[Federal Register Volume 89, Number 152 (Wednesday, August 7, 2024)]
[Rules and Regulations]
[Pages 64353-64367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-17327]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303 and 308

RIN 3064-AF92


Fair Hiring in Banking Act

AGENCY: Federal Deposit Insurance Corporation.

ACTION: Final rule.

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SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is revising

[[Page 64354]]

its regulations to conform with the Fair Hiring in Banking Act (FHBA)--
which was enacted on and immediately effective as of December 23, 2022. 
Among other provisions, the FHBA excluded or exempted categories of 
otherwise-covered offenses from the scope of statutory prohibitions on 
participation in banking. These categories pertain to certain older 
offenses, offenses committed by individuals 21 or younger, and 
relatively minor offenses. The FHBA also clarified several definitions 
in section 19 and provided application-processing procedures. The FDIC 
considers most of the revisions to its regulations to be required by 
the FHBA. Most other revisions reflect the FDIC's interpretation of 
statutory prohibitions in light of the FHBA.

DATES:  rule will be effective on October 1, 2024.

FOR FURTHER INFORMATION CONTACT: Timothy Schuett, Senior Review 
Examiner, 763-614-9473, [email protected]; Brian Zeller, Senior Review 
Examiner, 571-345-8170, [email protected], Division of Risk Management 
Supervision; or Graham Rehrig, Counsel, 703-314-3401, [email protected], 
Legal Division.

SUPPLEMENTARY INFORMATION:

I. Policy Objective

    The policy objective of the rule is to revise the FDIC's 
regulations concerning section 19 of the Federal Deposit Insurance Act 
(section 19) \1\ to conform with the FHBA.\2\ These regulations 
provide, among other things, the application process for insured 
depository institutions (IDIs) and individuals who seek relief from 
section 19 as well as information about section 19 and the FDIC's 
interpretation of the statute.
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    \1\ 12 U.S.C. 1829.
    \2\ The FHBA appears at section 5705 of the James M. Inhofe 
National Defense Authorization Act for Fiscal Year 2023, Public Law 
117-263, 136 Stat. 2395, 3411.
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II. Background and Public Comments

    Section 19 prohibits, without the prior written consent of the FDIC 
(the FDIC refers to applications for such consent as ``consent 
applications'',\3\) the participation in an IDI by any person who has 
been convicted of a crime involving dishonesty or breach of trust or 
money laundering or who has agreed to enter into a pretrial diversion 
or similar program in connection with the prosecution for such an 
offense (collectively, covered offenses). Further, this law forbids an 
IDI from permitting such a person to engage in any such conduct or to 
continue any relationship prohibited by section 19. Section 19 also 
imposes a separate 10-year minimum for the automatic prohibition of a 
person convicted of certain crimes enumerated in title 18 of the United 
States Code (U.S.C.), although an exception may be granted upon a 
motion by the FDIC and approval by the sentencing court.
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    \3\ Under the FHBA, a ``consent application'' ``means an 
application filed with [the FDIC] by an individual (or by an insured 
depository institution or depository institution holding company on 
behalf of an individual) seeking the written consent of the [FDIC] 
under [12 U.S.C. 1829(a)(1)].'' 12 U.S.C. 1829(g)(1).
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    From 1998 until 2020, the FDIC had a Statement of Policy that was 
issued related to section 19, occasionally revised, and published in 
the Federal Register.\4\ The purpose of the Statement of Policy, as 
amended through the years, was ``to provide the public with guidance 
relating to section 19 and the FDIC's application thereof.'' \5\ In 
2020, following notice and comment, the FDIC revised and codified the 
Statement of Policy into the FDIC's Filing Procedures under 12 CFR part 
303, subpart L, and Rules of Practice and Procedure under 12 CFR part 
308, subpart M.\6\
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    \4\ See 63 FR 66177 (Dec. 1, 1998); 72 FR 73823 (Dec. 28, 2007) 
with correction issued at 73 FR 5270 (Jan. 29, 2008); 76 FR 28031 
(May 13, 2011); 77 FR 74847 (Dec. 18, 2012); 83 FR 38143 (Aug. 3, 
2018).
    \5\ See 84 FR 68353 (Dec. 16, 2019).
    \6\ See 85 FR 51312 (Aug. 20, 2020).
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    On December 23, 2022, the President signed into law the FHBA, which 
significantly revised section 19 and was effective immediately. The 
FHBA created several categories of exceptions or exemptions to the 
prohibition on participating in banking, including the following:
     Certain older offenses: (1) if it has been 7 years or more 
since the offense occurred; (2) if the individual was incarcerated with 
respect to the offense and it has been 5 years or more since the 
individual was released from incarceration; or (3) for individuals who 
committed an offense when they were 21 years of age or younger, if it 
has been more than 30 months since the sentencing occurred.\7\
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    \7\ These exceptions do not apply to the offenses described 
under 12 U.S.C. 1829(a)(2).
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     Offenses for which an order of expungement, sealing, or 
dismissal has been issued in regard to the conviction in connection 
with such offense and it is intended by the language in the order 
itself, or in the legislative provisions under which the order was 
issued, that the conviction shall be destroyed or sealed from the 
individual's State, Tribal, or Federal record even if exceptions allow 
the record to be considered for certain character and fitness 
evaluation purposes.
     De minimis offenses: a category of relatively minor 
offenses that are either specified by the FHBA or by the FDIC through 
regulations. In the FHBA, a subcategory of de minimis offenses is 
called ``designated lesser offenses,'' which offenses include the use 
of fake identification, shoplifting, trespass, fare evasion, driving 
with an expired license or tag (and such other low-risk offenses as the 
FDIC may designate), if 1 year or more has passed since the applicable 
conviction or program entry.
     Misdemeanor criminal offenses involving dishonesty, if the 
offense was committed more than one year before the date on which an 
individual files a consent application, excluding any period of 
incarceration.
     A criminal offense involving dishonesty that ``involv[es] 
the possession of controlled substances.''
    The FHBA clarifies several terms in section 19, including 
``criminal offense involving dishonesty'' and ``pretrial diversion or 
similar program.'' It also provides conditions regarding de minimis 
offenses, to the extent the FDIC provides de minimis exemptions by 
rule.
    The FHBA codifies procedures for consent applications filed with 
the FDIC. It requires the FDIC to make all forms and instructions 
related to consent applications available to the public, including on 
the FDIC's website. It requires the FDIC to primarily rely on the 
criminal history record of the Federal Bureau of Investigation when 
evaluating consent applications and to provide such records to the 
applicant to review for accuracy. Further, it requires the FDIC to 
assess evidence of an individual's rehabilitation including: the 
applicant's age at the time of the conviction or program entry; the 
time that has elapsed since conviction or program entry; and the 
relationship of an individual's offense to the responsibilities of the 
applicable position. Other information, including an individual's 
employment history, letters of recommendation, certificates documenting 
participation in substance abuse programs, successful participation in 
job preparation and educational programs, other relevant mitigating 
evidence, and any additional information the FDIC determines necessary 
for safety and soundness shall also be considered.
    On November 14, 2023, the FDIC published a notice of proposed 
rulemaking (proposal) to conform the FDIC's section 19 regulations with 
the

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FHBA.\8\ The FDIC issued the proposal following consultation and 
coordination with the National Credit Union Administration (NCUA), the 
Board of Governors of the Federal Reserve System (FRB), and the Office 
of the Comptroller of the Currency (OCC) ``to promote consistent 
implementation [of the FHBA] where appropriate.'' \9\ The FDIC proposed 
to revise its rules and procedures in order to conform them to the FHBA 
and to clarify certain provisions of that statute. For example, the 
FDIC proposed to revise 12 CFR part 303, subpart L, to reflect the 
FHBA's exclusion of certain older offenses from the scope of section 
19. The FDIC requested comments on all aspects of its approach to 
section 19 and, specifically, the following topics of interpretation:
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    \8\ See 88 FR 77906 (Nov. 14, 2023).
    \9\ See 12 U.S.C. 1829(f)(9) (``In carrying out this section, 
the [FDIC] shall consult and coordinate with the National Credit 
Union Administration as needed to promote consistent implementation 
where appropriate'').
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     the date on which a criminal offense ``occurred'' or was 
``committed;''
     the date on which ``sentencing occurred;''
     whether section 19 encompasses foreign convictions and 
pretrial diversions;
     the standard for expungements, sealings, and dismissals;
     ``offenses involving controlled substances;'' and
     de minimis offenses.
    The comment period closed on January 16, 2024. The FDIC received 
five comments from six different commenters, consisting of two 
individuals and four advocacy groups (two advocacy groups provided a 
joint comment). All of the comments generally supported the proposal. 
The comment received from one advocacy group did not offer specific 
changes to the proposal but urged the FDIC and other financial 
regulators to strengthen their enforcement practices. The other 
commenters suggested a variety of changes. The comments and the FDIC's 
responses are discussed below in sections III and V of this document.

