-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JhOE5VxaeeBy8AnuMMpzElwU912WOvgze2cIsHVPTnFbRB5TA9xgjSpHezI/7Rmy kWra5nKB690VCuFqX0uJRA== 0001092306-07-000426.txt : 20070918 0001092306-07-000426.hdr.sgml : 20070918 20070917201652 ACCESSION NUMBER: 0001092306-07-000426 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20070914 ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070918 DATE AS OF CHANGE: 20070917 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIONBANCAL CORP CENTRAL INDEX KEY: 0001011659 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 941234979 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15081 FILM NUMBER: 071121197 BUSINESS ADDRESS: STREET 1: 400 CALIFORNIA STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94104-1476 BUSINESS PHONE: 4157652969 MAIL ADDRESS: STREET 1: 400 CALIFORNIA STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94104-1476 8-K 1 uboc8k.txt ________________________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 14, 2007 UNIONBANCAL CORPORATION ______________________________________________________ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 001-15081 94-1234979 ________________________ ________________________ ___________________ (State of Incorporation) (Commission File Number) (IRS Employer Identification No.) 400 California Street San Francisco, CA 94104-1302 ___________________________________________________ (Address of principal executive offices) (Zip Code) Tel. (415) 765-2969 __________________________________________________ Registrant's telephone number, including area code Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ________________________________________________________________________________ ITEM 8.01 OTHER EVENTS. As previously disclosed, Union Bank of California, N.A. (the "Bank"), the Registrant's wholly-owned subsidiary, has been in discussions with the Office of the Comptroller of the Currency ("OCC") and the Financial Crimes Enforcement Network ("FinCEN") regarding the imposition of a cease and desist and civil money penalty order by the OCC and a civil money penalty order by FinCEN relating to the Bank's Bank Secrecy Act and anti-money laundering controls and processes. Additionally, the Bank has been cooperating in an investigation by the U.S. Department of Justice ("DOJ") pertaining to certain past activities involving the Bank's now-discontinued international banking business. The Bank sold its international banking business in October 2005. The Registrant announced today in a press release filed herewith as Exhibit 99.1 that the Bank has entered into a settlement with the OCC, FinCEN and the DOJ. The settlement involved the following actions: 1. On September 14, 2007, the Bank entered into a Stipulation and Consent to the Issuance of a Consent Order with the OCC and a Consent Order to a Civil Money Penalty and to Cease and Desist (the "Order"), copies of which are filed herewith as Exhibits 99.2 and 99.3, respectively. The Order supersedes the Memorandum of Understanding made by the Bank with the OCC on March 23, 2005. The Order imposes a civil money penalty of $10 million and requires the Bank to take actions to improve Bank Secrecy Act compliance. As previously disclosed in the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 under "Regulatory Matters," the amount of this penalty was charged in the second quarter of 2007. 2. On the same day, FinCEN executed an Assessment of Civil Money Penalty (the "Assessment") in the amount of $10 million, a copy of which is filed herewith as Exhibit 99.4. The Assessment provides that the $10 million penalty is deemed to be satisfied by the Bank's payment of the civil money penalty of $10 million to the OCC. 3. On September 17, 2007, the Bank entered into a Deferred Prosecution Agreement ("DPA") with the DOJ, a copy of which is filed herewith as Exhibit 99.5. Under the DPA, the DOJ has agreed to defer prosecution for past violations relating to Bank Secrecy Act and anti-money laundering matters in the Bank's now discontinued international banking business and to dismiss prosecution completely if the Bank meets the conditions of the Order for one year. In the DPA, the Bank also agreed to a make a payment of $21.6 million to the DOJ. The DOJ payment will be recorded in the quarter ending September 30, 2007, and will be treated as a cost of discontinued operations. Management does not expect its compliance with the Order, the Assessment or the DPA will have a material impact on the Registrant's financial condition or liquidity, nor on the Registrant's results of operations for periods subsequent to the current quarter. Management is committed to making all improvements necessary to strengthen the Bank's Bank Secrecy Act compliance program. The foregoing descriptions of the Order, the Assessment and the DPA are qualified in their entirety by reference to the complete text of the Order, the Assessment and the DPA which are filed as exhibits to this Current Report on Form 8-K and incorporated herein by reference. FORWARD-LOOKING STATEMENTS The following appears in accordance with the Private Securities Litigation Reform Act. This Current Report on Form 8-K includes forward-looking statements that involve risks and uncertainties. Such statements include, without limitation, management's expectations regarding the effect on the Bank of the Order, the Assessment and the DPA. Forward-looking statements involve certain risks and uncertainties, and actual results may differ materially from those discussed in each statement. Factors that could cause actual results to differ are discussed under the heading "Risk Factors" and in other sections of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2006, and in the Registrant's other current and periodic reports filed from time to time with the Commission. All forward-looking statements included in this Report are based on information available at the time of the Report, and the Registrant assumes no obligation to update any forward-looking statement. 2 ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (d) EXHIBITS. EXHIBIT NUMBER DESCRIPTION ______________ ___________ 99.1 Press Release dated September 17, 2007 99.2 Stipulation and Consent to the Issuance of a Consent Order 99.3 Consent Order to a Civil Money Penalty and to Cease and Desist 99.4 Assessment of Civil Money Penalty 99.5 Deferred Prosecution Agreement 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: September 17, 2007 UNIONBANCAL CORPORATION By: /s/ JOHN H. MCGUCKIN, JR. __________________________________ John H. McGuckin, Jr. EVP, General Counsel and Secretary (DULY AUTHORIZED OFFICER) 4 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ______________ ___________ 99.1 Press Release dated September 17, 2007 99.2 Stipulation and Consent to the Issuance of a Consent Order 99.3 Consent Order to a Civil Money Penalty and to Cease and Desist 99.4 Assessment of Civil Money Penalty 99.5 Deferred Prosecution Agreement 5 EX-99 2 ex99-1.txt EXHIBIT 99.1 EXHIBIT 99.1 Union Bank of NEWS RELEASE California FOR IMMEDIATE RELEASE (SEPTEMBER 17, 2007) CONTACT:STEPHEN JOHNSON (415) 765-3252 UNION BANK OF CALIFORNIA FINALIZES COMPLIANCE AGREEMENTS SAN FRANCISCO - Union Bank of California, N.A., the principal subsidiary of UnionBanCal Corporation (NYSE: UB), announced today that it entered into agreements to resolve previously disclosed issues relating to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. The bank said today that it remains committed to achieving an effective and sustained BSA/AML program. As part of the resolution, the bank: o Agreed to a consent order and payment of a civil money penalty of $10 million assessed concurrently by the Office of the Comptroller of the Currency (OCC) and the Financial Crimes Enforcement Network (FinCEN) relating to the bank's Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance controls and processes. A reserve for this penalty was established in the second quarter of 2007. o Entered into a deferred prosecution agreement (DPA) with the Department of Justice (DOJ) under which the government has agreed to defer prosecution of a BSA Program violation primarily related to the bank's discontinued international banking business and dismiss prosecution completely if the bank meets the conditions of the DPA, including complying with the OCC consent order for one year. The bank sold its international banking business in October 2005. o Agreed to a payment of $21.6 million to the DOJ. This expense will be recorded in the third quarter of 2007. Under the agreements, Union Bank of California committed to a number of improvements in its BSA/AML compliance program aimed at monitoring, detecting and reporting suspicious activities. The bank cooperated fully with its regulators, the OCC and FinCEN, and the DOJ in reaching this settlement. -more- Union Bank Finalizes Compliance Agreements Page 2 "Over the last several years, the bank has devoted considerable resources to eliminate weaknesses and correct deficiencies in its compliance programs. But that of itself does not diminish the seriousness of this matter. We remain firmly committed to the ongoing evaluation, enhancement and improvement of our processes and procedures," said Masaaki Tanaka, president and chief executive officer. "We will continue to work with our regulators to ensure that our focus on compliance is effective, sustainable and responsive so that failures of this kind are not repeated in the future." Based in San Francisco, UnionBanCal Corporation (NYSE:UB) is a bank holding company with assets of $53.2 billion at June 30, 2007. Its primary subsidiary, Union Bank of California, N.A., has 327 banking offices in California, Oregon and Washington, and 2 international offices. The company's Web site is located at WWW.UNIONBANK.COM Forward-Looking Statements The following appears in accordance with the Private Securities Litigation Reform Act. This press release includes forward-looking statements that involve risks and uncertainties. Such statements include, without limitation, management's expectations regarding the bank's compliance programs and their future effectiveness. Forward-looking statements involve certain risks and uncertainties and actual events may differ materially from those discussed in each statement. Factors that could cause actual results to differ are discussed under the heading "Risk Factors" and in other sections of the Company's annual report on Form 10-K for the year ended December 31, 2006, which is on file with the SEC, and in the Company's other current and periodic reports filed from time to time with the SEC. All forward-looking statements included in this press release are based on information available at the time of the release, and the Company assumes no obligation to update any forward-looking statement. ### EX-99 3 ex99-2.txt EXHIBIT 99.2 EXHIBIT 99.2 UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY _________________________________________ ) IN THE MATTER OF: ) ) AA-EC-07-58 Union Bank of California, N.A. ) San Francisco, California ) _________________________________________) STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER The Comptroller of the Currency of the United States of America ("Comptroller") intends to assess a civil money penalty and to impose a cease and desist order against Union Bank of California, N.A., San Francisco, California ("Bank") pursuant to 12 U.S.C. ss. 1818(b) and 1818(i)(2) for violations