or local. Therefore, institutions

would have to be cognizant of, and take the necessary steps to comply

with, State reporting requirements. The appropriate law enforcement

agency would then decide whether or not such acts constitute a

violation of a criminal statute.

The Council was concerned that the proposed regulation did not

identify whether a Farm Credit Bank (FCB) or a Federal land bank

association (FLBA) would report known or suspected criminal activities

when the FLBA services the loans of the FCB. Due to this concern, the

FCA amended Sec. 617.2(a) to clarify that an FCB would have the

responsibility to refer known or suspected criminal activities

identified by the servicing FLBA to the appropriate law enforcement

agency.

The Council commented that the proposed criminal referral

regulation appears to make the criminal referral process burdensome

because the institution lacks the discretion not to refer known or

suspected criminal violations above the threshold amounts. At this

time, it appears that any additional burden would be slight and offset

by the regulation's benefits, such as the promotion of efficiency and

timeliness in reporting, investigating, and prosecuting known or

suspected criminal activities. Also, the regulation would standardize

the reporting process and ensure that all individuals, including

borrowers, employees, officers and directors, are treated equally. It

is believed that the proposed regulation, which conforms to those

proposed and final regulations of other financial regulatory agencies,

would improve the law enforcement agencies' response to System

institutions' reports of criminal activities. However, commenters may

want to provide empirical information on the cost of compliance, as

requested above.

The Council questioned the institution's role or ability to make a

recommendation concerning prosecution. The Council suggested that

reporting ``minor'' violations could hamper System relationships with

the U.S. Attorney as well as with its customers. While the regulation

establishes threshold referral levels, an institution is free,

nonetheless, to express its view on whether prosecution does or does

not appear to be warranted to the Federal authorities, including a U.S.

Attorney or other investigatory agency. A well-reasoned recommendation

against prosecution in appropriate cases should go far toward

addressing the Council's concern without undermining the uniformity

that the referral requirements seek to promote.

The Council commented that the 14-day period to report criminal

activity was insufficient to investigate, document, review, and submit

referral information. On further reflection, the FCA agrees. To ensure

thorough documentation and reporting by System institutions, the FCA

has amended the proposed regulation, increasing the reporting period to

30 calendar days from the date of discovery of the known or suspected

criminal violation. Nonetheless, System institutions would be

encouraged to submit a criminal referral report as soon as possible

following the discovery of a reportable known or suspected criminal

activity.

The Council commented that it was uncertain as to when the period

for reporting a criminal referral begins. Upon further consideration,

the proposed regulation was amended to address this concern. The

reporting period would begin when management has discovered that there

is a known or suspected criminal activity. In the alternative, the

reporting period would begin when management should have discovered

that there was a known or suspected criminal activity. This amendment

is believed to be appropriate because management must ensure the

institution's safety and soundness and should be diligent in the

exercise of their attendant duties, e.g., the timely identification and

reporting of known or suspected criminal activity, and in the adequate

investigation and documentation of such criminal activity.

The Council commented that Sec. 617.2(c) (now Sec. 617.2(b)) should

define ``management'' as senior management of the institution or the

institution's criminal conduct officer/coordinator. The proposed

regulation would require that management make the criminal referral.

The board of directors of a System institution, which is responsible

for the safe and sound operations of that institution, should establish

appropriate policies and internal controls for management to comply

with these regulations. However, the board would have the discretion to

implement the regulation in a manner suited to its institution and

could require senior management or the criminal conduct officer/

coordinator to make the criminal referral.

The Council suggested eliminating Sec. 617.2(d), which requires

prompt notification, by telephone or other expeditious means, to the

appropriate law enforcement agency of situations requiring immediate

attention or of ongoing reportable violations. In coordination with

other Federal financial regulatory agencies, the FCA included this

section to provide for circumstances in which direct telephone or other

expeditious communications with the appropriate law enforcement agency

would be necessary or appropriate, even though an institution would

have begun the referral process required by Sec. 617.2(a). While a 30-

day notification period may be adequate in many situations, immediate

notification would be considered essential when the safety and

soundness of an institution may be threatened by potential fraud,

losses, or an ongoing criminal activity, when there is a likelihood a

suspect will flee, or when key institution personnel are involved. For

the foregoing reasons, it does not appear that this section would

impose any unnecessary burden on System institutions.

C. Section 617.3--Notification of Board of Directors and Bonding

Company

The Council commented that the regulatory reporting requirement

concerning criminal referrals should be left to the discretion of each

board of directors, rather than requiring a report to the board of

directors by their next scheduled meeting. The intent of this section

is to keep the board of directors informed when a known or suspected

crime has been committed against the institution. In response to the

Council's comment, this section has been amended to require that the

board of directors be notified promptly of the filing of any Referral

Form by the institution's management. Reporting ``promptly'' to the

board of directors means reporting the criminal referral at a regularly

scheduled meeting, or earlier if the estimated loss is of such

magnitude that it would have a significant impact on the safety and

soundness of the institution. Alternatively, reports involving

insignificant losses may be summarized and reported periodically at a

regularly scheduled meeting of the board. Because violations of Federal

criminal statutes may affect the safety and soundness of FCS

institutions and/or undermine public confidence in the FCS, a board of

directors should be promptly notified of all known or suspected

criminal activities. Furthermore, boards of directors should treat this

information with the same degree of care and confidentiality as other

similar types of information are treated.

Additionally, the proposed regulation was amended to provide some

discretion in the event a member of the board of directors is the

subject of a criminal referral. In this instance, it may be appropriate

to seek guidance from legal counsel or other appropriate sources.