III. Description of the Final Rule

    The primary purpose of the final rule is to align the FDIC's 
section 19 regulations with the FHBA. The amendments address, among 
other topics, the types of offenses covered by section 19, the effect 
of the completion of sentencing or pretrial-diversion program 
requirements in the context of section 19, and the FDIC's procedures 
for reviewing applications filed under section 19. Significant 
revisions to the FDIC's current regulations \10\ include the following:
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    \10\ The rule would also make a number of technical or 
clarifying edits to the section 19 regulations that are not 
discussed in this section.
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A. Revised Provisions of 12 CFR Part 303, Subpart L

1. Section 303.220 What is section 19 of the Federal Deposit Insurance 
Act?
    Paragraph (b) clarifies that each IDI must make a ``reasonable, 
documented inquiry'' to verify an applicant's history to ensure that a 
person who has a covered offense on the person's record is not hired or 
permitted to participate in its affairs without the written consent of 
the FDIC. In the FDIC's 2020 Final Rule concerning revisions to its 
section 19 regulations, the FDIC stated, ``The procedures that 
constitute a reasonable inquiry will vary from bank to bank, and the 
FDIC believes that this determination is best left to the business 
judgments of these institutions.'' \11\ The FDIC reaffirms this 
position (with the added requirement since 2020 that the inquiry be 
documented), in response to one commenter's suggestion.
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    \11\ 85 FR at 51317.
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    One commenter recommended that the FDIC clarify that a 
``reasonable, documented inquiry'' would include verifying that the 
date of any conviction or program entry occurred at least one year or 
seven years prior, as applicable. (This commenter did not take into 
consideration the offenses enumerated in 12 U.S.C. 1829(a)(2) that are 
not affected by the FHBA's time-based exclusions.) As discussed in 
greater detail later in this preamble, the FDIC interprets the terms 
``offense occurred'' and ``offense committed'' in the FHBA to mean the 
last date of the underlying misconduct rather than the date of 
conviction or program entry. But since the date of conviction or 
program entry necessarily follows the last date on which the underlying 
misconduct occurred, there may be circumstances in which the date of 
conviction or program entry may provide sufficient information to an 
IDI that an offense is excluded from the scope of section 19. For 
example, if a State felony conviction occurred 10 years ago, it would 
be clear from the criminal record that the conviction is not subject to 
section 19's prohibitions, and the use of the conviction date could be 
used by the IDI to establish a reasonable, documented inquiry. On the 
other hand, if an IDI cannot ascertain whether an offense is subject to 
section 19 based on the date of conviction or program entry, it may be 
necessary for the IDI to perform additional research to determine the 
last date of the underlying misconduct. The FDIC is not, however, 
prescribing the exact procedures that IDIs should follow in conducting 
a reasonable, documented inquiry.
2. Section 303.221 Who is covered by section 19?
    Paragraph (d) more closely aligns its restrictions with the 
analogous FRB regulations under 12 CFR 225.41 and 238.31 and the FDIC's 
regulations under 12 CFR part 303, subpart E, concerning Change in Bank 
Control applications. A person will be deemed to exercise ``control'' 
if that person: (1) has the ability to direct the management or 
policies of an IDI; (2) has the power to vote 25 percent or more of the 
voting shares of an IDI; or (3) has the power to vote 10 percent of the 
voting shares of an IDI if: (a) no other person owns, controls, or has 
the power to vote more shares; or (b) the institution has registered 
securities under section 12 of the Securities Exchange Act of 1934.\12\ 
Under the same standards, a person will be deemed to ``own'' an IDI if 
that person owns: (1) 25 percent or more of the institution's voting 
stock; or (2) 10 percent of the voting shares if: (a) no other person 
owns more; or (b) the institution has registered securities under 
section 12 of the Securities Exchange Act of 1934. Paragraph (d) 
retains language concerning individuals acting in concert with others 
so as to have such ownership or control. The FDIC has clarified in 
paragraph (a), however, that the term ``acting in concert'' has the 
meaning given to that term in 12 CFR part 303, subpart E (including the 
rebuttable presumption of ``acting in concert'' stated in that 
subpart).
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    \12\ 15 U.S.C. 78l.
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    3. Section 303.222 Which offenses qualify as ``Covered Offenses'' 
under section 19?
    Paragraph (a) reflects the statutory definition of ``criminal 
offense involving dishonesty.'' \13\ The FHBA excludes from the scope 
of such offenses ``an offense involving the possession of controlled 
substances.'' \14\ The FDIC interprets this phrase concerning 
controlled substances to exclude, at a minimum, criminal offenses 
involving the simple possession of controlled substances and possession 
with intent to distribute a controlled substance. This exclusion may 
also apply to other drug-related offenses depending on the statutory 
elements of the offenses or from court determinations that the 
statutory provisions of the offenses do

[[Page 64356]]

not involve dishonesty, breach of trust, or money laundering. Potential 
applicants may contact their appropriate FDIC Regional Office if they 
have questions about whether their offenses are covered under section 
19. This revised regulatory language marks a shift from the FDIC's 
current section 19 regulations, which require an application for all 
convictions and pretrial diversions concerning the illegal manufacture, 
sale, distribution of, or trafficking in controlled substances.
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    \13\ See 12 U.S.C. 1829(g)(2).
    \14\ 12 U.S.C. 1829(g)(2)(C)(ii).
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    One commenter specifically supported the FDIC's proposal concerning 
controlled substances. Another commenter said that the FDIC's proposed 
language was overly broad and contrary to congressional intent and that 
the proposed exclusion should be limited to the offense of simple 
possession of controlled substances. This commenter added that banks 
would face reputational risks if they hired individuals who had been 
convicted of the crime of possession with the intent to distribute 
controlled substances. This commenter also recommended that the FDIC 
retain its regulatory text concerning the illegal manufacture, sale, 
distribution of, or trafficking in controlled substances.
    The FDIC believes that the proposed language is consistent with the 
text and purposes of the FHBA and would align the FDIC's interpretation 
of section 19 as to offenses involving controlled substances more 
closely with other Federal banking regulators. The FHBA explicitly 
excludes from the category of ``criminal offense involving dishonesty'' 
``an offense involving the possession of controlled substances,'' not 
just the offense of ``possession of controlled substances.'' \15\ The 
modifier ``involving,'' in the FDIC's view, expands that exclusion 
beyond simple-possession offenses. The revised regulatory language, 
however, will recognize that a drug-related offense could potentially 
involve dishonesty, breach of trust, or money laundering. Moreover, 
while section 19 provides statutory barriers to the employment of 
certain individuals due to their criminal history, IDIs otherwise 
retain the discretion, under that statute, as to which applicants they 
want to hire. The FDIC also notes that this revision to its section 19 
regulations will not affect the FDIC's ability to consider drug-related 
offenses, as they pertain to the suitability of an individual, under 
other statutory provisions, including the Change in Bank Control Act 
and section 32 of the FDI Act.
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    \15\ See 12 U.S.C. 1829(g)(2)(C)(ii) (emphasis added).
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    The FHBA also states that the term ``criminal offense involving 
dishonesty'' does not include ``a misdemeanor criminal offense 
committed more than one year before the date on which an individual 
files a consent application, excluding any period of incarceration.'' 
\16\ The FDIC interprets the term ``offense committed'' to mean the 
``last date of the underlying misconduct,'' based on the plain text of 
the statute. In instances with multiple offenses, ``offense committed'' 
means the last date of any of the underlying offenses.
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    \16\ 12 U.S.C. 1829(g)(2)(C)(i).
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    Revised paragraph (c) includes new language reflecting the 
statute's exception of certain older offenses from the scope of section 
19.\17\ Among other exceptions, the FHBA states that section 19's 
restrictions will not apply to an offense if ``it has been 7 years or 
more since the offense occurred.'' \18\ The FDIC considers the phrases 
``offense committed''--noted above--and ``offense occurred'' to be 
substantially similar. Accordingly, the FDIC interprets the term 
``offense occurred'' to mean the ``last date of the underlying 
misconduct.'' In instances with multiple offenses, ``offense occurred'' 
means the last date of any of the underlying offenses.
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    \17\ See 12 U.S.C. 1829(c)(1).
    \18\ 12 U.S.C. 1829(c)(1)(A)(i).
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    Two commenters disagreed with the FDIC's proposal and stated that 
``offense occurred'' or ``offense committed'' should mean the date of 
the plea, conviction, or program entry. In the FDIC's view, however, 
the plain meaning of the terms ``committed'' and ``occurred'' mean when 
the underlying misconduct happened. This interpretation is buttressed 
by Congress's use of the date of conviction or program entry elsewhere 
in the statute; that is, the statute distinguishes between when 
misconduct was ``committed'' or ``occurred'' and the date of a 
``conviction'' or ``program entry.'' \19\
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    \19\ See, e.g., 12 U.S.C. 1829(c)(3)(D) (``Subsection (a) shall 
not apply to certain lesser offenses (including the use of a fake 
ID, shoplifting, trespass, fare evasion, driving with an expired 
license or tag, and such other low-risk offenses as the Corporation 
may designate) if 1 year or more has passed since the applicable 
conviction or program entry'' (emphasis added).)
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    Two commenters expressed concerns that IDIs would have difficulty 
with ascertaining the underlying date(s) of misconduct for job 
applicants, as part of background inquiries. The commenters noted that 
background-check reports that are commercially or otherwise available 
tend to list the date of arrest, conviction, or release from 
incarceration but not necessarily the date of the underlying 
misconduct. The FDIC believes that, for many applicants, an IDI will be 
able to determine whether an offense is covered by section 19 using the 
background-check reports noted by the commenters. And as stated earlier 
in this preamble, an IDI may conduct a reasonable, documented inquiry 
by using the date of conviction or program entry if it is clear from 
that information that an applicant's offense is not subject to section 
19 due to the amount of time that has elapsed. On the other hand, if an 
IDI cannot ascertain whether an offense is subject to section 19 based 
on the date of conviction or program entry, it may be necessary for the 
IDI to perform additional research to determine the last date of the 
underlying misconduct.
    Revised paragraph (c) contains another FHBA exception: section 19's 
restrictions would not apply to an offense if ``the individual was 
incarcerated with respect to the offense and it has been 5 years or 
more since the individual was released from incarceration.'' \20\ While 
the language of the statute is clear, the FDIC notes that there could 
be situations in which an individual who was incarcerated with respect 
to an offense would be permitted to work at an IDI before a similarly 
situated individual who was not incarcerated in connection with an 
offense. This difference is due to the FHBA's use of a shorter time 
period for individuals who were incarcerated for an offense than for 
individuals who did not serve jail time. Revised paragraph (c) also 
tracks the FHBA's language concerning offenses committed by individuals 
21 years of age or younger. The FHBA states that, for individuals who 
committed an offense when the individual was 21 years of age or 
younger, section 19 ``shall not apply to the offense if it has been 
more than 30 months since the sentencing occurred.'' \21\ The FDIC 
interprets ``sentencing occurred'' to mean the date on which a court 
imposed the sentence (as indicated by the date on the court's 
sentencing order), not the date on which all conditions of sentencing 
were completed. Moreover, revised paragraph (c) notes that its 
exclusions--which are derived from the FHBA--do not apply to the 
enumerated offenses described under 12 U.S.C. 1829(a)(2).\22\
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    \20\ 12 U.S.C. 1829(c)(1)(A)(ii).
    \21\ 12 U.S.C. 1829(c)(1)(B).
    \22\ See 12 U.S.C. 1829(c)(1)(C).
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    One commenter agreed with the FDIC that the term ``sentencing 
occurred''

