Full text
EXHIBIT 83
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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
(Alexandria Division)
- - - - - - - - - - - - - - - X
BLUE FLAME MEDICAL LLC, :
Plaintiff, :
v. : Civil Action No.
CHAIN BRIDGE BANK, N.A., : 1:20-cv-00658
JOHN J. BROUGH and DAVID M. :
EVINGER, :
Defendants. : CONFIDENTIAL
_____________________________ :
CHAIN BRIDGE BANK, N.A., :
Third-Party Plaintiff, :
v. :
JPMORGAN CHASE BANK, N.A., :
Third-Party Defendant. :
- - - - - - - - - - - - - - - X
Remote Deposition
Tuesday, April 6, 2021
Videotape deposition via Zoom of SEAN
O'MALLEY, a witness herein, called for examination by
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about suspicious activity?
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A. It's in the report. Do you want me to
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read it off or --
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Q. Maybe just list what the -- when you say
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the certain actions, I want to know what the certain
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actions are.
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A. Okay. Well, let's look through the
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report. Placing the hold on the wire transfer so
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that funds can't go out. That's fairly common. Let
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me read through the rest. That seems to be the
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primary point that I agree with. I haven't read it
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through exhaustively. I'm just scanning, but that's
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what I see at this point.
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Q. As you sit here right now, you can't think
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of anything else you meant when you say that certain
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actions Chain Bridge Bank undertook were consistent
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with a bank concerned about suspicious activity?
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A. That's the primary point that I agree with
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in terms of their actions.
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Q. Is another thing a bank that is concerned
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about suspicious activity might do is to ask its
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customer for transaction documentation supporting a
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wire transfer?
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A. What I think you're describing is what we
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commonly refer to in industry as -- as anti-money
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laundering professionals -- as the RFI process, the
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request for information process, where we will go out
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to our customers and say we need more information on
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certain things, and you have a list of questions that
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you submit to them.
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Q. Okay. And that's standard industry
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practice when a bank has concerns about suspicious
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activity?
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A. Yes. If you have concerns or questions
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that are just not answered with the existing
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documentation you may have, you will certainly reach
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out, you know, you'll submit an RFI for additional
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information to be provided.
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Q. Is another thing that a bank concerned
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about suspicious activity might do is to speak to
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fraud investigators at another bank involved in the
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transaction?
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A. If you have concerns about a transaction,
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it's not that unusual that you'd converse with the
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any regulatory requirements, they would be able to
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maintain the freeze presumably for as long as
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necessary.
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BY MR. MADDEN:
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Q. Just give me one second. You have
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mentioned a couple of times the RFI process. Do I
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have that right?
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A. Yeah, yeah. That's correct.
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Q. And can you just -- forgive me if you
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already have, but if you could just briefly describe
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what you have in mind when you refer to the RFI
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process.
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A. Sure. The RFI process -- well, it's
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typically done whenever, you know, an institution has
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questions, a transaction has hit some alerts, things
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of that nature. And now they -- you sort of go from
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the alert stage to the investigation stage.
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In the investigation stage -- so it's,
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okay, now it's hit, you know, typically, a couple of
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alerts. In my experience, three to seven is probably
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pretty average in terms of the number of alerts that
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will typically be hit. And then it will get
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escalated to an investigation.
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In the investigation process, going
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through the facts of the case, an investigator will
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determine that more information is required and so
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they will put together an RFI. The RFI typically
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gets submitted to the customer and it's basically
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just asking the customer, you know, please answer
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these questions because -- or, you know, respond with
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certain documentation that we're looking for because
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we have questions that we need answered and we
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believe getting this information back will help
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answer those questions.
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Q. When you say in your experience that three
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to seven alerts is probably pretty average in terms
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of the number of alerts that will typically be hit,
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do you mean average of a transaction that's elevated
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to the investigation stage?
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A. Yeah.
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Q. Okay.
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A. It's a transaction that typically gets
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elevated to the investigation stage. There are
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certain alert types that are more valuable, more
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interesting from an AML perspective, others that are
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largely done to comply with certain red flag
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guidance, but in and of themselves empirically, in my
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experience, are not terribly useful.