of the Bank Secrecy Act, 31 U.S.C. ss.ss. 5311, et seq. and OCC regulations 12 C.F.R. ss.ss. 21.11 and 21.21 thereunder, and 12 U.S.C. ss. 1818(s). The Bank, in the interest of compliance and cooperation, enters into this Stipulation and Consent to the Issuance of a Consent Order for a Civil Money Penalty and to Cease and Desist dated 9/14/07 ("Stipulation") (i) without ------- any adjudication on the merits and (ii) without admitting or denying the Comptroller's Findings, except as to jurisdiction (Article I below), which jurisdiction is admitted; In consideration of the above premises, the Comptroller, through his authorized representative, and the Bank, through its duly elected and acting Board of Directors, hereby stipulate and agree to the following: ARTICLE I JURISDICTION (1) The Bank is a national banking association chartered and examined by the Comptroller pursuant to the National Bank Act of 1864, as amended, 12 U.S.C. ss. 1 ET SEQ. (2) The Comptroller is "the appropriate Federal banking agency" regarding the Bank pursuant to 12 U.S.C. ss.ss. 1813(q) and 1818(b). (3) The Bank is an "insured depository institution" within the meaning of 12 U.S.C. ss. 1818(b)(1). (4) As a result of this Order, (a) the Bank is not an "eligible bank" pursuant to 12 C.F.R. ss. 5.3(g)(4) for the purposes of 12 C.F.R. Part 5 regarding rules, policies and procedures for corporate activities, unless otherwise informed in writing by the OCC. (b) the Bank is not subject to the limitation of 12 C.F.R. ss. 5.51(c)(6)(ii) for the purposes of 12 C.F.R. ss. 5.51 requiring OCC approval of a change in directors and senior executive officers, unless otherwise informed in writing by the OCC. (c) the Bank is not subject to the limitation on golden parachute and indemnification payments provided by 12 C.F.R. ss. 359.1(f)(1)(ii)(C) and 12 C.F.R. ss. 5.51(c)(6)(ii), unless otherwise informed in writing by the OCC. 2 (d) the Bank's status as an "eligible bank" remains unchanged pursuant to 12 C.F.R. ss. 24.2(e)(4) for the purposes of 12 C.F.R. Part 24 regarding community and economic development, unless otherwise informed in writing by the OCC. ARTICLE II AGREEMENT (1) The Bank, without admitting or denying any wrongdoing, hereby consents and agrees to issuance of the Consent Order for a Civil Money Penalty and to Cease and Desist ("Order") by the Comptroller. (2) The Bank further agrees that said Order shall be deemed an "order issued with the consent of the depository institution" as defined in 12 U.S.C. ss. 1818(h)(2), and consents and agrees that said Order shall become effective upon its issuance and shall be fully enforceable by the Comptroller under the provisions of 12 U.S.C. ss. 1818(i). Notwithstanding the absence of mutuality of obligation, or of consideration, or of a contract, the Comptroller may enforce any of the commitments or obligations herein undertaken by the Bank under his supervisory powers, including 12 U.S.C. ss. 1818(i), and not as a matter of contract law. The Bank expressly acknowledges that neither the Bank nor the Comptroller has any intention to enter into a contract. (3) The Bank also expressly acknowledges that no officer or employee of the Comptroller has statutory or other authority to bind the United States, the U.S. Treasury Department, the Comptroller, or any other federal bank regulatory agency or entity, or any officer or employee of any of those entities to a contract affecting the Comptroller's exercise of his supervisory responsibilities. 3 (4) The Bank further agrees not to take any action or to make or permit to be made any public statement denying, directly or indirectly, the specific acts, omissions, or violations referenced in this Order or otherwise creating the impression that this Order is without factual basis. If the Bank violates this provision, the OCC may set aside this settlement and commence administrative proceedings on the actions alleged herein. (5) The OCC does release and discharge the Bank from all potential claims and charges that have been or might have been asserted by the OCC based on the violations described in the Comptroller's Findings set forth in Article I of the Order to the extent known to the OCC as of the effective date of the Order. However, the violations alleged in Article I of the Order may be utilized by the OCC in future enforcement actions to establish a pattern or practice of violations or the continuation of a pattern or practice of violations. This release shall not preclude or affect any right of the OCC to determine and ensure compliance with the terms and provisions of this Stipulation and the Order. (6) The Bank agrees that the provisions of this Stipulation and Consent shall not inhibit, estop, bar, or otherwise prevent the Comptroller from taking any other action affecting the Bank if, at any time, it deems it appropriate to do so to fulfill the responsibilities placed upon it by the several laws of the United States of America. ARTICLE III WAIVERS (1) The Bank, by signing this Stipulation and Consent, hereby waives: (a) the issuance of a Notice of Charges pursuant to 12 U.S.C. ss. 1818(b); 4 (b) any and all procedural rights available in connection with the issuance of the Order; (c) all rights to a hearing and a final agency decision pursuant to 12 U.S.C. ss. 1818(i), 12 C.F.R. Part 19 (d) all rights to seek any type of administrative or judicial review of the Order; and (e) any and all rights to challenge or contest the validity of the Order. IN TESTIMONY WHEREOF, the undersigned, authorized by the Comptroller as his representative, has hereunto set his hand on behalf of the Comptroller. /s/ DELORA NG JEE 9/14/07 _______________________ _______ Delora Ng Jee Date Deputy Comptroller Large Bank Supervision 5 IN TESTIMONY WHEREOF, the undersigned, as the duly elected and acting Board of Directors of the Bank, have hereunto set their hands on behalf of the Bank. /s/ NORIMICHI KANARI 8/28/07 ______________________________ ________ Norimichi Kanari Date /s/ AIDA M. ALVAREZ 8/28/07 ______________________________ ________ Aida M. Alvarez Date /s/ DAVID R. ANDREWS ______________________________ ________ David R. Andrews Date /s/ NICHOLAS B. BINKLEY 8/28/07 ______________________________ ________ Nicholas B. Binkley Date /s/ L. DALE CRANDALL 8/28/07 ______________________________ ________ L. Dale Crandall Date /s/ MURRAY H. DASHE 8/28/07 ______________________________ ________ Murray H. Dashe Date /s/ RICHARD D. FARMAN 8/28/07 ______________________________ ________ Richard D. Farman Date /s/ PHILIP B. FLYNN ______________________________ ________ Philip B. Flynn Date /s/ MICHAEL J. GILLFILLAN 8/28/07 ______________________________ ________ Michael J. Gillfillan Date 6 /s/ MOHAN S. GYANI ______________________________ ________ Mohan S. Gyani Date /s/ RONALD L. HAVNER JR. ______________________________ ________ Ronald L. Havner Jr. Date /s/ MARY S. METZ 8/28/07 ______________________________ ________ Mary S. Metz Date /s/ J. FERNANDO NIEBLA 8/28/07 ______________________________ ________ J. Fernando Niebla Date /s/ MASASHI OKA 8/28/07 ______________________________ ________ Masashi Oka Date /s/ KYOTA OMORI 8/28/07 ______________________________ ________ Kyota Omori Date /s/ MASAAKI TANAKA 8/28/07 ______________________________ ________ Masaaki Tanaka Date /s/ DEAN A. YOOST 8/28/07 ______________________________ ________ Dean A. Yoost Date 7 EX-99 4 ex99-3.txt EXHIBIT 99.3 EXHIBIT 99.3 UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY COMPTROLLER OF THE CURRENCY ______________________________________ ) IN THE MATTER OF: ) ) ) AA-EC-07-58 Union Bank of California, N.A. ) San Francisco, California ) ______________________________________) CONSENT ORDER TO A CIVIL MONEY PENALTY AND TO CEASE AND DESIST The Comptroller of the Currency of the United States of America ("Comptroller"), through his National Bank Examiner, has supervisory authority over Union Bank of California, N.A., San Francisco, CA ("Bank"). The Bank, by and through its duly elected and acting Board of Directors ("Board"), has executed a "Stipulation and Consent to the Issuance of a Consent Order," dated 9/14/07, that is accepted by the Comptroller. By this ------- Stipulation and Consent, which is incorporated by reference, the Bank has consented to the issuance of this Consent Order for a Civil Money Penalty and to Cease and Desist ("Order") by the Comptroller. This Order supersedes a Memorandum of Understanding (MOU) made by the Bank with the Comptroller on March 23, 2005, as of the date of this Order. ARTICLE I COMPTROLLER'S FINDINGS The Comptroller finds, and the Bank neither admits nor denies, the following: (1) During the period November 2003 through December 2005, the Bank violated 12 C.F.R. ss.21.11 when it failed adequately to monitor its casa de cambio (CDC) accounts for suspicious activity during a ten month period, and failed to identify suspicious activity that occurred during January 2004 through August 2005 in certain CDC accounts and to file hundreds of related Suspicious Activity Reports (SARs) in a timely manner. The Bank's failure to monitor the CDC activity resulted in the movement of millions of dollars of suspected proceeds of drug sales through certain CDC accounts at the Bank without detection or reporting of the suspicious transactions. (2) The Bank entered into a Memorandum of Understanding (MOU) with the Comptroller on March 23, 2005. The MOU required implementation of a Bank-wide BSA compliance program, improved internal controls for monitoring high risk accounts and transactions, enhanced training and audit function, and enhanced due diligence procedures reasonably designed to detect and report instances of money laundering through certain private banking customer accounts. The MOU specifically required the Bank to improve its processes for identifying and reporting suspicious transactions. (3) During the 2006 Bank Secrecy Act (BSA) compliance examination of the Bank ("2006 BSA exam"), OCC examiners determined that the Bank had not achieved compliance with the terms of the March 2005 MOU. (a) While the Bank has put forth significant effort to correct BSA deficiencies and made progress in improving BSA compliance since signing the MOU, the actions 2 taken have been insufficient to ensure: (i) compliance with the BSA; (ii) implementation of appropriate customer due diligence processes for identification and monitoring of accounts and transactions that pose greater than normal risks; and (iii) processes, personnel, and control systems to ensure implementation of, adherence to, and compliance with the Bank's BSA compliance program, as required by the terms of the MOU. (b) The Financial Intelligence Unit ("FIU") is the Bank's enterprise-wide BSA compliance program for suspicious activity report (SAR) processes. During the period since entry of the MOU, the Bank's FIU was ineffective in detecting and reporting suspicious activity because of staff skill deficiencies and weak oversight, and it lacked adequate internal controls to detect and report suspicious activity, as required for compliance with the terms of the MOU. (c) Consequently, there was a serious breakdown in the Bank's SAR processes on an organization-wide basis. (d) The Bank's customer due diligence controls, particularly for existing customer profiles and across various lines of businesses, were insufficient to facilitate meaningful transaction analysis and an effective SAR process, as required for compliance with