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UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE WASHINGTON, _________--_____________________-_____----~____________________x D.C. DOCKET NOS. In the Matter of SKANDMAVISKA Stockholm, Sweden SYSTEM 97-020~CMP-FB 97-020~CMP-FBR 97-020-CMP-FBS ENSKILDA BANKEN SKANDINAVISKA ENSKILDA BANKEN NEW YORK BRANCH New York, New York Order of Assessment of a Civil Money Penalty Issued Upon Consent Pursuant to the Federal Deposit Insurance Act, as Amended, and the International Banking Act of 1978, as Amended and SKANDINAVISKA ENSKILDA BANKEN CORPORATION New York, New York _______________________________________________________________x WHEREAS, pursuant to Section 8(i) of the Federal Deposit Insurance Act, as amended (12 U.S.C 5 18 18(i)) (the “FDI Act”), and Section 16(c) of the International Banking Act of 1978, as amended (12 U.S.C. § 3110(c)) (the “IB Act”), the Board of Governors of the Federal Reserve System (the “Board of Governors”) issues this Order of Assessment Civil Money Penalty (the “Order”) against Skandinaviska En&Ida of a Banken, Stockholm, Sweden (“SEB”), a foreign bank, SEB’s uninsured state licensed branch in New York, New York (the “New York Branch”), and SEB’s New York State chartered Article XII Corporation XII Corporation”), and regulations for allegedly engaging in unsafe and unsound practices and violations of law related to the execution of allegedly false off-market intercompany and the maintenance (the “Article of an out-of-balance condition among intercompany transactions accounts, and for the New York Branch’s and Article XII Corporation’s filing of allegedly inaccurate regulatory reports from at least 1993 through 1994 as a result of the off-market transactions 1993 through mid-1996 as a result of the out-of-balance condition; and at least WHEREAS, the Board of Governors recognizes that the activities that form the bases of this Order occurred over a multi-year period and came to the attention of the Board of Governors in mid-1996, and that since mid-1996, SEB, the New York Branch, and the Article XII Corporation have cooperated with the Board of Governors and the Federal Reserve Bank of New York and have moved aggressively supervisory to take constructive actions to address the concerns of the Board of Governors, and that the enforcement Governors was mitigated by these constructive WHEREAS, action by the Board of actions; SEB has agreed to pay the sum of $2,500,000 to the People of the State of New York as a result of the same activities that are the bases of this Order; and WHEREAS, on September Article XII Corportation 17, 1997, the boards of directors of SEB and the adopted resolutions: (1) authorizing and directing the appropriate executive officers of SEB, the New York Branch and the Article XII Corporation to enter into this Order on behalf of SEB, the New York Branch and the Article XII Corporation; (2) consenting on behalf of SEB, the New York Branch and the Article XII Corporation to comply with each and every provision of this Order; and (3) waiving any and all rights SEB, the New York Branch and the Article XII Corporation may have pursuant to Section 8 of the FDI Act and 12 C.F.R. Part 263 or otherwise to: (a) the issuance of a notice of assessment of a civil money penalty; (b) a hearing for the purpose of taking evidence with respect to any matter implied or set forth in this Order; (c) to obtain judicial review of this Order or any provision hereof; and (d) to challenge or contest in any manner the basis, issuance, validity, effectiveness, collectibility or enforceability of this Order or any provision hereof. NOW THEREFORE, prior to the taking of’any testimony or adjudication finding on any issue of fact or law herein, and without this Order constituting 2 of or an admission of 4 any allegation made or implied by the Board of Governors in connection with this proceeding and solely for the purpose of settlement of this proceeding without protracted or extended hearings or testimony and pursuant to the aforesaid resolution: IT IS HEREBY ORDERED, pursuant to Section 8(i) of the FDI Act and Section 16(c) of the IB Act, that: 1. SEB, the New York Branch and the Article XII Corporation are hereby assessed and shah jointly pay as hereinafter provided a civil money penalty in the sum of $2,500,000. 2. The penalty assessed by this Order shall be remitted in full at the time of the execution of this Order by wire transfer of immediately available funds to the Federal Reserve Bank of New York, ABA No. 021001208, to the attention of Thomas C. Baxter, Jr., General Counsel and Executive Vice President. The Federal Reserve Bank of New York, on behalf of the Board of Governors, shall distribute this sum to the U.S. Department of the Treasury, pursuant to Section 8(i) of the FDI Act. 3. The provisions of this Order shall be binding upon SEB, the New York Branch, the Article XII Corporation and their successors and assigns. 4. The provisions of this Order shall not bar, estop or otherwise prevent the Board of Governors, or any federal or state agency or department, affecting SEB, the New York Branch, the Article XII Corporation former institution-affiliated from taking any other action or any of their current or parties, as defined in Sections 3(u) and 8(b)(4) of the FDI Act (12 U.S.C. $5 1813(u) and 1818(b)(4)), or any insider as defined in Part 11 of the Genera! Regulations of the New York State Banking Board or their successors or assigns. 