Exhibit 10.1

UNITED STATES OF AMERICA

Before The

OFFICE OF THRIFT SUPERVISION

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In the Matter of

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Order No.:

SF-07-004

 

 

 

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DOWNEY SAVINGS

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Issuance Date:

August 30, 2007

 

 

   AND LOAN ASSOCIATION, F.A.,

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Newport Beach, California.

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OTS Docket No.: 06189

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CONSENT ORDER TO

CEASE AND DESIST FOR AFFIRMATIVE RELIEF

WHEREAS, Downey Savings and Loan Association, F.A., Newport Beach, California,
OTS Docket No. 06189 (Institution), has executed a Stipulation and Consent to
the Issuance of an Order to Cease and Desist for Affirmative Relief
(Stipulation); and

WHEREAS, the Institution, by executing the Stipulation, has consented and agreed
to the issuance of this Consent Order to Cease and Desist for Affirmative Relief
(C&D Order) by the Office of Thrift Supervision (OTS), pursuant to Sections 8(b)
of the Federal Deposit Insurance Act (FDIA), 12 U.S.C. § 1818(b); and

WHEREAS, the Director of the OTS has delegated to the Regional Directors of the
OTS the authority to issue consent orders on behalf of the OTS pursuant to
provisions of Section 8 of the FDIA, 12 U.S.C. § 1818.

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NOW, THEREFORE, IT IS ORDERED THAT:

I.                                         ORDER TO CEASE AND DESIST

A.                                   The Institution and its directors,
officers, employees, and agents shall cease and desist from any action (alone or
with another or others) for or toward causing, bringing about, participating in,
counseling, or aiding and abetting any violation of:

(1)                                  the Currency and Foreign Transactions
Reporting Act, as amended by the USA PATRIOT Act and other laws (the Bank
Secrecy Act or BSA), 31 U.S.C. §§ 5311 et seq., and the related BSA regulations
issued by the U. S. Department of the Treasury, 31 C.F.R. Part 103, and the OTS,
12 C.F.R. § 563.177 (collectively with the aforementioned laws and regulations,
the BSA Laws and Regulations); and

 (2)                               the OTS regulations governing suspicious
activity reports (SARs) set forth in 12 C.F.R. § 563.180 (the SAR Regulation).

II.                                     CORRECTIVE PROVISIONS

A.                                    Anti-Money Laundering/Bank Secrecy Act
Compliance Program

The Board shall strengthen the Institution’s written program for compliance with
the BSA Laws and Regulations, the SAR Regulation, and the guidance set forth in
the Federal Financial Institutions Examination Council’s (FFIEC) Bank Secrecy
Act/Anti-Money Laundering Examination Manual (BSA Examination Manual).  The
Institution’s written program referenced in the previous sentence shall
hereinafter be referred to as the BSA Compliance Program.  The Board shall, at a
minimum, take the following actions:

(1)                                  Within forty-five (45) days after the
Effective Date of this C&D Order, the Board shall retain a qualified independent
outside third party (Consultant) with knowledge of the BSA Laws and Regulations
and the SAR Regulation and with experience in compliance

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with the requirements imposed by such laws and regulations to conduct a
comprehensive review and assessment (BSA Review) of the Institution’s BSA
Compliance Program for compliance with the BSA Laws and Regulations, the SAR
Regulation, and the guidance set forth in the BSA Examination Manual.  At least
ten (10) days before the deadline for retaining the Consultant and prior to
signing a binding engagement agreement with the Consultant, the Institution
shall submit the Consultant’s name and curriculum vitae to the OTS for its
non-objection.  The BSA Review required by this Paragraph IIA shall be completed
and the Consultant shall deliver a final, written report (BSA Report) to the OTS
and the Board within ninety (90) days after the date of the Institution’s
engagement letter with the Consultant.