the terms of the MOU. (e) The Bank's failure to file SARs, its weak SAR processes, and inadequate staffing, oversight and internal controls in its FIU, also resulted in a failure to correct problems previously reported to the Bank by the OCC in the MOU. 3 (4) As a result of the 2006 BSA exam findings, the OCC determined that the Bank violated 12 C.F.R. ss.21.11 when it failed to detect and file SARs in a timely manner in connection with certain Bank account activity. (5) In addition, as a result of the 2006 BSA exam findings, the OCC determined that the Bank violated 12 C.F.R.ss.21.21 when it failed to establish and implement a Bank-wide BSA compliance program reasonably designed to assure and monitor its compliance with the BSA. (6) The Bank's failure during 2005-2006 to correct serious defects in its BSA compliance program that were previously reported to the Bank by the OCC in the MOU constitutes a repeat problem within the meaning of 12 U.S.C.ss.1818(s). ARTICLE II CIVIL MONEY PENALTY Pursuant to the authority vested in it by the Federal Deposit Insurance Act, as amended, 12 U.S.C. ss. 1818, the Comptroller hereby orders that: (1) The Bank shall pay a civil money penalty in the amount of ten million dollars ($10,000,000) upon execution of this Order. (a) If a check is the selected method of payment, the check shall be made payable to the Treasurer of the United States and shall be delivered to: Comptroller of the Currency, P.O. Box 979012, St. Louis, Missouri 63197-9000. (b) If a wire transfer is the selected method of payment, it must be sent to the Comptroller's account #2071-0001, ABA Routing # 021030004. (c) The Bank shall submit a copy of the check to the Director, Enforcement & Compliance Division, 250 E Street, S.W., Washington, D.C. 20219. 4 (2) This Order shall be enforceable to the same extent and in the same manner as an effective and outstanding order that has been issued and has become final pursuant to 12 U.S.C. ss.ss. 1818(h) and (i) (as amended). ARTICLE III CEASE AND DESIST ORDER Pursuant to the authority vested in it by the Federal Deposit Insurance Act, as amended, 12 U.S.C. ss. 1818, the Comptroller hereby orders that: A. SUSPICIOUS ACTIVITY REPORTS (1) Within ninety (90) days of the date of this Order, the Board shall ensure that Bank management finalizes improvements and maintains Bank adherence to a written program to establish a system of internal controls and processes to ensure compliance with the requirements to file SARs set forth in 12 C.F.R. ss. 21.11, as amended. At a minimum, this written program shall establish risk-based procedures for identifying, escalating, investigating and reporting known or suspected violations of Federal law, violations of the BSA, or suspicious transactions related to money laundering activity, including suspicious activity relating to the opening of new accounts, the monitoring of current accounts, and the transfer of funds by or through the Bank. (2) The Board shall ensure that Bank management has established processes, personnel, and control systems to ensure the effective implementation of, and adherence to, the program developed pursuant to Paragraph A of this Article, and that there are appropriate monitoring criteria designed to ensure proper identification and timely reporting of all known or suspected violations of law and suspicious transactions. 5 (3) The Board shall ensure that Bank management uses investigative case file standards that are consistent with the SAR Decision-Making Process section of the FFIEC Bank Secrecy Act/Anti-Money Laundering Examination Manual. (4) Upon completion, a copy of this written program shall be submitted to Deputy Comptroller Delora Ng Jee ("Deputy Comptroller") for review and determination of no supervisory objection. B. BANK SECRECY ACT OFFICER AND SUPPORT STAFF (1) Within ninety (90) days of the date of this Order, the Board shall review the Bank's BSA Officer's authority, independence, responsibilities and skills and determine whether they are appropriate in light of the Bank's overall risk profile. In particular, the Board shall ensure an effective structure is in place so that the BSA Officer has sufficient authority to carry out his/her assigned responsibilities in implementing the Bank's BSA program. The Board shall also determine whether the BSA Officer's supporting staff has sufficient authority, responsibilities, structure, independence, competencies, and capabilities to support the BSA Officer. (2) Upon completion, a copy of the results of the Board's review and analysis, with any corrective action plan deemed necessary, shall be submitted to the Deputy Comptroller for review and determination of no supervisory objection. C. BANK SECRECY ACT INTERNAL CONTROLS (1) Within ninety (90) days of the date of this Order, the Board shall ensure that Bank management finalizes improvements and maintains Bank adherence to its written program of policies and procedures to provide for compliance with the BSA and for the appropriate identification and monitoring of transactions that pose greater than normal risk for compliance 6 with the BSA. This program should ensure effective implementation and execution of the following: (a) a governance structure, with clear lines of responsibility beginning with senior management and including each affected line of business ("LOB"), in which accountability for BSA compliance is required and is clearly communicated and enforced; (b) well-defined policies and procedures for investigating and resolving transactions that are identified as unusual or suspicious; and (c) a formal evaluation of the level of knowledge of the Bank's operational and supervisory personnel of the Bank's policies and procedures for identifying transactions that pose greater than normal risk for compliance with the BSA in order to determine whether additional or enhanced training should be conducted; (2) Upon completion, a copy of the program shall be submitted to the Deputy Comptroller for review and determination of no supervisory objection. (3) Within ninety (90) days of the date of this Order, the Board shall ensure that Bank management finalizes and continues improvements to strengthen risk-based processes to obtain appropriate customer due diligence information when opening new accounts or renewing or modifying an existing customer's account that includes: (a) the identification of all customers, and beneficial owners of accounts on a risk basis, in compliance with 31 C.F.R. ss. 103.121 and the Bank's customer due diligence procedures; 7 (b) a methodology for assigning risk levels to the Bank's customer base that considers factors such as type of customer, type of product or service, and geographic location; (c) for high risk accounts, as defined by the Bank's policy/methodology, that Bank management shall determine and conduct the appropriate level of enhanced due diligence and monitoring necessary for those categories of customers that pose a heightened risk of conducting potentially illicit activities at or through the Bank; (d) the BSA Officer or his/her designee shall ensure through periodic assessments whether the Bank's enhanced due diligence and monitoring activities are appropriate and require timely corrective action if necessary; and (e) escalation procedures to ensure that the Bank will not open an account for a customer, and shall consider closing any existing account of a customer, if the information available to the Bank indicates that the customer's relationship with the Bank would be detrimental to the reputation of the Bank. (4) The Board shall notify the Deputy Comptroller in writing when its customer due diligence processes are finalized. (5) Within ninety (90) days of the date of this Order, the Board shall ensure that Bank management conducts a management information system (MIS) assessment, and develops a plan that will enable management to more effectively identify, monitor, and manage the Bank's BSA risks on a timely basis. This plan should address any system limitations, provide for appropriate reporting, and consider the following: 8 (a) any trends in unusual or suspicious activity that have been identified and reported by the Bank, as well as the product lines, departments and branches in which suspicious activity has occurred; (b) high risk accounts by line of business and type of business, countries of origin, location of the customers' businesses and residences, average dollar, and transaction volume of activity; (c) information regarding any type of subpoena received by the Bank, any other law enforcement inquiry directed to the Bank, and any action taken by the Bank on the affected account; (d) information regarding senior foreign political figures as defined in Section 312 of the USA PATRIOT Act and foreign correspondent accounts; (e) information regarding compliance with this Order; and (f) any additional information deemed necessary or appropriate by the BSA Officer or the Bank. (6) Upon completion, a copy of the MIS plan shall be submitted to the Deputy Comptroller for review and determination of no supervisory objection. (7) Within one hundred eighty days (180) of the date of this Order, the Board shall ensure that Bank management implements the MIS plan. (8) The Board shall ensure that the Bank has processes, personnel, and control systems to implement and adhere to the program developed pursuant to Paragraph C of this Article. 9 D. GENERAL STATEMENT ON PERFORMANCE EXPECTATIONS (1) Within one hundred eighty (180) days of the date of this Order, the Board shall ensure that Bank management achieves and maintains compliance with this Order and shall ensure that an effective BSA program is maintained in accordance with 12 C.F.R. 21.21; (2) The Board shall ensure that the Bank has processes, personnel, and control systems to ensure implementation of and adherence to Article III of this Order. (3) The Board shall monitor the Bank's BSA program activity including: implementation plan effectiveness; prompt identification and reporting of deficiencies; and timely corrective action through appropriate audit and compliance reviews. E. OTHER ACTION (1) Although the Board is by this Order required to submit certain proposed actions and programs for the review or prior written determination of no supervisory objection of the Deputy Comptroller, the Board has the ultimate responsibility for proper and sound management of the Bank. (2) It is expressly and clearly understood that if, at any time, the Comptroller deems it appropriate in fulfilling the responsibilities placed upon it by the several laws of the United States of America to undertake any action affecting the Bank, nothing in this Order shall in any way inhibit, estop, bar or otherwise prevent the Comptroller from doing so. (3) Any time limitations imposed by this Order shall begin to run from the date of this Order. Such time limitations may be extended in writing by the Deputy Comptroller for good cause upon written application by the Board. Any written requests to extend any time limitations submitted pursuant to this Article shall include a statement setting forth in detail the special circumstances that prevent the Bank from complying with any provision, that require the 10 Deputy Comptroller to exempt the Bank from any provision; or that require an extension of any time frame within this Order. All such requests shall be accompanied by relevant supporting documentation. The Deputy Comptroller's decision regarding the request is final and not subject to further review. (4) The provisions of this Order are effective upon issuance of this Order by the Comptroller, through his authorized representative whose hand appears below, and shall remain effective and enforceable, except to the extent that, and until such time as, any provisions of this Order shall have been amended, suspended, waived, or terminated in writing by the Comptroller. (5) In each instance in this Order in which the Board is required to ensure adherence to, and undertake to perform certain obligations of the Bank and Bank management, it is intended to mean that the Board shall: (a) authorize and adopt such actions on behalf of the Bank as may be necessary for the Bank to perform its obligations and undertakings under the terms of this Order; (b) require the timely reporting by Bank management of such actions directed by the Board to be taken under the terms of this Order; (c) follow-up on any non-compliance with such actions in a timely and appropriate manner; and (d) require corrective action be taken in a timely manner of any non-compliance with such actions. (6) This Order is intended to be, and shall be construed to be, a final order issued pursuant to 12 U.S.C. ss. 1818(b), and expressly does not form, and may not be construed to form, a contract binding on the Comptroller or the United States. 