Topics: Criminal Issuance; Lending Limits

Note: When the joint ventures of owners of a holding company that owned Community Bank of Greater Peoria in Illinois reached their legal borrowing limits, the owners caused the bank secretly to issue unrecorded LCs to continue financing of those ventures. No applications were required for the LCs, no promissory notes were signed, the books did not reflect the LCs, and no fees were paid for the unrecorded LCs. In 1993, an FDIC examiner discovered two unrecorded LCs issued by the bank that had been signed by the senior vice president for commercial loans at the bank. The subsequent investigation turned up approximately 45 unrecorded LCs. The bank officer was charged with having "knowingly caused" the bank to issue unrecorded and illegal letters of credit and "in violation of Bank and regulatory policy caused the existence of such letters of credit not [to] be recorded properly on the books and records of the Bank." The jury was instructed that "...the 'scheme' meant the illegal extension of credit by reason of letters of credit unbooked on the books and records of [the issuing bank]" The bank officer was found guilty and sentenced to 32 months of incarceration. On appeal, the bank officer argued that jury instruction deprived him of his due process rights because the instruction was based only on a failure to record the LCs, regardless of whether he issued the LCs. The United States Court of Appeals for the Seventh Circuit, Wood, J., affirmed and ruled that the jury instruction taken as a whole did not mislead the.2001 LC CASE SUMMARIES jury and deprive the bank officer of his due process rights. The appellate court noted, "in the end, of course, neither [the officer] nor any other individual person actually issued the LCs; they were issued by the Bank as an institution. LCs are commitments by a bank that are specifically designed to facilitate commercial transactions by putting the bank's credit on the line either for payment (with documentary credits) or for a guarantee (with standby credits, as these appeared to be). Before the LC could be issued by the Bank, the signature of some official of the Bank had to be on the document. Here, it is undisputed that [the officer] signed the LCs in question. To that extent, therefore, he caused the Bank to extend its credit to the beneficiaries of the LCs. Furthermore, he also failed to book the LCs properly." It concluded, "by signing the LCs before they were issued, failing to book them in order to promote the fraud, and hiding them in his desk drawer, he knowingly caused the extension of credit just as much as if he had taken the first step or two in the process that led to their issuance."


The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.