(2)                                  The Board shall ensure that the engagement
agreement with the Consultant for the BSA review requires the preparation and
submission of the BSA Report to the Board and to the OTS and that the BSA
Report:  (a) set forth the scope of the BSA Review; (b) contain a detailed
analysis and discussion of the BSA Compliance Program’s adequacy and
effectiveness, including the adequacy of resources available or devoted to the
BSA Compliance Program and training of personnel with BSA responsibilities; (c)
specifically identify and describe all weaknesses or deficiencies in the BSA
Compliance Program, including failure of the BSA Compliance Program to comply
with the BSA Laws and Regulations, SAR Regulation, and the guidance set forth in
the BSA Examination Manual; and (d) contain specific recommendations regarding
appropriate corrective and remedial actions and steps to be taken to correct
identified weaknesses or deficiencies.

(3)                                  The Board shall review and discuss the BSA
Report at the next regularly scheduled board meeting following its completion. 
Within thirty (30) days from the date of

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that meeting or by its next regularly scheduled Board meeting, if later, the
Board shall amend and revise its BSA Compliance Program and adopt such other
corrective actions as are necessary and appropriate to address all weaknesses
and deficiencies identified in the BSA Report.    The Board’s review,
discussions, consideration, and adoption of corrective actions shall be fully
documented and detailed in the Board meeting minutes.  The revised BSA
Compliance Program shall include implementation deadlines for each of its
components, all of which shall be implemented no later than sixty (60) days
after the Board adopts the BSA Compliance Program, provided that implementation
of a manual process during such time period shall be deemed to be sufficient
hereunder until an automated process is fully implemented.

(4)                                  The revised BSA Compliance Program shall
include:  (a) specific written methodologies for assigning risk levels (Risk
Assignment Methodology) to the Institution’s customers and accounts; and (b)
appropriate ongoing due diligence levels, oversight and monitoring requirements,
and recordkeeping and documentation requirements based upon the risk level
assigned to the customer or account in accordance with the Institution’s Risk
Assignment Methodology, for all accounts, including enhanced due diligence
levels and oversight, monitoring and documentation requirements for accounts
that present a heightened risk of conduct of potentially unlawful activities or
transactions (Higher Risk Accounts).

(5)                                  The revised BSA Compliance Program shall
strengthen and improve the annual independent testing of the Institution’s
compliance with the BSA Laws and Regulations and the SAR Regulation and shall
ensure that the independent test comprehensively reviews the Institution’s BSA
risk-assessment.  The BSA Policy shall require the independent test to be
completed by the third calendar quarter of 2008 and then

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annually thereafter.  The Board shall ensure that the scope of the independent
test considers and incorporates, as appropriate for the size and complexity of
the Institution, the examination procedures set forth in the BSA Examination
Manual.

(6)                                  The revised BSA Compliance Program shall
amend the Institution’s customer identification policies and procedures (CIP
Policy) and ensure that they are adequate and effective to ensure the
Institution’s compliance with applicable laws, regulations, and regulatory
guidance.  The CIP Policy shall have adequate and effective due diligence
procedures and customer profiles for customer groups with heightened BSA and AML
risk, as identified by the Institution, including, non-U.S. resident accounts,
commercial and business accounts, customers with significant wire transfer
activity, and customers generating multiple CTR filings within any 12-month
period (“higher risk customers”).  The CIP Policy shall comply with the
requirements in 31 C.F.R. § 103.121 and contain specific account opening
procedures and documentation requirements to ensure the Institution
appropriately identifies all account owners, including beneficial owners when
appropriate.  The BSA Compliance Program shall require management to maintain
documentation of the Institution’s compliance with the CIP Policy, which
documentation shall be in a format usable for third party review.  With respect
to higher risk customers who became customers on or after October 1, 2003 and
are customers as of the date of this Order, it shall be deemed to be sufficient
hereunder for the Institution to collect required customer information and add
that information to an electronic database maintained by the Institution at such
times as the customer may enter an Institution branch office or contact the
Institution by telephone and in either case perform an account-related
transaction.

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The BSA Compliance Program shall also require management to perform an annual
assessment of the adequacy and effectiveness of the CIP Policy for the
Institution and for each branch, including an assessment of the adequacy and
reliability of data and information obtained and maintained by the Institution
and each individual branch, and identify any deficiencies, weaknesses or
noncompliance with the CIP Policy or applicable laws, regulations and regulatory
guidance.  Management shall incorporate the CIP Policy assessment in its ongoing
branch compliance review process, beginning in October 2007.  Management shall
complete its assessment within ninety (90) days after the end of each calendar
year, beginning with calendar year 2008, and shall provide a copy of its
assessment to the Board for review at the next regularly scheduled board meeting
following completion of the assessment.