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Q. Would it be reasonable from a BSA/AML
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perspective for a receiving bank that's faced with a
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large wire transfer to ask its customer to review any
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written agreements supporting the transaction?
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A. I believe -- written, like the contract
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that was requested, is that what you're asking about?
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Q. Sure.
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A. That's a reasonable request.
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Q. Okay. And why is that a reasonable
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request just as a general proposition?
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A. The bank, you know, wants to confirm that
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the transaction has a factual basis, that there is --
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that both, you know, you know that the receiving
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party, the beneficiary party is saying, hey, you
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know, we're entitled to this. You want to confirm
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that there is something provided by the sending party
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that also indicates that there is a -- you know,
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there is intention to send the wire transfer and so
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that's why you'd ask for that sort of information.
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Q. In your experience, is it common for a
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bank to proceed with a transaction before a customer
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has provided the requested information to the bank?
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MR. MITCHELL: Object to the form.
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THE WITNESS: In standard practice, it is
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actually very common to proceed with the transaction
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before the information has been provided. The RFI
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process is most commonly employed on transactions
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that have already occurred.
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BY MR. MADDEN:
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Q. Okay. What about circumstances in which a
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bank has decided to hold a transaction or not to
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process a transaction while it seeks information. Is
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it typical or atypical for the bank then nevertheless
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to proceed before the customer provides the requested
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information?
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A. So you're asking -- let me see if I'm
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understanding you correctly. In the circumstances
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where there was a hold in place, is it customary for
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the bank to maintain the hold until the questions are
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answered?
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Q. Yes.
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A. Yes, it is typical to maintain the hold
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until the questions are answered.
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Q. Okay. At page 13 of your initial report,
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DX-116, you write, four lines down, "If, as stated in
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depositions, Chain Bridge Bank was looking to obtain
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copies of the contract between Blue Flame Medical and
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the state of California, the logical contact for that
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type of information in my opinion would be the
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customer, Blue Flame Medical."
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Do you see that?
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A. Yes.
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Q. And is that in fact your opinion?
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A. That is my opinion. It matches perfectly
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with what I just described in the RFI process.
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Q. Great. And do you know whether on March
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25th Chain Bridge Bank did ask Blue Flame Medical to
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provide it that information?
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MR. MITCHELL: Object to form.
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THE WITNESS: I don't recall the timing of
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that request, but I know a request was made from
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Chain Bridge Bank to Blue Flame Medical for a copy of
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Q. On the call we just listened to, PX-68,
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you heard Ms. Chang explain that a different office,
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the state treasurer's office, was the one that
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actually made the transfer, correct?
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A. Yeah, right. The one that actually sent
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the wire transfer.
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Q. Right. Is it your opinion that Chain
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Bridge Bank nevertheless should have treated
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Ms. Chang's statements about the legitimacy or
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goodness of the transfer to be conclusive evidence of
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California's intent?
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MR. MITCHELL: Object to the form.
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THE WITNESS: In my opinion, based on sort
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of investigations that we conduct, if we found
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evidence of this nature, of this sort of voicemail
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indicating that the wire transfer was intended to be
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sent confirming the amount, at that point in time,
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that's -- that would appear to be a valid transfer,
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yes.
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BY MR. MADDEN:
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Q. And that's your opinion on standard
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practice even in circumstances where you know that
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the person leaving the voicemail does not work for
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the office that sends and authorizes the wire
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transfer?
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MR. MITCHELL: Object to the form.
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Mischaracterizes the record.
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MR. MADDEN: Yep. That's fair. Let me
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try again. Thanks.
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BY MR. MADDEN:
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Q. Is that your opinion on what is standard
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practice even in circumstances where you know that
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the person leaving the voicemail and providing the
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confirmation does not work for the office that sends
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the wire transfer?
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A. Well, let me provide the answer in this
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format. You're basically making a distinction
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between things analogously, someone who works in a
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wire office versus someone who actually, as you
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pointed out, is the one that effectively, you know,
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made the request for the purchase or, you know,
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agreed to the purchase of the masks.