[[Page 64357]]

should mean the date when sentence was imposed by the court. Another 
commenter--to the NCUA's parallel notice of proposed rulemaking under 
the FHBA \23\--suggested that the term ``sentencing occurred'' should 
mean the date that appears on the sentencing order, instead of the date 
the court's clerk entered the order on the docket. The FDIC agrees with 
this suggestion, as indicated above.
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    \23\ See 88 FR 76702 (Nov. 7, 2023).
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    Revised paragraph (d) adds language to codify the FDIC's long-held 
position that individuals who are convicted of or enter into a pretrial 
diversion program for a criminal offense involving dishonesty, breach 
of trust, or money laundering in foreign jurisdictions are subject to 
section 19, unless the offense is otherwise excluded by 12 CFR part 
303, subpart L.
    One commenter stated that foreign convictions and pretrial 
diversions should be excluded from the scope of section 19. This 
commenter cited the difficulty of investigating criminal matters in 
foreign jurisdictions in which an applicant may have worked or resided, 
noted that banks might not have operations in such jurisdictions, and 
expressed concern that banks could expose themselves to liability in 
foreign jurisdictions through conducting background checks. Moreover, 
this commenter said that certain applicants for bank employment may 
already have completed a background check for the visa process; 
therefore, there would be a risk of duplication with a bank's 
investigation.
    The FDIC has retained its proposed language as to foreign offenses 
due to the importance of ensuring that individuals with covered 
offenses do not participate in the affairs of IDIs without the FDIC's 
consent. Employers may be unaware of an applicant's foreign offenses 
without conducting their own inquiry, and many countries have their own 
application processes to conduct criminal background checks. The FDIC 
reiterates several non-exhaustive ways in which banks could comply with 
this requirement. For IDI operations outside the United States, the IDI 
could conduct a reasonable, documented inquiry to verify an applicant's 
history, in accordance with 12 CFR 303.220, by inquiring about 
potential covered offenses that may have occurred in that foreign 
country (or countries) in which the IDI conducts operations, as well as 
in the United States. As another example of such an inquiry, if an IDI 
plans to hire someone in the United States who is from a foreign 
country, the IDI could inquire about potential covered offenses that 
may have occurred in the United States and in that foreign country. And 
if a foreign jurisdiction forbade background investigations by an IDI, 
the IDI could note this restriction as part of its reasonable, 
documented inquiry.
4. Section 303.223 What constitutes a conviction under section 19?
    Paragraph (c) has been revised to reflect statutory language 
related to the treatment of orders of expungement, sealing, or 
dismissal of criminal records.\24\ The FHBA provides a two-pronged test 
to determine whether a covered offense should be considered expunged, 
dismissed, or sealed and therefore excluded from the scope of section 
19. First, there must be an ``order of expungement, sealing, or 
dismissal that has been issued in regard to the conviction in 
connection with such offense''; second, it must be ``intended by the 
language in the order itself, or in the legislative provisions under 
which the order was issued, that the conviction shall be destroyed or 
sealed from the individual's State, Tribal, or Federal record, even if 
exceptions allow the record to be considered for certain character and 
fitness evaluation purposes.'' \25\ The statute does not address 
expungements, sealings, or dismissals by operation of law, and the FDIC 
has sought to harmonize its current regulations concerning expunged and 
sealed records with the statutory language to provide a more 
comprehensive framework as to such records. The FDIC has also added 
language to the second (intent) prong of the expungement framework to 
encompass the language in the expungement order itself, the legislative 
provisions under which the order was issued, and other legislative 
provisions. This revision also seeks to harmonize the FDIC's current 
regulations concerning expungements with the FHBA's provisions. The 
FDIC believes that all of the additional language is consistent with 
the purposes of the statute.
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    \24\ See 12 U.S.C. 1829(c)(2).
    \25\ 12 U.S.C. 1829(c)(2).
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    Revised paragraph (d) clarifies that it encompasses the terms 
``youthful offender'' and ``juvenile delinquent'' and similar terms, 
since a court does not have to specifically use these terms in an 
adjudication in order for paragraph (d)'s provisions to apply.
5. Section 303.224 What constitutes a pretrial diversion or similar 
program (program entry) under section 19?
    This section has been revised to reflect the statutory definition 
of ``pretrial diversion or similar program.'' \26\
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    \26\ See 12 U.S.C. 1829(g)(3).
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6. Section 303.225 What are the types of applications that can be 
filed?
    This section has been revised to reflect the updated statutory 
filing procedures. The statute removes the FDIC's former policy that an 
institution sponsor a consent application or that an individual seek a 
waiver of the institution filing requirement. Moreover, the statute 
enables a depository institution holding company to file an application 
on behalf of an individual (previously, only IDIs could file such 
sponsored applications).\27\ In order to avoid duplication of 
applications filed with the FRB and the FDIC, revised paragraph (a) 
states that the FDIC will accept applications from: an individual; an 
IDI applying on behalf of an individual; a depository institution 
holding company applying on behalf of an individual with respect to a 
depository institution subsidiary of the holding company; and a 
depository institution holding company applying on behalf of an 
individual who will work at the holding company but also participate in 
the affairs of the IDI or who would be in a position to influence or 
control the management or affairs of the IDI, in accordance with 12 CFR 
303.221(a).
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    \27\ See 12 U.S.C. 1829(f)(1).
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    Revised paragraph (b), consistent with the FHBA, states that an 
individual or an institution may file applications at separate times. 
Under either approach, the application(s) must be filed with the 
appropriate FDIC Regional Office.\28\
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    \28\ See 12 U.S.C. 1829(f)(1).
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7. Section 303.226 When may an application be filed?
    This revised section notes that, before an application may be 
filed, ``all of the sentencing requirements associated with a 
conviction, or conditions imposed by the program entry, including but 
not limited to, imprisonment, fines, condition of rehabilitation, and 
probation requirements, must be completed, and the case must be 
considered final by the procedures of the applicable jurisdiction.'' 
The FDIC includes this revised language to accord with several of the 
FHBA's exclusions from section 19 that are not tied to the completion 
of sentencing requirements.

[[Page 64358]]

    Furthermore, the FHBA requires the FDIC to ``make all forms and 
instructions related to consent applications available to the public, 
including on the website of the Corporation.'' \29\ These forms and 
instructions ``shall provide a sample cover letter and a comprehensive 
list of items that may accompany the application, including clear 
guidance on evidence that may support a finding of rehabilitation.'' 
\30\ While the FDIC has not explicitly mentioned these requirements in 
its regulations, the agency will comply with them. One commenter agreed 
with the FDIC's proposal concerning this provision of forms and 
instructions.
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    \29\ 12 U.S.C. 1829(f)(5)(A).
    \30\ 12 U.S.C. 1829(f)(5)(B).
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8. Section 303.227 De minimis Exemption
    The FDIC has made a number of changes to this section based on the 
statutory revisions and helpful comments received. Two commenters asked 
for additional clarity on what constitutes a de minimis offense. 
Another commenter requested that the FDIC revise this section to exempt 
de minimis offenses from the scope of section 19's prohibition, to 
align with the FHBA. In agreement, the FDIC has revised this section to 
treat de minimis offenses--a category that includes the sub-category 
``designated lesser offenses''--as offenses that are excluded from the 
prohibitions of 12 U.S.C. 1829(a) (assuming certain conditions are met) 
and for which offenses no application is required. This is a 
substantive departure from the FDIC's longstanding treatment of de 
minimis offenses, in which potential applicants with such offenses on 
their records did not need to file an application with the FDIC because 
the FDIC deemed their (potential) application automatically approved. 
In other words, the FDIC considered such offenses covered under section 
19 while the FHBA exempts those offenses entirely from section 19.
    The FHBA removed the use of fake identification from the scope of 
section 19, and revised paragraphs (a)(1) and (b)(4) reflect this 
exclusion.\31\ Revised paragraph (a)(2) reflects the FHBA's confinement 
criteria as to the FDIC's determination of de minimis offenses.\32\ 
Revised paragraph (a)(5) requires that, in order for an offense or 
offenses to qualify under the general de minimis framework, each 
offense must not have been committed against an IDI or insured credit 
union. This language aligns with the current FDIC regulations.
---------------------------------------------------------------------------

    \31\ See 12 U.S.C. 1829(c)(3)(D).
    \32\ See 12 U.S.C. 1829(c)(3)(B).
---------------------------------------------------------------------------

    Revised paragraph (b)(1) (Age of person at time of Covered Offense) 
clarifies that, for a reduced waiting period to apply before an 
individual may qualify for the de minimis exemption, the underlying 
convictions or program entries must meet the other de minimis criteria 
in paragraph (a) of Sec.  303.227. This clarification reflects the 
FDIC's existing interpretation of this paragraph.
    The FDIC has revised the de minimis requirement related to the 
aggregate total face value of all ``bad'' or insufficient funds checks 
in paragraph (b)(2)(i) from $1,000 to $2,000 to conform with the 
statute.\33\ Revised paragraph (b)(4) excludes from the scope of 
covered offenses ``designated lesser offenses'' (for example, using 
fake identification), as specified in 12 U.S.C. 1829(c)(3)(D), if one 
year or more has passed since the applicable conviction or program 
entry. One commenter requested that the FDIC should explain which 
offenses are considered ``designated lesser offenses'' that do not 
require FDIC consent. The FDIC believes that the revised regulations 
adequately define such offenses.
---------------------------------------------------------------------------

    \33\ See 12 U.S.C. 1829(c)(3)(C).
---------------------------------------------------------------------------

    The FDIC has deleted former Sec.  303.227(c) concerning fidelity 
bond coverage and disclosure of de minimis offenses to IDIs. This now-
deleted paragraph had required that any person who meets the criteria 
under this section shall be covered by a fidelity bond to the same 
extent as others in similar positions, and must disclose the presence 
of the conviction(s) or program entry(ies) to all IDIs in the affairs 
of which that person intends to participate. Since the FHBA has 
excluded de minimis offenses from the scope of section 19, however, the 
FDIC believes that these requirements should no longer attach to 
individuals who have committed such offenses. This change is in 
response to one commenter's request that the FDIC clarify its position 
concerning de minimis offenses and is related to another commenter's 
suggestion that the FDIC treat de minimis offenses the same way as 
``designated lesser offenses'' by excluding both types of offenses from 
the scope of section 19.
9. Section 303.228 How To File an Application
    This revised section eliminates the institution filing requirement 
and waiver process and indicates that an ``institution''--an IDI or a 
depository institution holding company--may file an application on 
behalf of an individual, rather than just an IDI. The individual may 
also file an application. These revisions are due to the updated 
statutory language.\34\ This revised section also clarifies that the 
appropriate FDIC Regional Office for an institution-sponsored 
application is the office covering the state where the institution's 
home office is located and that the appropriate FDIC Regional Office 
for an application filed by an individual is the office covering the 
state where the person resides.
---------------------------------------------------------------------------

