In the Matter of Daiwa Bank, Ltd.

Daiwa Bank, Ltd. (Daiwa) (defendant) was a Japanese bank that did business in New York. Toshihide Iguchi was a senior employee in Daiwa’s New York branch. Iguchi confessed to Daiwa’s president that over an 11-year period, Iguchi (1) engaged in the unauthorized trading of United States Treasury securities, (2) misappropriated securities from Daiwa and Daiwa’s customers to cover his trading losses, and (3) hid his unauthorized trades by falsifying records and lying to regulators and auditors. Iguchi’s actions resulted in a $1.1 billion loss. Daiwa notified the Federal Reserve Bank of New York about Iguchi’s confession. However, Daiwa never filed a criminal-referral form pursuant to Federal Reserve Regulation K. The Board of Governors of the Federal Reserve Bank (Federal Reserve) subsequently issued a notice of charges and a hearing pursuant to the Federal Deposit Insurance Act (FDIA) with respect to Daiwa. Specifically, the Federal Reserve charged Daiwa and its New York branch with engaging in unsafe and unsound practices at the New York branch by permitting Iguchi to engage in unauthorized trades and by violating prudent banking practices by inadequately separating the New York branch’s trading and back-office processes, thereby allowing Iguchi to get away with his scheme. The Federal Reserve also charged Daiwa with Regulation K, which required foreign banks that operated in the United States to notify law enforcement and the Federal Reserve about suspected criminal activity within 30 days of learning about such activity. The Federal Reserve scheduled a hearing before an administrative-law judge in order to determine whether, pursuant to the FDIA, Daiwa and its New York branch should be ordered to cease and desist from further violations and to take affirmative corrective action.