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I would actually regard getting
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information from the person who made the agreement
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for the masks to supersede any information I'm going
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to get from someone working in a wire transfer
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office. A wire transfer office employee is just
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going to know, yeah, these are the wire instructions,
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this is what I sent and that's really all they're
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going to be able to confirm to you.
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Talking to someone who actually was
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involved in the request for the deal, as it were, is
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going to be, you know, far more valid as a resource,
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in my opinion, based on my experience.
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Q. Do you know --
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A. Talking to a clerk versus a dealmaker.
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You take the dealmaker's word, especially when it's
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their deal.
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Q. Do you know whether, in the way the
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California government is structured, a wire transfer
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can be appropriately authorized and sent without the
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involvement of the California State Treasurer's
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Office?
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MR. MITCHELL: Object to the form.
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THE WITNESS: I'm not going to speak to
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state of California's wire transfer practices.
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A. I'd have to look at the exact document to
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refresh myself as to which sections you're
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addressing.
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Q. Okay. We'll just move on.
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In your initial report on page 13, and
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this is DX-116, you write in the third line of this
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first full paragraph that, "However, it is very
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unusual that Chain Bridge Bank did not contact
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JPMorgan Chase."
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Do you see that?
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A. Yes.
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Q. You understand, though, that Chain Bridge
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Bank officials spoke with JPMorgan Chase officials
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multiple times on March 26th, correct?
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A. Yes. What I'm referencing here is that
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their initial contact, as I recall, was with the
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originator of the wire transfer, state of California,
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which was not Chain Bridge Bank's customer.
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What I'm pointing out is that's very
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unusual that you would have an institution contact a
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noncustomer. And, again, according to my
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recollection of the timeline, contacting the
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noncustomer before they even contact the sending
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bank.
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Q. Okay. So it's a sequencing concern you
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have, not that -- you're not concerned that JPMorgan
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called the Chain Bridge Bank before Chain Bridge Bank
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called JPMorgan, are you?
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A. No, no.
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MR. MITCHELL: Object to the form.
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THE WITNESS: That's fine.
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BY MR. MADDEN:
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Q. In fact, you understand that the first
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contact between JPMorgan and Chain Bridge Bank was
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initiated by someone at JPMorgan, correct?
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A. Yes, I believe I recall that from
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Mr. Korpal's deposition.
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Q. Is it your understanding of the record
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that JPMorgan Chase initiated the recall of the wire
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transfer only because Chain Bridge Bank requested
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that it do so?
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A. That is what I also recall from
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Mr. Korpal's deposition.
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Q. And from anywhere else?
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answers to our questions.
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Q. Okay. After Mr. Coffey told Mr. Brough
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and Mr. Evinger that JPMorgan Chase had enough
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concerns that it felt it needed to recall the wire,
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was it then consistent with BSA/AML practices for
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Chain Bridge Bank to in fact return the wire to
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JPMorgan Chase?
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MR. MITCHELL: Object to the form.
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THE WITNESS: Well, again, part of the
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problem here is that you're getting into the same
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area that I discuss in my rebuttal report where it
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sets up a false choice where the position that you're
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taking is that you need to comply with this
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regulation.
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But as I know from my conversations with
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the FRB and the OCC jointly on this very topic about
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compliance risk appetite and compliance risk
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tolerance, you know, we were sort of -- we were
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talking about it -- this is when I was at
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Citigroup -- and the, you know, point came up that
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you can't -- you know, you can't choose which
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regulations you're going to, you know, comply with
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and which ones you're not going to comply with. You
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need to comply with the regulations and you need to
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comply with all of the regulations.
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And the question that you're asking again
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ignores the Regulation J requirements where the
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beneficiary bank has received a payment and it's now
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been confirmed by -- I mean, JPMorgan Chase confirmed
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with the state of California that it was intended for
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Blue Flame Medical. Chain Bridge Bank confirmed with
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the state of California it was intended for Blue
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Flame Medical. Clearly, the wire transfer was
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intended for Blue Flame Medical. And so they had --
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they had a right to receive the payment.