List of Subjects in 12 CFR Part 617

Criminal referrals, Criminal transactions, Defalcations,

Embezzlement, Insider abuse, Institutions of the Farm Credit System,

Money laundering, Theft.

For the reasons stated in the preamble, part 617 of chapter VI,

title 12 of the Code of Federal Regulations is proposed to be revised

to read as follows:

PART 617--REFERRAL OF KNOWN OR SUSPECTED CRIMINAL VIOLATIONS

Sec.

617.1 Purpose and scope.

617.2 Referrals.

617.3 Notification of board of directors and bonding company.

617.4 Institution responsibilities.

Authority: Secs. 5.9, 5.17 of the Farm Credit Act (12 U.S.C.

2243, 2252).

Sec. 617.1 Purpose and scope.

(a) This part applies to all institutions of the Farm Credit System

as defined in section 1.2(a) of the Act (12 U.S.C. 2002(a)) including,

but not limited to, associations, banks, service corporations chartered

under section 4.25 of the Act, the Federal Farm Credit Banks Funding

Corporation, the Farm Credit System Financial Assistance Corporation,

the Farm Credit Leasing Services Corporation, and the Federal

Agricultural Mortgage Corporation (hereinafter, institutions). The

purposes of this part are to ensure the reporting of known or suspected

criminal activity, the safety and soundness of the institution, and

public confidence in the Farm Credit System, thereby reducing potential

losses to institutions. This part requires that institutions use the

Farm Credit Administration Criminal Referral Form to notify the

appropriate Federal authorities when any known or suspected Federal

criminal violations of the type described in Sec. 617.2 are discovered

by an institution.

(b) The specific referral requirements of this part are limited to

known or suspected criminal violations of the United States Code

involving the assets, operations, or affairs of an institution. This

part prescribes procedures for referring those violations to the proper

Federal authorities and the Farm Credit Administration.

(c) Nothing in this part should be construed as reducing in any way

an institution's responsibility to report known or suspected criminal

activities to the appropriate investigatory or prosecuting authorities,

whether State or Federal, even if circumstances required for a report

under Sec. 617.2 are not present.

(d) Each referral required by Sec. 617.2(a) shall be made on the

Referral Form in accordance with the Referral Form Instructions

relating to its filing and distribution and the requirements of

Sec. 617.2 (b) and (c).

Sec. 617.2 Referrals.

(a) Each institution and its board of directors shall exercise due

diligence to ensure the discovery, investigation, and reporting of

criminal activity. Within 30 calendar days of determining that there is

a known or suspected criminal activity, the institution shall refer

such criminal violation of the United States Code involving or

affecting its assets, operations, or affairs to the appropriate

regional offices of the United States Attorney and either or both the

Federal Bureau of Investigation or the United States Secret Service,

using the Referral Form. In the event that a Farm Credit Bank makes a

loan through a Federal land bank association which services the loan,

the Farm Credit Bank has the responsibility to refer known or suspected

criminal violations under this section. A report is required in

circumstances where there is:

(1) Any known or suspected criminal activity (e.g., theft,

embezzlement), mysterious disappearance, unexplained shortage,

misapplication, or other defalcation of property and/or funds,

regardless of amount, where an institution employee, officer, director,

agent, or other person participating in the conduct of the affairs of

such an institution is suspected;

(2) Any known or suspected criminal activity involving an actual or

potential loss (before reimbursement or recovery) of $1,000 or more,

through false statements or other fraudulent means, where the

institution has a substantial basis for identifying a possible suspect

or group of suspects and the suspect(s) is not an employee, officer,

director, agent, or other person participating in the conduct of the

affairs of such an institution;

(3) Any known or suspected criminal activity involving an actual or

potential loss (before reimbursement or recovery) of $5,000 or more,

through false statements or other fraudulent means, where the

institution has no substantial basis for identifying a possible suspect

or group of suspects; or

(4) Any known or suspected criminal activity involving a financial

transaction in which the institution was used as a conduit for such

criminal activity (such as money laundering/structuring schemes).

(b) A copy of the completed Referral Form, accompanied by any

relevant documentation, shall be provided to the Farm Credit

Administration's Office of General Counsel no later than 30 calendar

days after the institution's management, has discovered (or should have

discovered) a known or suspected criminal violation.

(c) In circumstances where there is also a known or suspected

violation of State or local criminal law, the institution shall also

notify the appropriate State law enforcement authorities.

(d) In addition to the requirements of paragraph (a) of this

section, the institution shall immediately notify by telephone the

offices specified on the Referral Form upon discovery of cases

involving known or suspected criminal violations requiring urgent

attention or where a referable violation is ongoing. Such cases

include, but are not limited to, those where:

(1) There is a likelihood that the suspect(s) will flee;

(2) The magnitude or the continuation of the known or suspected

criminal violation may imperil the institution's continued operation;

or

(3) Key institution personnel are involved.

Sec. 617.3 Notification of board of directors and bonding company.

(a) Unless the criminal referral involves a member of the board of

directors, the institution's board of directors shall be promptly

notified of any criminal referral by the institution.

(b) If the criminal referral involves a member of the board of

directors, discretion shall be exercised in notifying the board of

directors of such a criminal referral.

(c) In any event, if any losses can be recovered under a surety

bond or other contract for protection against losses, the institution

involved shall promptly make all required notifications.

Sec. 617.4 Institution responsibilities.

Each institution shall establish effective policies and procedures

designed to ensure compliance with this part, including, but not

limited to, adequate internal controls.

Dated: June 13, 1994.

Curtis M. Anderson,

Secretary, Farm Credit Administration Board.

[FR Doc. 94-14893 Filed 6-17-94; 8:45 am]

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