[Federal Register Volume 76, Number 93 (Friday, May 13, 2011)]
[Notices]
[Pages 28031-28034]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-11790]


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FEDERAL DEPOSIT INSURANCE CORPORATION


Clarification of Statement of Policy

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Clarification of Statement of Policy for Section 19 of the 
Federal Deposit Insurance Act.

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SUMMARY: The FDIC originally promulgated the Statement of Policy for 
Section 19 of the Federal Deposit Insurance Act (SOP) in December 1998. 
The FDIC, in 2007, issued a clarification to the SOP based on the 2006 
amendment to Section 19 of the Federal Deposit Insurance Act which 
addressed institution-affiliated parties (IAPs) participating in the 
affairs of Bank Holding Companies, or Savings and Loan Holding 
Companies. The FDIC is restating that previous change to the SOP in a 
slightly modified form, and addressing certain other issues that have 
arisen in the FDIC's interpretation of the policy since its original 
publication. The FDIC is clarifying what the FDIC views as a complete 
expungement of a conviction, and the definition of de minimis offenses.

DATES: The change to the policy statement is effective May 13, 2011.

FOR FURTHER INFORMATION CONTACT: Martin P. Thompson, Review Examiner 
(202) 898-6767, in the Division of Risk Management Supervision; or 
Michael P. Condon, Counsel, (202) 898-6536, in the Legal Division.

SUPPLEMENTARY INFORMATION:

I. Background

    Section 19 of the Federal Deposit Insurance Act, 12 U.S.C. 1829, 
(FDI Act) prohibits, without the prior written consent of the FDIC, a 
person convicted of any criminal offense involving dishonesty or breach 
of trust or money laundering (covered offenses), or who has agreed to 
enter into a pretrial diversion or similar program in connection with a 
prosecution for such offense, from becoming or continuing as an 
institution-affiliated party (IAP), owning or controlling, directly or 
indirectly an insured depository institution (insured institution), or

[[Page 28032]]

otherwise participating, directly or indirectly, in the conduct of the 
affairs of the insured institution. In addition, the law forbids an 
insured institution from permitting such a person to engage in any 
conduct or to continue any relationship prohibited by Section 19. The 
FDIC's SOP was published in December 1998 (63 FR 66177) to provide the 
public with guidance relating to Section 19, and the application 
thereof.
    The Financial Services Regulatory Relief Act of 2006, Public Law 
109-351, Sec.  710, modified Section 19 to include coverage of IAPs of 
Bank Holding Companies, and Savings and Loan Holding Companies. In 
response to this amendment of the statute, the FDIC amended the SOP by 
including a footnote which noted the authority of the Board of 
Governors of the Federal Reserve System (FRS) and the Office of Thrift 
Supervision (OTS) in regard to bank and savings and loan holding 
companies under Section 19. (72 FR 73823, December 28, 2007 with 
correction issued at 73 FR 5270, January 29, 2008). The FDIC is now 
eliminating the previous footnote, incorporating the change directly 
into the text of the SOP, and noting the coming transfer of authority 
under the Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-202, Sec.  312 (2010) (Dodd-Frank) of savings and loan 
holding company jurisdiction to the Board of Governors of the Federal 
Reserve System. In addition, the FDIC is making certain clarifying 
changes regarding when an application for the FDIC's consent must be 
filed.
    The SOP, as revised herein, will be on the FDIC's Web site at 
http://www.fdic.gov.

II. Clarifying Changes to the Statement of Policy

    The SOP will be clarified in the following areas:

A. Scope of Section 19

    Section 19 covers IAPs, as defined by 12 U.S.C. 1813(u), and others 
who are participants in the conduct of the affairs of an insured 
institution. However, because of changes to Section 19, the FDIC has 
identified the possibility that any persons covered by Section 19, 
because they are participating in the affairs of an insured depository 
institution, may also be participating in the affairs of a bank or 
savings and loan holding company and, therefore, fall within the scope 
of the changes to Section 19 related to the supervision of individuals 
participating in bank and savings and loan holding companies. This 
potential requirement was noted in the previous amendment to the SOP. 
This change eliminates the previous footnote and places the discussion 
in the text of the SOP. Although jurisdiction under Section 19 for the 
purpose of granting consent for an individual to participate in the 
affairs of a bank or savings and loan holding company is currently 
vested in the FRS or OTS, respectively, the policy statement is 
clarified to note the authority to grant consent to participate in the 
affairs of a savings and loan holding company will change effective on 
the Transfer Date as that term is used in Sec.  311 of Dodd-Frank.