3 Notwithstanding the prior sentence, the Board of Governors shall not take any further action against SEB, the New York Branch and the Article XII Corporation based on any information presently known by the Board of Governors relating to the alleged violations referred to in this Order By order of the Board of Governors, this 17th day of September, 1997. SKANDINAVISKA ENSKIL.DA BANKEN Stockholm, Sweden BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Jacob Wallenberg Managing Director and Group Chief Executive William W. Wiles President General Manager A UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. and THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK NEW YORK, NEW YORK ____________________________________________________________~ DOCKET In the Matter of SKANDINAVISKA Stockholm, Sweden ENSKILDA NOS. 97-020-B-FB 97-020-B-FBR 97-020-B-FBS : BANKEN SKANDINAVISKA ENSKILDA BANKEN NEW YORK BRANCH New York, New York : Consent Order Issued Pursuant to Section 8 of the Federal Deposit Insurance Act, as Amended, and Section 39.2 of the New York Banking Law : SKANDINAVISKA ENSKILDA BANKEN CORPORATION New York, New York ________________________________________~___~~___~~~__~~___~~ WHEREAS, the Board of Governors of the Federal Reserve System (the “Board of Governors”), Skandinaviska the Superintendent of Banks of the State of New York (the “Superintendent”), Enskilda Banken, Stockholm, Sweden (“SEB”), a foreign bank, SEB’s uninsured state licensed branch in New York, New York (the “New York Branch”), and SEB’s New York State chartered Article XII corporation (the “Article XII Corporation”) the provisions of this Consent Order in recognition have mutually agreed to of their common goal to ensure that SEB’s, the New York Branch’s and the Article XII Corporation’s conducted activities in the United States will be in a safe and sound manner and in conformity with all applicable federal and state laws, rules and regulations; WHEREAS, the Board of Governors, the Federal Reserve Bank of New York (the “Reserve Bank”) and the Superintendent recognize that current management New York Branch and the Article XII Corporation have acknowledged of SEB, the problems at the New York Branch and the Article XII Corporation that require corrective action, have cooperated with the Reserve Bank and the Superintendent aggressively in their review of these matters, have moved to take the necessary steps to correct these problems prior to the issuance of this Consent Order, and have submitted to the Reserve Bank and the Superintendent a detailed action plan, which was designed, inter alia, to enhance the internal control environment and risk management infra-structure, program, and compliance recordkeeping systems, regulatory reporting process, internal audit function at the New York Branch and the Article XII Corporation; and WHEREAS, on September 17, 1997, the boards of directors of SEB and the Article XII Corporation executive adopted resolutions: (1) authorizing and directing the appropriate officers of SEB, the New York Branch and the Article XII Corporation to enter into ti.s Consent Order on behalf of SEB, the New York Branch and the Article XII Corporation, consenting to compliance where applicable, with each and every provision of this Consent Order by SEB and, the New York Branch and the Article XII Corporation, and their institution- affiliated parties, as such term is defined in Sections 3(u) and 8(b)(4) of the Federal Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. 1813(u) and 1818(b)(4)), and their 2 and insiders, as such term is defined in Part 11 of the General Regulations of the New York State Banking Board, (2) waiving the issuance of a notice of charges and of hearing on any matter set forth in this Consent Order, (3) waiving a hearing for the purpose of taking evidence on any matter set forth in this Consent Order, (4) waiving any and all rights to contest the issuance of an order by the Board of Governors and the Superintendent, (5) waiving any and all rights to judicial review of this Consent Order, and (6) waiving any and all rights to challenge or contest the validity, effectiveness, terms or enforceability of this Consent Order and any of its provisions. NOW, THEREFORE, before the taking of any testimony or adjudication of or finding on any issue of fact or law set forth herein, and without this Consent Order constituting an admission of any allegation made or implied by the Board of Governors or the Superintendent in connection with this proceeding, and solely for the purpose of settlement of this proceeding without protracted or extended hearings or testimony and pursuant to the aforesaid resolution: IT IS HEREBY ORDERED, pursuant to Section 8(b) of the FDI Act (12 U.S.C. 18 18(b)) and Section 39.2 of the New York Banking Law, that SEB and, where applicable, the New York Branch and the Article XII Corporation, shall take the following actions: Manapement Review 1. Within 45 days of this Consent Order, SEB shall expand its review of the management and personnel responsible for all functional areas and business activities of the New York Branch and the Article XII Corporation and shall forward to the Reserve Bank and the Superintendent written findings and conclusions of the management 3 review along with any changes that may be proposed as a result of the review. of the organizational The review shall focus on an assessment structure of the New York Branch and the Article XII Corporation,~ including reporting lines, duties performed by each officer and employee, other than clerical staff, and the ability of that person to perform competently his or her assigned duties. primary purpose of this review shall be to aid in the development of a management The structure staffed by qualified and trained personnel suitable to the needs of the New York Branch and the Article XII