(7)                                  The revised BSA Compliance Program shall
include specific policies and procedures to ensure the Institution’s accurate,
complete, and timely filing of SARs with appropriate regulatory agencies and law
enforcement authorities in compliance with applicable law and regulation,
including the SAR Regulation.  The policies and procedures shall, at a minimum,
include:  (a) establishing detailed policies, procedures, and guidelines,
including documentation and reporting requirements; (b) providing a review
process and reporting procedures that include the involvement of the
Institution’s BSA Officer (or a well-trained employee who reports to, and is
directly supervised by, the BSA Officer) for any transactions identified as
unusual or suspicious; and (c) establishing specific procedures and requirements
to ensure that all branch offices and personnel appropriately identify
transactions that may require a SAR filing and fully comply with the review
process and reporting guidelines for such transactions.

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(8)                                  The revised BSA Compliance Program shall
include an effective AML/Suspicious Activity Monitoring program commensurate
with the Institution’s overall BSA/AML risk profile.  The AML/Suspicious
Activity Monitoring program shall, at a minimum, include policies and procedures
that establish:  (a) AML detection procedures for all monetary activities
including wires, ACH, ATM, internet banking, and lending activities; (b) 
policies and procedures for maintaining records in a usable format for
third-party review; (c) procedures for identification and monitoring of non-bank
financial institutions, high cash activity accounts, and higher risk accounts
identified through the Institution’s Risk Assignment Methodology; (d) policies
and procedures for periodic account activity monitoring; and (e) policies and
procedures for internal investigations, monitoring and reporting of suspicious
activities.

(9)                                  The Board shall ensure that management
fully and timely implements the revised BSA Compliance Program and shall ensure
that the Institution, its management, and its staff adhere to the revised BSA
Compliance Program.

(10)                            The Board shall conduct a comprehensive review
of the Institution’s BSA Compliance Program not less than annually to assess its
adequacy and effectiveness at ensuring the Institution’s compliance with
applicable BSA Laws and Regulations, SAR Regulation, and the guidance contained
in the BSA Examination Manual in consideration of the Institution’s operations,
activities, size, and complexity.  The first comprehensive review shall be
completed no later than one (1) year after the Board adopts the revised BSA
Compliance Program.  The Board may retain an experienced and knowledgeable
consultant to assist in such review.  The Board shall promptly adopt and
implement such revisions and amendments as are necessary to address any
weaknesses or deficiencies and ensure the

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adequacy and effectiveness of the BSA Compliance Program and the Institution’s
continued compliance with applicable laws and regulations.  The Board shall
direct management to fully implement and ensure management and staff adheres to
any corrective actions or changes made by the Board.  The Board shall institute
procedures and steps to ensure management’s full and timely completion of all
Board-adopted corrective actions.

(11)                            Within ninety (90) days after the Effective Date
of this C&D Order, the Board shall ensure that management completes a review of
the Institution’s customers to accurately identify and appropriately categorize
all higher-risk accounts under the Institution’s Risk Assignment Methodology. 
Management shall ensure that all required documentation has been provided and
that appropriate action is taken to correct any deficiencies within forty-five
(45) days from the time any deficiency is discovered.  Thereafter, management
shall ensure that such accounts are subjected to the appropriate monitoring and
oversight monitoring requirements established by the Board. With respect to
higher risk customers who became customers on or after October 1, 2003 and are
customers as of the date of this Order, it shall be deemed to be sufficient
hereunder for the Institution to collect required customer information and add
that information to an electronic database maintained by the Institution at such
times as the customer may enter an Institution branch office or contact the
Institution by telephone and in either case perform an account-related
transaction.