    \34\ See 12 U.S.C. 1829(f)(1).
---------------------------------------------------------------------------

10. Section 303.229 How an Application Is Evaluated
    Revised paragraph (a) reflects new statutory requirements related 
to the FDIC's review process, including the requirement that the FDIC 
primarily rely on the criminal history record provided by the Federal 
Bureau of Investigation in the FDIC's review and provide such record to 
the applicant to review for accuracy.\35\ The FDIC interprets the term 
``criminal history record'' to mean ``identity history summary 
checks,'' which are commonly known as ``rap sheets.'' Under revised 
paragraph (a)--and in accordance with the FHBA--the FDIC, in reviewing 
a consent application, will provide a copy of the rap sheet to the 
individual who is the subject of the application to review for 
accuracy.\36\
---------------------------------------------------------------------------

    \35\ See 12 U.S.C. 1829(f)(6)(A)(i).
    \36\ See 12 U.S.C. 1829(f)(6)(A)(ii).
---------------------------------------------------------------------------

    One commenter requested that the FDIC establish a deadline to 
evaluate the application once received and a deadline of five days to 
return the copy of the criminal history record once received from the 
Federal Bureau of Investigation. The FDIC adopts this recommendation in 
part. Under revised paragraph (a)(2), the FDIC will make reasonable 
efforts to communicate with the subject of the application within 15 
calendar days of receipt of this record from the Federal Bureau of 
Investigation to inform the individual that the FDIC will be providing 
them with a copy of the report and to verify the individual's contact 
information. The FDIC will also make reasonable efforts to send the 
report to the individual within 5 business days of successful 
verification of the individual's contact information. If the individual 
believes that there are any inaccuracies in the report, the FDIC will 
direct the individual to an appropriate contact at the Federal Bureau 
of Investigation where the individual can seek corrections to the 
report.

[[Page 64359]]

    Revised paragraph (b) states that the FDIC will not require an 
individual to provide certified copies of criminal history records 
unless the FDIC determines that there is a clear and compelling 
justification to require additional information to verify the accuracy 
of the criminal history record provided by the Federal Bureau of 
Investigation (that is, the rap sheet).\37\
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 1829(f)(6)(B).
---------------------------------------------------------------------------

    Revised paragraph (d) clarifies how the FDIC will evaluate evidence 
of rehabilitation and other evidence, as required by the FHBA.\38\
---------------------------------------------------------------------------

    \38\ 12 U.S.C. 1829(f)(7). While the statute uses the terms 
``rehabilitation'' and ``mitigating'' as separate categories of 
evidence, the terms appear to be substantially similar, in the 
context of section 19 applications, and the use of both terms in 
these regulations may create confusion. Therefore, the rule uses the 
term ``rehabilitation'' not ``mitigating.''
---------------------------------------------------------------------------

    Revised paragraph (g) eliminates references to the former 
application-waiver requirement.
    Finally, revised paragraph (h) incorporates statutory language 
explaining when a new institution-sponsored application would be 
necessary due to changes in the scope of an applicant's employment.\39\
---------------------------------------------------------------------------

    \39\ See 12 U.S.C. 1829(f)(8).
---------------------------------------------------------------------------

11. Section 303.230 What will the FDIC do if the application is denied?
    Revised paragraph (b) clarifies that, for institution-sponsored 
applications, either the institution or the subject individual (or 
both, as a consolidated request) may file a written request for a 
hearing (or a request for written submission in lieu of a hearing) 
under 12 CFR part 308, subpart M.
12. Section 303.231 Waiting Time for a Subsequent Application if an 
Application Is Denied
    This revised section, among other provisions, requires a one-year 
waiting period to file a consent application, following the issuance of 
a decision denying such an application. This general requirement is 
substantially unchanged from existing regulations, but the FDIC has 
made several technical amendments to align this section with the FHBA. 
Revised paragraph (a) acknowledges that the passage of time may remove 
an offense from the scope of section 19. And the final rule creates a 
new paragraph (b)--which notes that an institution-sponsored 
application is not subject to the one-year waiting period if the 
application (1) follows the denial of an individual application, or (2) 
follows the denial of an institution-sponsored application and the 
subsequent application is sponsored by a different institution or is 
for a different position.

B. Revised Provisions of 12 CFR Part 308, Subpart M

    The rule makes several technical amendments to subpart M. The rule 
revises the subpart's title to reflect that, following a denial of an 
application under 12 CFR part 303, subpart L, an applicant may request 
either a hearing or written submissions in lieu of a hearing. The rule 
also amends Sec. Sec.  308.156, 308.157, and 308.158 to do the 
following: (1) encompass applications that are sponsored by depository 
institution holding companies; (2) explain that, if an application has 
been denied under 12 CFR part 303, subpart L, an applicant may request 
either a hearing or written submissions in lieu of a hearing; (3) 
clarify several sentences concerning hearing procedures; and (4) use 
more consistent terminology.

IV. Expected Effects

    As previously discussed, the rule aligns the FDIC's regulations 
with the FHBA's provisions, makes additional changes to further clarify 
the FDIC's regulations related to section 19, more closely aligns the 
FDIC's section 19 regulations with those of other Federal financial 
regulators, and makes a number of non-substantive, technical edits. As 
of the quarter ending March 31, 2024, there were 4,577 FDIC-insured 
depository institutions, all of which are covered by the rule and 
therefore could be affected.\40\ Additionally, the rule applies to 
persons covered by the provisions of section 19, including those who 
are or wish to become employees, officers, directors, or controlling 
shareholders of an IDI or who otherwise are or wish to become an 
institution-affiliated party (IAP) of an IDI.
---------------------------------------------------------------------------

    \40\ FDIC Call Report data, March 31, 2024.
---------------------------------------------------------------------------

    To estimate the number of institutions and individuals affected by 
the rule, the FDIC counted the number of section 19 applications it has 
received between 2021 and 2023. Over this period, the FDIC received 16 
bank-sponsored section 19 applications, an average of 5 per year. 
Additionally, the FDIC received 115 individual section 19 applications 
during the same period, an average of approximately 38 per year.\41\ 
Therefore, the FDIC estimates that the rule could affect at least 5 
FDIC-insured depository institutions and 38 individuals per year. 
Assuming that each application involves a different institution, 
approximately 1 percent of insured institutions, or 43, could be 
affected per year on average.\42\
---------------------------------------------------------------------------

    \41\ FDIC Application Tracking System.
    \42\ (43/4,577) * 100 = 0.9 percent.
---------------------------------------------------------------------------

    As previously described, the rule aligns the FDIC's regulations 
with the FHBA's provisions. In particular, the FHBA created several 
categories of exceptions or exemptions to the prohibition on 
participating in banking. The rule incorporates these categories of 
exemptions and exceptions. The FDIC believes that the additional 
categories for exceptions or exemptions to the prohibition on 
participating in banking established by the FHBA could benefit certain 
individuals and IDIs by reducing the number of applications they would 
otherwise be required to file under section 19. Additionally, the 
categories of exceptions or exemptions to the prohibition on 
participating in banking established by the FHBA could benefit IDIs by 
marginally expanding the supply of labor available. However, these 
changes were created by the FHBA and were effective immediately upon 
passage, and the rule aligns the FDIC's regulations with these elements 
of the FHBA; therefore, the associated changes in the rule will have no 
direct effect on individuals or IDIs.
    The rule amends the FDIC's existing section 19 application-
procedure regulations to incorporate the FHBA's provisions. The FDIC's 
current section 19 regulations contain references to existing 
application procedures that are similar in substance to those 
established by FHBA. However, the FHBA, among other requirements, 
compels the FDIC to primarily rely on the criminal history record of 
the Federal Bureau of Investigation when reviewing consent 
applications. It is the current practice of the FDIC to consider all 
relevant information when evaluating a section 19 application. However, 
the establishment of a common source of criminal history, together with 
only requiring certified copies of criminal history records if there 
exists clear and compelling justification for doing so, could benefit 
certain individuals and IDIs by marginally reducing the volume of 
information they need to supply to the FDIC. The FDIC believes that, 
while these changes to the application procedures will directly affect 
certain individuals and institutions that file section 19 applications, 
they may not have a substantial effect on potential applicants. These 
changes, moreover, were created by the FHBA and were effective 
immediately upon passage, and the rule aligns the FDIC's regulations 
with these elements of the FHBA; therefore, the associated changes in 
the rule will have no direct effect on individuals or IDIs.
    Finally, in seeking to align its section 19 regulations with the 
provisions of the FHBA, the FDIC used its discretion to

[[Page 64360]]

marginally increase the scope of certain terms so as to better reflect 
the purposes of the FHBA and adopt certain deadlines to facilitate 
processing. In particular, the FDIC has provided broader language as to 
the scope of expunged, sealed, or dismissed offenses. This aspect of 
the rule could potentially benefit persons covered by the provisions of 
section 19, including individuals who are or wish to become employees, 
officers, directors, or controlling shareholders of an IDI, or who 
otherwise are or wish to become an IAP of an IDI. Further, the FDIC has 
established certain deadlines to further clarify the evaluation process 
for future applicants and facilitate processing. However, given that 
most of the amendments are focused on aligning the FDIC's regulations 
with the FHBA, the marginal effect of these aspects of the rule are 
likely to be small.

V. Other Alternatives Considered

    As discussed above, almost all of the significant changes to the 
FDIC's section 19 regulations stem from the FHBA's revisions to section 
19. The FDIC had limited discretion in adopting alternatives to those 
statutory revisions. The FDIC considered other proposals that were 
submitted by the commenters but believes that the final amendments 
represent the most appropriate option for covered entities and 
individuals. This section discusses those other proposals.

A. More Aggressive Enforcement

    One commenter said that federal financial regulators should 
increase the number of enforcement actions against and the severity of 
the punishments for executives of large banks who harm consumers and 
threaten the country's financial stability. This comment, in the FDIC's 
view, is outside the scope of this rulemaking.