Corporation. Internal Audit 2. Within 120 days of this Consent Order, SEB, the New York Branch and the Article XII Corporation shall jointly submit to the Reserve Bank and the Superintendent written audit program for the New York Branch and the Article XII Corporation a that includes, at a minimum: submission (a) Procedures that are consistent with generally accepted U.S. auditing standards; (b) procedures that are comprehensive in scope and frequency and provide for the of formal written reports to the audit committees of SEB, the New York Branch and the Article XII Corporation; (c) procedures compliance to ensure that the scope of the audit function is enhanced to include with all applicable federal and state regulations; (d) risk assessments to ensure that audits of critical or high risk areas are performed with some frequency; (e) guidelines completed and the designation of resources to ensure that internal audits are as scheduled; 4 (f) procedures for management response to audit findings and implementation of corrective actions; and (g) a requirement committees for the annual review of the audit program by the audit of SEB, the New York Branch and the Article XII Corporation audit program is revised to reflect changes in the organizational to ensure that the and business environment, including the adoption of evolving industry best practices. Comuliance ProPram 3. Within 60 days of this Consent Order, SEB, the New York Branch and the Article XII Corporation shall jointly complete development of a written compliance program for the New York Branch and the Article XII Corporation designed to ensure compliance applicable federal and state banking laws, regulations, and supervisory requirements Consent Order, and shall submit to the Reserve Bank and the Superintendent description of the program. comprehensive management compliance with all and this a written This program shall include, at a minimum, the establishment of policies and procedures and a compliance training program for and staff. RePulatorv Reuorts 4. Within 45 days of this Consent Order, SEB, the New York Branch and the Article XII Corporation shall jointly submit to the Reserve Bank and the Superintendent policies and procedures designed to ensure that future regulatory reports submitted to the Board of Governors, procedures the Reserve Bank and the Superintendent are filed in an accurate manner. written The shall include, without limitation, corrective steps to ensure that all regulatory reports hereafter filed by SEB, the New York Branch and the Article XII Corporation 5 with the Board of Governors, the Reserve Bank and the Superintendent financial condition accurately reflect each institution’s on the dates for which such reports are filed, and that all records indicating how such reports are prepared are adequately maintained for subsequent supervisory review. Internal Controls and Risk Mananement 5. (a) SEB, the New York Branch and the Article XII Corporation take such steps as are necessary to ensure that the independent public accountant retained to conduct a full scope audit, conducts comprehensive, shall jointly that has been agreed upon procedures with respect to the internal controls and risk management processes at the New York Branch and the Article XII Corporation, including, at a minimum, a comprehensive review of trading systems and back office processing systems, encompassing an assessment physical controls, data integrity and systems functionality. The scope of the independent accountant’s engagement minimum, which shall be submitted to the Reserve Bank and the within 30 days of this Consent Order. The engagement provide that the independent directors of SEB containing for improving public shall be set forth in an engagement letter, acceptable to the Reserve Bank and the Superintendent, Superintendent of logistical and letter shall, at a public accountant will prepare a report to the board of its findings of the audit and, where appropriate, the internal controls and risk management recommendations functions at the New York Branch and the Article XII Corporation. (b) Within 15 days of the receipt of the independent required by paragraph public accountant’s report 5(a) hereof, SEB, the New York Branch and the Article XII Corporation shall submit the report to the Reserve Bank and the Superintendent, actions in response to such recommendations. together with their proposed SEB, the New York Branch and the Article XII 6 Corporation shall thereafter take all necessary steps to implement these proposed actions, except to the extent that the Reserve Bank and the Superintendent require otherwise. 6. Within 60 days of this Consent Order, SEB, the New York Branch and the Article XII Corporation shall jointly submit to the Reserve Bank and the Superintendent an enhanced written action plan designed to ensure that the necessary steps are being taken to improve the internal controls and risk management Article XII Corporation. describe, at a minimum, ftmctio’ns at the New York Branch and the The written plan, which shall include target completion dates, shall the actions that will be taken to: (a) Enhance management information systems to ensure the integrity of data prepared through the use of manual adjustments and personal computer spreadsheets; (b) strengthen internal recordkeeping and internal control functions, including, but not limited to, corrective steps to maintain segregation of duties in the New York Branch and the Article XII Corporation and full implementation of corrective measures concerning accounts, manual entry control, security administration, instructions, chart of general ledger accounts, facsimile securities held in trading