B.                                    Suspicious Activity Reports

The Board shall ensure that management conducts a review of the Institution’s
higher risk account transactions consistent with the requirements adopted by the
Board pursuant to this C&D Order.  The review shall cover the twelve (12)-month
period preceding the issuance date of this C&D Order and shall identify all
transactions and activity for which the

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filing of a SAR is required.  The Board shall direct Management to immediately
prepare and file any SAR with the appropriate regulatory agencies and law
enforcement authorities on any transactions or activities for which a SAR was
required but not filed.  Management shall prepare a report detailing its review
including, at a minimum, a list of all transactions and activity for which the
filing of a SAR was required, the relevant date(s) of the transactions or
activity, a brief description of the facts and circumstances requiring a SAR to
be filed, and the date that each SAR was actually filed with appropriate
regulatory and law enforcement authorities.  Management shall complete its
review and report within forty-five (45) days of the Board’s adoption of the
Revised BSA Compliance Program.  A copy of management’s report and the Board
meeting minutes reflecting the Board’s review of the report shall be provided to
the Regional Director within ten (10) days from the date the Board approves the
minutes of its meeting.

C.                                    BSA TRAINING

Within thirty (30) days after revision of the BSA Compliance Program as required
by Section II(A) of this C&D Order, management shall develop, and the Board
shall review and adopt, and thereafter ensure that the Institution adheres to, a
comprehensive training program (BSA Training Program) for the Board and for all
appropriate audit, operational, and supervisory personnel to ensure awareness of
their responsibility for:  (i) compliance with the requirements of the BSA Laws
and Regulations and the SAR Regulation; (ii) the BSA and AML risks inherent to
their departments and products; and (iii) any changes to the Institution’s BSA
Compliance Program required by this C&D Order, the BSA Review, the annual BSA
Compliance Program review, annual independent tests of the Institution’s BSA
Compliance Program, OTS examinations, and amendments to the BSA Laws and

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Regulations and the SAR Regulation.  The BSA Training Program shall include
requirements for mandatory attendance, the frequency of training, specialized
training procedures for certain departments of the Institution based upon the
particular operations and risk presented by such departments, and procedures and
timing for updating the BSA Training Program and materials based upon
violations, deficiencies, and weaknesses identified.  The Institution shall
maintain documentation of attendance at all BSA training required under this
paragraph.

D.                                    Internal Audit and Controls

Within thirty (30) days after revision of the BSA Compliance Program as required
by Section II(A) of this C&D Order, or by the time of its next regular meeting,
if later, the Board shall review and amend the Institution’s written policies
and procedures regarding internal audit and controls to strengthen and improve
the Board’s review and oversight of audit results and controls (Internal Audit
and Control Policy). The Internal Audit and Control Policy shall provide for the
maintenance of an internal audit function independent of the Institution’s
compliance function and the BSA Officer and his or her supporting staff, that
will, on at least an annual basis, comprehensively review and assess the
adequacy and effectiveness of the Institution’s BSA compliance program,
consistent with the requirements of the BSA Laws and Regulations (BSA Audit).
 If the Board obtains an independent consultant to perform a comprehensive
review under Section IIA(10) and conducts independent testing each year in
accordance with Section IIA(5), this annual requirement shall not apply.

The BSA Audit shall include adequate levels of transactional testing to
corroborate audit findings, procedures for documenting completion of appropriate
corrective actions by

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management, and reassessment of any department, operation, branch, or area
identified as having less than adequate BSA compliance within six months
following the completion of each BSA Audit.  Within thirty (30) days after the
completion of the BSA Audit or by the time of its next regular meeting, if
later, the Board shall review the results of each BSA Audit, adopt appropriate
corrective actions and timeframes to address identified weaknesses, require
management to fully implement the corrective actions adopted by the Board, and
ensure the timely completion of all required corrective actions.  The Board’s
review, discussions, and required corrective actions shall be fully detailed in
appropriate Board meeting minutes.  A copy of the BSA Audit procedures, scope,
and findings, and the relevant meeting minutes detailing the Board’s review,
shall be provided to the Regional Director within ten (10) days after the
Board’s review of the BSA Audit findings and the approval of its meeting
minutes.