B. Data Collection, and Consider Effects on Criminal Justice System

    One commenter suggested that the FDIC should collect information on 
instances of criminal recidivism among bank employees, in light of the 
FHBA's exclusion of previously covered offenses from the scope of 
section 19. The FDIC declines to adopt this proposal because it would 
be administratively impracticable for the FDIC to obtain this 
information from the thousands of IDIs subject to section 19, and this 
proposal would impose significant compliance burdens on those 
institutions.
    One commenter suggested that the FDIC consider how the rule might 
affect the federal criminal justice system and public safety. This 
commenter noted that some individuals may be released from prison early 
or receive shorter sentences due to the First Step Act of 2018.\43\ In 
response, the FDIC notes that it is finalizing this rulemaking in 
accordance with the policy choices of Congress and the President.
---------------------------------------------------------------------------

    \43\ Public Law 115-391, 132 Stat. 5194.
---------------------------------------------------------------------------

C. Proposals Received by the NCUA

    On November 7, 2023, the NCUA issued a notice of proposed 
rulemaking to implement the FHBA as to the NCUA's regulations,\44\ and 
the NCUA received several comments addressing the following topics. 
(Earlier in this Preamble, the FDIC addressed a suggestion from an NCUA 
commenter that concerned the date on which a court imposed a sentence.) 
The FDIC considered these other proposals--as part of its statutory 
obligation to consult and coordinate with the NCUA to promote 
consistent implementation of the FHBA \45\--and has decided not to 
incorporate them into the final rule. These commenters made the 
following recommendations, among others.
---------------------------------------------------------------------------

    \44\ See 88 FR 76702.
    \45\ See 12 U.S.C. 1829(f)(9).
---------------------------------------------------------------------------

    Several commenters suggested that the de minimis exclusion should 
not be available for offenses committed against any depository 
institution or credit union--not just insured depository institutions 
and insured credit unions. The FDIC's position is that the primary 
purpose of section 19 is to protect IDIs and, by extension, the Deposit 
Insurance Fund. Accordingly, the FDIC's de minimis framework focuses on 
offenses that have been committed against such institutions (and 
insured credit unions) rather than against non-federally insured 
institutions. For this reason, the FDIC declines to implement this 
suggestion.
    One commenter recommended excluding pardoned offenses from the 
scope of section 19 and suggested that pardoned offenses should be 
treated the same as expunged offenses. The FDIC disagrees with this 
recommendation and notes its longstanding position that covered 
offenses that have been pardoned--and which are not otherwise excluded 
from the scope of section 19--will still require an application. A 
pardon typically cancels the punishment for a criminal offense, not the 
underlying finding of guilt. In contrast, an expungement or sealing is 
significantly more likely to result--by applicable statute of court 
order--in the removal of the finding of guilt or otherwise result in a 
legal determination that the offense should not be used against an 
individual for employment purposes. Accordingly, in the FDIC's view, a 
person with such an expunged or sealed offense tends to present less of 
a risk to the banking system than a person whose same offense has been 
pardoned.
    One commenter suggested that the FDIC should increase the maximum 
potential penalty threshold from $2,500 to $5,000 under the general de 
minimis framework, in keeping with a certain federal criminal statute. 
The FDIC declines to expand the de minimis framework as proposed 
because the FDIC considers the current threshold appropriate. The 
$2,500 amount is comparable to the $2,000 de minimis threshold for 
insufficient-fund offenses under the FHBA.\46\
---------------------------------------------------------------------------

    \46\ See 12 U.S.C. 1829(c)(3)(C).
---------------------------------------------------------------------------

VI. Regulatory Analysis

A. The Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
(PRA),\47\ the FDIC may not conduct or sponsor, and the respondent is 
not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number.
---------------------------------------------------------------------------

    \47\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The FDIC received one comment that appears to relate to the PRA. 
The commenter suggested that the FDIC should collect information on 
instances of criminal recidivism among bank employees, in light of the 
FHBA's exclusion of previously covered offenses from the scope of 
section 19. The FDIC declines to adopt this proposal because it would 
be administratively impracticable for the FDIC to obtain this 
information from the thousands of IDIs subject to section 19, and this 
proposal would impose significant compliance burdens on those 
institutions. In other words, the compliance burden associated with 
collecting this information would outweigh the benefits and practical 
utility of collecting this information.
    The FDIC will revise its section 19 application form to conform 
with the changes to section 19 under the FHBA. These changes amend the 
FDIC's existing information collection associated with this rule, 
entitled ``Application Pursuant to Section 19 of the Federal Deposit 
Insurance Act'' (3064-0018). For this reason, the information 
collection requirements contained in this final rule will be submitted 
by the FDIC to OMB for review and approval under section 3507(d) of the 
PRA (44 U.S.C. 3507(d)) and Sec.  1320.11 of the OMB's

[[Page 64361]]

implementing regulations (5 CFR part 1320).
    Based on available data, the number of respondents and the 
estimated annual burden associated with the information collection will 
decrease.
Information Collection
    Title: ``Application Pursuant to Section 19 of the Federal Deposit 
Insurance Act''.
    OMB Number: 3064-0018.
    Affected Public: Insured depository institutions and individuals.

                                                           Summary of Estimated Annual Burdens
                                                                   [OMB No. 3064-0018]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Type of burden                                                      Number of
           IC description                (obligation to         Frequency of response        Number of      responses/       Hours per     Annual burden
                                            respond)                                        respondents     respondent       response         (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Application Pursuant to Section 19   Reporting (Required to  On occasion................              43               1              16             688
 of the Federal Deposit Insurance     obtain or retain
 Act.                                 benefits).
                                                                                         ---------------------------------------------------------------
    Total Annual Burden Hours......  ......................  ...........................  ..............  ..............  ..............             688
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: FDIC.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency, 
in connection with a final rule, to prepare and make available for 
public comment a final regulatory flexibility analysis that describes 
the impact of the final rule on small entities.\48\ However, a final 
regulatory flexibility analysis is not required if the agency certifies 
that the final rule will not, if promulgated, have a significant 
economic impact on a substantial number of small entities. The Small 
Business Administration (SBA) has defined ``small entities'' to include 
banking organizations with total assets of less than or equal to $850 
million.\49\ Generally, the FDIC considers a significant economic 
impact to be a quantified effect in excess of 5 percent of total annual 
salaries and benefits or 2.5 percent of total noninterest expenses. The 
FDIC believes that effects in excess of one or more of these thresholds 
typically represent significant economic impacts for FDIC-supervised 
institutions.
---------------------------------------------------------------------------

    \48\ 5 U.S.C. 601 et seq.
    \49\ The SBA defines a small banking organization as having $850 
million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' See 13 CFR 121.201 
(as amended by 87 FR 69118, effective December 19, 2022). In its 
determination, the ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates.'' See 13 CFR 121.103. Following 
these regulations, the FDIC uses an IDI's affiliated and acquired 
assets, averaged over the preceding four quarters, to determine 
whether the insured depository institution is ``small'' for the 
purposes of the RFA.
---------------------------------------------------------------------------

    As discussed further below, the FDIC certifies that the final rule 
will not have a significant economic impact on a substantial number of 
FDIC-supervised small entities.
    As of the quarter ending March 31, 2024, the FDIC insured 4,577 
depository institutions, of which 3,259 are defined as small banking 
organizations for the purposes of the RFA.\50\ In the period from 2021 
through 2023, the FDIC received 5 bank-sponsored section 19 
applications from small, FDIC-insured institutions, an average of 2 per 
year. Additionally, the FDIC received 115 section 19 applications from 
individuals during the same period, an average of about 38 per 
year.\51\ To determine the maximum number of small, FDIC-insured 
institutions that could be affected by the final rule, this analysis 
assumes that each applicant is seeking employment at a different bank 
and that each bank is a small, FDIC-insured institution. Based on these 
assumptions, 40 (1.2 percent of) small, FDIC-insured institutions, on 
average, annually, could be affected by the final rule.\52\ Section 19 
applications from individuals are compelled by the applicant's intent 
to seek employment at FDIC-insured institutions, many of which are not 
small. Therefore, the FDIC believes that the number of small, FDIC-
insured institutions affected by the final rule is likely to be less 
than 40.
---------------------------------------------------------------------------

    \50\ FDIC Call Report, March 31, 2024.
    \51\ FDIC Application Tracking System.
    \52\ (40/3,259) * 100 = 1.23 percent.
---------------------------------------------------------------------------

    As discussed in the SUPPLEMENTARY INFORMATION section, the final 
rule would align the FDIC's regulations with the FHBA's provisions, 
make additional changes to further clarify the FDIC's regulations 
related to section 19, more closely align the FDIC's section 19 
regulations with those of other Federal financial regulators, and make 
a number of non-substantive, technical edits. Most of the amendments 
were precipitated by the FHBA--which was effective immediately upon 
passage--and the final rule aligns the FDIC's regulations with these 
elements of the FHBA; therefore, most of the associated changes in the 
final rule will have no direct effect on individuals or IDIs. Further, 
since the FDIC estimates that a maximum of 40 small, FDIC-insured 
institutions could be affected by the final rule, on average, annually, 
any direct affects realized as a result of the final rule are likely to 
be small and affect a relatively small number of entities.
    In light of the foregoing, the FDIC certifies that the final rule 
will not have a significant economic impact on a substantial number of 
small entities.