11 (7) The terms of this Order, including this paragraph, are not subject to amendment or modification by any extraneous expression, prior agreements or prior arrangements between the parties, whether oral or written. IT IS SO ORDERED, this 14 day of SEPTEMBER, 2007. /s/ DELORA NG JEE __________________________ Delora Ng Jee Deputy Comptroller Large Bank Supervision 12 EX-99 5 ex99-4.txt EXHIBIT 99.4 EXHIBIT 99.4 UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY FINANCIAL CRIMES ENFORCEMENT NETWORK IN THE MATTER OF: ) ) ) ) NUMBER 2007-02 UNION BANK OF CALIFORNIA, N.A. ) SAN FRANCISCO, CALIFORNIA ) ASSESSMENT OF CIVIL MONEY PENALTY I. INTRODUCTION Under the authority of the Bank Secrecy Act and regulations issued pursuant to that Act,(1) the Financial Crimes Enforcement Network has determined that grounds exist to assess a civil money penalty against Union Bank of California, N.A. ("Union Bank" or the "Bank"). To resolve this matter, and only for that purpose, Union Bank has entered into a CONSENT TO THE ASSESSMENT OF CIVIL MONEY PENALTY ("CONSENT") without admitting or denying the determinations by the Financial Crimes Enforcement Network, as described in Sections III and IV below, except as to jurisdiction in Section II below, which is admitted. The CONSENT is incorporated into this ASSESSMENT OF CIVIL MONEY PENALTY ("ASSESSMENT") by this reference. II. JURISDICTION Union Bank is a wholly owned subsidiary of UnionBanCal Corporation, a publicly traded bank holding company incorporated in Delaware, and based in San Francisco, California. UnionBanCal Corporation is a majority owned subsidiary of Mitsubishi UFJ Financial Group, Inc., Tokyo, Japan. As of June 30, 2007, Union Bank had assets of approximately $53 billion. Union Bank provides a wide range of financial services to consumers, small businesses, middle-market companies and major corporations - primarily in California, Oregon and Washington. Union Bank operates 317 full service branches in California, four full service branches in Oregon and Washington, and international offices in Canada and the Cayman Islands. Administrative offices are also maintained in Arizona, Illinois, Nevada, New York, Virginia, and Texas. The Office of the Comptroller of the Currency is the Bank's Federal functional regulator and examines Union Bank for compliance with the Bank Secrecy Act, its implementing regulations and similar rules under Title 12 of the United States Code. __________________ (1) 31 U.S.C. ss5311 et seq. and 31 C.F.R. Part 103. -2- At all relevant times, Union Bank was a "financial institution" and a "bank" within the meaning of the Bank Secrecy Act and the regulations issued pursuant to that Act.(2) III. DETERMINATIONS A. SUMMARY The anti-money laundering program at Union Bank was deficient in one of the four core elements. Namely, Union Bank failed to establish and implement adequate internal controls with respect to the Bank Secrecy Act, particularly the suspicious activity reporting requirements. Union Bank failed to implement an adequate anti-money laundering program reasonably designed to identify and report transactions that exhibited indicia of money laundering or other suspicious activity, considering the types of products and services offered by the Bank, the volume of its business, and the nature of its customers. Additionally, Union Bank late filed numerous suspicious activity reports, and filed numerous suspicious activity reports with incomplete information. B. VIOLATIONS OF THE REQUIREMENT TO IMPLEMENT AN ANTI-MONEY LAUNDERING PROGRAM The Financial Crimes Enforcement Network has determined that Union Bank violated the requirement to establish and implement an adequate anti-money laundering program. Since April 24, 2002, the Bank Secrecy Act and its implementing regulations have required banks to establish and implement anti-money laundering programs.(3) The anti-money laundering program of Union Bank would meet these requirements if the program were to conform to rules of the Office of the Comptroller of the Currency that govern anti-money laundering programs. Since 1987, the Office of the Comptroller of the Currency has required a program reasonably designed to assure and monitor compliance with reporting and record keeping requirements under the Bank Secrecy Act.(4) Reporting requirements under the Bank Secrecy Act include the requirement to report suspicious transactions.(5) The Office of the Comptroller of the Currency also requires that an anti-money laundering program contain the following elements: (1) a system of internal controls; (2) independent testing for compliance; (3) the designation of an individual, or individuals, to coordinate and monitor day-to-day compliance; and (4) training of appropriate personnel.(6) Union Bank failed to implement internal controls reasonably designed to comply with the Bank Secrecy Act. Union Bank conducted business without effective internal controls, as appropriate and practical, to detect and timely report suspicious activity. Union Bank did not consistently gather and review, on a risk graded basis, important documentation concerning the nature, products, services, source of funds, and normal range of activities for certain customer accounts. Furthermore, important customer documentation that was gathered was not consistently shared __________________ (2) 31 U.S.C. ss. 5312(a)(2) and 31 C.F.R. ss. 103.11. (3) 31 U.S.C. ss. 5318(h)(1) and 31 C.F.R. ss. 103.120. (4) 12 C.F.R. ss. 21.21(b). (5) 31 C.F.R. ss. 103.18. (6) 12 C.F.R. ss. 21.21(c). -3- across relevant departments and personnel within the Bank. As a result, Union Bank's policies, procedures and controls failed to ensure that certain customer information gathered by the Bank was effectively used to comply with the Bank Secrecy Act. Appropriate Bank personnel often lacked information necessary to assess, in an accurate and meaningful manner, the risk of money laundering or other illicit activity posed by customers and their activities. As a result, Union Bank failed to detect and report instances of suspicious activity in a timely manner consistent with the requirements of the Bank Secrecy Act as detailed in section III (C) below. Union Bank failed to adequately monitor transactions of high risk customers to determine if the actual activity was commensurate with expected activity, and/or lacked any apparent business or legal purpose. This failure was particularly evident with respect to direct account relationships with a number of Mexican casas de cambio. During the relevant period of time, casas de cambio conducted thousands of wire transfers through Union Bank, totaling billions of dollars. Union Bank failed to monitor casa de cambio transactions and report suspicious activity for an extended period of time, despite knowledge of the heightened risk of money laundering posed by casas de cambio. In 2004, Bank management acknowledged the need for improved processes to manage the risk of money laundering, and ensure effective detection and reporting of suspicious activity on a timely basis. In an effort to centralize suspicious activity reporting processes, management organized a Financial Intelligence Unit (FIU) responsible for transaction monitoring, and identification and reporting of suspicious transactions on an enterprise wide basis. However, weak management and improper staffing within the FIU, together with inadequate processes to ensure timely and appropriate investigation and follow up on suspicious activity alerts, impaired the FIU's ability to file complete and timely suspicious activity reports. As a result, Union Bank violated the suspicious transaction reporting requirements of 31 U.S.C. ss. 5318(g) and 31 C.F.R. ss. 103.18 by failing to timely and/or accurately file a substantial number of suspicious activity reports. C. VIOLATIONS OF THE REQUIREMENT TO REPORT SUSPICIOUS TRANSACTIONS The Financial Crimes Enforcement Network has determined that Union Bank violated the suspicious transaction reporting requirements of the Bank Secrecy Act and regulations issued pursuant to that Act. These reporting requirements impose an obligation on financial institutions to report transactions that involve or aggregate to at least $5,000, are conducted by, at, or through the financial institution, and that the institution "knows, suspects, or has reason to suspect" are suspicious.(7) A transaction is "suspicious" if the transaction: (1) involves funds derived from illegal activities, or is conducted to disguise funds derived from illegal activities; (2) is designed to evade the reporting or record keeping requirements of the Bank Secrecy Act or regulations under the Bank Secrecy Act; or (3) has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including background and possible purpose of the transaction.(8) __________________ (7) 31 C.F.R. ss. 103.18(a)(2). (8) 31 C.F.R. ss. 103.18(a)(2)(i) - (iii). -4- Financial institutions must report suspicious transactions by filing suspicious activity reports and must generally do so no later than thirty (30) calendar days after detecting facts that may constitute a basis for filing such reports.(9) If no suspect was identified on the date of detection, a financial institution may delay the filing for an additional thirty (30) calendar days in order to identify a suspect, but in no event may the financial institution file a suspicious activity report more than sixty (60) calendar days after the date of initial detection.