III.                                 COMPLIANCE WITH ORDER

A.                                   The policies, procedures, corrective
actions, plans, programs, reviews, and systems required by this C&D Order to
address the issues raised by this C&D Order (collectively, Policies and
Procedures) shall conform to all applicable statutes, regulations, and OTS
policy and guidance.  The Board shall submit copies of all Policies and
Procedures required by this C&D Order to the Regional Director within the
timeframes specified or, in the event a timeframe is not specified, within
thirty (30) days after adoption by the Board and its approval of the meeting
minutes. The Board shall revise such Policies and Procedures as required by the
Regional Director within thirty (30) days of receipt of written comments from
the Regional Director or at its next regular meeting, if later.  The Policies
and Procedures, as modified consistent with the written comments of the Regional
Director, shall be

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incorporated into this C&D Order and any deviation from such Policies and
Procedures shall be a violation of this C&D Order.

B.                                     The Board shall require management to
fully and timely implement the corrective actions and amendments and revisions
to Institution policies and procedures adopted by the Board in accordance with
the terms and requirements of each of the provisions of this C&D Order.  The
Board shall institute such procedures and steps, including documentation
requirements, as are necessary to ensure management’s full and timely completion
of all Board adopted corrective actions and implementation and adherence to
amendments or revisions to Institution policies by management and staff. 
Management shall prepare and submit to the Board each month a report regarding
the completion status of all corrective actions adopted by the Board.

IV.                                DEFINITIONS

All technical words or terms used in this C&D Order for which meanings are not
specified or otherwise provided by the provisions of this C&D Order shall,
insofar as applicable, have meanings as defined in Chapter V of Title 12 of the
Code of Federal Regulations, the HOLA, the BSA, the FDIA, OTS Memoranda, or
other published OTS guidance.  Any such technical words or terms used in this
C&D Order and undefined in said Code of Federal Regulations, the HOLA, the FDIA,
OTS Memoranda, or other published regulatory guidance shall have meanings that
are in accordance with the best custom and usage in the savings and loan
industry.

V.                                    SUCCESSOR STATUTES, REGULATIONS, GUIDANCE,
AMENDMENTS

Reference in this C&D Order to provisions of statutes, regulations, OTS
Memoranda, and other published regulatory guidance shall be deemed to include
references to all

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amendments to such provisions as have been made as of the Effective Date and
references to successor provisions as they become applicable.

VI.                                NO VIOLATIONS AUTHORIZED; OTS NOT RESTRICTED

Nothing in this C&D Order or the Stipulation shall be construed as:  (a)
allowing the Institution to violate any law, rule, regulation, or policy
statement to which it is subject, or (b) restricting or estopping the OTS from
taking any action(s) that it believes are appropriate in fulfilling the
responsibilities placed upon it by law including, without limitation, any type
of supervisory, enforcement or other action that the OTS determines to be
appropriate, arising                 out of matters described in Reports of
Examination, or based on other matters.

VII.                            TIME LIMITS; EFFECT OF HEADINGS; SEPARABILITY
CLAUSE; STIPULATION INCORPORATED

A.                                   Time limitations for compliance with the
terms of this C&D Order run from the Effective Date, unless otherwise noted.

B.                                     The section and paragraph headings herein
are for convenience only and shall not affect the construction hereof.

C.                                     In case any provision in this C&D Order
is ruled to be invalid, illegal or unenforceable by the decision of any court of
competent jurisdiction, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby, unless the Regional Director in his or her sole discretion determines
otherwise.

D.                                    The Stipulation is made a part hereof and
is incorporated herein by this reference.

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VIII.                        EFFECTIVE DATE; DURATION

This C&D Order is and shall become effective on the date it is issued, i.e., the
Effective Date as shown on the first page hereof.  This C&D Order (including the
related Stipulation) shall remain in effect until terminated, modified or
suspended, in writing by the OTS, acting through its Director, Regional Director
or other authorized representative.

 

OFFICE OF THRIFT SUPERVISION

 

 

 

 

 

By:

/s/ Michael E. Finn

 

 

 

Michael E. Finn

 

 

Regional Director

 

 

West Region

 

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