C. Plain Language

    Section 722 of the Gramm-Leach Bliley Act \53\ requires the Federal 
banking agencies to use plain language in all proposed and final 
rulemakings published in the Federal Register after January 1, 2000. 
FDIC staff believes the final rule is presented in a simple and 
straightforward manner. The FDIC invited comments regarding the use of 
plain language in the proposed rule but did not receive any comments on 
this topic.
---------------------------------------------------------------------------

    \53\ Public Law 106-102, sec. 722, 113 Stat. 1338, 1471 (1999), 
codified at 12 U.S.C. 4809.
---------------------------------------------------------------------------

D. Riegle Community Development and Regulatory Improvement Act of 1994

    Under section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\54\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
IDIs, each Federal banking agency must consider, consistent with 
principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on depository 
institutions, including small depository institutions, and customers of 
depository institutions, as well as the

[[Page 64362]]

benefits of such regulations. In addition, section 302(b) of RCDRIA 
requires new regulations and amendments to regulations that impose 
additional reporting, disclosures, or other new requirements on IDIs 
generally to take effect on the first day of a calendar quarter that 
begins on or after the date on which the regulations are published in 
final form.\55\ The FDIC has determined that the final rule would 
impose additional reporting, disclosure, or other new requirements on 
IDIs, and is making this final rule effective in accordance with the 
requirements of the RCDRIA.
---------------------------------------------------------------------------

    \54\ 12 U.S.C. 4802(a).
    \55\ Id. at 4802(b).
---------------------------------------------------------------------------

E. Congressional Review Act

    For purposes of the Congressional Review Act (5 U.S.C. 801 et 
seq.), the OMB makes a determination as to whether a final rule 
constitutes a ``major rule.'' If a rule is deemed a ``major rule'' by 
the OMB, the Congressional Review Act generally provides that the rule 
may not take effect until at least 60 days following its 
publication.\56\ The Congressional Review Act defines a ``major rule'' 
as any rule that the Administrator of the Office of Information and 
Regulatory Affairs of the OMB finds has resulted in or is likely to 
result in--(1) an annual effect on the economy of $100 million or more; 
(2) a major increase in costs or prices for consumers, individual 
industries, Federal, State, or local government agencies or geographic 
regions; or (3) significant adverse effects on competition, employment, 
investment, productivity, innovation, or on the ability of United 
States-based enterprises to compete with foreign-based enterprises in 
domestic and export markets.\57\ The OMB has determined that the final 
rule is not a major rule for purposes of the Congressional Review Act 
and the FDIC will submit the final rule and other appropriate reports 
to Congress and the Government Accountability Office for review.
---------------------------------------------------------------------------

    \56\ See 5 U.S.C. 801.
    \57\ See 5 U.S.C. 804(2).
---------------------------------------------------------------------------

List of Subjects

12 CFR Part 303

    Administrative practice and procedure, Bank deposit insurance, 
Banks, Banking, Reporting and recordkeeping requirements, Savings 
associations.

12 CFR Part 308

    Administrative practice and procedure, Bank deposit insurance, 
Banks, Banking, Claims, Crime, Equal access to justice, Fraud, 
Investigations, Lawyers, Penalties, Savings associations.

Authority and Issuance

    For the reasons stated in the preamble and under the authority of 
12 U.S.C. 1819 (Seventh and Tenth), the FDIC amends 12 CFR parts 303 
and 308 as follows:

PART 303--FILING PROCEDURES

0
1. The authority citation for part 303 is revised to read as follows:

    Authority: 12 U.S.C. 378, 1464, 1813, 1815, 1817, 1818, 1819(a) 
(Seventh and Tenth), 1820, 1823, 1828, 1829, 1831a, 1831e, 1831o, 
1831p-1, 1831w, 1835a, 1843(l), 3104, 3105, 3108, 3207, 5414, 5415, 
and 15 U.S.C. 1601-1607.


0
2. Revise subpart L, consisting of Sec. Sec.  303.220 through 303.231, 
to read as follows:

Subpart L--Section 19 of the Federal Deposit Insurance Act (Consent 
To Service of Persons Convicted of, or Who Have Program Entries 
for, Certain Criminal Offenses)

Sec.
303.220 What is section 19 of the Federal Deposit Insurance Act?
303.221 Who is covered by section 19?
303.222 Which offenses qualify as ``Covered Offenses'' under section 
19?
303.223 What constitutes a conviction under section 19?
303.224 What constitutes a pretrial diversion or similar program 
under section 19?
303.225 What are the types of applications that can be filed?
303.226 When may an application be filed?
303.227 De minimis exemption.
303.228 How to file an application.
303.229 How an application is evaluated.
303.230 What will the FDIC do if the application is denied?
303.231 Waiting time for a subsequent application if an application 
is denied.


Sec.  303.220   What is section 19 of the Federal Deposit Insurance 
Act?

    (a) This subpart covers applications under section 19 of the 
Federal Deposit Insurance Act (FDI Act), 12 U.S.C. 1829. The FDIC 
refers to such applications as ``consent applications.'' Under section 
19, any person who has been convicted of any criminal offense involving 
dishonesty, breach of trust, or money laundering, or has agreed to 
enter into a pretrial diversion or similar program (program entry) in 
connection with a prosecution for such offense (collectively, Covered 
Offenses), may not become, or continue as, an institution-affiliated 
party (IAP) of an insured depository institution (IDI); own or control, 
directly or indirectly, any IDI; or otherwise participate, directly or 
indirectly, in the conduct of the affairs of any IDI without the prior 
written consent of the FDIC.
    (b) In addition, the law prohibits an IDI from permitting such a 
person to engage in any conduct or to continue any relationship 
prohibited by section 19. IDIs must therefore make a reasonable, 
documented inquiry to verify an applicant's history to ensure that a 
person who has a Covered Offense under section 19 is not hired or 
permitted to participate in its affairs without the written consent of 
the FDIC issued under this subpart. FDIC-supervised IDIs may extend a 
conditional offer of employment contingent on the completion of a 
background check satisfactory to the institution to determine if the 
applicant is prohibited under section 19, but the applicant may not 
work for, be employed by, or otherwise participate in the affairs of 
the IDI until the IDI has determined that the applicant is not 
prohibited under section 19 (including persons who have had a consent 
application approved).
    (c) If there is a conviction or program entry covered by the 
prohibitions of section 19, an application under this subpart must be 
filed seeking the FDIC's consent in order to become, or to continue as, 
an IAP; to own or control, directly or indirectly, an IDI; or to 
otherwise participate, directly or indirectly, in the affairs of the 
IDI. The application must be filed, and consented to, prior to serving 
in any of the foregoing capacities unless such application is not 
required under the subsequent provisions of this subpart. The purpose 
of an application is to provide the applicant an opportunity to 
demonstrate that, notwithstanding the prohibition, a person is fit to 
participate in the conduct of the affairs of an IDI without posing a 
risk to its safety and soundness or impairing public confidence in that 
institution. The burden is upon the applicant to establish that the 
application warrants approval.


Sec.  303.221   Who is covered by section 19?

    (a) Persons covered by section 19 include IAPs, as defined by 12 
U.S.C. 1813(u), and others who are participants in the conduct of the 
affairs of an IDI. Therefore, all directors, officers, and employees of 
an IDI who fall within the scope of section 19, including 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 are covered by section 19 depends upon their 
degree of influence

[[Page 64363]]

or control over the management or affairs of an IDI. For example, 
section 19 would apply to directors and officers of affiliates, 
subsidiaries, or joint ventures of an IDI if they participate in the 
affairs of the IDI or are in a position to influence or control the 
management or affairs of the IDI. Typically, an independent contractor 
does not have a relationship with the IDI other than the activity for 
which the institution has contracted. However, an independent 
contractor who also influences or controls the management or affairs of 
the IDI would be covered by section 19.
    (b) The term person, for purposes of section 19, means an 
individual and does not include a corporation, firm, or other business 
entity.
    (c) Individuals who file an application with the FDIC under the 
provisions of section 19 who also seek to participate in the affairs of 
a bank holding company or savings and loan holding company may have to 
comply with any filing requirements of the Board of the Governors of 
the Federal Reserve System under 12 U.S.C. 1829(d) and (e). Conversely, 
an individual who works at a bank holding company or savings and loan 
holding company who would like to participate in the affairs of an IDI 
or be in a position to influence or control the management or affairs 
of an IDI must file an application with the FDIC under this subpart.
    (d) Section 19 specifically prohibits a person subject to its 
provisions from owning or controlling, directly or indirectly, an IDI. 
The terms control, ownership, and acting in concert under section 19 
have the meaning given to those terms in subpart E of this part 
(including the rebuttable presumptions stated in subpart E of this 
part).
    (1) A person will be deemed to exercise ``control'' if that 
person--
    (i) Has the ability to direct the management or policies of an IDI;
    (ii) Has the power to vote 25 percent or more of the voting shares 
of an IDI; or
    (iii) Has the power to vote 10 percent of the voting shares of an 
IDI if--
    (A) No other person owns, controls, or has the power to vote more 
shares; or
    (B) The institution has registered securities under section 12 of 
the Securities Exchange Act of 1934 (15 U.S.C. 78l).
    (2) Under this paragraph (d), a person will be deemed to ``own'' an 
IDI if that person owns--
    (i) 25 percent or more of the institution's voting stock; or
    (ii) 10 percent of the voting shares if--
    (A) No other person owns more; or
    (B) The institution has registered securities under section 12 of 
the Securities Exchange Act of 1934 (15 U.S.C. 78l).
    (3) The standards in this paragraph (d) would also apply to an 
individual acting in concert with others so as to have such ownership 
or control. Absent the FDIC's consent, persons subject to the 
prohibitions of section 19 must divest their control or ownership of 
shares above the foregoing limits.


Sec.  303.222   Which offenses qualify as ``Covered Offenses'' under 
section 19?

    (a) Categories of Covered Offenses. The conviction or program entry 
must be for a criminal offense involving dishonesty, breach of trust, 
or money laundering.
    (1) The term criminal offense involving dishonesty--
    (i) Means an offense under which an individual, directly or 
indirectly--
    (A) Cheats or defrauds; or
    (B) Wrongfully takes property belonging to another in violation of 
a criminal statute;
    (ii) Includes an offense that Federal, State, or local law defines 
as dishonest, or for which dishonesty is an element of the offense; and
    (iii) Does not include--
    (A) A misdemeanor criminal offense committed more than one year 
before the date on which an individual files a consent application, 
excluding any period of incarceration; or
    (B) An offense involving the possession of controlled substances. 
At a minimum, this exclusion applies to criminal offenses involving the 
simple possession of a controlled substance and possession with intent 
to distribute a controlled substance. This exclusion may also apply to 
other drug-related offenses depending on the statutory elements of the 
offenses or from court determinations that the statutory provisions of 
the offenses do not involve dishonesty, breach of trust, or money 
laundering, as noted in paragraph (b) of this section. Potential 
applicants may contact their appropriate FDIC Regional Office if they 
have questions about whether their offenses are covered under section 
19.
    (iv) The term offense committed in paragraph (a)(1)(iii)(A) of this 
section means the last date of the underlying misconduct. In instances 
with multiple offenses, offense committed means the last date of any of 
the underlying offenses.
    (2) The term breach of trust means a wrongful act, use, 
misappropriation, or omission with respect to any property or fund that 
has been committed to a person in a fiduciary or official capacity, or 
the misuse of one's official or fiduciary position to engage in a 
wrongful act, use, misappropriation, or omission.
    (b) Elements of the offense. Whether a crime involves dishonesty, 
breach of trust, or money laundering will be determined from the 
statutory elements of the offense itself or from court determinations 
that the statutory provisions of the offense involve dishonesty, breach 
of trust, or money laundering.
    (c) Certain older offenses excluded--(1) Exclusions for certain 
older offenses. Section 19 does not apply to an offense if--
    (i) It has been 7 years or more since the offense occurred; or
    (ii) The individual was incarcerated with respect to the offense 
and it has been 5 years or more since the individual was released from 
incarceration.
    (iii) The term offense occurred means the last date of the 
underlying misconduct. In instances with multiple Covered Offenses, 
offense occurred means the last date of any of the underlying offenses.
    (2) Offenses committed by individuals 21 years of age or younger. 
For individuals who committed an offense when they were 21 years of age 
or younger, section 19 does not apply to the offense if it has been 
more than 30 months since the sentencing occurred. The term sentencing 
occurred means the date on which a court imposed the sentence (as 
indicated by the date on the court's sentencing order), not the date on 
which all conditions of sentencing were completed.
    (3) Limitation. This paragraph (c) does not apply to an offense 
described under 12 U.S.C. 1829(a)(2).
    (d) Foreign convictions. Individuals who are convicted of or enter 
into a pretrial diversion program for a criminal offense involving 
dishonesty, breach of trust, or money laundering in any foreign 
jurisdiction are subject to section 19, unless the offense is otherwise 
excluded by this subpart.