B. Standards for Determining Whether an Application Is Required

(1) Convictions
    This subsection has been changed to address the interpretation of 
what is a complete expungement, as that term is used in the SOP. 
Historically, it has been the FDIC's position that unless the 
expungement is complete, a section 19 application would be required. 
The FDIC is amending the SOP to explain that an expungement is 
complete, and thus an application will not be required, only if the 
records of conviction are not accessible by any party, including law 
enforcement, even by court order. In all other circumstances an 
application will be required.
B. (5) De minimis Offenses
    The 1998 SOP created a category of covered offenses that it would 
deem to be de minimis due to the minor nature of the offenses and the 
low risk that the covered party would pose to an insured institution 
based on the conviction. Based on its experience in the processing and 
approving of numerous applications involving such minor crimes, the 
FDIC has recognized a category of offenses to which it would grant 
blanket approval under section 19 without the need to file an 
application. The FDIC is clarifying in two ways which offenses fall 
within the de minimis offenses exception of the SOP.
    First is a change in the language in the SOP that addresses the 
maximum sentence, in terms of jail time and/or fine, which a party 
might face, based on the covered crime of which they are convicted, but 
where the offense would still be considered de minimis. The current 
language can be read not to allow the de minimis offense exception to 
apply if the potential sentence for the covered crime is one year and/
or $1,000. The FDIC is clarifying this aspect of the SOP so that the de 
minimis offenses provision will apply if the potential sentence could 
be one year or less and/or $1,000 or less. The change will remove any 
uncertainty in the existing language, and will add greater clarity to 
the public and insured institutions in evaluating whether an 
application is necessary.
    A second clarification addresses when an offense involves an 
insured depository institution or insured credit union. The current 
language can be read not to allow the de minimis exception to apply 
when the covered party was convicted of writing a check that was 
returned for insufficient funds (i.e. a bad check), since the process 
of writing a check which is dishonored for insufficient funds usually 
involves depositing the check into the banking system at some point. 
However, the FDIC has determined that a conviction for issuing a bad 
check that does not cause loss to an insured depository institution or 
insured credit union, may, in limited circumstances, be subject to the 
de minimis offense exception. Therefore, subject to meeting the other 
provisions of the de minimis offenses exception, the FDIC is clarifying 
the language to allow, in certain limited circumstances, convictions 
for insufficient funds checks (bad checks) to fit with the de minimis 
rule. If there is one conviction for issuing an insufficient funds 
check (bad check) based on one or more checks which have an aggregate 
face value of $1,000 or less, and no insured financial institution or 
insured credit union was a payee on any of the checks, the conviction 
will qualify under the de minimis offense exception, and a section 19 
application will not be required.

III. Paperwork Reduction Act

    In accordance with section 3512 of the Paperwork Reduction Act of 
1995 (``PRA''), 44 U.S.C. 3501 et seq., an agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid Office of Management 
and Budget (``OMB'') control number. These Amendments to the Statement 
of Policy for Section 19 of the FDI Act include clarification of 
reporting requirements in an existing FDIC information collection, 
entitled Application Pursuant to Section 19 of the Federal Deposit 
Insurance Act (3064-0018) that should result in a decrease in the 
number of applications filed. Specifically, the revised policy 
statement clarifies that the following two offenses are deemed de 
minimis due to the minor nature of the offenses and the low risk that 
the covered party would pose to an insured institution based on the 
conviction: Offenses that

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were punishable by imprisonment for a term of one year or less and/or a 
fine of $1,000 or less, and for which the individual did not serve any 
time in jail; and, in certain limited circumstances, conviction of a 
crime based on the writing of a ``bad'' or insufficient funds check. By 
clarifying these provisions, the FDIC believes that there will be a 
reduction in the submission of applications in situations where blanket 
approval has been granted by virtue of the de minimis offenses section 
of the policy statement. This change in burden will be submitted to OMB 
as a non-significant, nonmaterial change to an existing information 
collection. The estimated new burden for the information collection is 
as follows:
    Title: ``Application Pursuant to Section 19 of the Federal Deposit 
Insurance Act.''
    Affected Public: Insured depository institutions and individuals.
    OMB Number: 3064-0018.
    Estimated Number of Respondents: 26.
    Frequency of Response: On occasion.
    Average Time per Response: 16 hours.
    Estimated Annual Burden: 416 hours.
    Comments are invited on:
    (a) Whether this collection of information is necessary for the 
proper performance of the FDIC's functions, including whether the 
information has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collection, including the validity of the methodologies and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    All comments will become a matter of public record. Comments may be 
submitted to the FDIC by any of the following methods:
     http://www.FDIC.gov/regulations/laws/federal/propose.html.
     E-mail: [email protected]. Include the name and number of 
the collection in the subject line of the message.
     Mail: Leneta Gregorie (202-898-3719), Counsel, Federal 
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 
20429.
     Hand Delivery: Comments may be hand-delivered to the guard 
station at the rear of the 550 17th Street Building (located on F 
Street), on business days between 7 a.m. and 5 p.m.
    A copy of the comment may also be submitted to the OMB Desk Officer 
for the FDIC, Office of Information and Regulatory Affairs, Office of 
Management and Budget, New Executive Office Building, Room 3208, 
Washington, DC 20503. All comments should refer to the ``Application 
Pursuant to Section 19 of the Federal Deposit Insurance Act,'' OMB No. 
3064-0018.

