“Doveryai no proveryai.” This Russian proverb was used to prepare a new U.S. President for his first visit with his Soviet counterpart. As a former actor it was easy for Ronald Reagan to pick up the line that became the broader policy for U.S.-Russian relations for years: trust, but verify.
SBA’s OIG revealed that the U.S. Department of Justice settled allegations that a Utah bank’s employees falsified borrower information on loan applications to meet underwriting criteria and obtain approvals on three SBA loans.
It’s bad enough that we spend years and resources trying to stop the massive fraud attempted by borrowers, but now we have to watch for bank employees doing the job for them? Actually, that’s nothing new.
The fact that these borrowers used loan proceeds to invest in a Ponzi type scheme that benefitted the enabling bank employees is sadly a familiar tale if you’ve been in this business long enough.
But it’s the next line that sounds more damaging: “The bank —having knowledge of these activities—requested the SBA to pay the 50 percent guarantee on all three loans.”
Bank management knowingly submitted a claim for guaranty reimbursement for a loan loss generated from an unqualified borrower with a fraudulent use of proceeds that also involved bank employees who benefited financially.
Do you wonder why these bank employees are lacking a certain moral compass?
Do you wonder why banks are subjected to intense scrutiny from multiple regulatory agencies?
Do you remember that the overwhelming source of bank funding is not from management or shareholder funds but from taxpayer-backed bank deposits?
Sometimes words like “trust” are sometimes used as a cop-out when you don’t do your job. You reason that you ‘trusted’ someone else and therefore the fact that you cut the corner on your responsibilities should be forgiven, because that’s not as bad as the actual wrong that was committed as a result.
But that’s not good enough. You’ve got to verify that trust every day with every one on your team.
There’s a good reason why bank vaults require dual control, loan review departments exist and auditors are supposed to be independent. Money, particularly someone else’s money – presents a huge temptation to many people, and many of them wind up in banks.