Sec.  303.223   What constitutes a conviction under section 19?

    (a) Convictions requiring an application. There must be a 
conviction of record. Section 19 does not cover arrests or pending 
cases not brought to trial, unless the person has a program entry as 
set out in Sec.  303.224. Section 19 does not cover acquittals or any 
conviction that has been reversed on appeal, unless the reversal was 
for the purpose of re-sentencing. A conviction with regard to which an 
appeal is pending requires an application. A conviction for which a 
pardon has been granted requires an application.

[[Page 64364]]

    (b) Convictions not requiring an application. When an individual is 
charged with a Covered Offense and, in the absence of a program entry 
as set out in Sec.  303.224, is subsequently convicted of an offense 
that is not a Covered Offense, the conviction is not subject to section 
19.
    (c) Expungement, dismissal, and sealing. A conviction is not 
considered a conviction of record and does not require an application 
if--
    (1) There is an order of expungement, sealing, or dismissal that 
has been issued in regard to the conviction in connection with such 
offense, or if a conviction has been otherwise expunged, sealed, or 
dismissed by operation of law; and
    (2) It is intended by the language in the order itself, or in the 
legislative provisions under which the order was issued, or in other 
legislative provisions, that the conviction shall be destroyed or 
sealed from the individual's State, Tribal, or Federal record, even if 
exceptions allow the conviction to be considered for certain character 
and fitness evaluation purposes.
    (d) Youthful offenders. An adjudication by a court against a person 
as a ``youthful offender'' (or similar term) under any youth-offender 
law applicable to minors as defined by State law, or any judgment as a 
``juvenile delinquent'' (or similar term) by any court having 
jurisdiction over minors as defined by State law, does not require an 
application. Such an adjudication does not constitute a matter covered 
under section 19 and is not a conviction or program entry for 
determining the applicability of Sec.  303.227.


Sec.  303.224   What constitutes a pretrial diversion or similar 
program under section 19?

    (a) The term pretrial diversion or similar program (program entry) 
means a program characterized by a suspension or eventual dismissal or 
reversal of charges or criminal prosecution upon agreement by the 
accused to restitution, drug or alcohol rehabilitation, anger 
management, or community service. Whether the outcome of a case 
constitutes a program entry is determined by relevant Federal, State, 
or local law, and, if not so designated under applicable law, then the 
determination of whether a disposition is a program entry will be made 
by the FDIC on a case-by-case basis. Program entries prior to November 
29, 1990, are not covered by section 19.
    (b) When a Covered Offense either is reduced by a program entry to 
an offense that would otherwise not be covered by section 19 or is 
dismissed upon successful completion of a program entry, the offense 
remains a Covered Offense for purposes of section 19. The Covered 
Offense will require an application unless it is de minimis as provided 
by Sec.  303.227.
    (c) Expungements, dismissals, or sealings of program entries will 
be treated the same as those for convictions.


Sec.  303.225   What are the types of applications that can be filed?

    (a) The FDIC will accept applications from--
    (1) An individual;
    (2) An IDI applying on behalf of an individual;
    (3) A depository institution holding company applying on behalf of 
an individual with respect to an IDI subsidiary of the holding company; 
and
    (4) A depository institution holding company applying on behalf of 
an individual who will work at the holding company but also participate 
in the affairs of the IDI or who would be in a position to influence or 
control the management or affairs of the IDI, in accordance with Sec.  
303.221(a).
    (b) An individual or an institution may file applications at 
separate times. Under either approach, the application(s) must be filed 
with the appropriate FDIC Regional Office, as required by this subpart.


Sec.  303.226   When may an application be filed?

    Except for situations in which no application is required under 
section 19 and this subpart, an application must be filed when there is 
a conviction by a court of competent jurisdiction for a Covered Offense 
by any adult or minor treated as an adult or when such person has a 
program entry regarding that offense. Before an application may be 
filed, all of the sentencing requirements associated with a conviction, 
or conditions imposed by the program entry, including but not limited 
to, imprisonment, fines, conditions of rehabilitation, and probation 
requirements, must be completed, and the case must be considered final 
by the procedures of the applicable jurisdiction. The FDIC's 
application forms as well as additional information concerning section 
19 can be accessed from the FDIC's Regional Offices or on the FDIC's 
website.


Sec.  303.227   De minimis Exemption.

    (a) In general. The prohibitions of 12 U.S.C. 1829(a) will not 
apply, and an application will therefore not be required, where all of 
the following de minimis criteria are met. (Paragraph (b)(4) of this 
section contains separate exemption criteria from paragraphs (a) 
through (b)(3) of this section, and an offense that qualifies for 
exemption under paragraph (b)(4) of this section is excluded from 
consideration in the criteria of paragraphs (a) through (b)(3) of this 
section.)
    (1) The individual has been convicted of, or has program entries 
for, no more than two Covered Offenses, including those subject to 
paragraphs (b)(1) through (3) of this section; and for each Covered 
Offense, all of the sentencing requirements associated with the 
conviction, or conditions imposed by the program entry, have been 
completed (the sentence- or program-completion requirement does not 
apply under paragraph (b)(2) of this section).
    (2) For each Covered Offense, the individual could have been 
sentenced to a term of confinement in a correctional facility of three 
years or less and/or a fine of $2,500 or less, and the individual 
actually served three days or less of jail time for each Covered 
Offense.
    (3) Jail time under paragraph (a)(2) of this section is calculated 
based on the time an individual spent incarcerated as a punishment or a 
sanction--not as pretrial detention--and does not include probation or 
parole where an individual was restricted to a particular jurisdiction 
or was required to report occasionally to an individual or a specific 
location. Jail time includes confinement to a psychiatric treatment 
center in lieu of a jail, prison, or house of correction on mental-
competency grounds. The definition is not intended to include either of 
the following: persons who are restricted to a substance-abuse 
treatment program facility for part or all of the day; or persons who 
are ordered to attend outpatient psychiatric treatment.
    (4) If there are two convictions or program entries for a Covered 
Offense, each conviction or program entry was entered at least three 
years prior to the date an application would otherwise be required, 
except as provided in paragraph (b)(1) of this section.
    (5) Each Covered Offense must not have been committed against an 
IDI or insured credit union.
    (b) Other types of offenses for which the de minimis exemption 
applies and no application is required--(1) Age of person at time of 
Covered Offense. If there are two convictions or program entries for a 
Covered Offense, and the actions that resulted in both convictions or 
program entries all occurred when the individual was 21 years of age or 
younger, then the de minimis criteria in paragraph (a)(4) of this 
section will be met if the convictions or program

[[Page 64365]]

entries were entered at least 18 months prior to the date an 
application would otherwise be required. For this reduction in waiting 
time to apply, the convictions or program entries must meet the other 
de minimis criteria in paragraph (a) of this section.
    (2) Convictions or program entries for insufficient funds checks. 
The prohibitions of 12 U.S.C. 1829(a) will not apply, and an 
application will therefore not be required, as to convictions or 
program entries of record based on the writing of ``bad'' or 
insufficient funds check(s) if the following conditions apply:
    (i) The aggregate total face value of all ``bad'' or insufficient 
funds check(s) cited across all the conviction(s) or program entry(ies) 
for ``bad'' or insufficient funds checks is $2,000 or less;
    (ii) No IDI or insured credit union was a payee on any of the 
``bad'' or insufficient funds checks that were the basis of the 
conviction(s) or program entry(ies); and
    (iii) The individual has no more than one other de minimis offense 
under this section.
    (3) Convictions or program entries for small-dollar, simple theft. 
The prohibitions of 12 U.S.C. 1829(a) will not apply, and an 
application will therefore not be required, as to convictions or 
program entries based on the simple theft of goods, services, or 
currency (or other monetary instrument) if the following conditions 
apply:
    (i) The value of the currency, goods, or services taken was $1,000 
or less;
    (ii) The theft was not committed against an IDI or insured credit 
union;
    (iii) The individual has no more than one other offense that is 
considered exempt under this section; and
    (iv) If there are two offenses--each of which, by itself, is 
considered exempt under this section--each conviction or program entry 
was entered at least three years prior to the date an application would 
otherwise be required, or at least 18 months prior to the date an 
application would otherwise be required if the actions that resulted in 
the conviction or program entry all occurred when the individual was 21 
years of age or younger.
    (v) Simple theft excludes burglary, forgery, robbery, identity 
theft, and fraud.
    (4) Convictions or program entries for using fake identification, 
shoplifting, trespassing, fare evasion, or driving with an expired 
license or tag. The prohibitions of 12 U.S.C. 1829(a) will not apply, 
and an application will therefore not be required, as to the following 
offenses, if one year or more has passed since the applicable 
conviction or program entry: using fake identification; shoplifting; 
trespassing; fare evasion; and driving with an expired license or tag.
    (c) Non-qualifying convictions or program entries. No conviction or 
program entry for a violation of the title 18 sections set out in 12 
U.S.C. 1829(a)(2) can qualify under any of the de minimis exemptions 
set out in this section.


Sec.  303.228   How to file an application.

    Forms and instructions should be obtained from the FDIC's Regional 
Offices or on the FDIC's website (www.fdic.gov), and the application(s) 
must be filed with the appropriate FDIC Regional Office. An application 
may be filed by an individual or by an IDI or depository institution 
holding company on behalf of an individual, or by both. The appropriate 
Regional Office for an institution-sponsored application is the office 
covering the state where the institution's home office is located. The 
appropriate Regional Office for an application filed by an individual 
is the office covering the state where the person resides. States 
covered by each FDIC Regional Office can be located on the FDIC's 
website.