(10) The absence of effective internal controls at Union Bank resulted in numerous violations of the requirement to timely report suspicious transactions. Union Bank lacked sufficient policies, procedures and controls necessary to timely detect and examine evidence of money laundering, and report suspicious activity, as required by the Bank Secrecy Act. As a result, the Bank failed to adequately monitor high risk customers and transactions for suspicious activity. Union Bank filed over one thousand late suspicious activity reports, involving total dollar amounts in excess of $1 billion, during 2005 and 2006. Union Bank's reporting delays impaired the usefulness of the information in the suspicious activity reports by failing to provide it to law enforcement on a more timely basis. In addition to late filings, Union Bank filed incomplete suspicious activity reports in direct contradiction to the instructions to the suspicious activity report form. A review of suspicious activity reports filed by Union Bank, between February 2005 and January 2006, disclosed over 1,000 instances where reporting fields on suspicious activity report forms were left blank or incorrectly completed. The Bank's incomplete suspicious activity reports failed to provide law enforcement with important information, and impaired further analysis and investigation of the activity by law enforcement. IV. CIVIL MONEY PENALTY Under the authority of the Bank Secrecy Act and the regulations issued pursuant to that Act,(11) the Financial Crimes Enforcement Network has determined that a civil money penalty is due for violations of the Bank Secrecy Act and the regulations issued pursuant to that Act, as described in this ASSESSMENT. Based on the seriousness of the violations at issue in this matter, and the financial resources available to Union Bank, the Financial Crimes Enforcement Network has determined that the appropriate penalty in this matter is $10,000,000. V. CONSENT TO ASSESSMENT To resolve this matter, and only for that purpose, Union Bank without admitting or denying either the facts or determinations described in Sections III and IV above, except as to jurisdiction in Section II, which is admitted, consents to the assessment of a civil money penalty in the sum of $10,000,000. This assessment is being issued concurrently with a Cease and Desist __________________ (9) 31 C.F.R. ss. 103.18. (10) 31 C.F.R. ss. 103.18(b)(3). (11) 31 U.S.C. ss. 5321 and 31 C.F.R. ss. 103.57. -5- Order and $10,000,000 civil money penalty by the Office of the Comptroller of the Currency against Union Bank. This assessment is being issued along with a Deferred Prosecution Agreement and accompanying $21,600,000 forfeiture by the Department of Justice. As for the method of payment, the $10,000,000 civil money penalty by the Financial Crimes Enforcement Network shall be deemed as satisfied by a single $10,000,000 payment to the Department of the Treasury. Union Bank agrees to pay the amount of $10,000,000 within five (5) business days of this ASSESSMENT to the Department of the Treasury. Union Bank recognizes and states that it enters into the CONSENT freely and voluntarily and that no offers, promises, or inducements of any nature whatsoever have been made by the Financial Crimes Enforcement Network or any employee, agent, or representative of the Financial Crimes Enforcement Network to induce Union Bank to enter into the CONSENT, except for those specified in the CONSENT. Union Bank understands and agrees that the CONSENT embodies the entire agreement between Union Bank and the Financial Crimes Enforcement Network relating to this enforcement matter only, as described in Section III above. Union Bank further understands and agrees that there are no express or implied promises, representations, or agreements between Union Bank and the Financial Crimes Enforcement Network other than those expressly set forth or referred to in this document and that nothing in the CONSENT or in this ASSESSMENT is binding on any other agency of government, whether federal, state, or local. VI. RELEASE Union Bank understands that execution of the CONSENT, and compliance with the terms of this ASSESSMENT and the CONSENT, constitute a complete settlement and release of civil liability for the violations of the Bank Secrecy Act and regulations issued pursuant to that Act as described in the CONSENT and this ASSESSMENT against Union Bank. By: /s/ JAMES H. FREIS, JR. ________________________________________ James H. Freis, Jr., Director FINANCIAL CRIMES ENFORCEMENT NETWORK U.S. Department of the Treasury Date: September 14, 2007 ______________________________________ EX-99 6 ex99-5.txt EXHIBIT 99.5 EXHIBIT 99.5 UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA SAN DIEGO ____________________________________ ) UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) No.________________________________ ) v. ) ) UNION BANK OF CALIFORNIA, N.A., ) ) Defendant, ) ____________________________________) DEFERRED PROSECUTION AGREEMENT ______________________________ Defendant Union Bank of California, N.A. ("UBOC"), by and through its attorneys, Gibson, Dunn & Crutcher, LLP, pursuant to authority granted by its Board of Directors, and the United States Department of Justice, Criminal Division (hereinafter, "the United States"), enter into this Deferred Prosecution Agreement (the "Agreement"). 1. UBOC shall waive indictment and agree to the filing of a ONE (1) count information in the United States District Court for the Southern District of California, San Diego, charging it with failing to maintain an effective anti-money laundering program, in violation of Title 31, United States Code, Sections 5318(h)(1) and 5322(a). 2. UBOC accepts and acknowledges responsibility for its conduct as set forth in the Factual Statement attached hereto and incorporated by reference herein as Appendix A (hereinafter, "Factual Statement"). 3. UBOC expressly agrees that it shall not, through its attorneys, Board of Directors, agents, officers or employees, make any public statement contradicting any statement of fact contained in the Factual Statement. Any such contradictory public statement by UBOC, its 1 attorneys, Board of Directors, agents, officers or employees, shall constitute a breach of this Agreement as governed by Paragraph 12 of this Agreement, and UBOC would thereafter be subject to prosecution pursuant to the terms of this Agreement. The decision of whether any statement by any such person contradicting a fact contained in the Factual Statement will be imputed to UBOC for the purpose of determining whether UBOC has breached this Agreement shall be in the sole and reasonable discretion of the United States. Upon the United States' notification to UBOC of a public statement by any such person that in whole or in part contradicts a statement of fact contained in the Factual Statement, UBOC may avoid breach of this Agreement by publicly repudiating such statement within two business days after notification by the United States. This paragraph is not intended to apply to any statement made by any individual in the course of any criminal, regulatory, or civil case initiated by a governmental or private party against such individual. In addition, consistent with UBOC's obligation not to contradict any statement of fact set forth in Appendix A, UBOC may take good faith positions in litigation involving any person or entity not a party to this Agreement. Nothing stated in this Agreement is intended to operate or shall operate as a waiver of UBOC's rights under Federal Rule of Evidence 408. 4. UBOC agrees that it, in accordance with applicable laws: (a) shall provide to the United States, on request, any relevant document, electronic data, or other object concerning matters relating to this investigation in UBOC's possession, custody and/or control. Whenever such data is in electronic format, UBOC shall provide access to such data and assistance in operating computer and other equipment as necessary to retrieve the data. This obligation shall not include production of materials covered by the attorney-client privilege or the work product doctrine; and (b) shall in all material aspects completely, fully and timely comply with all the record keeping and reporting requirements imposed upon it by the Bank Secrecy Act, 31 U.S.C. 2 ss.ss. 5311 through 5332 and the Bank Secrecy Act implementing regulations, as well as the remedial actions set forth in the Department of the Treasury, Office of the Comptroller of the Currency's CONSENT ORDER, No. AA-EC-07-58. 5. The United States has determined that it could institute a criminal or civil forfeiture action against certain funds that went through certain accounts at UBOC. UBOC hereby acknowledges that in excess of $21,600,000.00 may have been involved in transactions in accounts in violation of Title 18, United States Code, Sections 1956 and 1957 and, therefore at least some or all of the funds deposited in such accounts could be subject to forfeiture to the United States pursuant to Title 18, United States Code, Sections 981 and 982. In lieu of the United States instituting a civil or criminal forfeiture action against those funds, UBOC hereby agrees to settle and does settle any and all civil and criminal forfeiture claims presently held by the United States against those funds for the sum of $21,600,000.00. UBOC hereby agrees that the funds paid by UBOC pursuant to this Deferred Prosecution Agreement shall be considered substitute RES for the purpose of forfeiture to the United States pursuant to 18 U.S.C. ss. 981, and UBOC releases any and all claims it may have to such funds. 6. In consideration of UBOC's remedial actions to date and its willingness to: (i) acknowledge responsibility for its conduct as detailed in the Factual Statement; (ii) continue its cooperation with the United States; (iii) demonstrate its future good conduct and compliance in all material aspects with the Bank Secrecy Act and all of its implementing regulations, including, but not limited to, the remedial actions specified in Paragraph 9 below; and (iv) settle any and all civil and criminal claims currently held by the United States, its agencies, and representatives against the funds referred to in Paragraph 5 above for the sum of $21,600,000.00, the United States shall recommend to the Court, pursuant to 18 U.S.C. ss. 3161(h)(2), that prosecution of UBOC on the Information filed pursuant to Paragraph 1 be deferred for a period 3 of twelve (12) months. UBOC shall consent to a motion, the contents to be agreed by the parties, to be filed by the United States with the Court promptly upon execution of this Agreement, pursuant to 18 U.S.C. ss. 3161(h)(2), in which thE United States will present this Agreement to the Court and move for a continuance of all further criminal proceedings, including trial, for a period of twelve (12) months, for speedy trial exclusion of all time covered by such a continuance, and for approval by the Court of this deferred prosecution. UBOC further agrees to waive and does hereby expressly waive any and all rights to a speedy trial pursuant to the Sixth Amendment of the United States Constitution, Title 18, United States Code, Section 3161, Federal Rule of Criminal Procedure 48(b), and any applicable Local Rules of the United States District Court for the Southern District of California for the period that this Agreement is in effect. 7. UBOC hereby further expressly agrees that any violations of the Bank Secrecy Act pursuant to 31 U.S.C. ss.ss. 5318(h) and 5322(a) that were not time-barred by the applicable statute of limitations as of the dAte of this Agreement may, in the sole reasonable discretion of the United States, be charged against UBOC within six (6) months of any breach of this Agreement notwithstanding the expiration of any applicable statute of limitations. 