IV. Changes to FDIC Statement of Policy for Section 19

    For the reasons set forth above, the FDIC hereby revises the FDIC 
Statement of Policy for Section 19 as follows:
    1. Revise subsection A. Scope of Policy, first paragraph, and add a 
new paragraph after the first paragraph, to read:
    Section 19 covers institution-affiliated parties, as defined by 12 
U.S.C. 1813(u), and others who are participants in the conduct of the 
affairs of an insured institution. This Statement of Policy applies 
only to insured institutions, their institution-affiliated parties, and 
those participating in the affairs of an insured depository 
institution. Therefore, all employees of an insured institution fall 
within the scope of section 19. In addition, those deemed to be de 
facto employees as determined by the FDIC based upon generally 
applicable standards of employment law, will also be subject to section 
19. Whether other persons who are not institution-affiliated parties 
are covered depends upon their degree of influence or control over the 
management or affairs of an insured institution. For example, section 
19 would not apply to persons who are merely employees of an insured 
institution's holding company, but would apply to its directors and 
officers to the extent that they have the power to define and direct 
the policies of the insured institution. Similarly, directors and 
officers of affiliates, subsidiaries or joint ventures of an insured 
institution or its holding company will be covered if they are in a 
position to influence or control the management or affairs of the 
insured institution. Those who exercise major policymaking functions of 
an insured institution would be deemed participants in the affairs of 
that institution and covered by section 19. Typically, an independent 
contractor does not have a relationship with the insured institution 
other than the activity for which the insured institution has 
contracted. Under 12 U.S.C. 1813(u), independent contractors are 
institution-affiliated parties if they knowingly or recklessly 
participate in violations, unsafe or unsound practices or breaches of 
fiduciary duty which are likely to cause significant loss to, or a 
significant adverse effect on, an insured institution. In terms of 
participation, an independent contractor who influences or controls the 
management or affairs of the insured institution, would be covered by 
section 19. Further, ``person'' for purposes of section 19 means an 
individual, and does not include a corporation, firm or other business 
entity.
    Individuals who file an application with the FDIC under the 
provisions of Section 19 who are participating in the affairs of a bank 
or savings and loan holding company may also have to comply with any 
filing requirements of the Board of the Governors of the Federal 
Reserve System under 12 U.S.C. 1819(d) in the case of a bank holding 
company, and the Office of Thrift Supervision under 12 U.S.C. 1819(e), 
in the case of a savings and loan holding company until the Transfer 
Date as that term is used in the Dodd-Frank Wall Street Reform Act 
(Pub. L. 111-203, Sec.  311, July 21 2010). Upon the Transfer Date 
applications related to savings and loan holding companies should be 
filed with the Board of Governors of the Federal Reserve System.
* * * * *
    2. Revise subsection B. Standards for Determining Whether an 
Application Is Required to read:
* * * * *
    (1) Convictions. There must be present a conviction of record. 
Section 19 does not cover arrests, pending cases not brought to trial, 
acquittals, or any conviction which has been reversed on appeal. A 
conviction with regard to which an appeal is pending will require an 
application until or unless reversed. A conviction for which a pardon 
has been granted will require an application. A conviction which has 
been completely expunged is not considered a conviction of record and 
will not require an application. For an expungement to be considered 
complete, no one, including law enforcement, can be permitted access to 
the record even by court order under the state or federal law which was 
the basis of the expungement.
* * * * *
    (5) De minimis Offenses. Approval is automatically granted and an 
application will not be required where the covered offense is 
considered de minimis, because it meets all of the following criteria:
     There is only one conviction or program entry of record 
for a covered offense;
     The offense was punishable by imprisonment for a term of 
one year or

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less and/or a fine of $1,000 or less, and the individual did not serve 
time in jail;
     The conviction or program was entered at least five years 
prior to the date an application would otherwise be required; and
     The offense did not involve an insured depository 
institution or insured credit union.
    A conviction or program entry of record based on the writing of a 
``bad'' or insufficient funds check(s) shall be considered a de minimis 
offense under this provision even if it involved an insured depository 
institution or insured credit union if the following applies:
     All other requirements of the de minimis offense 
provisions are met;
     The aggregate total face value of the bad or insufficient 
funds check(s) cited in the conviction was $1,000 or less; and
     No insured depository institution or insured credit union 
was a payee on any of the bad or insufficient funds checks that were 
the basis of the conviction.
    Any person who meets the foregoing criteria shall be covered by a 
fidelity bond to the same extent as others in similar positions, and 
shall disclose the presence of the conviction or program entry to all 
insured institutions in the affairs of which he or she intends to 
participate.
* * * * *

    By Order of the Board of Directors.

    Dated at Washington, DC, the 10th day of May, 2011.

Federal Deposit Insurance Corporation.

Robert Feldman,
Executive Secretary.
[FR Doc. 2011-11790 Filed 5-12-11; 8:45 am]
BILLING CODE 6714-01-P