Sec.  303.229   How an application is evaluated.

    (a) Criminal-history records. In reviewing an application, the FDIC 
will--
    (1) Primarily rely on the criminal history record provided by the 
Federal Bureau of Investigation (rap sheet); and
    (2) Provide such record to the subject of the application to review 
for accuracy. The FDIC will make reasonable efforts to communicate with 
the subject of the application within 15 calendar days of receipt of 
this record from the Federal Bureau of Investigation to inform the 
individual that the FDIC will be providing them with a copy of the 
report and to verify the individual's contact information. The FDIC 
will make reasonable efforts to send the report to the individual 
within 5 business days of successful verification of the individual's 
contact information. If the individual believes that there are any 
inaccuracies in the report, the FDIC will direct the individual to an 
appropriate contact at the Federal Bureau of Investigation where the 
individual can seek corrections to the report.
    (b) Certified copies. The FDIC will not require an applicant to 
provide certified copies of criminal history records unless the FDIC 
determines that there is a clear and compelling justification to 
require additional information to verify the accuracy of the criminal 
history record provided by the Federal Bureau of Investigation.
    (c) Ultimate determinations. The ultimate determinations in 
assessing an application are whether the person has demonstrated their 
fitness to participate in the conduct of the affairs of an IDI, and 
whether the affiliation, ownership, control, or participation by the 
person in the conduct of the affairs of the institution may constitute 
a threat to the safety and soundness of the institution or the 
interests of its depositors or threaten to impair public confidence in 
the institution.
    (d) Individualized assessment. When evaluating applications, the 
FDIC will conduct an individualized assessment that will consider:
    (1) Whether the conviction or program entry is subject to section 
19, and the specific nature and circumstances of the offense;
    (2) Whether the participation directly or indirectly by the person 
in any manner in the conduct of the affairs of the IDI constitutes a 
threat to the safety and soundness of the institution or the interests 
of its depositors or threatens to impair public confidence in the 
institution;
    (3) Evidence of rehabilitation, including the person's age at the 
time of the conviction or program entry, the time that has elapsed 
since the conviction or program entry, and the relationship of the 
individual's offense to the responsibilities of the applicable 
position;
    (4) The individual's employment history, letters of recommendation, 
certificates documenting participation in substance-abuse programs, 
successful participation in job preparation and educational programs, 
and other relevant evidence;
    (5) The ability of management of the IDI to supervise and control 
the person's activities;
    (6) The level of ownership or control the person will have of an 
IDI;
    (7) The applicability of the IDI's fidelity bond coverage to the 
person; and
    (8) Any additional factors in the specific case that appear 
relevant to the application or the individual including, but not 
limited to, the opinion or position of the primary Federal or State 
regulator.
    (e) No re-consideration of guilt. The question of whether a person, 
who was convicted of a crime or who agreed to a program entry, was 
guilty of that crime will not be at issue in a proceeding under this 
subpart or under 12 CFR part 308, subpart M.

[[Page 64366]]

    (f) Factors considered for enumerated offenses. The foregoing 
factors will also be applied by the FDIC to determine whether the 
interests of justice are served in seeking an exception in the 
appropriate court when an application is made to terminate the ten-year 
ban prior to its expiration date under 12 U.S.C. 1829(a)(2) for certain 
Federal offenses.
    (g) Mandatory conditions of approval. All approvals and orders will 
be subject to the condition that the person be covered by a fidelity 
bond to the same extent as others in similar positions. If the FDIC has 
approved an application filed by an individual and has issued a consent 
order, the individual must disclose the presence of the conviction(s) 
or program entry(ies) to all IDIs in the affairs of which they wish to 
participate.
    (h) Institution-sponsored applications: work at same employer. When 
deemed appropriate by the FDIC, institution-sponsored applications are 
to allow the individual to work for the same employer (without 
restrictions on the location) and across positions, except that the 
prior consent of the FDIC (which may require a new application) will be 
required for any proposed significant changes in the individual's 
security-related duties or responsibilities, such as promotion to an 
officer or other positions that the employer determines will require 
higher security screening credentials.
    (i) Work at a different employer after certain approvals. In 
situations in which an approval has been granted for a person to 
participate in the affairs of a particular IDI and the person 
subsequently seeks to participate at another IDI, another application 
must be submitted and approved by the FDIC prior to the person 
participating in the affairs of the other IDI.


Sec.  303.230   What will the FDIC do if the application is denied?

    (a) The FDIC will inform the applicant in writing that the 
application has been denied and summarize or cite the relevant 
considerations specified in Sec.  303.229.
    (b) The denial will also notify the applicant that a written 
request for a hearing (or a request for written submissions in lieu of 
a hearing) under 12 CFR part 308, subpart M, may be filed with the FDIC 
Executive Secretary within 60 days after the denial. For institution-
sponsored applications, either the institution or the subject 
individual (or both, as a consolidated request) may file such a written 
request. A request must include the relief desired, the grounds 
supporting the request for relief, and any supporting evidence.


Sec.  303.231   Waiting time for a subsequent application if an 
application is denied.

    (a) An application under section 19 must be made in writing and may 
not be made less than one year following the issuance of a decision 
denying an application under section 19. If the original denial is 
subject to a request for a hearing or written submissions in lieu of a 
hearing, then the subsequent application may be filed at any time more 
than one year after the decision of the FDIC Board of Directors, or its 
designee, denying the application. Unless with the passage of time the 
individual is no longer subject to section 19, the prohibition against 
participating in the affairs of an IDI under section 19 will continue 
until the individual has been granted consent in writing to participate 
in the affairs of an IDI by the Board of Directors or its designee.
    (b) An institution-sponsored application is not subject to the one-
year waiting period if the application--
    (1) Follows the denial of an individual application; or
    (2) Follows the denial of an institution-sponsored application and 
the subsequent application is sponsored by a different institution or 
is for a different position.

PART 308--RULES OF PRACTICE AND PROCEDURE

0
3. The authority citation for part 308 continues to read as follows:

    Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 93(b), 164, 505, 
1464, 1467(d), 1467a, 1468, 1815(e), 1817, 1818, 1819, 1820, 1828, 
1829, 1829(b), 1831i, 1831m(g)(4), 1831o, 1831p-1, 1832(c), 1884(b), 
1972, 3102, 3108(a), 3349, 3909, 4717, 5412(b)(2)(C), 5414(b)(3); 15 
U.S.C. 78(h) and (i), 78o(c)(4), 78o-4(c), 78o-5, 78q-1, 78s, 78u, 
78u-2, 78u-3, 78w, 6801(b), 6805(b)(1); 28 U.S.C. 2461 note; 31 
U.S.C. 330, 5321; 42 U.S.C. 4012a; Pub. L. 104-134, sec. 31001(s), 
110 Stat. 1321; Pub. L. 109-351, 120 Stat. 1966; Pub. L. 111-203, 
124 Stat. 1376; Pub. L. 114-74, sec. 701, 129 Stat. 584.


0
4. Revise the heading of subpart M to read as follows:

Subpart M--Procedures Applicable to the Request for and Conduct of 
a Hearing (or the Request for Written Submissions in Lieu of a 
Hearing) After Denial of an Application Under Section 19 of the 
Federal Deposit Insurance Act

0
5. Revise Sec.  308.156 to read as follows:


Sec.  308.156   Scope.

    The rules and procedures set forth in this subpart will apply to an 
application filed under section 19 of the FDI Act, 12 U.S.C. 1829 
(section 19), and 12 CFR part 303, subpart L, by an insured depository 
institution (IDI), depository institution holding company, or an 
individual (any of which could be termed an applicant). Section 19 
states that if an individual has been convicted of any criminal offense 
involving dishonesty, a breach of trust, or money laundering, or who 
has agreed to enter into a pretrial diversion or similar program in 
connection with the prosecution of such offense, the individual must 
seek the prior written consent of the FDIC to: become or continue as an 
institution-affiliated party (IAP) with respect to an IDI; own or 
control directly or indirectly an IDI; or participate directly or 
indirectly in any manner in the conduct of the affairs of an IDI. This 
subpart will apply only after such application has been denied under 12 
CFR part 303, subpart L.

0
6. Revise Sec.  308.157 to read as follows:


Sec.  308.157   Denial of applications.

    If an application is denied under 12 CFR part 303, subpart L, then 
the applicant may request a hearing (or request a written submission in 
lieu of a hearing) under this subpart M. The applicant will have 60 
days after the date of the denial to file a written request with the 
Administrative Officer. In the request, the applicant must state the 
relief desired, the grounds supporting the request for relief, and 
provide any supporting evidence that the applicant believes is 
responsive to the grounds for the denial.

0
7. Amend Sec.  308.158 by revising paragraphs (b) and (d) through (f) 
to read as follows:


Sec.  308.158   Hearings and written submissions in lieu of a hearing.

* * * * *
    (b) Burden of proof. The burden of going forward with a prima facie 
case will be upon the FDIC. The ultimate burden of proof will be upon 
the applicant seeking the FDIC's consent for an individual to become or 
continue as an IAP with respect to an IDI, own or control directly or 
indirectly an IDI, or otherwise participate directly or indirectly in 
any manner in the conduct of the affairs of an IDI.
* * * * *
    (d) Written submissions in lieu of hearing. The applicant may in 
writing waive a hearing and elect to have the matter determined on the 
basis of written submissions.

[[Page 64367]]

    (e) Failure to request or appear at hearing. Failure to request a 
hearing will constitute a waiver of the opportunity for a hearing. 
Failure to appear at a hearing in person or through an authorized 
representative will constitute a waiver of a hearing. If a hearing is 
waived, and if there has not been a written submission in lieu of a 
hearing, the individual will remain prohibited under section 19.
    (f) Decision by Board of Directors or its designee. Within 60 days 
following the Administrative Officer's certification of the record to 
the Board of Directors or its designee, the Board of Directors or its 
designee will notify the applicant whether the individual will remain 
prohibited under section 19. The notification will state the basis for 
any decision of the Board of Directors or its designee that is adverse 
to the applicant.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.

    Dated at Washington, DC, on July 30, 2024.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2024-17327 Filed 8-6-24; 8:45 am]
BILLING CODE 6714-01-P