8. The United States agrees that if UBOC is in compliance in all material aspects with all of its obligations under this Agreement, the United States, within thirty (30) days of the expiration of the time period set forth in Paragraph 6 above, shall seek dismissal with prejudice of the Information filed against UBOC pursuant to Paragraph 1 and this Agreement shall expire and be of no further force or effect. Notwithstanding the preceding sentence, the parties agree that if UBOC's business operations are sold to a party or parties unaffiliated with UBOC as of the date hereof, whether by sale of stock, merger, consolidation, sale of a significant portion of its assets, or other form of business combination, or otherwise undergoes a direct or indirect change of control within the term of this Agreement, the Information shall be dismissed with prejudice 4 and all other obligations of UBOC under this Agreement, other than the obligations set forth in paragraph 4(a), which shall continue during what would have been the remaining term of this Agreement, shall terminate upon the closing of any such transaction or the occurrence of such change of control. 9. UBOC has agreed to implement certain remedial measures designed to fully comply with the Bank Secrecy Act, specifically the terms and conditions of the Department of the Treasury, Office of the Comptroller of the Currency's CONSENT ORDER, No. AA-EC-07-58, and the Department of the Treasury, Financial Crimes Enforcement Network's CONSENT TO THE ASSESSMENT OF CIVIL MONEY PENALTY, No. 2007-02, the terms of which are hereby fully incorporated into this Factual Statement and related Deferred Prosecution Agreement. 10. UBOC and the United States understand that the Agreement to defer prosecution of UBOC must be approved by the Court, in accordance with 18 U.S.C. ss. 3161(h)(2). Should the Court decline to approve a deferred prosecution for any reason, both the United States and UBOC are released from any obligation imposed upon them by this Agreement and this Agreement shall be null and void. 11. Should the United States determine during the term of this Agreement that UBOC has committed any federal crime commenced subsequent to the date of this Agreement, UBOC shall, in the sole reasonable discretion of the United States, thereafter be subject to prosecution for any federal crimes of which the United States has knowledge. Except in the event of a breach of this Agreement, the parties agree that all criminal investigations arising from: (a) the facts contained in, connected to, or involving the accounts described in the Factual Statement; (b) other accounts that were the subject of grand jury subpoenas in the course of this investigation, as well as UBOC's efforts to comply with grand jury subpoenas issued in the course of the investigation; and (c) UBOC's Anti-Money Laundering/Bank Secrecy Act 5 compliance program, including UBOC's compliance with the Bank Secrecy Act's suspicious activity reporting requirements, that have been, or could have been, conducted by the United States prior to the date of this Agreement, shall not be pursued further and that the United States will not bring any additional charges against UBOC (including its bank holding company, UnionBanCal Corporation) relating to these matters. 12. Should the United States determine that UBOC has committed a willful and material breach of any provision of this Agreement, the United States shall provide written notice to UBOC of the alleged breach and provide UBOC with a thirty day (30) period, or longer at the reasonable discretion of the Assistant Attorney General in charge of the Criminal Division, in which to make a presentation to the Assistant Attorney General to demonstrate that no breach has occurred or, to the extent applicable, that the breach is not willful or material or has been cured. The parties hereto expressly understand and agree that should UBOC fail to make a presentation to the Assistant Attorney General within such time period, it shall be presumed that UBOC is in willful and material breach of this Agreement. The parties further understand and agree that the Assistant Attorney General's exercise of reasonable discretion under this paragraph is not subject to review in any court or tribunal outside of the Department of Justice. In the event of an uncured willful and material breach of this Agreement which results in a prosecution, such prosecution may be premised upon any information provided by or on behalf of UBOC to the United States at any time, unless otherwise agreed when the information was provided. 13. UBOC agrees that, if UBOC's business operations are sold to a party or parties unaffiliated with UBOC as of the date hereof, whether by sale of stock, merger, consolidation, sale of a significant portion of its assets, or other form of business combination, or otherwise undergoes a direct or indirect change of control within the term of this Agreement, UBOC shall include in any contract for sale or merger a provision binding the purchaser/successor to the 6 obligations described in Paragraph 4(a) of this Agreement regarding cooperation with the Department of Justice. 14. It is further understood that this Agreement is binding on UBOC and the United States Department of Justice, but specifically does not bind any other federal agencies, or any state or local authorities, although the United States will bring the cooperation of UBOC and its compliance with its other obligations under this Agreement to the attention of state or local prosecuting offices or regulatory agencies, if requested by UBOC or its attorneys. 15. It is further understood that this Agreement does not relate to or cover any criminal conduct by UBOC other than the conduct or accounts described in paragraph 11. 16. UBOC and the United States agree that, upon acceptance by the Court, this Agreement and an Order deferring prosecution shall be publicly filed in the United States District Court for the Southern District of California, San Diego. 17. This Agreement sets forth all the terms of the Deferred Prosecution Agreement between UBOC and the United States. No promises, agreements, or conditions shall be entered into and/or are binding upon UBOC or the United States unless expressly set forth in writing, signed by the United States, UBOC's attorneys, and a duly authorized representative of UBOC. This Agreement supersedes any prior promises, agreements or conditions between UBOC and the United States. 7 ACKNOWLEDGMENTS I, Masaaki Tanaka, the duly authorized representative of Union Bank of California, N.A., hereby expressly acknowledge the following: (1) that I have read this entire Agreement; (2) that I have had an opportunity to discuss this Agreement fully and freely with Union Bank of California, N.A.'s attorneys; (3) that Union Bank of California, N.A. fully and completely understands each and every one of its terms; (4) that Union Bank of California, N.A. is fully satisfied with the advice and representation provided to it by its attorneys; and (5) that Union Bank of California, N.A. has signed this Agreement voluntarily. Union Bank of California, N.A. 9-17-07 /s/ MASAAKI TANAKA __________________ ______________________________________ DATE Masaaki Tanaka President & Chief Executive Officer Union Bank of California, N.A. 8 COUNSEL FOR UNION BANK OF CALIFORNIA, N.A. The undersigned is outside counsel for UBOC. In connection with such representation, I acknowledge that: (1) I have discussed this Agreement with my client; (2) I have fully explained each one of its terms to my client; (3) I have fully answered each and every question put to me by my client regarding the Agreement; and (4) I believe my client completely understands all of the Agreement's terms. GIBSON, DUNN & CRUTCHER LLP AMY G. RUDNICK NICOLA T. HANNA LINDA NOONAN 9/17/07 /s/ NICOLA T. HANNA __________________ ______________________________________ DATE By: NICOLA T. HANNA Attorneys for Union Bank of California, N.A. 9 ON BEHALF OF THE GOVERNMENT ALICE FISHER Assistant Attorney General, Criminal Division United States Department of Justice 9/17/07 /s/ RICHARD WEBER __________________ _____________________________________________ DATE By: RICHARD WEBER, Chief Asset Forfeiture and Money Laundering Section U.S. Department of Justice, Criminal Division 9/17/07 /s/ JOHN W. SELLERS __________________ _____________________________________________ DATE By: JOHN W. SELLERS Senior Trial Attorney Asset Forfeiture and Money Laundering Section U.S. Department of Justice, Criminal Division 10 UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 1 Deferred Prosecution Agreement Statement of Facts 1. UNION BANK OF CALIFORNIA, N.A. (hereinafter, "UBOC") is a wholly-owned subsidiary of UnionBanCal Corporation, a publicly traded bank holding company. As of June 30, 2007, UBOC had assets of approximately $53 billion and operated through 327 branch office locations. The Department of the Treasury, Office of the Comptroller of the Currency (OCC) is UBOC's primary regulator. 2. Congress enacted the Bank Secrecy Act, 31 U.S.C. ss. 5311 et seq., and its implementing regulations ("BSA") to address an increase in criminal money laundering activities utilizing financial institutions. Among other provisions, it requires domestic banks, insured banks and other financial institutions to maintain programs designed to detect and report suspicious activity that might be indicative of money laundering, terrorist financing and other financial crimes, and to maintain certain records and file reports related thereto that are especially useful in criminal, tax or regulatory investigations or proceedings. 3. The U.S. Department of Justice, Criminal Division, Asset Forfeiture and Money Laundering Section ("AFMLS"), and the U.S. Drug Enforcement Administration ("DEA"), have determined that from May 2003 through at least April 2004, UBOC violated the anti-money laundering and suspicious activity reporting requirements of the BSA and its implementing regulations. The violations at UBOC were serious and systemic and allowed certain UBOC customers to launder millions of dollars of proceeds from the sale of illegal narcotics through UBOC accounts over an extended time period. 4. Investigators have identified specific accounts maintained at UBOC that were used to launder at least $21.6 million of drug proceeds by and through accounts UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 2 Deferred Prosecution Agreement Statement of Facts controlled by licensed Mexican currency exchange houses (referred to locally and hereinafter as "casas de cambio"). Evidence establishes that UBOC maintained more than a dozen accounts for Mexican casas de cambio, and that some of these accounts were used in concert with one another to launder drug proceeds. HIGH RISK PROFILE OF UBOC BANKING ACTIVITIES 5. UBOC's primary market is California, which is designated as both a High Intensity Money Laundering and Related Financial Crime Area and a High Intensity Drug Trafficking Area. UBOC's exposure to money laundering activities was elevated due to its past marketing of accounts to Mexican casas de cambio and other Mexican business entities beginning in the 1990s. As early as 1996, DEA, federal regulators and other prominent anti-money laundering organizations began publicly highlighting the increased money laundering risk presented by Mexican casas de cambio to the U.S. financial system. DEA warned that Mexican drug trafficking organizations were increasingly using casas de cambio to place drug proceeds into the U.S. financial system by smuggling the drug proceeds out of the United States to Mexico and selling those dollars to Mexican casas de cambio for pesos. The placement of drug proceeds with Mexican casas de cambio is beneficial to both sides of the transaction: the drug trafficking organization is able to obtain local currency (pesos) to continue its illicit activities without having to risk structuring drug proceeds into the banking system; and the casa de cambio, which has a significant need for U.S. dollars in the ordinary course of its currency exchange activities, obtains a valuable source of discounted U.S. dollars. UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 3 Deferred Prosecution Agreement Statement of Facts SUMMARY OF INVESTIGATION 6. The investigation of UBOC's handling of Mexican casa de cambio accounts resulted from evidence obtained from several U.S. and international undercover operations that documented the export of multi-ton quantities of cocaine out of Colombia to Mexico, for transshipment to the U.S. and Europe. Investigators then traced the flow of the resulting drug proceeds in the form of bulk shipments of U.S. dollars and euros to a few Mexican casas de cambio working in concert with one another, or to the direct deposit of drug proceeds to accounts held by the casas de cambio in Spain. In either case, once the drug proceeds were successfully placed with the Mexican casas de cambio, the proceeds were then either wire transferred or, after being converted to other negotiable instruments, directly shipped to UBOC in California for deposit to certain of the casas de cambio bank accounts. 