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I understand that there were concerns on
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the parts of JPMorgan Chase. I understand that there
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were concerns on behalf of Chain Bridge Bank. That's
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why the action I agreed with was putting a hold on
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the funds in the account so that they could not be
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removed until those questions were addressed, until
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answers were known addressing the questions that they
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had regarding the transaction. And then, again, an
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informed decision can be made.
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BY MR. MADDEN:
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Q. Okay. When Mr. Coffey told Mr. Brough and
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Mr. Evinger, "We're going to be recalling those
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funds, okay? We have enough concerns that we feel we
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need to call those funds back," is it your opinion
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that Chain Bridge Bank had to say, no, you can't have
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them?
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MR. MITCHELL: Object to the form.
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THE WITNESS: It is my opinion that Chain
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Bridge Bank should not have agreed with the recall
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because the funds had already been posted into the
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account and were on hold there. To initiate a
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transaction means that you are now going to take
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funds without consulting the client, without client
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permission, out of their -- that client's account and
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send them somewhere based on your decision to do so,
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ignoring their right to at least have, you know,
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receipt of the funds even if they were on hold
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pending, you know, research into questions that, you
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know, either or both institutions have.
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BY MR. MADDEN:
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Q. And you say -- you just testified, "It is
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my opinion that Chain Bridge Bank should not have
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agreed with the recall," and then you explained why.
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My question is just whether -- is it also
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your opinion that Chain Bridge Bank was required to
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refuse the recall?
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MR. MITCHELL: Objection to form.
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THE WITNESS: It is my opinion that
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complying with the recall would run afoul of their
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regulatory obligations under Regulation J.
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BY MR. MADDEN:
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Q. Okay.
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06:13:51
A. Again, you know, that's why it's -- my
14
06:13:55
emphasis is on making sure that all of the
15
06:13:57
regulations are complied with.
16
06:14:01
Q. Right. And I just want to understand what
17
06:14:03
your opinion is. So the answer is yes, in your
18
06:14:08
opinion, Regulation J required Chain Bridge Bank to
19
06:14:12
refuse that recall?
20
06:14:19
A. Yes.
21
06:14:21
Q. Okay. Are you offering a legal opinion in
22
06:14:23
this case as to whether or not Chain Bridge Bank's
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actions on March 26th violated the terms of
2
06:14:33
Regulation J?
3
06:14:37
A. No, I'm not a lawyer. I'm speaking as an
4
06:14:39
AML practitioner.
5
06:14:41
Q. And are you offering a legal opinion in
6
06:14:44
this case as to whether or not Chain Bridge Bank's
7
06:14:48
actions on March 26th violated the terms of Section
8
06:14:51
404(a) of UCC Article 4A?
9
06:14:51
MR. MITCHELL: Object to the form.
10
06:14:58
THE WITNESS: Again, I'm not offering a
11
06:15:00
legal opinion. I'm offering the opinion of an AML
12
06:15:08
practitioner.
13
BY MR. MADDEN:
14
06:15:11
Q. Okay. Is it your opinion as an AML
15
06:15:15
practitioner that Chain Bridge Bank violated
16
06:15:21
Regulation J on March 26th?
17
06:15:28
MR. MITCHELL: Object to the form.
18
06:15:32
THE WITNESS: It is my opinion that Chain
19
06:15:38
Bridge Bank did not comply with the Regulation J
20
06:15:50
Section 404.
21
BY MR. MADDEN:
22
06:15:53
Q. And that's your opinion as an AML
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practitioner?
2
06:16:03
A. Yes.
3
06:16:04
Q. Under -- as you understand them as a
4
06:16:11
practitioner, can there be circumstances under which
5
06:16:18
the receiving bank of a wire transfer should not pay
6
06:16:22
the amount of a payment order that it has accepted to
7
06:16:26
the intended beneficiary of that order?
8
06:16:31
MR. MITCHELL: Object to the form.
9
06:16:35
THE WITNESS: Okay. Let's just parse that
10
06:16:36
out a little bit first if you don't mind. And you
11
06:16:39
may need to repeat it. I apologize.
12
BY MR. MADDEN:
13
06:16:41
Q. That's okay.
14
06:16:42
A. You're saying a beneficiary bank that has
15
06:16:45
already accepted the transaction, yes?