accounts, and dormant accounts; (c) upgrade the management information reports submitted to senior management at SEB, the New York Branch and the Article XII Corporation to ensure that management receiving information that enables it to manage the business risks of the activities of the New York Branch and the Article XII Corporation and to correct any weaknesses deficiencies; 7 and is (d) increase the effectiveness positions, of the existing methodologies for trading limit including systems used to capture and report credit and market exposures, line approval and allocation, excess reporting, and margin/collateral clients, hedge and mutual funds, and containing procedures requirements for corporate for SEB and the New York Branch to calculate and approve limits, exposures and line approvals; (e) update and test the New York Branch’s and the Article XII Corporation’s recovery plan and test for all portions of the disaster recovery plan; (f) review procedures and ensure that such documentation at the New York Branch for documenting its credit analysis is complete; (g) develop or enhance written policies and procedures improved operating practices for critical departments to reflect current or of the New York Branch and the Article XII Corporation. Ouarterlv Reoorts 7. Within 30 days after the end of each calendar quarter (September December 30, 3 1, March 3 1 and June 30) following the date of this Consent Order, SEB, the New York Branch and the Article XII Corporation Reserve Bank and the Superintendent shall jointly furnish to the written progress reports detailing the form and manner of all actions taken to secure compliance with this Consent Order, and the results thereof. Auuroval of Submissions 8. The written plans, policies, procedures, programs, and the engagement required by paragraphs 2,3,4,5(a) Superintendent letter and 6 hereof shall be submitted to the Reserve Bank and the for review and approval. Acceptable plans, policies, procedures, 8 programs, and an acceptable engagement letter shall be submitted to the Reserve Bank and the Superintendent within the required time periods set forth in this Consent Order. SEB, the New York Branch and the Article XII Corporation engagement letter within 10 days of receipt of approval by the Reserve Bank and the Superintendent, procedures, shall adopt the approved plans, policies, procedures, programs, and and then shall fully comply with them. The approved plans, policies, programs, and engagement letter shall not be amended or rescinded in any material respect without the prior written approval of the Reserve Bank and the Superintendent. Reserve Bank and the Superintendent amendment or recision, irrespective shall be given prior written notice of any proposed of materiality. Notices 9. All communications regarding this Consent Order shall be sent to: (a) Mr. Chester B. Feldberg Executive Vice President Federal Reserve Bank of New York 33 Liberty Street New York, NY 10045 (b) Mr. Robert H. McCormick Deputy Superintendent of Banks New York State Banking Department Two Rector Street New York, NY 10006 (c) Mr. Jacob Wallenberg Managing Director & Group Chief Executive Skandinaviska En&Ida Banken Knngstradgardsgatan 8 S-106 40 Stockholm. Sweden The (d) Mr. Milton Brady General Manager Skandinaviska Enskilda Banken New York Branch 245 Park Avenue New York, NY 100 17 (e) Mr. Milton Brady President Skandinaviska En&Ida 245 Park Avenue New York, NY 10017 Banken Corporation Miscellaneous 10. SEB shall take such actions as are necessary to ensure the New York Branch’s and the Article XI Corporation’s full compliance with the provisions of this Consent Order. 11. The provisions of this Consent Order shall be binding on SEB and, where applicable, the New York Branch and the Article XII Corporation, and each of their institutionaffiliated parties and, where applicable, their affiliates, including their officers, directors, employees and agents, in their capacities as such, and their successors and assigns. 12. Each provision of this Consent Order shall remain effective until stayed, modified, terminated or suspended in writing by the Board of Governors and the Superintendent. 13. Notwithstanding Board of Governors any provision of this Consent Order to the contrary, the and the Superintendent may, at their sole discretion, grant written extensions of time to SEB, the New York Branch and the Article XII Corporation to comply with any 10 provision of this Consent Order. The Board of Governors delegates to the Reserve Bank its authority to grant, in its sole discretion, written extensions oftime to comply with the provisions of this Consent Order. 14. The provisions of this Consent Order shall not bar, estop or otherwise prevent the Board of Governors, the Reserve Bank, the Superintendent or any federal or state agency from taking any other action affecting SEB, the New York Branch, the Article XII Corporation, or any of their current or former institution-affiliated parties and, where applicable, their affiliates, or their successors or assigns, including, but not limited to, the actions and penalties authorized for violations or noncompliance with this Consent Order under applicable federal law or Sections 40,44 and 606 of the New York Banking Law. ,’ By order of the Board of Governors of the Federal Reserve System and the Superintendent of Banks of the State of New York, effective this 17th day of September, 1997. (Al SKANDINAVISKA ENSKILDA BANKEN Stockholm, Sweden E$ziia[;BmN By: /-~ %U+ Jacob WaUenberg Managing Director and Gmup chief Executive / General Manager 11 By: < %ilton Brady William W. Wiles Secretary of the Board President ‘NE &ddL / By: skXMENOENT OF BiNKS OF 12