7. This complex drug trafficking and money laundering organization was led by several individuals, including Ricardo Mauricio Bernal-Palacios (hereinafter "Ricardo Mauricio") and his brother, Juan Manuel Bernal-Palacios (hereinafter "Juan Manuel"). Unbeknownst to UBOC, which maintained accounts for Ribadeo Casa de Cambio, based in Mexico City, previously named Casa de Cambio Intercontinental (hereinafter referred to as "Ribadeo"), Ricardo Mauricio became a part owner of Ribadeo, and with the assistance of Ribadeo's President and signatory of Ribadeo's UBOC accounts, Francisco Jose Anton-Perez, used Ribadeo to launder millions of dollars of drug proceeds through its' UBOC accounts in the United States. UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 4 Deferred Prosecution Agreement Statement of Facts 8. The Bernals' drug trafficking and money laundering activities ended in February 2006 when they were indicted in the Southern District of Florida, Miami, on money laundering and drug trafficking charges. In May 2007, the Bernals were extradited to the United States and, on August 28, 2007, pleaded guilty to 38 counts of money laundering. SUMMARY OF SUSPICIOUS ACTIVITY IN TARGETED CASA DE CAMBIO ACCOUNTS 9. As part of the investigation into the Bernals' money laundering activities, law enforcement reviewed account documentation and transactional activity in the Mexican casa de cambio accounts at UBOC and identified numerous indicators, or "red flags," of suspicious activities that were not timely detected or reported by UBOC, including: o UNUSUAL BULK CASH DEPOSITS. Large bulk cash deposits through one of the casa de cambio accounts, in a pattern and amounts unsupported by the customer's known business model. A significant amount of the bulk cash deposited into this one account was subsequently credited to the Ribadeo account for no known business purpose. o UNSUPPORTED LIQUIDITY TRANSFERS. Internal debit/credit transactions between unrelated casa de cambio accounts within UBOC accounted for 80 percent of funds deposited into the Ribadeo account, which the bank understood to be liquidity transfers. UBOC did not independently corroborate the legitimacy of these informal liquidity contracts, including the source of the funds and the manner and means for satisfaction of the liquidity loans. For example, law enforcement identified $295 million in so-called liquidity transfers from various casa de cambio accounts within UBOC to Ribadeo's UBOC account, but Ribadeo repaid only $29 million. There is no information available as to how Ribadeo managed to repay the remaining $266 million. o UNUSUAL ORIGINATORS OF INCOMING WIRES. Fewer than 50 individuals or entities accounted for 92 percent of incoming wire transfers into the Ribadeo account. Other than the 13 casas de cambio, which had accounts at UBOC, UBOC did not document and corroborate the legitimacy of the other originators. Many, as it UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 5 Deferred Prosecution Agreement Statement of Facts turns out, were fronts for money laundering activities, including DEA undercover bank accounts. o UNEXPLAINED POUCH DEPOSITS. A large volume of travelers checks and third-party checks deposited into the casa de cambio accounts was inconsistent with the known business activities of the casas de cambio. Some of the casas de cambio did not engage in retail operations and therefore had no apparent legitimate source for the large volume of travelers checks and third-party checks being deposited into their UBOC accounts. o SEQUENTIAL AND STRUCTURED MONETARY INSTRUMENTS. Thousands of travelers checks and third-party checks were deposited through pouch deposits and contained numerous examples of structuring, sequential serial numbers and endorsement / deposit dates on or near the date of purchase by a handful of individuals. Other suspicious elements included "smurf marks" (see discussion below) and endorsements by someone other than the payee. o STRUCTURED WIRE TRANSFERS. Numerous instances where round dollar amounts were sent through the casa de cambio accounts to a single beneficiary through a series of structured wire transfers in differing amounts from different originators (and vice-versa). o UNDOCUMENTED RELATED ACCOUNTS. Numerous examples of unusual transfers of funds to accounts outside of UBOC held in the names of corporations controlled by the same individuals who owned and controlled the UBOC casa de cambio accounts. These corporations were not profiled and documented by UBOC. DRUG MONEY LAUNDERING THROUGH TRAVELERS CHECKS AND THIRD-PARTY CHECKS 10. Some Mexican casas de cambio, including Ribadeo, routinely used commercial couriers to deliver large pouch deposits to UBOC in California, which included numerous third party checks and travelers checks. Evidence establishes that large amounts of bulk cash drug proceeds was smuggled into Mexico, where a small group of individuals used the currency to purchase travelers checks at various financial institutions in Mexico. These individuals, referred to by law enforcement as "smurfs," were hired by the Bernals, or by professional money launderers working with the Bernals, to purchase dozens, sometimes hundreds of travelers checks, as well as third- UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 6 Deferred Prosecution Agreement Statement of Facts party checks, every day from various financial institutions and individuals in Mexico, in a manner designed to avoid suspicion and bank reporting requirements. Once purchased, the smurfs transferred the travelers checks and third party checks to Ribadeo, which then used commercial couriers to deliver the checks to UBOC in California. A similar pattern of activity was evident in a few of the casa de cambio accounts at UBOC. Many of the travelers checks contained readily identifiable patterns of this money laundering activity, including: o "Smurf marks," e.g., notations on the face of the check used as a method for indicating the person who purchased the travelers check. It is essential for smurfs to have some method to account for the bulk cash they received and converted into travelers checks or third-party checks. o Sequential serial numbers, many in large $1,000 denominations, deposited at UBOC on or near the date of purchase in Mexico by a handful of individuals. In one instance, a single individual endorsed and transferred to Ribadeo 34 sequentially numbered, $1,000 travelers checks on or about the same day the checks were purchased in Mexico, which Ribadeo deposited into its' UBOC account the next day. Another example was found where 30 sequentially-numbered, $1,000 travelers checks were purchased by three different individuals, and deposited at UBOC in two deposits in a single day. o Purchaser and endorser information on most of the travelers checks was illegible, missing, or inconsistent. o Dollar amounts and exchange patterns of the checks were inconsistent with the expected use of such checks by tourists and legitimate individuals and businesses in Mexico. 11. UBOC failed to timely identify and report the suspicious activity surrounding the deposit of travelers checks and third-party checks into the Ribadeo accounts and certain other casa de cambio accounts, as well as the suspicious nature of incoming and outgoing wire transfers. UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 7 Deferred Prosecution Agreement Statement of Facts ANTI-MONEY LAUNDERING PROGRAM REQUIREMENTS 12. Pursuant to Title 31, United States Code, Section 5318(h)(1) and 12 C.F.R. ss. 21.21, UBOC was required to establish and maintain an anti-money laundering ("AML") compliance program that, at a minimum: (a) provides internal policies, procedures, and controls designed to guard against money laundering; (b) provides for an individual or individuals to coordinate and monitor day-to-day compliance with the BSA and AML requirements; (c) provides for an ongoing employee training program; and (d) provides for independent testing for compliance conducted by bank personnel or an outside party. 13. UBOC was required pursuant to 31 U.S.C. ss. 5318(g) and 31 C.F.R. ss. 103.18 and 12 C.F.R. ss. 21.11 to file with the Department of Treasury a Suspicious Activity Report ("SAR"), in accordance with the form's instructions, when it detected the type of activity described in paragraphs 9 and 10 above. The requirement became effective on April 1, 1996. According to the form's instructions, UBOC was required to file a SAR with the Department of Treasury's Financial Crimes Enforcement Network for any transaction conducted or attempted by, at, or through the bank, if it involved or aggregated at least $5,000 in funds or other assets, and the bank knew, suspected, or had reason to suspect that: (i) The transaction involved funds derived from illegal activities or was intended or conducted in order to hide or disguise funds or assets derived from illegal activities (including, without limitation, the ownership, nature, source, location, or control of such funds or assets) as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation. UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 8 Deferred Prosecution Agreement Statement of Facts (ii) The transaction was designed to evade any requirements promulgated under the Bank Secrecy Act. (iii) The transaction had no business or apparent lawful purpose or was not the sort in which the particular customer would normally be expected to engage, and the bank knew of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction. UNION BANK'S FAILURE TO IMPLEMENT AN EFFECTIVE AML PROGRAM 14. The investigation into this matter has determined that the primary cause of UBOC's failure to identify, report and prevent the suspicious activity described in Paragraphs 9 and 10 above is that UBOC's BSA and AML program contained serious and systemic deficiencies in critical areas required by the BSA and its implementing regulations, as amended by the PATRIOT Act of 2001. The following summarizes