16
06:16:49
Q. Accepted a payment order, correct.
17
06:16:51
A. Okay. So they've accepted a payment order
18
06:16:54
and they have processed it. Is that also part of the
19
06:16:57
consideration here?
20
06:16:59
Q. No. My question was can there be
21
06:17:03
circumstances under which a beneficiary's bank should
22
06:17:08
not pay the amount of a payment order that it has
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accepted to the intended beneficiary of that order?
2
06:17:15
MR. MITCHELL: Objection to form.
3
06:17:18
THE WITNESS: Yeah, the problem with that
4
06:17:20
question is "accepted." And if you're -- I think the
5
06:17:26
best way to answer that is that per one of the
6
06:17:30
answers I gave earlier. If, in this case, a wire
7
06:17:35
comes in and the account number and the account name
8
06:17:37
don't match, right? It's automatically going to
9
06:17:41
flag. You're not going to process it through to the
10
06:17:43
customer's account because it's going to require
11
06:17:46
manual intervention to take a look at this before you
12
06:17:49
say, yes, we're going to accept it, no, we're not
13
06:17:51
going to accept it.
14
06:17:52
If we find that, yes, those don't match
15
06:17:56
and this is not the right account number for it to go
16
06:18:01
to in those circumstances, yes, it will be sent back.
17
06:18:06
Beneficiary banks would also not accept transactions
18
06:18:11
if they were coming from sanctioned jurisdictions.
19
BY MR. MADDEN:
20
06:18:17
Q. In the circumstance where the account name
21
06:18:19
is correct and the account number is correct and a
22
06:18:24
wire transfer comes into the beneficiary's bank and,
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by coming into the beneficiary's bank, is
2
06:18:32
automatically accepted in the Fedwire system; isn't
3
06:18:36
that your understanding?
4
06:18:38
A. In most cases, again, unless you have some
5
06:18:41
sort of manual stop descriptor or other type of item
6
06:18:45
that hits such as a potential sanctions violation, or
7
06:18:52
if it hits one of the other alerts. You know,
8
06:18:54
obviously in this case you're saying that there is no
9
06:18:56
mismatch between name and account number, so that
10
06:18:59
one's off the table, but there are other rules that
11
06:19:01
would be applied as well.
12
06:19:03
So if it hits none of those, it typically,
13
06:19:06
yes, goes straight through. So it's a
14
06:19:08
computer-to-computer transaction much as Mr. Baxter
15
06:19:12
describes in his report, which is the vast majority
16
06:19:16
of wire transfer activity.
17
06:19:18
Q. So my question is just, in the scenario
18
06:19:21
where no automatic stop has interrupted the
19
06:19:26
transaction and it comes into the beneficiary's bank,
20
06:19:30
in your opinion, can there ever be circumstances
21
06:19:34
where the beneficiary's bank should nevertheless not
22
06:19:37
pay the intended beneficiary of that payment order?
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MR. MITCHELL: Object to the form.
2
06:19:42
THE WITNESS: No. It's hard for me to
3
06:19:43
imagine ones that would be the case. This is a bank
4
06:19:49
that has done their due diligence on their customer.
5
06:19:56
They're accepting them. They have an account capable
6
06:19:58
of receiving funds. All the information matches up.
7
06:20:03
I can't offhand think of any reason why it would be
8
06:20:07
sent back or should be or under what circumstances
9
06:20:11
there could be a rational, you know, reason to do so
10
06:20:18
barring court order or law enforcement request.
11
BY MR. MADDEN:
12
06:20:32
Q. Let's say that a bank knew that its
13
06:20:35
customer was the beneficiary of a wire transfer that
14
06:20:40
the originator had paid only because the originator
15
06:20:45
believed the bank customer to be a foreign prince.
16
06:20:49
Are you with me so far?
17
06:20:53
A. Okay. So what role am I playing here?
18
06:20:57
I'm the beneficiary bank --
19
06:20:59
Q. Beneficiary bank.
20
06:21:01
A. I've got a customer that received a
21
06:21:03
payment because the sender believed that they were
22
06:21:08
sending it to a prince.
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