Which method might be used to conceal a sham loan transaction in which the loan officer receives part of the proceeds (kickback)?

Which method might be used to conceal a sham loan transaction in which the loan officer receives part of the proceeds (kickback)?

• A. Turning the loan over to a collections agency
• B. Letting the loan go into arrears
• C. Charging off the loan as a bad loan
• D. 'Digging' the loan on the books

Answer: (C)

Concealing a sham loan with a kickback hinges on hiding the illicit transaction within financial records. Charging the loan off as a bad debt accomplishes that by removing the loan from the balance sheet and recording a loss, so the loan no longer appears as an asset. This masking of the loan’s existence can hide that funds were disbursed under a sham arrangement in exchange for kickbacks, making the improper activity harder to trace on the financial statements. Other options would tend to reveal the loan’s status—either by triggering collection actions, showing delinquency, or simply reclassifying the loan in a way that still keeps the loan visible on the books—whereas a charge-off directly obscures the loan’s presence as an asset.

Concealing a sham loan with a kickback hinges on hiding the illicit transaction within financial records. Charging the loan off as a bad debt accomplishes that by removing the loan from the balance sheet and recording a loss, so the loan no longer appears as an asset. This masking of the loan’s existence can hide that funds were disbursed under a sham arrangement in exchange for kickbacks, making the improper activity harder to trace on the financial statements. Other options would tend to reveal the loan’s status—either by triggering collection actions, showing delinquency, or simply reclassifying the loan in a way that still keeps the loan visible on the books—whereas a charge-off directly obscures the loan’s presence as an asset.