the deficiencies that remained uncorrected over a several year period: o KNOW YOUR CUSTOMER PROGRAM. Prior to 2005, UBOC failed to implement an effective Know Your Customer Program and to apply enhanced due diligence procedures to high-risk accounts, particularly in the context of high-risk foreign money service businesses. UBOC had no policy or procedure in place to document the appropriate, expected and usual transactions that a customer could be expected to accomplish or to update customer information during the course of the relationship. o RISK ASSESSMENT. UBOC did not begin conducting formal and comprehensive risk assessments to identify all of its high-risk customers and transactions until late 2005. Consequently, UBOC did not develop effective policies and procedures to subject high risk customers, accounts and transactions to enhanced due diligence and monitoring. o TRANSACTION MONITORING. UBOC failed to monitor and exercise control over transactions in accounts, particularly those conducted by customers presenting a high-risk of money laundering. Until 2005, UBOC had no formal policy or procedure to subject high-risk customers, such as Mexican casas de cambio, and high-risk transactions, such as pouch or bulk-cash deposits, from customers located in foreign countries, to enhanced monitoring and due diligence. Resources allocated for AML UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 9 Deferred Prosecution Agreement Statement of Facts transaction monitoring for suspicious or unusual activity were inadequate considering the large number of high-risk transactions and accounts. o AUDIT AND TESTING. Until 2004, UBOC did not develop an overall audit plan to comprehensively assess and evaluate the bank's compliance with the Bank Secrecy Act or comprehensively test the bank's compliance with the SAR filing requirements, suspicious activity monitoring, AML training, KYC documentation, cash letter processing, and due diligence procedures. o POLICIES AND PROCEDURES. UBOC failed to develop uniform, formal written BSA and AML policies and procedures. It was not until 2005 that UBOC developed a comprehensive AML policy as required by the BSA. o POUCH DEPOSITS. UBOC failed to implement a policy or procedure to monitor and report suspicious transactions surrounding pouch deposits. Until 2005, there was no effort made to review individual items deposited through pouch deposits for suspicious activities. 15. During examinations conducted between 2003 and 2005, the Federal Reserve and the OCC independently identified these deficiencies in the context of their AML and BSA compliance examinations. UBOC'S KNOW YOUR CUSTOMER FAILURES 16. Federal banking regulators have advised banks, including UBOC, that an effective AML program should incorporate the following principles into their business practices: a. Determine the true identity of all customers requesting services; b. Determine the customer's source(s) of funds for transactions; c. Determine the particular customer's normal and expected transactions; d. Monitor customer transactions to determine if they are consistent with the normal and expected transactions for that customer or for similar categories or classes of customers; UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 10 Deferred Prosecution Agreement Statement of Facts e. Identify customer transactions that do not appear to be consistent with normal and expected transactions for that particular customer or for customers in similar categories or classes; and f. Determine if a transaction is unusual or suspicious and, if so, report those transactions. 17. The business practices listed above are commonly referred to in the industry and by law enforcement as the "Know Your Customer" ("KYC") requirements. 18. Had UBOC maintained an effective KYC Program, it would have been able to identify major anomalies in the transactions occurring in the Mexican casa de cambio accounts, particularly the red flags described in Paragraphs 9 and 10 above. Indeed, the primary "product" sold by the casas de cambio was U.S. dollars. Considering the high-risk nature of this particular type of customer, UBOC should have investigated the source of those dollars, to verify that they were purchased or obtained from legitimate sources that were consistent with the known and reasonable business model of the customer. The bank should have identified, profiled and corroborated the major suppliers of the U.S. dollars deposited into the casa de cambio accounts, using an enhanced due diligence standard. 19. Had UBOC done so, it would have discovered that Ribadeo, for example, primarily was using two source groups for its U.S. dollar supply, cumulatively amounting to hundreds of millions of dollars. Ribadeo's U.S. dollars did not come into the UBOC accounts as a result of foreign currency exchange transactions, as would be expected. Instead, Ribadeo purchased its dollars from two primary groups: o First, Ribadeo purchased the majority of its dollars from other casas de cambio. Some of those dollars originated from very large bulk cash UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 11 Deferred Prosecution Agreement Statement of Facts deposits made at UBOC by one casa de cambio. To facilitate the flow of dollars between the Mexican casas de cambio, some of the casas de cambio shared computer systems, essentially merging those casas de cambio into a single financial entity. UBOC failed to identify this unusual and high-risk business practice, even though it should have been evident by the commingling of funds in the unrelated casa de cambio accounts at UBOC. o Second, Ribadeo purchased dollars from a handful of black market sources, mostly individuals and businesses that were fronts for money laundering activity. Most of the drug money law enforcement traced through Ribadeo accounts originated from the latter source of supply. The deposits from these black market sources were in the form of travelers checks, third party checks, and wire transfers from less than 50 individuals or entities. Given the small number of suppliers of U.S. dollars to Ribadeo and the high-risk nature of Ribadeo's business, a profile of these entities was reasonable and necessary. MONITORING OF SUSPICIOUS TRANSACTIONS 20. Until 2005, UBOC did not have an automated account monitoring system that was designed to identify red flags of suspicious account activity based on pre-determined client activity patterns. A previous automated system, initiated in 2002, was inquiry-based and depended on a monitoring structure that was decentralized amongst the various business units, and inadequately staffed, to manually flag suspicious activity in UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 12 Deferred Prosecution Agreement Statement of Facts the system. Without an effective automated system, UBOC was unable to sufficiently identify suspicious activities or patterns of incoming and outgoing wire transfers. Bank employees handling pouch deposits or cash letters processed the deposits in the ordinary course of business and UBOC took no action to review the items deposited for suspicious activities or patterns. 21. With respect to high-risk international accounts, UBOC placed significant responsibility for account monitoring on its front-line "relationship managers" (hereinafter referred to as "RMs"). Procedures specified that each RM was to regularly review client account statements and account activity, to periodically visit the client at the client's place of business, and to evaluate the customer's own anti-money laundering policies and procedures. 22. UBOC RMs made some effort to comply with these requirements, such as conducting site visits and inquiring about AML policies and procedures, but, in certain cases, after the accounts were opened, and did not conduct adequate independent compliance assessments. 23. In the late 1990s, UBOC specifically appointed a compliance officer to review the account activity of the high-risk international accounts, but did not provide that individual with adequate resources to effectively accomplish the task. The compliance officer manually reviewed the accounts, which included many thousands of transactions, once every quarter, and tried to identify anything suspicious. The compliance officer would periodically ask the RM to contact the client to obtain additional information about specific transactions, but no reports of suspicious activity UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 13 Deferred Prosecution Agreement Statement of Facts resulted from these manual reviews. In May 2003, UBOC stopped monitoring the casa de cambio transactions altogether because no suspicious activity was identified through previous reviews. Monitoring using an automated tool resumed in January 2004, but initially with insufficient staffing. UNION BANK'S REMEDIAL ACTIONS 24. Throughout this investigation, UBOC's cooperation with law enforcement has been exceptional. Upon learning of this investigation, UBOC devoted considerable resources to assist the government's investigation by, among other things, providing investigators access to bank employees while promptly complying with grand jury subpoenas seeking bank documents. 25. UBOC also has devoted considerable resources to correct and improve its BSA and AML compliance policies, procedures and controls. In June 2004, UBOC contracted with expert outside consultants to conduct a comprehensive review of its BSA and AML program and began taking significant steps to enhance and modernize its program and correct past deficiencies. In addition, UBOC voluntarily conducted a historical transaction review or "lookback" analysis of all the casa de cambio accounts and filed SARs, where appropriate. UBOC also closed all of the casa de cambio accounts, as well as the business unit that maintained the casas de cambio relationships. Other significant remedial efforts that UBOC took with the active support of the Board of Directors and senior management include: o An enhanced BSA and AML compliance structure and organization, consisting of 160 persons, including a BSA Officer, local BSA compliance officers in all business units, and a BSA Compliance Counsel. The staff in the UNITED STATES V. UNION BANK OF CALIFORNIA, N.A. Page 14 Deferred Prosecution Agreement Statement of Facts unit responsible for suspicious activity investigations and SAR filings now numbers 65. o Significant efforts to foster a strong compliance culture, the success of which is evidenced by a substantial increase in the number of internal referrals of suspicious activity throughout the bank. o BSA and AML compliance is now a critical performance element for all officers and employees who interface with customers or handle customer transactions. o Conducted a comprehensive risk assessment to identify high risk customers for application of enhanced due diligence and suspicious activity monitoring standards appropriate to the risk. o Implemented enhanced personnel training programs for BSA and AML compliance. o Purchased, developed and implemented advanced anti-money laundering systems and software. o Strengthened the BSA / AML audit function. 26. UBOC continues to cooperate with the OCC, its primary regulator, and FinCEN, which have each identified the BSA and AML compliance deficiencies described herein, and have issued orders requiring UBOC to implement significant remedial measures to correct them. -----END PRIVACY-ENHANCED MESSAGE-----